Interview – François Huchet

Director of Finance and Management Control, Razel

“Acting on the levers more than the causes”

Le Lettre du Trésorier

What does Razel do and how big is the company?

François Huchet

Razel is a construction business operating in France and Africa with a turnover of €405m in 2010. We employ 3,900 people, almost two-thirds of whom are overseas, and are now part of Group Fayat, which had a turnover of €2.7bn last year 2010] in construction and industrial activities such as road construction materials. Razel is involved in several areas of construction – civil engineering, roads, tunnels, earthworks, dams, highway maintenance, quarries, green spaces – and is divided into two types of activity – big projects, and our agencies’ and subsidiaries’ activity. Each year, we manage around 300 sites of all sizes each of which can reach €200m. On one hand, these present very different characteristics; on the other, they are all subject to considerable unknown quantities with heavy exposure to varied risks, particularly climatic and geologic. This varied and risky activity naturally has significant impact on the management of the treasury and financial risks.

What sort of impacts are you thinking about?

On the subject of risk management, finance managers need to continually deal with the unexpected. Take foreign currency risk, for example: the unknown quantities of a project permanently overturn cash-flow forecasts, a phenomenon that the treasurer needs to incorporate into his hedging by adapting the tools and/or the hedging strategy. In the case of road building, which requires the purchase of bitumen in dollars, there is a double risk: exchange and raw material. There again, the treasurer needs to adapt by researching the flexibility of their hedging. Options offer big advantages, but with a relatively high cost. That is the reason why we don’t use them. For the financial management, hedging of a risk at such a level of unknown quantities needs to take the form of an efficient and regular treasury budget system. The treasury service centralises budgets and updates them every month.

Is every construction site managed directly by entities of your company?

No. For a certain number of them, when it involves heavy or risky projects, or necessitates a technological pooling of resources, we create an ad-hoc structure with our partner businesses which can take diverse legal forms: economic interest groups, partner organisation, joint-venture companies, etc. These organisations use their own bank accounts which are unconsolidated but monitored by the central service. That is one of the major specificities of treasury management in our sector: on one hand, the central service needs to manage numerous accounts – around 600; in addition, it needs to communicate daily with the managers of the project companies in order to integrate ‘retroactive value’ transactions which are going to take place between project companies and consolidated entities. This exercise requires a reactive central service and a high-performance communications system. Finally, the multiplicity of project companies necessitates particular procedures to secure cash flow.[[[PAGE]]]

How is your company’s financial management organised?

Finance and control management is linked to general management. It is subdivided into two departments: the central treasury department, consisting of three people, and the control department consisting of two people; the two departments are in contact with about 30 operational management controllers in France and in Africa. Accounting, consolidation and taxation are the responsibility of a separate accounting and fiscal department, which is also linked to general management.

How long have you had this position? What was your training?

I have been the director of finance and control since 2008, after having been in charge of treasury and finance for five years, during which period I was able to learn a new trade. I had previously held different operational management control positions in France and Africa. I went to business school and have a diploma in accounting and finance studies, DECF, which I have just completed with a Master’s in business finance at Essec.

What other ways are there to minimise the risks linked to construction?

In addition to the tools and cover strategies that we talked about earlier, the finance directors can also count on the diversity of the portfolio of construction sites, which allows us to balance the risks, to some degree.. When it comes to the risk of financing of operations, there is also an alternative which consists of having recourse to partnership contracts, like public-private partnerships or PPPs; this is a contract through which a public entity entrusts the conception, construction, maintenance and financing of an infrastructure to a so-called project company. In this framework, all the risks are examined and valued at the time of the first contractual phase, which we call competitive dialogue, unlike a standard contract like the ones we know today where many risks are managed as the project progresses. I have been lucky to be involved in the set-up of these operations and I must say that it is fascinating in more ways than one: firstly because the financial manager starts organising his financial policy before the project begins, acting on the levers instead of the causes, and also because he is directly involved in the company’s earnings by optimising the financing of the operation.

Who finances this type of long-term project?

It’s a matter of long-term contracts. The duration can range from 15 to 30 years. Again, an ad-hoc business is set up thanks to investors and lenders. The lenders are French or foreign banks which have dedicated structures for this sort of financing. The investors are either the constructors themselves or investment funds specialising in infrastructure, or banks.