Published: November 20, 2012
“We prefer subsidiaries to have as much responsibility as possible”
A little more than 35 years after the company was founded by the Persenda family, it became the European leader in household packaging, with around 1,200 employees and a turnover of more than €350m. The products developed and manufactured by Sphere are retailed in large outlets under the name Alfapac or under own-brand – items such as bin bags, cling film, baking parchment, bags for sorting recycling, biodegradable bags, bags for public dustbins, sold to local authorities, to public service corporations and even to the health sector. The company, which originally focused on trade, expanded first into manufacturing, then, during a second phase involving numerous acquisitions, went on to expand geographically, notably to Germany, the Netherlands, the United Kingdom, Italy and Spain.
The group is composed of about 15 active companies, both industrial and commercial, half of which are based in France.
A new era began for the company in 2005, an era of bioplastics, with the acquisition of the Germany company Biotec, followed by our involvement in a starch production operation together with a farming co-operative; this is to ensure the future development of bioplastics through innovation using natural products –made from cane sugar or potatoes – with an emphasis on the fact that they are biodegradable, compostable or have low carbon footprint. The group is composed of about 15 active companies, both industrial and commercial, half of which are based in France.
The majority of capital belongs to the original family shareholder who wished to gradually offer shares in the company: this was the case in 2003, when Barclays Private Equity joined the investor round at the time of a capital increase, along with a system of drawdown on the current account overdraft at the holding company and an equity warrant issue. Barclays ceded its place to another private investor in 2010, without any significant modification to the capital structure. I must add that 50 or so executives are partners in the company.
Economically speaking, the arrival of Barclays Private Equity [which has since become Equistone Partners] resulted in a provision of funds which meant we could boost external growth. The event was preceded by some groundwork, notably improving and standardising the reports and financial follow-ups of our subsidiaries, a task which was then continued in greater depth. Barclays’ departure and their replacement by another investor was a very specific task: writing up a vendor due diligence report, generating several exit scenarios, and refinancing the overdraft, which was done thanks to a club deal with three banks, the margins of which are dependent on the debt ratio. Since 2006 we have had the objective of bringing our practices and financial information into line with other listed companies and with IFRS standards; this condition is part of the group’s good practice principles today.
The group has about 40 people with finance roles, a dozen of whom are based at our headquarters, whose work covers financing, accounting and the treasury, consolidation and central management control.
The group is proud of its origins and tries to preserve the values of a dynamic smaller business: despite its ever-increasing size, it considers itself a family of smaller businesses. We much prefer subsidiaries to have as much responsibility as possible, while looking after financial control and putting synergies in place. These subsidiaries have financial teams whose size depends on their activity; but, while it is important that they have substantial financial and operational independence and manage their own working capital requirements and banking relations, they must stick to strict and systematic reporting procedures.[[[PAGE]]]
Before answering the question I will say that we have considered on many occasions putting in place a more centralised system of financing – for example in the form of a syndicated credit – but our studies have shown that doing that would cost us 100 more basis points than our current system. In addition, with a centralised bank credit, we might find ourselves facing excessive operational restrictions, or even the sensitive issue of a large bullet repayment. Anyway, the banks that work with our subsidiaries abroad know very well what they are working with, which is very useful. Of course, in this field, decisions are made in consultation with me, keeping within a clearly-defined framework: comparative margins and effective rates, no type of financial ratio such as covenants, no guarantees from the parent company unless the exception can be justified– and lastly, the documentation is standardised.
There is indeed less cash centralisation: it involves three of our French companies and is carried out manually. However, we have put a cash management agreement into place with our subsidiaries, which allows us to carry out temporary cash flow adjustments. Generally speaking, we concluded that a general cash pool was not the best solution. We realised another major disadvantage of that sort of system: subsidiaries are less responsible for cash management and so, even if they reported back regularly, it would delay warnings and therefore also delay corrective action.
As with financing, decisions are a result of discussion with our subsidiaries, within a general framework which favours simplicity and vanilla instruments. That means that for interest rate management we use swaps, and for foreign currency exchange we use cash and forward purchases and sales. Where foreign exchange is concerned, I am in favour of the development of more automated marketplaces, including for smaller amounts. For a company like ours, that would guarantee more transparency with pricing and margins, and would also allow us to save time by improving operational control.
In my opinion, my role consists of three parts. The first is playing the role of business partner with the general management team, especially in development and acquisitions. It is an exciting and rewarding strategic role, but it is also very time-consuming, completing external expansion projects and then integrating them. The second part of my job is watching carefully and closely over both our assets and the company’s financial performance: maintaining liquidity, recognising and managing risks, producing a reliable and relevant financial record… The last part is about the improvement of our practices: reducing delays in reporting, setting new objectives in the management of working capital requirement, and improving the quality of the treasury’s forecasts. What’s more, the group is currently using a unique new ERP. This is a very large project, which has been put in place in our Parisian firms but is going to be extended to all our subsidiaries.
I left Great Britain at the age of 21, after studying PPE at Oxford, to attend HEC. I then worked in banking for 15 years, firstly at Citibank in Paris, notably in the interbank market, then I moved to Lazard, working at first in the capital markets department and then in other fields. In 1999 I ventured into industry, as the financial director of Sphere, which, at that time, had a turnover of €100m.
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