Published: December 01, 2008
La Lettre du Trésorier
Dominique Fraisse
Indeed. After I completed my postgraduate studies in banking and finance in Lyons in 1987, I worked at Banque Veuve Morin Pons for four years, at Crédit Agricole in Grenoble for three years and at a financial holding company, ABCIA, which specialises in acquiring companies in difficulty, where I was responsible for setting up the treasury management function and was also involved in refinancing the acquisitions. I joined Limagrain in July 1998. The treasury team currently has three members of staff.
DF: Limagrain’s specific feature is primarily that it is a federation of SMEs and consolidates, under the aegis of the Limagrain cooperative, which has around 600 members in over 100 companies. The seeds and gardening products business within Vilmorin accounts for approximately 82% of the total revenues, which amount to €1,136.5 million, cereal ingredients (semolina and flours) and bread-making make up the remaining 18%. The group operates in 36 countries with a workforce of 6,000 people, including more than 1,200 people who are involved in research, and only one-third of the revenues are generated in France.
DF: In organisational terms, we have a dual structure. Firstly there is Vilmorin & Cie which is listed on the Paris stock exchange. Since July 2006 the company has combined the large-scale farming - maize and cereals etc. - and the vegetable seeds activities and is financially autonomous. In order to ensure that it operates smoothly we have set up a syndicated credit facility. At Vilmorin & Cie a cash pooling system provides a centralisation and daily balancing out process between the subsidiaries, although they are still responsible for managing their operating cash flows.
The second organisational level relates to the Limagrain Holding Group, a key shareholder of Vilmorin & Cie which encompasses the parent company as well as the ingredients and bread-making activities. Here again, we have a cash pooling system but exclusively for activities which are not part of the Vilmorin structure.
We have not yet introduced a cash management system to centralise collections and payments but will probably do so in three to four years’ time. In view of the dispersion of the various operational units, we preferred to keep the management of client relations local in order to handle the constraints arising from the seasonal nature of our activities in the best manner.
DF: We prefer to adopt a real partnership approach with our banks based on the long term and on the support of the group strategy. In order to set up the syndicated credit facility of €300 million for Vilmorin & Cie, we assembled a group of 13 banks - only five of which are French - to support us in the form of a club deal. Of these banks, BNP Paribas, Société Générale, Natixis, Crédit Agricole and Rabobank also feature not just in the seeds sector but also in the ingredients and bread-making sectors and therefore share Limagrain’s global vision. We completed our facilities by adding foreign banks specialising in specific geographical areas. For example, in Spain and in South America, we work with BBVA, and in the United Kingdom and the Commonwealth we use HSBC while in Germany and the Eastern European countries we chose Commerzbank and KBC, in northern Europe, Fortis etc. On international markets we are supported by the networks of our partners such as Calyon, BNP, Société Générale, HSBC etc. [[[PAGE]]]
DF: Yes, we always have two levels of intervention in terms of finance. Firstly, long-term finance in terms of syndication and secondly medium-term finance for the Limagrain Holding Group with five of our bankers. For example, Jacquet has announced the introduction of new production units in Auvergne. This entails the construction of one factory and setting up two manufacturing lines. This represents an investment of around €40 million. We refinanced this investment in the form of financial leasing.
DF: The revenue mainly comes from subsidiaries and companies based in foreign countries. So we do not therefore have enormous import/export flows to manage in foreign currencies. The problem lies more with the convertibility of the accounts of the foreign companies and exposure through intra-group transactions. At group level we have introduced a system for sharing foreign exchange risks whereby Vilmorin & Cie plays the role of the internal banker for all the subsidiaries through internal foreign exchange contracts signed with the subsidiaries. We guarantee a single accounting rate at the start of the financial year for the whole of the financial year and we have set up a monthly clearing system. The companies balance out their foreign currency position every month with Vilmorin & Cie at a rate which is known in advance. This configuration works for the dollar, the pound sterling, the Australian dollar, the Swiss franc, the yen, the rand and the New Zealand dollar. In all these currencies, we manage a net exposure of slightly more than $20 million and £40 million. Although the configuration is highly flexible for the companies, the management process is complex. This is why we are assisted by Forex finance in order to construct hedging strategies and to value portfolio positions.
As a result of the group’s recent developments, we have started to include currencies from Eastern European and Asian countries in our exposure.
DF: Our debt levels arise both from the seasonal natural of our activities - we follow the agricultural cycles in the seed sector - and the scale of our external growth in recent years. In order to guarantee liquidity constantly within the group, apart from introducing medium-term bank finance, we added to our resources by a private placement of bonds redeemable in shares and also opened up the share capital of some companies to financial partners specialising in our activities. In addition, we also have the option of using the leverage of the stock market through Vilmorin & Cie.
We try to ensure that none of our 13 banking partners accounts for more than 20% of the group’s finance. Although most of our resources are raised in France, we also have some finance in place in other countries. Following the application of IFRS, we were required to modify our hedging strategies. In order to reflect the accounting impact of the restatements under IAS 39, we gave preference to products eligible for hedge accounting, and we measure the fair value market gap of non-eligible contracts through a monthly valuation. We currently manage over €300 million in hedging business.
La Lettre du Trésorier
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