Published: April 01, 2012
Effective liquidity management is an ambition for every treasurer globally. During the 5th Cash Management University, hosted by BNP Paribas, workshop participants discussed some of the ways that they had optimised liquidity management, with both a regional and global view. The panel comprised the following:
Tom Cools, PricewaterhouseCoopers provided some interesting statistics on trends amongst corporate treasuries globally (figure 1). These were derived from a survey that PricewaterhouseCoopers had conducted during 2011, including 583 respondents. He illustrated that while funding was the primary concern for treasurers (73%), 60% of treasurers indicated that cash and liquidity management were priorities. Just over 30% of respondents also indicated that treasury technology and automation was a key issue.
PricewaterhouseCoopers’ research, and the experiences of both BNP Paribas and corporate participants, emphasised that it can be very challenging to establish cohesive liquidity structures due to the significant differences that exist between regions. With no single bank covering every country, a co-ordinated approach is required, with strong regional banks that may also work with key partner banks. There are also differences that need to be considered from a regulatory perspective. For example, both notional and physical (zero balancing) cash pools are achievable in Europe, with a choice of locations for the header account, although there are some countries that may not be included. In North America, notional pooling opportunities are far more limited. In Asia Pacific, while both notional and physical cash pooling are frequently employed, the countries that can be included are limited.[[[PAGE]]]
Niels van Popta, Heineken outlined the approach Heineken has taken to optimising liquidity. As a business with a truly global footprint, and a strong presence and profile in every country in which it operates, Heineken used to have a largely decentralised approach to cash management. Daily treasury activities are delegated to the local operating companies that have relationships with several local banks. Financing, both short-term and long-term is typically arranged centrally by Global Treasury.
In 2006, in an effort to centralise visibility and control of cash, offset debit and credit balances, and manage risk more effectively, a global notional cash pool was set up with Heineken’s global cash management bank, BNP Paribas. This has grown over the years and now comprises 85 legal entities across 28 countries, in 18 currencies. This equates to approximately 75% of Heineken’s total revenues.
Niels concluded by explaining that during 2012, treasury will be reviewing the total number of bank accounts and electronic banking platforms that it maintains. In addition, Heineken is planning to automate the sweep from local bank accounts into its main accounts with BNP Paribas.
The audience then heard from Sirkku Markalu of KONE Corporation, a global leader in the elevator and escalator industry with a $5bn annual turnover, headquartered in Finland. With a presence in more than 50 countries in every region, an efficient, global approach to cash and liquidity management is key. KONE identified three key focus areas from a liquidity management standpoint: North America, Europe and China. Some of treasury’s key objectives included:
The first element on which KONE has focused is to establish a EUR cash pool. EUR is the biggest single currency within the group, accounting for a little less than 45% of group sales, so it made sense that this was the first priority. KONE selected BNP Paribas as its primary bank for European liquidity management, as part of a global relationship. KONE opted for a physical cash concentration, rather than notional cash pool. The header account, located in Amsterdam, is managed by treasury, and local accounts in 12 countries zero balance into this account on a daily basis (figure 2). Using BNP Paribas’ Connexis, KONE has real-time visibility over both local and header accounts.[[[PAGE]]]
Following the case studies, the audience engaged the panel in an interesting discussion about the feasibility of global as opposed to regional cash pools, and where best to locate the header accounts. Overall, the panel concluded that there are a number of different factors that would influence this decision. Some of these are external, such as the tax conditions in each country, and the currencies to be included in the pool(s), but others are internal issues including the treasury organisation (e.g., global or regional treasury centres) and its ability to take maximum advantage of currency cut-off times within different time zones. The demand for a global approach to liquidity management adds an extra dimension to the way that treasurers evaluate banks’ cash management services. Not only does a bank need to provide the depth of capability to support customers’ regional requirements, but they also need the cohesion of services and technology to create real-time visibility and continuous processing to support integrated, global cash pooling capabilities.
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