Pan-European Cash Centralisation for Cash Flow Efficiency

by Vincent Monier, Group Treasurer, Tokheim Group S.A.S.

Tokheim has a group treasury department near Paris and local finance teams for each subsidiary which are responsible for local cash management. Until this year, the company operated two euro cash pools: the first was specific to France, through Société Générale, and the second centralised cash flow across Tokheim subsidiaries in other parts of Europe, with a master account in France. In June 2008, we decided to revisit this arrangement and looked at ways to increase the efficiency of our pan-European cash management with reduced costs, and the electronic banking systems that we used. There were various drivers for doing so:

• Firstly, the financial crisis accentuated the need to integrate counterparty risk considerations into our cash management structures;

• Secondly, we were in the process of an acquisition in Germany, and we wanted to integrate the new subsidiary’s cash flow into a pan-European structure;

• Thirdly, as a company formed through a leveraged buyout, optimising cash flow remains a critical element of the business.

We conducted a small but disciplined tender process, inviting three banks to outline their solutions for our cash centralisation requirements. We outlined exactly what our needs were, and encouraged tender banks to submit pricing, functionality etc. in a standard format so that we were able to compare responses on an equivalent basis.

At the end of September 2008, as a result of this tender process, we selected Société Générale as our pan-European cash management bank. It was not an easy decision to opt for a single bank at a time when the financial crisis was at its most severe. We took care to outline the project in detail, and the advantages and disadvantages of working with a single bank to senior management before appointing a banking partner. We were already familiar with Société Générale as the bank managed our cash pool in France. As well as having the strongest solution for our needs, we were confident in their ability to deliver, and in the quality of our working relationship. The bank’s pricing was competitive, both for managing the pooling structure and day-to-day transaction costs. [[[PAGE]]]

Implementation

We started the project with a kick off meeting in January 2009 involving the team from both Tokheim and Société Générale, and divided it into separate phases. The first phase was to open new accounts for our subsidiaries across Europe. In fact, this was a very rapid process, and completed within a month, so we were able to move into the testing phase. The cash pool structure was in place by end February 2009, including all of our subsidiaries. We then started using the new accounts for operational purposes, gradually building up our volumes over the next two to three months.

We implemented Société Générale’s electronic banking systems, with Sogecash 101 and Sogecash International Reporting ETEBAC 3 in group treasury, and Sogecash Net International and other local tools in our subsidiary finance teams. An important factor in the rapid success of the project was a dedicated implementation project team, involving both Tokheim and Société Générale resources. We were very satisfied with the support we received and the final result.

Benefits

The pan-European cash pooling solution has brought significant benefits to Tokheim. In the past, we had to monitor balances across the two cash pools and transfer cash between the two. Cash is now centralised into a single account, increasing our visibility and access to cash, and enabling positive and negative balances to be netted without the need for manual intervention.

By taking advantage of the  Sogecash product suite, balance and transaction reporting is more efficient, allowing each finance team to perform the necessary functions, whilst allowing group treasury visibility across the pan-European cash position through a single channel, enabling us to be more strategic in our use of cash. Furthermore, by concentrating our activities with a single cash management bank, our overall costs have reduced. [[[PAGE]]]

Overcoming challenges

Although we ultimately achieved a highly efficient cash management structure, there were some challenges that we needed to address as part of the implementation. For example, the scope of our project included the Nordic countries, but as Société Générale does not have a presence in Denmark, we were invited to work with their partner bank. Initially, we could not link our account with this partner bank into our cash pool as it did not want to put in place new credit arrangements due to the financial crisis. So an innovative solution was devised which enabled intra-day sweepings, with other banks, without establishing credit facilities. The same process was also implemented for Ireland.

Future plans

Having put in place a highly efficient centralised pan-European cash management structure, we are now planning to launch the project with Société Générale of migration to SWIFTNet as our bank communication channel during 2010, as ETEBAC will not be supported beyond 2011, and we do not want to be forced to change at the last minute. The use of SWIFTNet could extend beyond our European activities and provide a global connectivity infrastructure. In particular, we have been attracted by the security and standardisation that SWIFTNet offers as it is the network already in use between the banks. We are currently considering the scope of this project.