- Laurent Guillouet
- Head of Back Office and Cash Management, ArcelorMittal
by Laurent Guillouet, Head of Back Office and Cash Management, ArcelorMittal
Leading steel and mining company, ArcelorMittal, which has a market presence in more than 60 countries globally, has a culture of quality and innovation that extends across the business, including its treasury and finance processes. As a result, ArcelorMittal was as an early adopter of SWIFT, and is now working with partner banks to take the next steps in achieving harmonised, streamlined, automated financial processing. In this article, Laurent Guillouet, Head of Back Office and Cash Management, discusses treasury’s experiences so far and expectations for the future, in collaboration with Jérôme Cavaliero, Head of Cash Management France, UniCredit.
Treasury organisation
Our treasury function is organised on two levels: firstly, treasury departments within each business unit, and secondly, our group treasury division. Business unit finance and treasury teams manage day-to-day cash management activities, and connect to treasury for financing, investment, market risk hedging (e.g., FX, commodities etc.) and cash pooling.
At group treasury, we manage all centralised treasury activities, such as global financing, liquidity and risk management. We connect to our business unit treasuries through a sophisticated intranet-based solution that allows them to request or offer cash, which are then managed automatically through our treasury management system (TMS).
Banking relationships
We have a panel of partner banks with whom we work wherever possible. As ArcelorMittal has operations in over 60 countries, however, we also need to work with local banks in many cases, either for regulatory reasons and/or where our partner banks do not provide the depth of in-country solutions, local presence or expertise that we require. With a large number of banking partners, and therefore bank accounts globally, we made the decision to centralise liquidity directly, rather than outsourcing this to a bank through an automated cash pool solution. By doing so, we are able to pool cash across multiple banks, and be more precise in meeting our group liquidity requirements. In addition, we are able to respond more quickly to changes in organisation or bank account structures.
Another implication of working with a large number of banking partners was the difficulty of managing bank connectivity in a consistent and efficient way. We had a large number of banking systems in place, with different systems for each bank, and in some cases for each country, with these systems managed both by group treasury and business units. Each of these systems needed to be maintained individually, with different security and user requirements, formats and integration requirements. The exception was in France and Belgium where we used single domestic systems for all banks, which led us to seek a multi-bank solution that could be rolled out globally.
The decision for SWIFT
In France, ETEBAC was not designed as a global system (and has since been discontinued) so we needed to explore other potential options. SWIFT was an obvious contender, even though we would be a very early adopter, and one of the first corporations. In particular, no other solution offered the global multi-bank coverage, security and scalability that we required. Our objective was to create a single connectivity channel between ArcelorMittal and our banks, including messages originating from group treasury or our business units. As a corporation that is committed to maintaining our best-in-class position and contribute to constant improvement across the financial community, we were keen to leverage the opportunities that SWIFT presented.
Making the connection
we have decided so far that we will continue to manage SWIFT infrastructure in-house
In 1997, when we first connected to SWIFT, service bureaus did not exist, so we had no option other than to connect directly, and therefore maintain the SWIFT infrastructure in-house. Since then, there have been significant developments in the ease and convenience with which corporations can access SWIFT services, including outsourcing connectivity to a service bureau. Outsourced connectivity offers some advantages, including lower costs and access to specialist expertise, but although we have reviewed our connectivity mechanism regularly, we have decided so far that we will continue to manage SWIFT infrastructure in-house.
In addition to different ways of connecting to SWIFT, banks also have different mechanisms for supporting customers in different countries. In some cases, banks enable customers to send financial messages and files through a single hub, and the bank then sends instructions to the relevant subsidiary. In other cases, the corporation needs to send instructions directly to the relevant bank subsidiary. A few banks, such as UniCredit, offer their customers the choice of either approach. From our perspective, so long as processing efficiency is maintained and we receive a comparable level of service, we have no particular preference; however, there can be contractual complications if communicating at a subsidiary level, so in general it is easier for us to use a single connection to each bank.[[[PAGE]]]
Over the years, we have connected to each of our partner banks via SWIFT, and at the same time, connected each of our business units in turn into our central TMS infrastructure to allow them to leverage the SWIFT connection. The only exceptions, therefore, are business units that are not yet connected to our TMS, but we have a rollout programme in place. We use SWIFT to exchange a wide variety of messages with our banks, from treasury transactions such as FX confirmations through to centralised, high-value payments and account statement reporting.
Harnessing standardised formats
Implementing SWIFT has been a major step forward in resolving our connectivity challenges, and we have been successful in achieving a secure, robust and scalable channel for multi-bank communication. While SWIFT offers considerable opportunity for corporations to connect more efficiently with their banks, we are now looking for our banks to support our harmonisation and efficiency objectives more proactively. For example, at present, we have different cut-off times for each of our banks, so while we have a single communication channel, our processes are often different. It would therefore be very helpful to have very clear, standard cut-off times to allow us to define our processes more precisely and cohesively.
Similarly, we are seeking greater standardisation and better quality of formats supported by, and provided by each bank. This is essential for multinational, multi-banked corporations like ArcelorMittal to enable us to streamline and simplify processes, and build business rules for automated processes such as reconciliation. While the widespread use of XML-based ISO 20022 is an excellent theory, for example, and we are using it at ArcelorMittal, its value is limited unless it is used in a consistent way by all of our banks. This includes ensuring that all data is presented in a structured format, as without this, we are unable to use it to build automated processes.
Finally, data needs to be of a quality that is at least comparable with existing formats. This is not yet the case, and in fact, we are still receiving better quality data through legacy formats, even though these are different across banks and across countries in many cases. Linked to this, we are currently experiencing difficulties with intra-day statements in that some banks do not include a unique key on each account entry, which makes it impossible to use these statements for reconciliation as our automated processes reconcile statements incrementally. However, if this functionality was offered as a standard process by every bank, it would make an enormous difference to both our process efficiency and liquidity management.
Collaboration and partnerships
For corporations such as ArcelorMittal, simplicity, security and reliability of information are essential to achieving our financial processing objectives. Leveraging SWIFT is a major step forward, but a single communication channel alone is not enough. Banks need to focus on creating a more cohesive experience for their corporate customers by being more consistent and transparent in their use of formats, and provide richer data in a way that is meaningful and valuable. To encourage and facilitate this, we are working proactively with our partner banks such as UniCredit to allow us to leverage our investment in SWIFT more fully, and automate and streamline processes as seamlessly as possible.
