The Next Treasury Chapter at HeidelbergCement

In 2014, David Flory, Head of Group Cash Management at HeidelbergCement, discussed the evolution of the company’s cash pooling strategy. This is a particularly complex undertaking as cement, aggregates and ready-mixed concrete production take place within close proximity to customers, leading to diverse payment and collection requirements across a wide diversity of often remote locations within each country. It can therefore be difficult to rationalise bank relationships, so treasury efficiency, standardisation and centralisation are essential. In this article, we are delighted to welcome David Flory back to TMI who discusses how treasury’s priorities have evolved.

Scale, complexity and resourcing

Our business has experienced significant change since 2014, as figure 1 illustrates, with an increase of one third in the number of HeidelbergCement Group employees and 35% increase in Group revenue. However, despite greater scale and complexity in our operations, our treasury staffing has grown only fractionally from 14 to 15 treasury professionals. Consequently, in an environment of both large and small acquisitions and disposals, and an increasingly challenging external environment, maximising efficiency, standardising processes and controls and optimising information flows for decision-making has never been so important. Treasury centralisation is crucial to this, so despite the decentralised nature of our industry, we aim to centralise our cash, treasury and risk management activities as far as possible.

Cash and liquidity optimisation

In our 2014 article, we discussed the evolution of our cash pooling strategy, which we have continued to develop. Since then, we have introduced cash pools in Poland, Romania, Netherlands, Iceland and Malaysia, and put in place a regional cash pool for Scandinavia. Current projects are France and Italy. In some cases, such as the Netherlands, Romania and Malaysia, we have had to respond to bank exits from these markets, so we used the opportunity of appointing new banks to enhance our cash and liquidity management. In Scandinavia, we already had individual cash pools in each country, but at the request of our shared service centre, that manages payments and collections for these markets, we rationalised this structure to become more efficient. We will continue to review and revise our cash pooling strategy as our business continues to expand, prioritising countries according to the scale of our activities and the degree of opportunity in the relevant market.

Although we have maintained the same treasury management system (TMS), we have continued to make use of additional functionality to reflect changes in our own business and the wider market environment. We have also continued to expand our use of SWIFT across a larger number of banks, and rolled out our system to an expanded group of users. Previously, when we received treasury reporting from subsidiaries, it was already outdated, but we now receive daily or intra-day account information via SWIFT. In situations where the relevant bank does not support SWIFT, remote users can access our TMS online and update bank balance information daily or weekly. We therefore have a far more accurate, centralised liquidity position, allowing us to make better decisions.

Fig 1 - Group changes 2014-2017

Managing strategic change

While managing the impact of M&A has been an ongoing challenge for treasury over many years, HeidelbergCement’s acquisition of Italcementi in 2016 represented a step change in the size and complexity of the integration project. Before the acquisition, Italcementi had a finance entity based in Paris with a team of 25 people and two TMS integrated with the ERP and SWIFT. Migration and integration combined both technical and financial tasks and challenges, in that we had to migrate and reconcile Italcementi’s data and transactions into our environment, but the human resource implications were just as significant. From a financial perspective, Italcementi had a variety of financing activities, including both capital market issuance and bank facilities, together with intercompany financing and the full range of ‘traditional’ treasury activities including risk hedging, which all needed to be migrated to HeidelbergCement. From a ‘people perspective’, while it was essential to leverage both teams’ specialist knowledge and deep understanding of their respective businesses to make the integration a success, it was important to recognise the uncertainties around people’s future roles. When people start a career in treasury, they focus on financial and technical skills, but actually, people management skills become the more important as you progress into more senior roles.

Although we had taken a great deal of time and care in the preparation, the integration of the two treasury functions was further complicated by the ‘two-step’ acquisition. HeidelbergCement acquired 45% of Italcementi in July 2016, and acquired the remaining shares at the end of the year following a mandatory tender offer at the Italian stock exchange with subsequent delisting and squeeze-out procedures. As we had to integrate Italcementi’s treasury business by year end, we ended up with very little time to complete the process. Although we have completed the major tasks, fully integrating and optimising treasury, combining both HeidelbergCement’s and Italcementi’s business remains an ongoing process. For example, our TMS stored and reported data in different ways, and the two businesses had distinct treasury policies, processes and controls, which we needed to understand fully before seeking to incorporate Italcementi’s treasury activities into our own.

Identifying priorities in changing times

Looking ahead, we will continue to adapt to evolving business, market and regulatory conditions. With well over 300 banks and more than 2,500 bank accounts in 3,000 locations across 60 countries, meeting stringent know your customer (KYC) and compliance requirements is particularly challenging for HeidelbergCement. We are therefore continuing to work with banks to streamline KYC processes wherever possible, and refine the way that we monitor and comply with international sanctions requirements without compromising on efficiency. Fraud and cybersecurity has become more important in recent years, and international tax changes also have an impact on treasury. For example, while a simple and standardised approach for cash pool intercompany pricing was accepted in the past, regulatory changes force us to continuously adjust our pricing policy to comply with international standards.

There may be potential for new technologies to help overcome some of the new and emerging challenges facing our treasury, and our banking panel is proactive in introducing new ideas and solutions. However, just as our core business is relatively simple conceptually, we also try to keep our treasury as straightforward as possible. For now, given the de-central structure of our business, we first need to make sure that changes in technology are rolled out in all our country organisations, as a basis for further innovation and added value to our business.