Cash & Liquidity Management

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Optimising Cash and Liquidity Management in Europe In order to cope with its substantial growth, Linamar’s Group Treasury is taking a three-tiered approach to enhancing visibility and control over cash, maximising liquidity and optimising investment decision.

­­Optimising Cash and Liquidity Management in Europe

by Terry Haynes, Director of Treasury, Linamar Corporation

Canadian-headquartered component manufacturer Linamar has grown substantially in recent years, extending its business operations from North America into Europe and Asia. Linamar has a publicly stated objective to become a $10bn company through double digit annual sales growth by continuing to build on its significant growth over recent years. This expansion has led to greater complexity in its cash and treasury management operations. Consequently Linamar’s Group Treasury, based in Canada, is taking a three-tiered approach to enhancing visibility and control over cash, maximising liquidity and optimising investment decision.

Treasury organisation

Although Linamar is not a large corporation compared with many of those featured in the treasury media, the complexity of our cash, treasury and risk management requirements is comparable. Furthermore, smaller organisations are often challenged even further in that they lack the access to resources and technology that larger corporations may enjoy.

Treasury management at Linamar is conducted at a group level, based at our Canadian headquarters. Most of our corporate focus has traditionally been in North America, with 30 of our 40 manufacturing plants located in US, Canada and Mexico. In addition, however, we now have substantial and growing operations in Europe (including France, Germany and Hungary) and in China. In the latter case, local finance managers manage the associated treasury management implications, such as bank account management. In Europe, the scale of our cash management requirements has now reached the stage that we needed to centralise and optimise our liquidity.

We have a three-tiered approach to our cash and liquidity management:

The first step is to ensure that our transaction banking is as efficient as possible, ideally through a single banking partner in each region. The aim of this is to improve visibility over cash through a single platform, leverage economies of scale and reduce fees.

The second step is to optimise liquidity by centralising cash, whilst taking into account the tax and legal implications in each country.

The final step, having centralised funds, is to align our investment strategy with our corporate objectives, namely to preserve principal and ensure access to liquidity so that we can leverage funds across the group.

Figure 1

Addressing transaction banking and liquidity in Europe

In Europe, we had a fragmented approach to transaction banking and liquidity management, with multiple banking relationships. This made it difficult to achieve visibility over funds or mobilise cash effectively, and resulted in higher costs. We therefore made the decision to address the first two steps of our liquidity management approach concurrently by appointing a pan-European transaction banking partner with whom we would set up a cash pool. We had a variety of aims:

Firstly, we wanted to make better use of our cash in Europe, leveraging positive cash balances in better-established businesses to fund newer operations. Secondly, we sought to establish a cash management framework into which new entities, such as acquired businesses, could easily be integrated in the future. Thirdly, we aimed to repatriate surplus cash more easily to reduce the need for borrowing at a group level. Finally, by achieving greater economies of scale with one cash management bank, we would be able to both enhance visibility and control over cash whilst reducing our transaction costs.

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