Company insight > Treasury & cash management

Finance Director Europe | www.the-financedirector.com46

O ver the past five years, the importance of managing risk and improving financial efficiency has become more apparent than ever before.

With uncertainty around Europe’s common currency and volatility across global stock markets, corporates have had to rethink the way their cash is managed.

“Any system that is driven by the aim of optimising a position, in this case treasury and liquidity, is a system that works well in good times but even better in times of difficulty,” says Davide Raviola, European chief financial officer at Golder Associates. “The more you have in the market in terms of interest and currency exchange rates, the more systems like this are seen as beneficial by corporations. The financial crisis has pushed companies into understanding, analysing and using these tools.”

Things have improved considerably since 2010−11, but taking a real-time view of a company’s cash position remains fundamental; it also remains problematic. In many large corporations, the treasury function is extremely fragmented; subsidiaries have their own different domains with cash sitting unused and the cost of interest piling up.

Innovative pooling structureUniCredit, a leading European commercial bank, has developed a pan-European notional pooling structure that

can manage liquidity using a centralised system. The product was introduced after a stream of requests from UniCredit customers.

“There was a certain moment when we realised that almost 50% of requests for proposals included questions about the capability of UniCredit to provide cross-currency notional solutions,” says Sergio Dalla Riva, global head of cash management projects and support at UniCredit. “We developed the concept and designed the technical part, and started the implementation after we found a pilot. Now, we’re ready to propose these solutions to all international clients that want a centralised, multicurrency treasury centre.”

With so many different cash pooling solutions on the market, creating a product with competitive advantages was never going to be easy.

“Our advantage was not being the first mover,” says Dalla Riva. “After looking at what the customers were asking for, we realised that under the name cross-currency notional pooling, there are actually several options that banks were offering. We tried to find a solution that could optimise the most relevant issues that customers usually find when deciding to use cross-currency notional pooling – things like inter-company tax and legal issues – while also providing a good environment in terms of the business and legal framework.”

After deciding to optimise its cash management strategy, Golder Associates appointed UniCredit as its cash pooling partner. FDE finds out about the project from Davide Raviola (centre) of Golder Associates in Europe, UniCredit SpA’s Sergio Dalla Riva (near right) and Thomas Kunz of UniCredit Bank AG.

Pooled resources

Golder Associates have over 8,000 employees in 180 offices around the world providing design, consultancy and construction services in a number of markets.

Company insight > Treasury & cash management

Finance Director Europe | www.the-financedirector.com 47

Further informationUniCredit Bank AGwww.gtb.unicredit.euthomas.kunz@unicredit.de

One of the first firms to utilise this solution was Golder Associates, an employee-owned company that operates across six different business areas. Over the years, Golder amalgamated with more and more companies under the same umbrella. Many of these group businesses had local funding and cash management structures that hindered the treasury’s ability to see and control the wider cash position.

Things began to change once Golder’s clients asked for a more uniformed service delivery and point of contact. A more centralised approach to cash management was included as part of a broader shift within the company. For the treasury, much of this move had already been achieved before migrating to UniCredit, although the simplicity of the bank’s framework was an extremely attractive proposition.

“We tried to create a way of reducing our number of bank partners,” says Raviola. “In Europe we came across UniCredit because of a good past relationship we had in Italy. We are not a public company, so we aren’t interested in the next quarter’s earning announcement. We think long term to build value for our shareholders and that’s why we wanted a reliable partner like UniCredit.”

Golder Associates Europe was awarded second place in the cash forecasting project category in the 2013 Global Corporate Treasury Awards organised by the Association for Financial Professionals. Its entry chronicled Golder’s pan-European multicurrency liquidity centralisation programme that was completed in April 2013.

Golder was recognised for its efficient cross-border cash-concentration structure, which involved accounts in 14 jurisdictions, nine banks and eight currencies in Europe, and provided the foundation for an efficient payment factory. A strong banking partnership was noted as one of the key reasons for its success in achieving centralised multicurrency treasury and cash management.

Centralising the treasury function Golder had a number of objectives going into the project with UniCredit. As CFO, Raviola was asked to optimise short-term financing and investing across Europe by centralising as much of the treasury function as possible. This meant various things in reality, including sweeping the liquidity position on non-euro subsidiaries, leveraging euro credit lines, taking central control of non-euro liquidity positions, designing bank accounts consistent with the future payment factory and minimising corporate guarantees.

“The UniCredit solution allows us to notionally take advantage of a basket of different currencies and balances, both positive and negative,” Raviola says. “It gives us flexibilities when we’re using all the currencies available in Europe. We were really thinking about a product to replace one we used in the past. We wanted something that allowed us to reduce interest cost on one side and, for the operations we have in Europe, maintain a good degree of flexibility in their use of bank balances.

“We were looking for an instrument that could offer us flexibility in terms of liquidity, short-term investment and our hedging positions in different currencies. These were our main goals.”

The project was a major challenge for UniCredit, and Thomas Kunz, head of cash pooling product development at UniCredit Bank AG, is positive about its success.

“In Munich, we have opened a range of current accounts in euros and several different currencies,” he says. “Every day these accounts in Germany have movements. There is a zero-balance cash pooling market mechanism in place that sweeps the liquidity position of the subsidiaries and transfers that position to the accounts structure in Munich. The balance of all these accounts in UniCredit Bank AG is then notionally converted into euros, so that we have different currencies but one liquidity position defined in euros.

“From our point of view, what we have created is the combination of a cross-border cash pooling and notional cash pooling. All these features allowed Golder to achieve better results.”

Building business relationshipsOn top of new business and the success of the Golder project, UniCredit’s new cash consolidation product offered a number of benefits for the bank itself. Instead of a situation where services for several currencies in different countries are delivered without a pooling structure, the bank can utilise a cash-concentration solution to truly optimise its credit lines.

“This means the risk-weighted assets of the bank are optimised and we have reduced capital absorption on the bank’s side,” Kunz says. “In addition, by having a better knowledge of the customer and a wider range of transactional products that are considered risk-free on the bank’s side, we’re in a much better position to provide something that on one hand serves better the customer and widens our business relationship, and on the other hand optimises our own capital structure. In times of the financial crisis, this is a great way to serve customers.”

We realised that almost 50% of requests for proposals included questions about the capability of UniCredit to provide cross-currency notional solutions.