Cash & Liquidity Management

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Fast Track to Liquidity Optimisation Albemarle's liquidity project has been a flagship project for the group and the wider industry on how to achieve a rapid result in optimising liquidity in a pragmatic and cost-effective way.

Fast Track to Liquidity Optimisation

Fast Track to Liquidity Optimisation

by Jennifer Winkle, Director of Corporate Finance, Albemarle Corporation

In 2015, Albemarle was a distinguished winner of the TMI Star Award for Liquidity Management in association with BNP Paribas, presented at the EuroFinance Conference in Miami. Specifically, the award recognised Albemarle’s success in integrating and optimising liquidity since the acquisition of Rockwood in January 2015. In this article, Jennifer Winkle, Director of Corporate Finance (previously Assistant Treasurer), describes the liquidity objectives of the newly combined group in more detail, and how treasury has achieved them.

Key Points

  • Albemarle’s acquisition of Rockwood necessitated the amalgamation of the two treasuries
  • Among the first priorities were to optimise liquidity and ensure the credit needs of the newly combined group were met
  • The article describes how Albemarle has achieved a global liquidity structure by working with BNP Paribas, BMG and J.P. Morgan, and outlines the group’s plans for further rationalisation and simplification of its account and liquidity structures in Europe

Jennifer collecting the TMI Star Award with Walid Shuman
Jennifer collecting the TMI Star Award with Wakud Shuman, Head of Cash Management - Americas, BNP Paribas

Treasury background

Albemarle has maintained a centralised treasury organisation for many years. In 2010, the company created a shared service centre (SSC) in Budapest, Hungary to handle day-to-day cash management flows for North and South America and the EMEA region, and another in Dalian, China in 2012 for the Asia Pacific region. Group treasury, based in Baton Rouge, Louisiana, takes responsibility for strategic treasury activities such as financial risk management, corporate finance, relationships with banking partners and rating agencies, M&A, etc. The $5.7bn acquisition of Rockwood, which was announced in July 2014 and completed in January 2015, marked a major change for the group, including treasury. Rockwood’s treasury organisation and culture was fundamentally different from Albemarle. Although there was a small group treasury function based in Princeton, New Jersey, and Frankfurt, Germany, the company had a largely decentralised approach to treasury with each entity responsible for managing its own cash and treasury management requirements and executing transactions.

During the first few months of 2015, we took the time to understand how Rockwood’s treasury operated, and identify the strengths that we could incorporate into the newly enlarged group treasury function. We then started the process of integrating the group treasury function into our Baton Rouge operation, and transferring day-to-day cash and treasury management execution of certain entities to our SSCs.

Diverse liquidity challenges

Albemarle and Rockwood had very different liquidity profiles, and therefore approaches to liquidity management. For Albemarle, the key liquidity challenges were in Europe, where a major portion of liquidity was generated. We had implemented a multi-currency notional pool with Fortis, several years prior to its acquisition by BNP Paribas. This comprised a pool header account in Belgium, with participating accounts in countries such as the Netherlands, France and Germany. As the pool was notional, debit or credit balances were maintained on operating accounts held in the name of each participating entity.

As Rockwood was less centralised, business units maintained local accounts and bank relationships in addition to accounts in a multi-currency notional pool with BMG (part of the ING group). In some cases, physical pools were in place, such as in the United States, UK and Germany, with the header accounts of these pools linked to the BMG notional pool.

The acquisition of Rockwood marked an abrupt change, and the group became highly leveraged, with a debt to EBITDA ratio increasing from around 1.5 to almost 4. Although we remain an investment-grade company, our aim since the acquisition has been to reduce this ratio as quickly as possible. To achieve this, we needed to work quickly to establish a global liquidity structure in order to repatriate cash efficiently and pay down debt. We took the opportunity of the six month window between the acquisition announcement in July 2014 and completion in January 2015 to review and revise Albemarle’s liquidity structures. We had already recognised that Albemarle’s liquidity needs had evolved since putting in place the multi-currency notional pool as the company had become cash-rich across participating entities so no longer received the benefits of a notional pool, and we decided to dismantle the structure earlier in the year.

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