Cash & Liquidity Management

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Collaboration for Cash Centralisation and Control Leading construction group VINCI recently embarked on a flagship project to centralise cash in Europe and optimise bank connectivity. We speak to their treasurer about the journey so far.

by Jean-Michel Harlepin, Treasurer, Vinci Finance International

Leading construction group VINCI has recently embarked on a flagship project to centralise cash in Europe and optimise bank connectivity. Despite a decentralised culture, treasury has worked collaboratively with banks and subsidiaries alike to develop a robust, secure and automated cash and treasury management solution that meets its current and future needs as the business continues to evolve. In this article, Jean-Michel Harlepin, Treasurer, Vinci Finance International, describes some aspects of the journey so far and highlights some of the challenges and opportunities that cash centralisation has presented.

Treasury organisation

Our treasury function at VINCI has two major responsibilities: to finance the VINCI group and centralise cash for non-French entities. Our target is around €1bn cash balances. Our aim is to maximise the available cash to manage working capital requirements across the group and minimise our reliance on borrowings. We have a small team of only four people, so it is essential to achieve a high degree of automation to manage the full range of activities for which treasury is responsible in an efficient and controlled way. As a result, a priority for VINCI is to maintain state-of-the-art systems that are closely integrated with external counterparties and the wider business.

The decision to centralise

When I joined VINCI three years ago, cash management was largely decentralised, which was consistent with the structure and culture of the group. However, we recognised that centralising cash would enable us to meet the financing needs of the group more effectively, manage our counterparty risk and address audit concerns regarding the visibility and control over cash. In particular, we needed to be able to prove that the cash we were reporting was available to the business. With a compelling business case, we had a clear management mandate for centralisation; however, we had the flexibility to decide on the best way to achieve this. In particular, we needed to balance the need for cash management efficiency whilst working with VINCI’s panel of relationship banks.

Precursors to centralisation

Before embarking on our cash centralisation project, we needed to implement the right legal framework both internally and externally, such as setting up cash management agreements with group entities as well as contractual agreements with our banks. We have rigorous legal requirements that were not easy for all of our banks to accept, so this took time. However, some of our banks, such as UniCredit, demonstrated a high degree of flexibility and recognised the value of a long-term relationship with VINCI. Consequently, although it was a lengthy process, ultimately we established contractual arrangements that gave us confidence in the quality of the solutions that were being delivered and our ongoing relationship.

Cash pooling in practice

Once we had done this, setting up cash pools to centralise cash progressed quickly. UniCredit was one of the main banks with which our subsidiaries in Germany had a relationship and we already had liquidity management solutions in place at a local level. We were able to combine these local cash pools (and develop additional ones) with cross-border cash pooling, sweeping balances into a header account in Austria which is then managed by treasury. This solution includes entities in Germany and Austria but also countries in Central and Eastern Europe such as Slovakia and the Czech Republic. We use zero-balancing wherever possible so that we maintain full control over cash within treasury. IBOS agreements are in place to enable cash to be swept between banks, as opposed to having to manage liquidity separately in each bank. This is important for a group such as VINCI that has a small treasury team.

While cash pooling is straightforward in principle, there is a range of challenges that need to be addressed. As well as an often lengthy contractual process with banks, it takes time to work with subsidiaries (particularly those that are cash-rich) to explain the benefits of cash pooling at a group level and reassure them that their cash remains available and accounted for in their books.

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