The financial crisis and subsequent focus on efficiency, liquidity and risk management has led many companies to review their cash and treasury operations. Few can boast the same project momentum and professionalism as that displayed by The LEGO Group. In only 18 months, treasury has rationalised its banking providers, centralised treasury operations, implemented an in-house bank and enhanced its technology environment considerably. The company demonstrates best-in-class cash management and payment processes typically associated with far larger companies, creating a framework for future growth and continued competitive advantage.

As the company has expanded it has faced a number of challenges; each business unit maintained its own banking relationships, resulting in multiple banks without an overall strategy. Treasury lacked visibility over subsidiaries’ cash balances and flows, preventing accurate counterparty risk management and group-wide cash and liquidity management. Additional costs were being incurred as cash flows between group companies were passed across external accounts, creating delays and additional costs.

The company set out on a project to change the way treasury operated. They took the following steps:

• The LEGO Group approached Bank of America Merrill Lynch, with whom the company had an existing relationship, with a proposal to extend the relationship across the whole of Asia, replacing legacy banks, and to implement a global in-house bank. In Europe, they appointed the ING/SEB alliance for Europe, and Nordea Bank in the Nordic countries, UK and Russia.
• Implemented an in-house bank that would reduce external payment volumes by using intercompany settlements for payments between business units. In addition, they centralised all payments to one entity executing payments on behalf of all other entities.
• Leveraged its SAP installation by implementing the In-House Cash module, replacing the existing fragmented communication with a single connection to its key partner banks, using standard formats for payments and information reporting globally.
• Completed the centralisation of treasury and implementation of an in-house bank, including extending its SAP installation, in a very short time. Senior management was very closely engaged in the process, and was committed to rapid improvement. This enabled The LEGO Group to dedicate the right resources and commitment to achieving its objectives quickly and working proactively with its banking and technology partners.

As a result of the In-House Cash implementation LEGO has managed to reduce its external cash balances by approximately 80%.

“The LEGO Group has completed the centralisation of treasury and implementation of an in-house bank, including extending its SAP installation, in a very short time.”

Over the last two to three years, The LEGO Group has increased global sales by over 50% and penetrated several new markets as a result of the IHC/payment factory setup. This extensive growth in sales and new markets has not resulted in additional headcount in treasury, back office or procure-to-pay processes.

“An important factor in the success of the project has been the small, focused team from The LEGO Group, comprising specific IT and business expertise. A great deal of time was spent upfront identifying potential issues and working through potential remedies, avoiding too many surprises during the project. Although the project plan was very disciplined and detailed, flexibility was maintained to allow changes to be made when it was pragmatic to do so,” says Vice President, Treasury, Lars Thulstrup Bruhn.