Photo of Klaas Springer, Jeroen Brieffies, Marije Siebenga, David Tillmanns, Royal FrieslandCampina and Michiel Reijnoudt, Citi.

The treasury team at Royal FrieslandCampina has demonstrated you don’t have to be a big team to make a real impact. They have implemented several projects in just 16 months across a broad spectrum of cash, treasury, technology and financing areas.

The challenge

The company’s vision was to move forward in its centralisation effort (aiming to be centrally responsible for all treasury operations globally) and rank in the top quartile compared to its peers. Simultaneously, it had to proactively support the execution of its corporate strategy (known internally as Route 2020), effectively moving the company upwards in terms of value-added production.

The solution

Between 2015 and 2016, the treasury team delivered on the following core projects:

In treasury operations/cash management

Project Jungfrau

It implemented a central cloud-based payments platform, effectively removing all e-banking systems and providing the sole connectivity point from FrieslandCampina’s ERP to its banks.

With the European shared service centre, cooperative affairs and treasury live, more than 70% of all payments are now running on the platform. Asia is currently being implemented. Five banks, including Citi, have so far been connected to this key system, with two more to follow soon. These are host-to-host connections, but the possibility of SWIFT connectivity has been incorporated.

Project K2

All foreign exchange is now being traded on a single third-party platform with treasury as the only external trader. In Asia, FX is traded onshore by the Asian treasury manager ‘on behalf of’. The only exceptions are Nigeria and Vietnam.

Project Vaalserberg

This project saw the implementation of a central account opening and closing process as well as a company-wide annual Standard Internal Bank Confirmation (SIBC) procedure in which all finance directors have to sign off on their inventory of accounts and authorisations so that it is aligned with content of the treasury management system (TMS).

Project Ben Nevis

Here an RFP was issued for a new pan european cash management bank in Q215, with the selection made at the end of Q315. It is now in the process of implementation and it is envisaged that this will be completed at the end of Q216.

We had a strategic benchmark assessment late 2015, so effectively these awards confirm that we are comparing well to our multinational peers. Furthermore, this is important recognition both externally and internally (especially to our humble owners, the member farmers) that the company is performing well in this area on an international level. My former CEO always said “we are playing Champions League now”, and yes we can compete.

In finance

In order to support the strategy – which includes around €300m spent annually on acquisitions – as part of the ‘Finance Plan 2016-2018’ (and on an unrated basis) the following has been achieved:

A green Schuldschein bond issuance of over €300m issued in April 2016:

• An RFP for a ‘sustainability rating’ company was executed in October 2015, with the selection of bank arrangers in November, launch in February 2016 and completion in April 2016.

It attracted €150-€250m from four multilateral development banks (MDBs), with these being selected at the end of 2014:

• One loan of €150m related to R&D in Europe was approved by the executive board and was set to be implemented during April and May 2016.
• Ongoing discussions with two other MDBs relate to M&A in Pakistan, this being about €190m in both equity and debt.

A global supply chain programme with Citi is to be rolled out further in the coming years, in order to generate another €150m of future funding.

Best practice and innovation

Treasury has been largely overhauled in just one and a half years, with a front office team consisting of only five FTE¹, including the treasurer, moving it to the next level of strategic relevance. This could only have been achieved in such a short period of time by a highly motivated team of very capable people. The work has provided a series of leaps forward and demonstrates how to leverage banking relationships to the full.

In treasury operations/cash management

• Jungfrau, K2 and Ben Nevis together will generate annual savings of more than €1.2m.
• The state of the art cloud solution for payments and account information is providing central control over accounts and proxies.
• The electronic trading platform underpins central responsibility and control over global FX operations, with straight through processing to the TMS.
• Ben Nevis focused on the unforeseen market-exit decision made by the firm’s main cash management bank; an unexpected project that actually threatened to spoil other efforts. But this has been turned into an opportunity and will in fact be the biggest contributor to the annual savings mentioned earlier (netting around €800k). It will also deliver a lower level of complexity in its account and cash pooling structure (for example, by closing 150 accounts).
• A strategic benchmark assessment performed in Q415 by a European consultant confirmed its progress and provided new direction.

In finance

Within the limitations of being unrated, FrieslandCampina has been able to make the connection between finance and sustainability (in fact, climate-neutral growth is a key part of its corporate strategy):

• It issued the first ever green debt instrument by a dairy company and the first green Schuldschein bond offering by a non-German issuer. This not only diversified its investor base by adding around 60 new European, green and Asian investors but also demonstrated green leadership (while at the same time achieving a very sharp funding rate).
• It has built relationships with MDB’s that fit its strategy, leading to concrete financing results with one bank and most probably also with two further institutions regarding Pakistan.
• The global supplier finance programme with Citi is state of the art and this was further underpinned in 2015 by the inclusion of three co-funding banks.

As part of the whole project, several banks and other service partners have been used by Royal FrieslandCampina. The list includes:

• Jungfrau: connections were set up with five banks including Citi (with two more as work-in-progress), with the services of an external consultant also being used.
• K2: this involved most of the company’s syndicate banks (between ten and 15 banks in total).
  Vaalserberg: this called upon internal support only, mainly coming from Controlling.
• Ben Nevis: project organisation was with one of the remaining banking partners, supported by Zanders.
• Strategic Benchmark Assessment: this employed the services of another treasury consultancy firm.
• Green Schuldschein: this ground-breaking move saw FrieslandCampina work with a German domestic bank and five other non-German European banking institutions. It also called upon a specialist sustainability consultant.
• MDBs: the company used a consultant in 2014 for assessment, but relationship-building has been solely their own achievement.
• Supplier finance programme: this was carried out in the company of Citi alongside three other major banking operations.

“And it doesn’t stop here,” says Klaas Springer, Corporate Director Treasury for Royal FrieslandCampina. Indeed, new projects in the pipeline include the Project Jumpstart, arranging a lease solution for member farmers to implement manure fermentation installations (€300m) and Project Galaxy, preparing external hybrid equity issue of over €250m.

Key benefits

This programme illustrates that you don’t need to be a big treasury team to achieve significant results. With very limited resources (5 FTE), and in only 16 months, the team has made a giant leap in fulfilling its mission and moving to the next level of strategic relevance. This has been accomplished, in a broad sense, on the operations/cash management side, by implementing new technology and best practices, and also on the financing side, by making the essential link between financing and sustainability.

Key takeaways

My main key learning point is that it’s not the level of sophistication that counts, but the strength of the connection with the corporate strategy.

Footnote

1. With interim assistance of 0.2 FTE for Jungfrau, 0.7 FTE for Ben Nevis and 0.2 FTE for Vaalserberg (the latter coming from Controlling).