The company now runs a multi-currency notional pool (MCNP) through its Luxembourg treasury entity, which includes Chinese renminbi, US dollars, sterling and euro. Beneath this, the company has established three single currency pools which then interface with in-country local accounts which contribute their funds to the notional structure through physical sweeps.

Loss of banking partner creates opportunity to upgrade European and APAC liquidity structure

The challenge

In common with many other multinationals, Leggett & Platt (L&P) faced the challenge of replacing the service provided by its incumbent bank when it announced its withdrawal from international cash management. As Sheri Mossbeck, SVP & Treasurer explains, “Our business today has 130 manufacturing facilities in 19 countries, with a strong requirement for treasury services in EMEA, where we had previously operated multiple country bank accounts linked to three single-currency notional pools.”

The solution

The team launched an RFP for the European treasury management business, seeking to re-engineer their cash and liquidity management solutions and move from a static banking environment to one that was dynamic and flexible.

The RFP resulted in L&P Incorporated working with Bank of America Merrill Lynch (BofAML) to redesign the way in which it manages its European and APAC liquidity.

The company now runs a multi-currency notional pool (MCNP) through its Luxembourg treasury entity, which now includes Chinese renminbi as well as US dollars, sterling and euro. Beneath this the company has established three single currency pools which then interface with in-country local accounts which contribute their funds to the notional structure through physical sweeps.

By taking this three-layered approach, L&P benefits from the full use of the group’s accessible international liquidity through a highly automated structure, allowing the firm to maximise return on funds and give immediate access to its pooled cash position at any point.

When the sweeps take place, they happen on a same-entity basis, so, at no point does the company comingle cash; each company effectively continues to own its funds. The consolidation is on a notional basis so the company does not need to deal with inter-company loan management and the complexities that can often bring.

The new structure has already eliminated inter-company transactions, reduced hedging needs, improved cash visibility for the central treasury team and supported the best use of cash in the businesses at any given time.

Best practice and innovation

L&P’s treasury team has a strong commitment to best practice in treasury. When prompted to explore a new treasury structure by the withdrawal of their incumbent bank, they researched best practices in the liquidity space – yet the new structure, overlaying a MCNP over existing account structures, is innovative, giving true cash visibility from the US and freeing up treasury time and resources to be used more productively in the business.

Mossbeck comments, “Implementing the new structure meant opening 84 bank accounts in eight countries as well as replicating the three single currency notional pools, before setting up the MCNP to include additional currencies and integrating large pieces of this with our various ERP systems. All this was achieved in less than 12 months with no interruption in service.”

The new EMEA treasury structure represents a major achievement, not only in rolling out a complete pan-European banking solution in under a year, but in taking on the technical challenge of overlaying an expandable MCNP on an already sophisticated banking set-up.

Mossbeck concludes, “The success of the new structure has laid a strong foundation for expansion as our company grows – with Denmark, Poland and Switzerland now poised for inclusion.”