Head of Cash Management Strategy
Enel is Italy’s largest power company and Europe’s second largest listed utility by installed capacity. It is a leading integrated player in the power and gas markets of Europe and Latin America, operating in 40 countries across four continents. Employing more than 71,000 people, it distributes electricity and gas through a network spanning around 1.9 million km to its 61 million customers. It was the first utility in the world to replace the traditional electromechanical meters with high-tech smart meters.
At the production end, Enel operates a range of hydroelectric, thermoelectric, nuclear, geo-thermal, wind, solar and other renewable power plants. It is strongly committed to renewable energy sources and to the research and development of new environmentally friendly technologies. Over 42% of the power generated by Enel last year was carbon free. In 2013, Enel posted revenues of around €80.5 billion giving it a net ordinary income of around €3 billion.
Power, in its most literal sense, seems to have an enduring fascination for Federico Falciai. In his career to date he has focused on an industry sector without which much of the modern world would grind to a halt. His role in the past few years has been to keep the power ‘machine’ running as Head of Cash Management Strategy for one of the world’s largest integrated power distributors, Italy-based Enel.
Having started work as a domestic supply analyst for an international oil company in 2000, Falciai later moved to its trading division where he was in charge of fuel oil and feedstock supply, and eventually audit. In 2006, he moved to the international audit unit of Enel. From here it was but a short hop to the finance division. For the past five years he has been charged with bringing order to a complex cash operation that spreads across Europe and Latin America.
It is as well then that Falciai has both been afforded and taken the opportunities to understand and apply his knowledge of the industry at an increasingly senior level. “At Enel, I had the good fortune to take part in Group cross-country and cross-unit projects which helped me acquire insights over finance processes,” he recalls. Exposure to a broad sweep of activities and cultures has, he feels, helped him and his team prepare not only for the worst of the financial crisis and ensuing regulatory changes, but also for the “deep transformation” of the Enel Group from a purely Italian player to a multinational corporation. “The variety of jobs gave me an important background in terms of data analysis, problem solving and the ability to build constructive business relationships, helping me deal with both internal and external stakeholders.”
Within the Group Finance and Cash Management arena, and as Head of the Cash Management Strategy unit, he assumes a number of key responsibilities. Managing relations with banking, postal and financial institutions for cash management services, he says, involves negotiating conditions and meeting the needs of the finance units at group and subsidiary level. He is also charged with monitoring the evolution of collection and payment systems market, and the related regulatory frameworks, and with promoting the best possible cash management structures at Group level which means leveraging banking system capabilities and liquidity management techniques. The Enel Group cash management model is what Falciai describes as “partially centralised”. Although all principles, rules, criteria and standards are set at the central level, strategic decisions and all transactions at a specific threshold may be taken or managed either centrally or, under the group office’s guidance, by the subsidiaries.
The responsibilities and reach of the cash manager places the role at the heart of the business. “There is no doubt that the role of cash management is now experiencing a renewed interest and visibility,” comments Falciai. “The financial crisis, as well as technological and regulatory changes – especially SEPA, EMIR, Dodd Frank Act and various tax reforms – have placed the cash manager under the spotlight,” he notes. For him, cash management processes move across the entire company, embracing cash collections, management of liquidity and cash disbursements. “The cash manager’s involvement in the decision making process is more and more sought after. We are partnering with other units, becoming operationally aware and playing like a hub of information.”
Making cash go further
Indeed, the financial crisis served to highlight the importance of accuracy in handling the whole cash management value chain, knowing exactly where cash is held at all times, and being able to access it, says Falciai. The spotlights in particular are on working capital optimisation, financial risk, cash flow forecasting and the rationalisation of treasury structures. As a result, he believes that the relationship with financial partners as well as business lines have been reinforced “not just to boost the effectiveness of cash processes but also to avoid the risk of leaving stones unturned”.
This has been translated into a number of improving measures. With a “continuous improvement mind-set and approach” deep-seated in Enel’s day-to-day activities, Falciai says the decision-making and operating processes have “long been streamlined”. Through this, he believes that the monitoring of KPIs has been instrumental in supporting various cash and treasury initiatives and delivering satisfying returns. In particular he refers to the development of a Group integrated forecasting and reporting system, the investment in new payment systems capabilities, the development of customer-financing opportunities and innovative use of collections channels.
Keeping ahead of the curve when it comes to developing strategy for the Enel of tomorrow is vital. The international expansion of the group that occurred in the last decade gave it the opportunity to look at cash management with “a new perspective and dimension”. A diversified spread of business features, operating in and with a large number of countries and currencies, was a cash management challenge with which the team engaged fully. “SEPA, which absorbed most of our time last year, is now deeply rooted within our global integration process,” says Falciai. Within Enel, the parent company is “driving the change”, coordinating and addressing all Group companies to make sure all work with the same processes and procedures regardless of location. In fact, notes Falciai, Enel no longer looks at payments and collections in isolation. This is a long-term process that requires a higher level of centralisation and standardisation of banking communication systems and file formats, he explains. For Enel to leverage Group synergies, he adds that it is a challenge “that will not be won without everyone’s talent and day-to-day commitment”.
Technology in the balance
Enel’s growth has been achieved mainly through acquisition. Consequently, in addition to the commonly used Enterprise Resource Planning (ERP) systems such as SAP, it has inherited a number of different IT applications, customised tools, modules and systems, each developed separately and requiring a mixed degree of manual intervention. “We are currently striving for the convergence and integration of systems and processes used by all Enel Group subsidiaries,” says Falciai. This will increase automation, standardise reporting messages and reduce paper-based processes and is seen as a crucial step for an efficient cash management system.
Adopting a balanced view of technology, Falciai believes that even though the implementation of specialised technology has increased functionality and the capacity to interact with other more commonly used systems such as the ERP, the use of spreadsheets is still valid as a treasury tool. This is by no means a way of hanging on to old artisan ways; the use of cutting edge smart technologies, he argues, need not diminish the skill of the cash manager. “What’s behind ICT procedures must always be known in order to be able understand the data and to implement the most suitable and effective financial strategies.”
Taking SEPA to the next stage
One area in which technology plays a significant role, especially in terms of payments integration, is in the roll-out of SEPA. Despite natural ‘go-live’ concerns, Enel Group still sees in the SEPA migration an opportunity for the entire financial industry and payment systems users. The scale and importance of the project led to the decision to approach SEPA as a single project, coordinated at parent company level, rather than tackling it as individual and stand-alone country projects. The solutions identified were inspired, first and foremost, to ensure compliance with local regulations safeguarding business continuity, explains Falciai. “Thanks to the ‘global’ approach we had a general understanding of each SEPA country’s peculiarities. This allowed us to leverage a range of specialist knowledge, tailoring the solutions to specific needs but still keep them as part of a common longer-term vision.”
Although SEPA deadlines come and go, for Enel the project remains a work in progress. To an extent, completion is dependent upon the individual treasury strategy and operational set-ups of each part of the company. But what is clear to Falciai is that compliance with the SEPA Credit Transfer and Direct Debit schemes is not the end point but “just a step in the process of evolution in treasury management”. In fact, he argues, transformation in the payments industry does not end after SEPA. “For example, a transition to cashless payments instruments has been developing thanks to the use of cards, internet and mobile payments. The strategy influences the ways companies drive their businesses and inevitably it will bring forward the elimination of existing barriers.”
This is an enlightened view of the whole scheme, given that many organisations consider SEPA as a mandatory issue. “They are not focusing on the opportunities the migration aims to achieve,” he comments. The SEPA roadmap, he notes, went through three main phases: awareness of the change; impact-gap analysis; and implementation. He feels that as the SEPA go-live was getting closer, concerns were raised amongst the financial community and industry that revealed a mixed level of awareness of its potential impacts and of the preparedness amongst stakeholders. Enel, it would be fair to say, has taken SEPA as an opportunity not a threat.
“Together with the Payment Services Directive, SEPA is paving the way to a real integration of cash management processes at European level,” states Falciai, adding that it has the potential to bring benefits to all stakeholders – from consumer to bank to corporate. “The question is if the added-value arising from this process will be as much as expected and how much time it will take to create this value,” he says. It will be necessary to take into consideration that the development of a European cross-border competitive payments market, with the removal of national barriers, will require time. At the same time, payment habits and business models on both demand and supply sides will change gradually. “Companies have to be aware that the cash management integration process will start producing the expected benefits in the medium term but, in general, it will take more time than expected.”
So far, the journey along the road to SEPA for Enel has been “complex”. This, notes Falciai, is mainly because not all the payment industry players were ready to fulfil the new SEPA requirements as they came into force, “even though the implementation deadline was widely debated and announced many years ago”. This, he concedes, was probably due to the onset of the financial crisis and “bearish” climate in Europe which forced many to cut costs and investments in order to preserve profitability. Regardless of delays, the implementation of an “industrially-solid” SEPA engine is a key step to take, he observes. Once the reliability of the financial industry’s management of SEPA is ensured, he suggests that the focus should shift to investing in systems, IT infrastructure and the development of “suitable and wide-ranging” Additional Option Services to overcome local restrictions and to benefit from the new competitive market.
“Growing worries about a drastic switch-off of domestic payment systems led local authorities and the European Commission to concede temporary waivers,” notes Falciai. “Since the bank-to-bank space was heavily regulated by the SEPA Rulebook somewhat contrary to the customer-to-bank space, slightly different standards were developed and implemented. Peculiarities in national cultural habits still sees corporates preferring in-country accounts and payments players.” Moreover, he says, users of payments services providers (PSPs) still prefer to bank or open accounts with a nearby institutions which they can easily contact. This “proximity factor”, he says, has led to a “mixed and fragmented scenario” making it more difficult to implement an efficient larger-scale cash management system. In this context, he believes that all the regulations and technological changes aimed at overcoming domestic factors, in favour of an open market, are welcome by multinational players – corporates and banks. “For this reason, harmonisation of the communication systems with banks and standardisation of formats are crucial actions to be taken.”
Of the banks, Falciai reports that the demand on banking services is continuously evolving, being driven by regulatory and technological changes occurring in the market. “The success of these products and services relies on their ability to meet customers’ needs, which is in turn influenced by the pricing strategy,” he notes. However, he is quick to add that pricing for him can never be a standalone success factor and that form and function is not always perfectly met by the industry. “I think that in some cases the overall value behind the provided service is equally distributed between the parties, while in others there is still room for improvement.”
The responsibility of Falciai’s team is to meet Enel’s internal cash management services demand. It means first of all understanding the needs of the business and then staying focused on the wider market – including the bank space – in order to follow its evolution and “catch all the potential opportunities”. Of his own position, he says he is focused on “discovering ways of leveraging the value of all synergies potentially achievable in a large, diversified and geographically distributed company”.
An ocean of possibility
In the past few years, the responsibility of the cash management function has expanded in parallel with Enel’s growth and business diversification. The Enel Group gives Falciai the opportunity to interact with people of many different cultures and languages which, he feels, “can only add value to our activity”. Beyond the rigours of driving the strategic vision of cash management for this expansive utilities group, he believes that his seafaring heritage – he is the son and nephew of Admirals of the Italian Navy – has instilled in him not only a love of all sea-based activities and sports but also a sense of ambition without limits and the view that success can only come through teamwork, paying attention to detail and thinking through decisions; that indeed is the power of ‘one’.