Recordati’s treasury has traditionally been fairly decentralised, with finance teams in each of the 17 subsidiaries. “Because each business unit held cash across a total of 120 bank accounts we could only gain limited scale economies and could not engage in netting payments,” says Crivello. “The structure was inefficient.”
Elisa Crivello
Group Treasurer
Recordati is a European group dedicated to the research, development, manufacturing and marketing of pharmaceuticals. It is listed on the Italian Stock Exchange. The Group is headquartered in Milan, Italy, with operations in the major European markets and a growing presence in the new markets of Central and Eastern Europe, including Russia and other CIS countries, the Czech Republic, Romania, Slovakia and Turkey.
Problem…
But the problem extended beyond cash concentration. “The trade side lacked central reporting and transparency,” Crivello continues, “We could not easily obtain a group-wide view of guarantees, their expiry dates and related fees.”
A project to gain full visibility and better control of the Group’s cash balances, through an automated multi-bank multi-currency cash concentration structure was required. Recordati spoke to its core banks – including Deutsche Bank – to find the best solution. After hearing what each bank offered Crivello defined a list of ‘must haves’ and ‘nice to haves’ on the basis of Recordati’s needs.
“We had to have a bank with a global presence. As a widespread group that was vital, particularly if we choose to expand in the future. That presence needs to run deeply too – it is important that the bank can provide personal contacts in each country, rather than just some help desk contact number for a country far away. In terms of ‘nice to haves’, we wanted online reporting capabilities for easy visibility from anywhere in the world.”
…Solved
Deutsche Bank was chosen because it met all of Recordati’s requirements, as well as having a relationship with the Group stretching back to 1990. The project consisted of three core steps: cash centralisation, netting and reporting. Deutsche Bank Direct Internet (DBDI) platform offers modules in all of these areas and allows business units to access relevant features, statistics and accounts with the option of setting different permission levels established for each user based on their requirements.
A project team was established comprising the treasury, CFO and local finance units. Deutsche Bank contributed a relationship manager and project manager to the central team, and in-country support. “It was vital to involve colleagues from across Europe right from the start – some companies face resistance from subsidiaries, but we explained the need for cash concentration and the local teams agreed right away,” says Crivello.
Recordati established a multi-bank zero-balance cash pool at the centre of the Group, with all accounts linked with the DBDI platform. Deutsche Bank collected legal documents, opened accounts and set permissions for every participant. Local units were trained to understand how this Europe-wide pool works, with the impact on areas like their inter-day limits. They can all contact Deutsche locally for support. The cash pool is now in place in every country except for Greece – because local withholding taxes impose costs on inter-company loans – and Turkey – where neither notional nor physical pooling is permitted due to currency controls.
Establishing a netting system followed. “The subsidiaries participate in a monthly netting cycle,” says Tiberio Cesaroni, Deutsche Bank’s Head of Corporate Cash Management, Italy. “Each participant is notified when the cycle starts. They have two days to insert transactions into the DBDI system. Reconciliation follows – two days in which the treasury nets participants’ debits and credits. Each unit receives an email detailing their net position and either receives a payment from the centre, or makes a payment to it.”
As Recordati hoped, the system is much more efficient with fewer inter-company transactions, saving fees and time. The DBDI platform’s modular nature allows guarantees related to all subsidiaries’ activity to be viewed centrally, and letters of credit will soon be monitored and managed through the system. With SEPA’s ongoing rollout, problems experienced with Greek accounts may soon be resolved too – suppliers can be paid from accounts in Italy, for example, without any negative impact, under the payments’ system.
