Swedish multinational medical supplies distributor OneMed’s standalone bank account structure across multiple countries resulted in minimal liquidity and high interest charges. The group’s implementation of Nordea’s Global Cash Pool unshackled its internal financing and freed up its operating companies to focus on the areas where they can really add value.
Jani Kivikari
Group Treasurer
Problem…
A little over two years ago, OneMed kept a number of standalone bank accounts in a variety of countries and currencies, and with different banks. The company’s internal financing was sluggish, as it had to be channelled through internal loan contracts. Furthermore, the set-up was time-consuming for treasury staff, as each account had to be monitored individually to ensure it was either in credit or had not exceeded its overdraft limit.
“Our liquidity was scattered among different accounts in different countries, and was far from cost-effective,” says Jani Kivikari, Group Treasurer at OneMed.
This situation was a particular problem for OneMed as a large amount of cash was tied to these standalone accounts to maintain credit balances, and some of these accounts had overdraft facilities that were being used sub-optimally. The previous structure, with its myriad standalone accounts in foreign currencies, also posed a foreign exchange risk to OneMed. In addition to hindering the group’s internal financing, the old structure did not promote accurate cash forecasting among OneMed’s entities.
The company needed a solution which would enable it to manage a single bank account or a single cash pool. “As our name suggests, OneMed aspires to be as centralised as possible in its operations. This is also true in our banking relations – we wanted to have as close to one bank account as possible,” adds Kivikari.
…Solved
OneMed was able to address its issue with multiple local standalone accounts by implementing Global Cash Pool in spring 2012. Global Cash Pool is Nordea’s balance netting solution for real-time cross-border, cross-currency cash pooling. The solution replaces local cash pools and standalone accounts, and allows real-time concentration of liquidity throughout the company.
“Global Cash Pool’s master account gives us complete visibility of our cash position across our Nordic companies,” says Kivikari. “We still have legal bank accounts for individual currencies, but effectively we only need to monitor a single account, which has simplified the process no end.”
The solution, which is available to corporates with accounts in all major currencies in Nordic countries, Germany and the UK, allows treasuries to ensure there are no value day losses from internal transfers within the cash pool. It also maximises net interest, while minimising short-term financing costs.
“Global Cash Pool is so straightforward and intuitive to use, you hardly realise you are using it at all,” says Kivikari. “Combining our cash balances with the solution has freed up a significant volume of cash, and centralising our overdrafts has cut down on interest costs.”
Implementing the solution has also saved OneMed’s treasury time by reducing the administrative burden of its previous structure.
Reporting on Global Cash Pool is customisable, allowing users, for example, to view group accounts by currency or entity, with middle layers for reporting individual cash balances. Internal credit terms and conditions can be adapted to reflect a corporate’s transfer pricing policy.
In addition to these benefits, Global Cash Pool has also helped with OneMed’s cash forecasting. By combining the group’s bank accounts into a single cash pool, the solution aligns the interests of OneMed’s entities – if one entity is out of cash, all the entities are out of cash. “Now we are all in the same boat; our operating companies are much more motivated to provide timely and accurate cash flow forecasts as they are now directly impacted by the group’s net cash position,” says Kivikari. He says that as a result of implementing Nordea’s solution, the deviation between forecasted and actual entity account balances has dramatically reduced.
Kivikari believes Global Cash Pool has not only improved the group’s liquidity position, but has also fostered a spirit of collaboration with its operating companies. “In addition to releasing liquidity and cleaning up our account structure, Global Cash Pool has encouraged teamwork in our forecasting and efficiency in the use of short-term financing. It has shifted control of liquidity management to the group treasury and empowered our operating entities by giving them more time to focus on where they can really add value,” he says.
