Dialogue and cash culture, key prerequisites for effective cash pooling

Setting up an international cash pooling system

Marie de Beauregard is International Treasurer of the Rocher Group, present in 110 countries in the cosmetics, textile-clothing and home improvement markets. She is in charge of organising the transfer of cash from the various subsidiaries to the parent company. Various economic contexts, cash culture that needs to be strengthened, unsuitable legal frameworks: she explains the difficulties involved in setting up cash pooling on an international scale and shares her strategy with us. cash pooling à l’échelle internationale et partage avec nous sa stratégie.

Marie de Beauregard, tell us about Groupe Rocher and the strategies implemented to manage its cash.

"The Rocher Group is a French group with a turnover of more than 2 billion euros. Established in 110 countries, the group has nearly a hundred subsidiaries. 8 brands are at the service of women's beauty and well-being, including Yves Rocher, which has 40 million customers. The Group employs 15,000 people including 7,000 in France and 8,000 internationally.

We strive to establish a strong cash culture within our foreign subsidiaries and to challenge them to improve their cash management, and recycle their bank balances as much as possible. To help them do this, we have set up cash pooling."

Cash pooling

"Cash pooling is mainly carried out in euros in order to limit exchange rate risk. The euro position is cash pooled with our financial entity, which centralises the cash. Then I send the information back to the parent company.

Subsidiaries have access to this cash pooling via a web portal from our treasury software called KTP Web. It also allows them to take the initiative for each transfer. Whether it is a request for financing or a transfer of cash to the parent company. We wanted to give this autonomy to the subsidiaries in order to give them more responsibility and to teach them how to manage their cash better. We only intervene at the level of the final validation of the cash flow."

Implementation of monthly reporting

"In addition to this system, I have set up a monthly reporting system based on a number ofindicators. For example, the number of transfers made each month by all subsidiaries. Here again, the idea is to make the subsidiaries more responsible and to encourage them to set up cash flow forecasts so that they can minimise their recourse to transfers. This applies both when the subsidiary has received cash or when it needs financing. This reporting also tells us their month-end bank balances. Their objective is to aim for a zero balance, for the best possible cash flow.

Use of a banking communication tool

"We also use a banking communication tool developed by SunGard called Trax.  We deployed this tool in some of our subsidiaries as part of the Sepa project. It enables us to receive bank statements in the form of MT940s for foreign accounts. We then integrate this extract format into KTP, our cash management software. From the software, I can then draw up analyses of cash flow on different subsidiaries and target "bad pupils".

From this tool we obtain very detailed analyses allowing us to go into detail and thus better understand certain banking situations. Some of them are sometimes unclear, such as when there is a significant gap between the amount of an account and the cash actually available. The use of an adapted tool facilitates the exchange with our subsidiaries, which is essential."

How is cash pooling set up for new subsidiaries?

"The first thing to do when you want to integrate a new subsidiary into cash pooling is to meet the person in charge of Cash Management software. Then to set up a campaign to strengthen the cash culture. The latest subsidiary to join our cash pooling is the Czech Republic. I had a lot of discussions with the treasurer and many questions had to be answered. What is cash pooling? What is the purpose of cash pooling?  Why give back your cash? What is a value date? What points must be validated with the bank before setting up cash pooling? What are the fees for transfers? What are the benefits?

Another important point to take into account is the variety of legal frameworks governing this practice in the different countries concerned. In Poland in particular, the law simply prohibits us from using cash pooling.

In countries such as Poland, which cannot be included in our cash pooling programme, we make it a point of honour to support our subsidiaries in strengthening their cash culture. We help them set up cash forecasts and optimise their cash management. Moreover, they use short-term loans twice a month to recycle their cash." 

Are there times when subsidiaries are reluctant to join cash pooling?

"The integration is going well if we manage to explain to the treasurers that this will enable them to earn income from cash that would otherwise be sitting on their subsidiaries' accounts. In the current context of low interest rates, it is even easier to convince them of the benefits of the scheme.

Our Czech subsidiary, for example, has gone from very high month-end bank balances to more than satisfactory balances. This is due to the cash recycling options offered to this subsidiary by cash pooling. This is a good example of integration into cash pooling and training the treasurer in cash culture.

Involving the subsidiaries in Group issues enables them to understand that benefiting from economies of scale is beneficial for both the Group and the subsidiary."

How is cash pooling organised in countries such as the Czech Republic that do not use the euro?

"In addition to the euro, we have to manage transactions in Scandinavian currencies: Swedish krona, Norwegian krone, Danish krone and Czech krone. Due to the foreign exchange markets, we have to be given two days' notice because of the settlement times. We are in a situation where the bank no longer wants us to have accounts with too high foreign currency balances as this leads to costs related to negative interest rates.

We therefore carry out swaps over a few days to recycle excess cash. The maturity of this swap is scheduled for the day of netting, when the rest of our foreign exchange operations will be unwound. The management is really different from that of the euro accounts but this is mainly linked to the current context of negative rates in many countries."

Today all the funds are repatriated to France. Do you think this is the best investment?

"It's a real debate. In Poland, where it is impossible to set up cash pooling, the subsidiary's bank resets its accounts to zero each evening and makes "overnight" investments.  It would be necessary to see which solution is the most remunerative but for the moment we have chosen to centralise all the flows to the central office in France in order to have a better control and vision of the cash flows."

What is the Group's next step to optimise its cash management?

"We are satisfied with the system put in place and the results are good. We now need to focus on monthly reporting. And, of course, establish more and more dialogue with subsidiaries where the cash culture is not yet sufficiently present. In fact, in subsidiaries, the interlocutors are not necessarily treasurers. They must therefore acquire reflexes in terms of cash management. It is important to remember that they are the ones who initiate transfers. It is through this approach that we will succeed in improving the Group's cash management in the long term."