About HeidelbergCement:
HeidelbergCement is the global market leader in the aggregates industry and a major provider of cement, concrete and other downstream activities, making them one of the largest building materials vendors worldwide. They’re the only building materials company listed on the German DAX. In 2016, HeidelbergCement acquired the Italian cement manufacturer Italcementi and became the world’s third largest provider of ready-mixed concrete, the second-largest for cement and the number one provider of aggregates. Following the acquisition, the group, which has 140 years in the industry, employs around 62,000 people in approx. 60 countries at over 3,000 locations on five continents. HeidelbergCement operates worldwide – even in more “exotic” countries such as Bangladesh, Ghana, Tanzania, Togo, Australia, Malaysia or India. This often presents challenges for the treasury department. In 2015, the group achieved a turnover of EUR 13.46 billion.

Treasury Profile

ADaily Cash Management

BCash Pooling

CPayment Processing

DPayment on Behalf of

ECollection on Behalf of

FSWIFT

GeBAM

HLiquidity Planning

IContract Management for Interest, Currencies

JManagement of Commodities

KTrade Finance Contracts

LCapital Markets

MRegulatory Requirements

NGeneral Risk Management

OTreasury Accounting

PStandard / Individualized Reporting

QNetting & Reconciliation

RInsurance

SMergers & Acquisitions

TInvestor Relations

 

With 3,000 entities in over 60 countries, leading building materials group HeidelbergCement has a very international profile and is branched out across the globe. Unlike many other businesses of this size, HeidelbergCement does not identify as an export or an import business. While the group does comprise some companies that ship cement or clinker from Sweden to Burkina Faso or from Indonesia to Tanzania, most of their business involving sand and gravel, cement and concrete is done locally. It is often more effective to transport clinker to local mills to make cement rather than to export ready-made products to construction sites around the globe. This is why HeidelbergCement also frequently constructs mills and cement factories and is heavily involved in domestic markets.

 “Global Local Player” with specific requirements

Heidelberg Cement’s “Global Local Player” business model comes with specific requirements that influence day-to-day treasury operations and strategies. Local characteristics are determining factors for the way business is done. Equally important is the fact that the construction of manufacturing plants for building materials is capital-intensive and requires long-term financing. HeidelbergCement needs a treasury approach that accommodates both global and local requirements. The Group Treasury manages worldwide activities centrally and coordinates activities with the local entities. David Flory, Head of Group Cash Management, and his team support all local companies and provide consulting, for example when it comes to opening bank accounts or agreeing upon credit lines. Group Treasury is also in charge of FX deals (provided this is legally possible in the country in question), maturity transformation in connection with interest as well as short-term liquidity and long-term financing.

"People can never get enough of the ‘I Love Treasury’ merchandise. It is always a pleasure when a colleague sends a photo of himself with an I Love Treasury mouse pad or pen."

HeidelbergCement is still head-quartered in Heidelberg, Germany, where the company was founded. This is also where David Flory has his office – at least normally. Currently, he’s based in Paris – a first for the Frenchman who welcomes being able to work from his “home turf.” The reason behind the move is the recent acquisition of Italcementi, the second-largest acquisition in the group’s history following Hanson (UK). With the Italian Italcementi Group, HeidelbergCement has acquired a real “building heavyweight” whose treasury had been based in Paris (and not in Italy as one might expect) due to a previous merger. In order to provide optimum support for the post-merger integration, Flory has moved from Heidelberg to Paris, at least for the time being. After all, sustainable growth at this level is only possible if the integration is well-coordinated and backed up with a sound strategy.

Growth, growth, growth – but not without intelligent integration

The acquisition of Italcementi requires changes throughout the organization. The treasury needs to integrate around 600 additional accounts with approx. 150 banks. This also means integrating processes previously represented in other systems. While the consolidation of banking connections and bank accounts is always of relevance in such a merger situation, local banks who guarantee cash supply and the movement of funds are even more crucial in many African countries and large parts of Asia. In many cases, only local banks can process salary payments or country-specific payments, such as tax or checks.

Next to their integration efforts, an overarching finance strategy and ensuring short-term liquidity are essential for the extended HeidelbergCement Group. Just how essential, this became apparent during the financial crisis of 2008, which put the group to the test. With short-term funding considerably cheaper than long-term financing alternatives (something that was true back then and still is today), many businesses operated primarily with the more attractive, short-term funding options prior to the crisis. When things went haywire, banks started to reconsider corporate bank loans – something they’d readily provided in the past and that was widely used. They turned off the short-term funding tap to ensure bank-internal refinancing. HeidelbergCement was one of many businesses caught in this liquidity bottleneck and was forced to establish a syndicated loan with 61 banks – at the height of the crisis and with great time pressure. The expensive and time-sensitive funding that was needed to keep the group afloat was a lesson learned the hard way.

Financing strategy and safeguarding liquidity – key success factors

HeidelbergCement’s Group Treasury is constantly on top of liquidity supply. In this context, stability is crucial, and so is finding the right balance between riskier funding instruments and expensive but secure alternatives. In addition to bonds and a comprehensive commercial paper program, bank loans continue to play an important role when it comes to a balanced portfolio for the funding of capital-intensive business operations. Long-term, secure liquidity entails considerably higher interest rates than short-term liquidity, even though current interest rates are generally “comfortably” low at the moment. What is needed is the right combination of relatively expensive but secure liquidity and cheaper, short-term funding, without weighing operations down with high interest or the risk of liquidity bottlenecks. In light of debts amounting to EUR 9 billion (Q3, 2016), due to the construction of manu-facturing plants being so capital-intensive, the interest result represents one of the cornerstones of the financial result. It is an all-important factor when it comes to enabling efficient financial management, and it is a key element of strategic treasury activities.

"Finding the right balance between affordable but riskier short-term funding and long-term, more expensive but also more secure alternatives is a challenge. In particular when you – like us – think in decades."

Leveraging untapped potential through visibility and responsiveness

In a group as large as HeidelbergCement it is of great importance to remain transparent and responsive. The group needs prompt and effective access to the financial status. Not having the financial status available before mid-month is not an option. When David Flory took up his position ten years ago, he brought experience with professional systems to the table, having worked for other groups. He had certain expectations when it came to HeidelbergCement’s treasury setup. Fundamental requirements for him were centralizing data and processes, avoiding manual tasks, achieving group-wide visibility and enabling quick decision-making. David vividly remembers a situation from his early days in the industry – and he still shudders at the memory – when a functioning system suddenly broke down completely. In the absence of any backups or process documentation, all treasury activities needed to be handled manually or with the help of temporary solutions. The first step to a paperless, fast and effective treasury was the digitalization of guarantees that had previously not been organized in a structured system. This was followed shortly after by cash management activities and payments, and the project was rounded out with the integration of the complete FX trade and all middle and back office processes. No one at HeidelbergCement would want to miss the electronic exchange with trading platforms, the integration of EMIR, trade matching or the transfer of posting information to SAP. Gone are the days when the financial status took six weeks to put together – now it is available at the click of a button. Even countries such as Ghana, Tanzania, Togo, Australia, Malaysia or Indonesia are online and organize their data and financial situation in the system, sharing it with the central treasury. Having achieved complete visibility when it comes to the financial status and the credit line utilization has also meant a significant optimization of refinancing for the group – coming full circle to productive interest management.

 

The products we offer are easy to understand, and we want our FX hedging to match this: keep it simple! Complex strategies for coping with risk positions are of little help to me on an everyday basis. I need to be able to see with one glance how my exposures are hedged.

David Flory | Head of Cash Management, HeidelbergCement