Indesit • Mustafa Kiliç • Treasury Manager
Headquartered in Italy, Indesit is Europe’s second largest manufacturer of household appliances by market share. In 2009, the company posted €2.6 billion in sales. The group has 16,000 employees and 16 production plants across 24 countries worldwide and operates according to a model of sustainable development.
Indesit was in search of an enhanced cash management platform from which to strategically run the company’s entire cash management process for improved financial performance. Due to Indesit’s large geographical footprint however, the company encountered some challenges, as Mustafa Kiliç, Treasury Manager, explains, “It is not feasible to have one approach for all countries when it comes to cash and liquidity management due to different rules and regulations in each country. In complex environments, cross-border movements and the ability to hold offshore and foreign currency accounts are highly regulated.”
Local regulations often restrict inter-company cash movements or require central bank approval and reporting. Cash concentration and notional cash pooling give rise to complex legal, regulatory, accounting and tax considerations. As such, some entities may not be permitted to participate in cash concentration or notional cash pooling agreements.
Against this backdrop, Indesit embarked upon a journey to develop a ‘hybrid cash pooling’ solution. The solution uses two or more distinct cash balancing engines to maintain credit and debit positions of various accounts in the book of the partner bank. Of course, this is only permissible if the currencies are convertible and legal entities are allowed to open local and foreign currency bank accounts outside its own country.
An overlay cash pool forms an ‘umbrella’ on top of the bank account structure that all participants have implemented at local level. Via the cash pooling solution, the various group companies maintain accounts in their own names in the books of the partner bank, in principle in different currencies. The funds remain in the name of each legal entity. In the pool, all the accounts with either credit or debit balances in different currencies are treated as if it is only one account with one balance. The balances of the accounts are offset on a notional basis. The pool co-ordinator can withdraw cash from the pool to perform third-party investments or to reduce bank lines elsewhere.
The solution, implemented with ING/Bank Mendes Gans, creates an efficient way to consolidate liquidity with extended geographic coverage, Indesit’s operations in Russia, Poland, Czech Republic and Hungary are now included in the solution.
“Hybrid cash pooling is the best alternative to integrate many other countries which technically can’t be part of any cash concentration and/or notional cash pooling model,” explains Kiliç.
“Cash in excess of working capital at the local level no longer remains trapped or subject to local investment vehicles. In most cases short- term funding is possible in the currency of choice without the traditional reliance on inter-company loan structures. Hybrid solutions have been specifically built to meet the needs of certain growing markets, while boosting their business and economic values for a robust future.”
"Hybrid solutions have been specifically built to meet the needs of certain growing markets, while boosting their business and economic values for a robust future."