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Chapter 7CASH MANAGEMENT

Cash Management is usually required by a group to carry outthree classic missions: monitor the cash situation: forecasting the evolution of

current receipts and payments; manage the cash balance: making up cash deficits at the low-

est cost and investing excess cash with the best return and anacceptable degree of risk; conduct risk management for liquidity, rates and exchange.

However, in a group like ours these cash missions take onan entirely different dimension, the Cash Management teambeing specifically responsible for: monitoring the cash positions of the Group and its subsidiaries;

centralising cash management: on one hand, balancing theaccounts of the member companies in the Group to avoidfinancial costs due to market imperfections and, on the other,favouring the Groups access to financial markets;

calculating and monitoring the indicators and ratios of debt,solvability, working capital and working capital requirements,releasing cash flow, etc.Cash Management cannot limit itself to purely technical

management, specialising in the best possible organisation ofmonetary and financial flows for the Group. It also acts as thepoint of convergence for all flows:


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by making all the company heads and senior staff in theGroup aware of the cash-effect induced by any investmentor management decision,

through the ongoing improvement of procedures for circu-lating information on accounting and finance,

by advising the directorship of the Group, or even warn-ing them about strategic choices with important financialimplications.Consequently, Cash Management is also responsible for

helping to define and implement Group strategy, notably by:

working out its financial strategies through proposals in theshort, medium and long term for raising capital, portfoliooptimisation, etc.,

financing acquisition operations, overall management of the relations between the Group and

its bank partners, notably in the choice of partners, negotiat-ing conditions, integrating computer relations, etc.;

by protecting assets through controls, both a posteriori(bankreconciliation) and a priori(principally in bank powers).Finally, due to the international dimension of the Altrad Group,

Cash Management is also required to take account of the finan-cial flows in various currencies and manage exchange risks, i.e. forecasting cash outflows and inflows for the companies in

the Group;

managing these flows and liquidities, including export debts; organising foreign currency cash services and specialisedbodies, if need be: coordinating centre, cash pool or net-ting system (allowing bilateral or multilateral compensationbetween accounts receivable and accounts payable in thesame currency).As we have seen, Cash Management is entrusted with a wide

range of missions. It has responded with several concrete mea-sures and recommendations in five main areas: Working capitalrequirements (WCR), investments, cash forecasting and report-ing, centralised cash management, and the protection of assets.


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A. Working capital requirements

Stemming from the Altrad Groups collegial and interactive

management, the WCR procedure calls on each companyto make an accurate estimate of the three components of itsWorking capital requirements: accounts receivable (customers),accounts payable (suppliers) and inventory (stock levels).Within this general framework, each company nevertheless fol-lows its own procedure in this field, adapted to local customs notably German and Italian in matters of payment.

1. Accounts receivable (customers)The procedure is defined on one hand by the maximum termof payment and outstanding debt, and the follow-up methods,on the other. For terms of payment and outstanding debts, the procedure

sets the upper limits beyond which the company head must

seek agreement from the Groups Marketing Management,in the aim of minimising the financial risk to the Group.To avoid the systematic application of this limit, the pro-cedure is completed by an individual objective (which mayor may not be accompanied by remuneration, dependingon the company heads). Indeed, if, for example, the maxi-mum term of payment is 60 days on the 10th of the follow-

ing month and in 90% of cases the company head appliesthis maximum term, the average calculated term will exceed90 days.

For customer follow up, the procedure sets the rules to applyin the case of non-payment: first reminder, second reminder,taking legal action, blocking late payment accounts, etc. Eachcompany sends a detailed monthly statement to Cash Man-agement listing the outstanding accounts with a summarydocument to check follow up, terms granted to clients andthe maximum outstanding debt authorised by the companyhead. If this is exceeded, Marketing Management and/or


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Cash Management may demand justification for the excessor even a definite closure of the account.Despite the harmonisation policy engaged by the Group,

some companies maintain a particular arrangement due tolocal particularities. Altrad Italia, for example, is autonomousin regard to its clients in the framework of a term of paymentfixed at 95 days, in return for a monthly control made by CashManagement of the prospects of reaching the objective andterms of payment granted.

Moreover, the creation of the entity Altrad Financement,

offering credit from 4 months to 5 years) on demand from salesstaff and customers, is obviously a positive element in manag-ing customer accounts.

2. Accounts payable (suppliers)To avoid anticipated payments, the suppliers are paid at 90 days,on principle, on the 10th of the month apart from adminis-

trative or commercial exceptions, notably: electricity, gas and telephone bills; bills for breakdowns, repair services, etc. for amounts below a

certain level (company-specific) for companies that pay theirsuppliers directly;

invoices from suppliers who are also customers in the Group(the most favourable terms for the Group are applied, accord-

ing to respective turnovers).This procedure is applied in all countries, apart from thosewhere local practice differs too widely. In the latter case, CashManagement restricts itself to setting an objective per company,with periodic checks on compliance with payment deadlines.

3. Inventory (Stock level)Each head of company in the Altrad Group firmly commits toa four-monthly objective which is not always reached. CashManagement plays a crucial role in optimising stock manage-ment by applying a sequential procedure in five steps, involving


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all the departments in the company (marketing, production,industry, design, purchasing and accounting): step 1: make an inventory of stock as a basis for calculating

stock rotation by article. step 2 (simultaneously with the first): secure the reliability of

computer stock. step 3: analyse stock rotation article by article, identifying

dormant stock to be disposed of, slow rotation stock to bereduced, supply batches to redefine, questioning the compa-nies or departments that show any anomalies like, for instance,

orders for three months consumption of a particular item orholding stock from such and such an outdated list.

step 4: adapt marketing strategy, particularly in regard todeliveries. Cash Management will get each company todefine delivery dates per product line that are acceptableto its customers. For the most sold products, minimise therisk of stock shortages and ensure normal delivery dates to

customers while reducing the levels of cold stock (with aslower rotation). The sales network is informed of the riskof longer delivery times for these items. This redefinition ofstock levels affects the different functions of the value chain,with a knock-on effect on estimations of supply batches, buf-fer stock and manufacturing orders at production level.

step 5: manage procurement according to a programme opti-

mising the product management references initiated severalyears ago by the Altrad Group and whose efficacy is anotherimportant factor in reducing stock and thus WCR.

4. New approachesCash Management is constantly on the lookout for new waysto reduce WCR. By way of example, here are five recent pro-posals currently dealt with in directorship meetings, eitherbeing analysed or already implemented: revision, in the case of a clear failure at the end of the year,

of the exceptional arrangements currently granted to certain


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280 ALTRAD GROUP

companies in view of the habits of their customers, or theiralignment with a strict application of general procedures;

profit sharing among the actors concerned for respecting

these procedures, through a remuneration scheme based onWCR items (rather than profitability, as is usually the case).This entails the participation of Cash Management in mak-ing an exhaustive analysis of the modes of variable payment,notably, in regard to members of staff whose work affectsWCR items;

profit sharing (direct or indirect) for the sales staff on suc-

cessfully concluding credit files that benefit the Groups over-all profitability;

the creation of centralised invoicing and receipt of paymentfor all the companies in France, following after a thoroughlegal feasibility study;

the creation of a trading group, in collaboration with Pur-chasing Management and Sourcing and using the same

approach to negotiate the best conditions in terms of pricesand terms of payment.

B. Procedures for investment,

cash forecasting and reporting

According to the Altrad Groups investment procedure, eachcompany head negotiates his investment budget with GeneralManagement when the forecast operating budgets are drawnup, defining his needs for investment and finance (machines,buildings, land, etc.). If accepted, the investments can be madeduring the period, once the company head has filled in a bud-get request form for each project. This document lists thearguments in favour of investment and forms the basis for for-malised authorisation of investment (unless refused or deferredto the following period). Once accepted, the file is submitted tothe companys Purchasing department.


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Cash Management is a stakeholder at each stage in this proce-dure. It offers advice for the financing package, helps to choosethe right moment to invest spending, checks compliance with

investment and WCR procedures, deals with the cash forecast,etc.

Based on the accounts receivable, accounts payable, inventoryand investment objectives negotiated annually in the frame-work of forecast operating budgets, Cash Management drawsup a yearly and monthly provisional cash plan, with the cor-

responding consolidated plans for the Group. These are revisedmonthly according to the investments, purchases and salesreported by the companies, thus checking the performanceof each company in terms of accounts payable and accountsreceivable.

This control mission is part of the Altrad Groups reportingprocedure. Cash reporting, like any other form of reporting

(sales, budget control, accounting, etc.), presupposes the cor-rect transmission of information via a report whose form andcontents are defined by the Staff service of the Group.

C. Centralised cash management

Centralised management and cash control are currently distin-guished according to whether the activities take place in Franceor abroad. However, the Altrad Group has commissioned CashManagement to study the possibility of harmonising cash mana-gement to reduce this dichotomy. Our management choosesflexibility over dogma, so Cash Management, after analysingthe situation, may well advise a mixed system. This wouldbe centralised for certain operations, whereas others, in viewof our Groups worldwide locations, would be regionalised ordecentralised, for example with a specific regional centre andbanks for each block (Asia, Central Europe, etc.).


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One of the first tasks facing Cash Management is to makean inventory, by country and by regional block, of the servicesand conditions of the various banking organisations. It then

makes a shortlist and obtains the most comprehensive informa-tion, leading to the negotiations that will finally determine theGroups bank partners.

This analysis and the implementation of the new interna-tional cash management system will nevertheless still be basedon the present distinction between France and countries out-side France.

1. In FranceAs the Altrad Group does not practice cash pooling, it has optedfor a notional pooling system for each bank France, in relationto each bank. Each month, the holding company obtains anotional pooling of the bank accounts for the whole Group, aswell as an individual scale of interests for each company, allow-

ing it to allocate the billing of interest charges between them.The saving on interests, interest charges (corresponding to thedifference between the sum of notional pooling and the sumof the individual scales) remains in the holding is retained bythe holding company. With the prospect of harmonising andsimplifying day-to-day cash management, we are gradually set-ting up national cash pooling, ultimately designed to replace

the notional pooling system.Moreover, Cash Management has recommended measures to: reduce financial costs upstream, by reducing the number of

bank partners and generalising the practise of fixed rates; improve the security of transfers that are currently sent by fax,

by setting up new banking and cash software allowing for elec-tronic transfers, validated either by fax or by magnetic card.

2. Countries outside FranceUntil recently, our foreign subsidiaries were financed via cur-rent accounts, with no cash pooling or notional pooling. Cash


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monitoring was done through the intermediary of monthlyreporting, a timely summary of which was sent to the Groupsdirectorship. Cash Management then decided on a monthly

arrangement to recover the surplus or to pay into the currentaccount, depending on the state of the accounts for each com-pany and after consulting its financial manager.

While various solutions are being examined in the frame-work of harmonising cash facilities, allowing the frequent, oreven daily, receipt of funds, Cash Management is gradually set-ting up a scheme to optimise foreign cash for all the companies

in the Group by: grouping bank partners and renegotiating bank conditions,

notably opening accounts with Fortis Bank for all the Euro-pean companies, according to unified negotiating conditions(including exemption from the costs of intra-group transfersin the euro zone);

within this framework, setting up real cash-pooling facilities,

with a daily levelling of bank positions in the Fortis Bankaccount initially and then via a partnership between ourFrench and foreign banks and all our banking partners;

daily management of the balance at Fortis Bank, attributedto the holding in France and encompassing all the fundsreceived from the European subsidiaries;

setting up information feedback on all the bank accounts,

without exception, based on the MT940 model,1

formatallowing consultation of the information in a foreign accountvia the interbankswift system (Society for Worldwide Inter-banking and Financial Telecommunication).

1. MT101 and MT940 are standardised formats covering all domestic and

international payment data. Most banks connected to the SWIFT networkare thus able to handle payments transmitted in this format. Its use requiresa programme capable of converting it to read off the bank statement, afunction that is available in most credit/debit software.


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D. Cash management planning

The missions and tasks of Cash Management are set out in a

plan stipulating the other management units with which it col-laborates, the timelines for implementation and frequency ofcontrols to carry out, and of which the directorate of the Groupexpects to be spontaneously and regularly informed. Here is anexample of this kind of planning:

Measure In conjunction

with

Timeline Control

of results

Action planfor Accountsreceivable(customers)

Generalisationof theindividualobjectivesbonus grantedto companyheads for terms

of payment andstock

- hrm- Marketingmanagement(Group)- GroupDirectorate

Finalisationat the startof the nextaccountingperiod

Monthly

Action planfor Accountspayable(suppliers)

Control ofanticipatedpayments

- Companyheads

Immediate Monthly

Action plan

for inventory(stock)

Analysis of

reference stockrequired formanufacturing

- Purchasing

and sourcingmanagement

Immediate Monthly

Plan of othermeasures toreducewcr

Profit sharingof sales stafffor AltradFinancementcredit files

- Marketingmanagement(Group)- hrm

Immediateeven ifgradual

Analysemonthly(progres-sions, parts,results)of AltradFinancementcredits


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Id. Creation of centralisedinvoicing

- Accountsmanagement- Legal

department

Feasibilityanalysisbefore the

end of the2005-2006period, setup beforethe end of2008

Id. Creation of a trading group

and paymentcentre

- Purchasingand sourcing

management- Accountsmanagement- Legaldepartment

Feasibilityanalysis

as soon aspossible, tobe set upbefore theend of 2008

Plan forcentralisedcashmanagement

Generalisationof fixed rates(bank chargesand financialexpenses)

Before theend of theperiod

Actionplan for theprotection ofassets

A prioricontrols

- Financemanagement- Groupdirectorate

Immediate

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