Innovation In Action
Citi's multi-currency cash concentration strategy delivers considerable cost savings
UK-based SABMiller is one of the world's largest brewing companies, with 200 beer brands and revenue of over USD21 billion (March 2008).
With brewing interests and major distribution agreements in over 60 countries - in both developed markets and fast-growing ones such as China and Russia - SABMiller has a complex liquidity management structure. Moreover, having grown largely by acquisition, the company has operational and liquidity management structures.
"We wanted to address the problems posed by our structure and reduce working capital requirements, while ensuring sufficient liquidity for our business units," explains Giles Newell, the company's Deputy Treasurer.
In addition, SABMiller wanted to align its treasury strategy with a broader finance strategy to achieve the "holy trinity" of liquidity management: cost reduction, process standardization and risk reduction. The company also aimed to establish an infrastructure for future treasury projects, such as inter-company netting and foreign exchange centralization.
Citi's innovative solution for SABMiller was a pragmatic mix of cash concentration and notional cash pooling, where funds could stay in the name of the business unit - an important consideration in a decentralized company.
Instead of local business units borrowing against short-term deficits and depositing short-term surplus cash with local banks, they could borrow or deposit with the group treasury.
Having appointed Citi on the basis of its geographic coverage, multi-currency cash pooling ability and competitive pricing, SABMiller embarked on the first phase of a multi-currency cash pooling project covering nine currencies, 10 business units and 10 countries. Future phases covering Latin America, Africa and Asia are being explored.
"Implementation was tricky," says Newell, "the complexities of achieving buy-in from local businesses cannot be underestimated. But it was worth it. SABMiller has greater clarity in its liquidity management, and centralized balances mean improved rates for deposits or the ability to repay external borrowings. By netting balances, we avoid paying overdraft and deposit margins. Overall, the savings are considerable."