From the November 2008 issue of Treasury & Risk magazine

Gold AHA Award Winner for Cash Management

With a 68% increase in revenue since 2003 in Europe, the Middle East and Africa (EMEA), Honeywell International Inc. took steps to more tightly manage its growing business. Over those five years, acquisitions had added more than 500 bank accounts and more than 100 legal entities. Cash balances for EMEA grew to over $1 billion held in 20 currencies.

So treasury embarked on a campaign to choose just one primary bank per country. In-country cash pools were used to concentrate cash balances in each country. Notional pools were used in the U.K. and the Netherlands and a cross-border pool with Deutsche Bank AG was established for the 10 Euro countries. When possible, cash from these pools was lent back to Honeywell's in-house bank in Belgium and then "hedged back to the local currency of the lender and either invested or used to finance non-U.S. capital investments and acquisitions," explains Marie-Astrid Dubois, assistant treasurer for EMEA and Asia. Today that in-house bank can lend or borrow in 18 currencies with over 100 counterparties in more than 30 countries, running a gross book of about $4 billion in activity, she says.

The rationalization has brought a net reduction of nearly 600 bank accounts, better service and a 50% reduction in cash management fees, saving the company approximately $2.7 million per year. Now virtually all of Honeywell's cash balances in the region come under the partner banks' cash pools and in-house bank structure, resulting is high visibility of cash and more efficient use of that asset. "Over 90% of EMEA's cash balances can be deployed cross-border in a tax-efficient manner to fund liquidity and acquisitions as needed, of which over 90% is managed directly by EMEA treasury personnel," Dubois says. That has meant a 25 basis-point pickup in investment return and a source of funding for most of Honeywell's acquisitions in the region, she adds.

Expansion in the U.K., for example, meant that legal entities grew from 25 to more than 60 and bank accounts have increased from around 100 to around 150 in the past five years. But today all accounts are with Barclays, notionally pooled and invested through portals that ensure competitive bidding for time deposits and money market liquidity fund investments. In the United Arab Emirates, the business has grown so large and complex that it was moved to a HSBC "relationship office accustomed to dealing with large multinational corporations," Dubois says, and Honeywell and HSBC are working to establish a cash pooling structure there. In Romania, Honeywell treasury has worked to explain to the National Bank of Romania the workings of a Euro ZBA cash pool and received permission to operate the first such pool in that country.

In order to offer subsidiaries in the region a cross-currency payment and collection solution that would allow them to handle small-value, repetitive cross-border payments and collections without having to maintain a local currency account for each currency, EMEA treasury worked with Deutsche Bank and BNP Paribas to develop an all-in-one FX, payment and collection service that improved efficiency through a streamlined process of FX dealing, settlement and payment. "The subsidiaries can consolidate bank accounts, thereby eliminating idle balances and mitigating risks of operating local currency accounts and exposure to currency volatility while benefiting from Honeywell-negotiated FX rates obtained from a Reuters benchmark page," Dubois explains.

The rationalized and highly automated banking structure has made EMEA treasury adept at integrating acquisitions. Treasury actively participates in the due diligence and integration team, so it knows the acquired company's cash flows and bank accounts before the deal is signed. Then, on day one, treasury can take control of those bank accounts and within 45 days transition the new subsidiary over to the cash pooling structures.

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