Intro Video Transcript

Hello. My name Katarina Azib. I have 12 years professional experience in treasury which I accrue in different sectors such as telecommunication, pension plans, planning company and insurance. Our work mostly in France and presently I work in Monaco. Today I would like to share with you my experience about cash pooling and we will discuss the use of cash pooling to optimize financial results. And here is the agenda. We’ll start with pooling mechanics and its main benefits where I will explain you the principles of pooling technique. Then we will see different pooling methods like SEPA and notion of pooling. This will lead us to the conversion of pooling prerequisites and how to choose the appropriate approach. We will follow by implementation issues and we will also SEPA and its impact on the choice of pooling structure. Then we will finish by other techniques which can be used enhance pooling. So, let’s start with our first point, Pooling mechanics and its main benefits. So, what is Cash Pooling? Cash management technique employed by corporation in order to optimize financial results. Cash pooling increase visibility and control of the cash. It’s a technique of netting which automatically reduce liquidity and financial cost. Centralize group liquidity which can be used for fundraising and at the same time, reduce interest pay to the banks and increase automation. So, how does it work? Let me explain with a very simple example of cash concentration ZBA cooling. On the left, we have the situation sub accounts before cash pooling and on the right, situation after cash pooling. As you can see, we have two banks which are in the benefit and two banks which are negative. After cash pooling, we consulate cash into master account and we keep all sub accounts at zero. Actually, master account and cashed to a debit account is the example of bank wellness and sub account Bank two and three, we purchase cash to the master account. So none of the accounts are using overdrafts anymore. So why we do it? Why we do this? Let’s do some calculation. Let’s imagine that interest is 2% on all the accounts and we receive 1% credit interest from all account and then we can see interest rate of master account would be -2 unit and bank one, -4 units and at the same time we will receive some credit interest 3 units for bank two and 0.5 units for bank three. However, on this situation, after cash pooling, bank one, two and three would be zero, no interest receive and no interest paid and master account will receive 0.5 units. If we totalize the situation, we can see that without cash pooling we would end up with a global loss of -2.5 units and with cash pooling, we would end up with a global gain of 0.5 unit. So, this is a huge difference and great benefit of cash pooling. Now let’s imagine bank one is a very little bank and they cannot propose a person debt interest and maybe we need to pay 2.5 or 3% and we can also imagine the bank three and two are in the countries where we cannot receive interest in the current account and there won’t be an interest receiver and in this case, gap on between the situation of without cash pooling and with cash pooling would even larger. So, this is a very hypothetical example. Please keep in mind that we cannot remunerate directly current accounts in all the countries and then interest receive would be more in the form of capital gain resulting from bank selling of the monitoring fence but we will discuss this point on later on. So, cash pooling allows transfer of credits and debits into master account on a value date basis. We reduce interest payment of sub accounts and the master accounts. It can be source of financing because we do not use overdraft anymore and centralize cash gives us possibility of better negotiation with the banks. To risk impact of the value date, because pooling transfer all credits and debits at the end of the day. We have maximal optimization that erase the impact of the provision. This is the case for checks and VIT direct debit payment, which are often not debited the day we estimated. For an example, in France, VIT direct debit may be debited in two months or two and half months after the estimated date and at the same time, we are obelized to keep certain cash reserve for this payments to able to guarantee company suability. Amount of cash reserve to guarantee check and payments are often quite important and it’s just an ideal cash is not used. Cash pooling actually allow us to optimize this ideal cash because provision as they are not integrated into the pooling balance. We optimizing the totality of the cash, should using the totality of cash. Then we have different optimization possible. We know ZBA, Zero Balance Account, just the example I show you where we would like to keep all sub account zero at the end of the day and this is a huge method. And then we have Target Balancing Account, TBA where we keep established level of liquidity. In this case, maybe we decide to keep plus fifty in all the accounts and we don’t want to do cash pooling if you have less than fifty on these accounts. Then FBA, Fork Balancing Account, where we keep level of cash between the fork established, maybe say minus fifty and plus fifty and we are not doing cash pooling if the cash balance is between the fork establish.