Packaging specialist Albéa has completely redesigned the local organization of its financing and treasury operations in the United States. Interview with the Group’s finance and treasury director, Olivier Bouillaud.
– Can you tell us what Albéa does?
– Albéa manufactures everyday packaging and beauty solutions: tubes, lipsticks, mascaras, perfume, applicators several kinds of packaging, and much more. We serve prestigious firms, emerging brands, and both local and international companies. Our group employs 12,000 people across 31 industrial sites in Europe, North and South America, China, India and Indonesia. Our annual turnover amounts $1.2 billion.
The story of our group began with Pechiney, which then became Alcan, before our buy-out in 2010 by Sun Capital Partners, and then in 2018 by PAI Partners. Over this time we have made a number of structural acquisitions that have furthered our organic growth, notably the acquisition of Rexam Packaging in 2012, which helped accelerate our development in the US, and then of Orchard and Fasten in 2019.
– How is the finance-treasury function organized at Albéa?
– The finance-treasury function is organized around a three-person central treasury team in Paris, which relies on local relays in India, China, Indonesia and the US. This set-up means there is centralization without a hierarchical relationship. Each financial director has autonomy and the ability to consult local banks. We’re keen to retain this entrepreneurial spirit and enable our local finance directors to evolve freely within a defined framework and shared processes. It’s an organization based on trust, mutual recognition and appreciation, and it works well.
The central treasury department plays a supporting role by providing knowledge and experience. We help everyone to carry out the reporting that is crucial for our executive management team to monitor activity. We also provide tools. Since we have deployed a treasury management system (TMS) for the group, treasury processes between countries and business lines are more secure and homogeneous.
In terms of financing, the group’s medium- to long-term debt is centralized in our holdings in Luxembourg. Our priority is to fund the working capital needs of our subsidiaries. To that end, we have four cash pooling schemes – in Europe, the US, China, and Indonesia – and factoring programs in Europe. Until recently, we also had an Asset-Based Lending (ABL) scheme in the US. In China, our factoring program is dormant because our subsidiary’s treasury is in surplus. Financing working capital needs enables us to eliminate the discrepancies between our receipts and disbursements, and ultimately to better manage inventory. This is essential in our businesses.
– What principles guide your banking relationships?
– We seek to establish stable long-term relationships with banking partners capable of providing quality cash management services, in line with local needs. We are still working with too many banks around the world — around 30 in total. Our bank account structure could do with being simplified so that we can spend less time reconciling, minimize operational and fraud risks, and free up teams’ time for projects with higher added value. The ideal target would be to have two local banks and one international bank in every major geographical area in which we operate.
The adoption of our treasury system has led us to streamline our banking environment with the aim of limiting the multiplication of contracts, licenses and implementations on the one hand, and concentrating our side business on the other.
– What challenges did your recent cash management tender in the US involve?
– In the US, where we make a quarter of our turnover, we only had one bank. The relationship had existed for a decade or so. We were satisfied with the quality of the cash management services, but the relationship had become strained with respect to the functioning of our asset-based lending program (ABL). This collateralized financing, worth some $60 million, had many constraints – do’s and don’ts – requiring the US banking partner to agree to our development strategy. We felt like we had a bank – whose team failed to understand our concerns – on our board of directors.
Repaying the ABL removed all of our obligations to the US banking partner and facilitated all of our M&A operations. As such, we repaid the debt, paid the break-up fees, and put inter-company financing in place. This, in turn, triggered the immediate sending of a termination letter from our bank. We had 120 days in which to leave the relationship with our bank. The priority was to notify our clients and launch the process of selecting a new banking partner for the next ten years.
– How have you replaced your ABL program?
– Having financing from your cash management bank is convenient, but it’s not indispensable. After the sale of several assets in the US in June 2020, the introduction of new financing was no longer an urgent matter. Our US subsidiaries have no debt and proceeds from sales remove short-term treasury requirements. The ABL provides an important financing base, on invoices and inventory, which we no longer need as much.
Given the funding envelope required for the next three years in the US, we decided to break away from the legal, organizational, structuring and lien (guarantees, cross-guarantees, obligors) constraints of the ABL. This will enable us to avoid the hassles we had when dealing with our former banking partner.
We have naturally switched to factoring, which is a lighter, simpler solution that is not too expensive. This new funding is confirmed for three years, like our European program. From the point of view of rating agencies, it is a stable resource. Finally, in the US, factoring is seen as true sales (no recourse) and thus deconsolidating, which is an additional advantage.
– Based on what criteria did you select your cash management partner?
– We had a preference for a US partner that was fully compatible with our banking communication tool and TMS. We were also looking for a bank recognized by our clients and suppliers. We wanted a partner that was well known and recognized in-house, able to deliver the same quality of service as our former cash management bank: able to set up letters of credit, guarantees, leasings, financing beyond factoring, and provide the broadest possible portfolio of services.
The structuring of the tender, led by Redbridge, enabled us to prioritize the essential matters: lockboxes, letters of credit, treasury tool compatibility, forex, and generation of dematerialized checks. We built our specifications in project mode. With the call for tender, which was conducted quickly and efficiently, in the end it was easy to separate from a banking partner we had worked with for ten years. We were surprised by Redbridge’s ability to put us in contact with banks that we would never have dreamed of.
The collaborative approach also facilitated the final decision. We got our US subsidiaries on board before proposing the final choice to Albéa’s Chief Financial Officer, and there was no hesitation in our selection. Moreover, while the priority was to change banks, we achieved the savings that we had envisaged two years ago when we were looking into the matter.
– How has the migration to your new bank taken place?
– Once the accounts were opened, we first circulated the information to our clients, and then called each of them to let them know about the change of bank. Fortunately we had a strong relationship with our US clientele. We issued our first payments. Apart from electronic checks, which we are not yet fully prepared for, we have re-established the full range of banking services, enabling our US entity to operate as normal. We are currently using our new bank’s in-house platform, and the connection to our treasury tool will take place at the end of the year.
– What about your financing partner?
– We selected Eurofactor for the US factoring program. It already operates our pan-European program and provides a tool compatible with our TMS. True sales involve additional legal costs but, overall, the cost of our financial resource in the US has fallen considerably compared with the pre-existing ABL. A slight downside is that financing will only be credited D+1.
– What are Albéa’s treasury plans now?
– There are always a lot of projects on the go! To finish optimizing our treasury architecture with our TMS; to continue aligning our internal signatory processes and operating methods; to train subsidiaries that fall within our TMS; and to activate the new modules on our treasury tool (such as netting, cash forecasting, cash pooling, debt management and exchange rates). We also intend to prepare as best as possible for M&A operations in the near future by starting to reflect on our debt structure and the positioning of our credit profile (credit insurers and rating agencies).