INTRODUCTION
Libstar was founded in 2005 to acquire and grow operations in the consumer-packaged goods industry. The product portfolio comprises more than 9000 products, and 92% of Group revenue is generated from food sales. These products include dairy and meat products, fresh produce, convenience food, groceries, baking and baking aids, snacks, and confectionery.
BUSINESS CHALLENGE
Libstar approached TreasuryONE to implement and manage a central cash management structure for the group. Each Libstar division was responsible for their respective cash management activities and could not take advantage of the overall group cash position to minimise interest cost and maximise the return on cash.
THE SOLUTION
- Implementing the central cash management structure allowed Libstar to pool cash centrally and net off positions across banks via Libstar’s treasury accounts. The excess cash is then placed in conservative money market accounts to ensure counterparty risk diversification and increase returns.
- All funds within the divisions’ accounts are swept to Libstar treasury and used to repay any overdrafts before investing the funds. The Libstar divisions request their cash requirements from treasury daily by submitting requests via the treasury management system (TMS) that supports a complete audit trail.
- The TreasuryONE’s Cash & Liquidity team actions the requests by submitting transfer instructions to the banks via host-to-host connections, ensuring the division’s accounts are funded on time to execute their daily payments and ensure that the Libstar treasury’s position is squared off by either drawing down/investing from/to money market funds and call deposits.
- Debtor receipts is a problematic item to forecast, which usually ends up in current accounts leading to unnecessary opportunity cost. As a further enhancement to the central cash management structure, physical sweeping was put in place with Libstar’s banking partners. The physical sweeping automatically transfer funds that came into the Libstar divisions’ accounts to the Libstar treasury accounts and then further on to the overnight call account. This is done with straight-through processing, avoiding the need for human intervention.
- Keeping track of the funds and entity that the funds belong to is an essential part of setting up a central treasury. The daily cash request and sweeping transactions are automatically posted to the Libstar divisions intercompany account with Libstar treasury on the TMS. The TMS calculates daily interest and distributes monthly intercompany interest calculations and statements.
THE OUTCOME
The central cash management structure allowed the Libstar Group to gain control and drastically reduce their interest expenses and increase the overall return on excess funds.