LUXEMBOURG TREASURY: ENABLING CHANGE
As an increasing number of companies aspire to expand and centralise their treasury activities, Luxembourg has positioned itself as a perfect choice for multinationals looking to relocate their treasury management centres.
While the fundamental role of the treasurer remains the same, treasury models are being re-evaluated. With so many factors impacting business more quickly than ever, there is an increasing understanding that agility and speed are crucial if a firm is to effectively manage its liquidity.
Banks in Luxembourg play a critical role supporting corporate treasurers in meeting these objectives, positioning the country as a prime location for core cash services, often combined with treasury, finance and accounting as a shared service hub.
During a recent press conference, François Masquelier, Chairman of the Association of Corporate Treasurers in Luxembourg (ATEL) and Senior Vice President at RTL explained: “Luxembourg has implemented several initiatives to address the new arising challenges for treasurers including robotic processes automation, data analytics, blockchain technology and FinTech.”
Luxembourg has implemented several initiatives to address the new arising challenges for Treasurers including robotic processes automation, data analytics, blockchain technology and FinTech..
In the 100th edition of the Treasurer magazine, published by ATEL, experts also point out that treasury has a growing role in the fund industry in Luxembourg. New treasury centres are being created by fund managers, which after years of strong growth, are seeking to reduce their banking and transactional costs, and manage the implications of negative interests.
As treasury management evolves so do banking solutions. Physical and notional cash concentration capabilities already support centralisation. But further innovation of account services has been necessary for banks in Luxembourg to satisfy the changing needs of treasurers. Virtual account solutions realise this vision by combining a single physical bank account with an accounting sub-ledger that is uniquely configured to separately identify different cash flows and balances.
Frédéric Mouchel, CEO, J.P. Morgan Bank Luxembourg S.A., believes the best results are when companies and banks work together to develop solutions. “Banks can help corporate treasurers on their centralisation journey by offering value-added services and technology solutions based on the corporation’s operating footprint, business activities and cash flows.”
Banks can help corporate treasurers on their centralisation journey by offering value-added services and technology solutions based on the corporation’s operating footprint, business activities and cash flows.
FROM STAINLESS STEEL TO CHOCOLATE
One of the companies that chose Luxembourg for its treasury centre is Aperam. Aperam is a global player in stainless, electrical and specialty steel, with customers in over 40 countries. In 2017, Aperam had sales of 4.5 billion EUR and shipments of 1.94 million tonnes. The company’s shares are listed on the Luxembourg Stock Exchange, on Euronext Amsterdam, Paris and Brussels.
Benoît Scholtissen, Group Treasurer of Aperam, says: “The company has its corporate headquarters in Luxembourg of which corporate finance functions. It includes the treasury hub of the Group with an in-house bank focusing on cash and financial risk management, and managing centrally financing activities.”
"We have always been very satisfied with our Luxembourg location which was an obvious choice when considering Luxembourg’s historical links with the steel industry, the expertise of its financial sector and the overall stability of the country.”
The company regularly uses banks in Luxembourg for its various financing activities.
“Following the spin-off of the stainless steel division from ArcelorMittal, it was decided that Aperam Group finance should be based in Luxembourg, at the Company’s headquarter in close contact with other key corporate functions. We have always been very satisfied with our Luxembourg location which was an obvious choice when considering Luxembourg’s historical links with the steel industry, the expertise of its financial sector and the overall stability of the country,” adds Scholtissen.
The decision to move to Luxembourg was taken when Ferrero widened its domestic commercial focus to include Western Europe: Luxembourg lay at the geographical centrepoint, in relation to Germany, France, Belgium and Italy, four countries that are home to large Ferrero plants and commercial units.
Marco Pescarolo, Head of Group Treasury, explains that the Luxembourg office is the nerve centre of the company, housing General Management, the CFO, Control, Finance and Consolidation, Treasury, HR including benefits and pensions, Organisation, Legal, PR & Corporate Communications, Area responsibilities for Commercial and Marketing & Brand activities, R&D, Industrial Management, Procurement and Supply Chain, Legal protection of trademarks, IT and Strategy.
The Group Treasury function in Luxembourg, controls and coordinates the activities of the group’s treasury offices worldwide.
“The Group Treasury function in Luxembourg, controls and coordinates the activities of the group’s treasury offices worldwide,” he explains. Ferrero deals globally, requiring the Group Treasury and Risk Management Units to handle trading accounts in more than 30 currencies. The list covers most currencies of Europe, Asia and Latin America. Ferrero maintains current accounts in some 15 currencies.
“When we look at corporate treasuries in particular, the very stable legal and regulatory environment, the strong technical infrastructure, the banking and financial environment and the network of tax treaties give Luxembourg, overall, a competitive advantage versus other countries in the euro area; probably none of these elements is crucial if taken per se, but Luxembourg’s high score in all of them clearly makes the difference,” concludes Marco Pescarolo, Head of Group Treasury, Ferrero.
The Luxembourg treasury eco-system includes four leading post-trade providers. For instance, corporates are required to report all financial instruments to a trade repository. They can rely on the service of REGIS-TR, one of the major European trade repositories, for reporting trades and transactions across multiple product classes and jurisdictions.
Another major establishment is Clearstream. Founded and based in Luxembourg since 1970, Clearstream not only offers settlement and custody services for banks but today engages in a range of activities including settlement, strategic securities lending, collateral management, registration, contract administration and portfolio reconciliation. One important field of activity is triparty repo, where Clearstream acts as an agent between its corporate customers and the banks.
“We have always been very satisfied with our Luxembourg location which was an obvious choice when considering Luxembourg’s historical links with the steel industry, the expertise of its financial sector and the overall stability of the country.”
Buy side clients have become increasingly important to Clearstream, acting as counterparties in secured financing transactions, such as repo and securities lending. One hurdle in the repo sector used to be handling all the legal documentation required with each correspondent bank.
In 2013, the company launched a standard multilateral repo contract, the so called “Clearstream Repurchase Conditions”(CRC), which allows corporate clients access to the repo market by signing just one contract. Clearstream likewise helps customers to manage their cleared and un-cleared OTC derivatives trades in line with EMIR requirements.
A COMMUNITY LIKE NO OTHER
One of the unique features about Luxembourg is that the community life is very dynamic and professional networks are welcoming. Luxembourg is home to one of the oldest treasurers’ associations in Europe.
The treasury association, ATEL, has more than 340 members. This is another asset that reflects the comprehensiveness of the Luxembourg package. We are there to help companies that want to expand and centralise their treasury activities. Like the country, we take pride in offer ing a warm welcome and the necessary expertise,” points out Masquelier.