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Unlocking Hidden Cash: A Strategic Approach to Treasury Restructuring 

 

As Europe battles with inflation, treasurers contend with stricter macroeconomic policies and tighter financing conditions. Facing higher interest rates, firms must find alternatives to secure needed liquidity. Many companies are refocusing the treasury role on value creation, which involves scrutinizing operations and exploring asset evaluation, technology integration, and automation opportunities. 

In what instance should firms consider a strategic overhaul of their finance structure? 

 

Treasurers aim to optimize internal cash processes, streamline core operations, and avoid costly external funding, but may face challenges in mobilizing the group's own resources due to cash traps.  

Limited visibility across group entities, dispersal of funds across many bank accounts, and complex financial structures with various local and group participants can make accessing internal cash reserves difficult. Sometimes, a strategic overhaul is required. 

 

A critical consideration in this overhaul process is defining the required treasury team functions. Firms must evaluate the personnel, competencies, and assets required to optimize treasury operations. This introspection lays the foundation for a comprehensive restructuring plan that enhances the efficiency and effectiveness of the treasury function. Moreover, any restructuring initiative must adhere to substance requirements, encompassing personnel expertise, technological capabilities, and more. The aim is to create a treasury team that can handle current and future financial challenges with resilience. 

What critical aspects must be considered when overhauling financial structures? 

 

A key aspect which cannot be overlooked in the restructuring process is the tax impact, namely transfer pricing. Aligning business objectives and value chains typically calls for a shift of functions and roles. This is particularly important for private equity (PE) owned companies operating in Luxembourg, where collaboration between the tax department and the treasurer becomes essential to ensure that restructuring efforts do not compromise the company's substance.  

"A well-designed restructuring plan should consider the tax and transfer pricing implications to ensure compliance and mitigate liabilities."

EY Luxembourg_Pierre Mynard.jpg

When should firms consider a local or global structuring approach? 

Assessing, designing, and implementing a restructuring plan smoothly necessitates a comprehensive strategy. A choice will have to be made regarding the targeted treasury structure, whether to adopt a centralized and global approach or a regional one. A centralized and global treasury model offers the advantage of consolidated control, standardized processes, and enhanced efficiency across borders. Conversely, a regional treasury model may present benefits in terms of agility, responsiveness to local market nuances, and tailored strategies that cater to specific regional demands. Both options have pros and cons. 

 

The current market conditions present both challenges and opportunities for groups grappling with high interest rates and difficulties in debt raising. Unlocking hidden cash through strategic treasury team restructuring is a viable solution. For organizations seeking expert guidance in this transformative journey, our team stands ready to assist. 

Jean-Bernard Dussert 

EY Luxembourg, Partner, Transfer Pricing 

 

Pierre Mynard 

EY Luxembourg, Manager, Treasury Services 

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