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The 2012 guide to Liquidity Management: Diageo plans for any eurozone eventuality

With storm clouds darkening over the eurozone, the extreme volatility of market and economic conditions has been a concern for corporate treasury teams worldwide, especially for those that operate in Europe. Specifically, fears have mounted regarding the potential for assets to be effectively frozen should problems in a country in the eurozone deepen. Diageo’s treasury team wanted to plan to reduce the impact of such a scenario. Its treasury function operates as an in-house corporate bank and all cash is concentrated in London. To minimise its exposure, the company wanted to find a reliable and risk-managed solution to enable consolidation of cash flows, while establishing centralised control in London. Diageo’s solution was to partner with Bank of America Merrill Lynch to work through the impact of different scenarios on its cash management structures to enable it to put in place the right contingency planning to make sure it could minimise potential disruption.

The solution allows Diageo to configure parameters according to its exact requirements to provide unprecedented control over its in-country cash positions. Specifically, it enables the company to refine existing sweeping functionality to incorporate real time benefits and to automatically calculate and pull balances from third-party bank accounts in specific countries for repatriation to the UK, where regulations are supportive. It also allows Diageo to instantly restrict any outgoing payments in the event of a sudden change in the market conditions, in line with its cash management policy.

Implementation of the solution has ensured that Diageo could retain its local bank accounts in the countries with both Bank of America Merrill Lynch and its various third-party banks, for its daily payables/receivables management. The seamless flow of funds in and out of the centralised liquidity structure enables it to effectively manage its risk and limit exposure. However, the structure significantly reduces the risk of losing any cash associated with the intra-day movement of funds. In these unprecedented economic times, Diageo’s foresight provides treasury teams with a smart solution to protect their cash in the event of a crisis incident.

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