Somfy SA

Group Treasurer – Somfy SA

 “We have not opted for hedge accounting under IAS”

La Lettre du Trésorier

You progressed within the business in line with its own growth?

Valérie Binet

Yes, that’s true. After studying for a BTS qualification in accountancy and management, I joined Somfy in 1988 as a management accounting assistant. Two years later, I moved to the Treasury Department to replace someone. In 2001-2002, I enhanced my career path by studying for a diploma at the ESC in Grenoble. During this time the company’s sales rose from e76 million to e720 million in 2007; 70% of the sales are made outside France. The company now has 4,700 employees - including 1,200 at the industrial site in Cluses – eight production sites and 52 subsidiaries. There are two and a half people in charge of group treasury operations. In addition, one treasurer is responsible exclusively for the cash flows for the French group.

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Has the company’s history fluctuated?

VB: Somfy, a family-owned company, was formed in the 1960s in Cluses, which is a major centre for precision engineering in Haute Savoie. The first major turning point was in 1984 when Damart SA acquired Somfy, allowing it to grow. The second important date was in 2002 when Damart SA was divided into two separate companies - Damartex and Somfy SA - which now have separate listings.

In early 2006, we set up a cash pooling system for all our European subsidiaries in euros.

Somfy is now the world leader in motors and control systems for the automatic movement of products around the home and workplace. It main markets are France – 28.2%; Southern Europe – 20.4%; Northern Europe – 14.9%; Germany – 13.6% and the USA – 9.7%.

What are the company’s activities?

VB: Somfy SA, the holding company, is also the pivotal point of the group’s cash management function (management of foreign exchange risk and group banking relations). In early 2006, we set up a cash pooling system for all our European subsidiaries in euros. In France, we have 12 subsidiaries, which have automatic ZBA on a day-to-day value basis. In addition, there are nine foreign subsidiaries - three in Italy, three in Germany, two in the Benelux countries and one in Spain - for which we escalate the balances on a daily basis. We currently manage 80% of the group’s net cash flow.

In the interests of production and reliability, we automated our cash pooling system and implemented an automatic accounting system for all the ZBA entries. We notify our subsidiaries of their current accounts and their interest scales through our intranet. They, for their part, send us their cash flow projections, which after being validated by our team, are automatically integrated into our treasury system.

Were you able to renegotiate with your banks?

VB: We have taken advantage of the introduction of cash pooling to renegotiate our local banking terms. We selected HSBC to implement the cash pooling system. Their IBOS network, that is their local banking partners, are also mostly partners of our subsidiaries.

As we wanted the subsidiaries to follow this project as well, they needed to see a reduction in their banking costs, which was the case as we reduced costs by around 30%. At present, the ones which are not yet included in the process are eager to join it.

Somfy has retained its four network banks. We also work with some banks that specialise in asset management in order to invest our recurring financial surpluses. [[[PAGE]]]

With a surplus cash flow, do you have difficulty in choosing how to invest?

VB: Yes, absolutely. We are relatively cautious and we always try to manage our surpluses ‘with due care and attention’. Our investments are limited to one year and are always guaranteed in capital terms. Every month at our treasury committee meeting we arbitrate on our lines if necessary. We have sufficiently flexible written procedures which allow us to remain responsive. We have fixed distribution rules –one third in open-ended unit trusts (SICAV) or monetary mutual investment funds (FCP) and one third in certificates of deposit – structured and otherwise – and the balance in a dynamic medium. This summer, as a result of the sub-prime crisis, we decided to reduce our dynamic position. This was no longer on the cards in December because we had certificates of deposit offered by banks lacking liquidity which had higher yields.

We use all types of strategies from classic futures to exotic options, depending on the opportunities offered by the market.

How do you manage foreign exchange risk?

VB: The foreign exchange impact is far from negligible since 70% of our sales are outside France. Foreign exchange risk is managed on a centralised basis by the holding company. Every year we devise a guaranteed price per currency when we create the budgets. These rates, which are guaranteed to distribution subsidiaries, and therefore the transfer prices, are in principle set for the year. However, depending on how the market develops we may be required to review these prices according to our internal procedure. We have been highly vigilant about the movement in the dollar exchange rate for several months – with 40 million in annual sales, this represented 40% of our transfers. We also deal in Swedish crowns, the pound sterling and the Swiss franc in an amount of around 25 million, as well as in Asian and Eastern European currencies.

As regards IAS, we decided not to opt for hedge accounting and have not changed the way we work. Our hedging policy is always to have between three and six months of firm hedges before us. Our concern at the moment is to monitor the performances of our foreign exchange positions. Despite the broad range of software on offer from software companies, we have still not found one that meets our expectations, that is one which allows us to adapt our strategies to market movements at a price which is compatible with the size of our company. We use all types of strategies from classic futures to exotic options, depending on the opportunities offered by the market.

Have you become SEPA compliant?

VB: We have been working on the project since the beginning of this year. We made good use of our annual meeting with the group’s financiers in May to make them aware of and inform them about the project.