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Building a treasury strategy Back  
The Heiton Group is a well-established provider of materials and services to the Construction Industry, with operations in both Ireland and the UK. Since 2002, the company has also had a small presence in central and eastern Europe. Heiton Group operates under three divisions, Heiton UK, Heiton Retail and Heiton Trade with leading names such as Heiton Buckley, Cork Builders Providers, Heiton Steel, Sam Hire, Wright Window Systems, Atlantic Homecare and the Panelling Centre.

The strategy of the Heiton Group is to deliver superior returns to shareholders by being the leading solutions provider to the construction and repairs maintenance and improvements (RMI) markets in Ireland and focussing on niche markets outside Ireland.
The pursuit of that objective has been very successful in recent years with a growth in earnings per share (EPS) of 27 per cent per annum over the last 10 years and 15 per cent over the last 5 years. The Group is well positioned for continued growth in the future in each of our businesses with exciting development and acquisition potential.
Heitons has a clear policy in place for managing its treasury operations. This was last approved by the Board in early 2003 and is reviewed every two years. The key elements of the Group’s treasury policy are:
• To maintain a balance between sshort, medium and long term debt
• To maintain prudent levels of interest cover, net debt: EBITDA and gearing
• To maintain a balance between fixed and floating interest rates
• To target each division to deliver positive cash flows annually
• To maintain a broad spread of banking providers while maintaining a close relationship with our lead banker

One of the critical elements of this policy is to ensure that the Group holds a level of debt which ensures an optimum weighted average cost of capital (WACC) while at the same time retaining capacity to borrow money up to our facility limits in order to finance the range of development and acquisition opportunities that exist.

Our organisation structure is set up so that the group finance director and group financial controller are responsible for implementation of group strategy, monitoring performance across the divisions and measuring and reporting such performance to the Board and senior executives. The daily tasks of cash management and foreign exchange management are delegated to operating management within the divisions.

1. Routine cash management
Routine cash management involves the important task of our credit controllers ensuring that cash is collected from customers in a timely manner and according to the terms agreed. Similarly, payments to our various suppliers ensure that we optimise our credit terms at the lowest administrative cost to ourselves.

To achieve this, our systems have been developed and enhanced in recent years to ensure the maximum percentage of our paperwork is automatically matched and agreed at source, which in turn minimises the need for conflict resolution. Our cash and banking specialists, who are responsible for controlling the bank balances and ensuring complete reconciliations, pull all of these elements together.

2. Overseas transactions
Many of our businesses have significant purchases from overseas. Despite the introduction of the euro, dollar, sterling and other currencies remain a large part of our purchase base. The Group’s policy is to cover forward for specific orders and not to speculate on future movements in foreign exchange rates.

3. Financing requirements
A crucial element of the implementation of our treasury policy is to ensure that the facilities are adequate to meet the Group’s needs. During 2003, we undertook a thorough review of our financing requirements. This involved an invitation to a number of banks to quote for our business in accordance with a term sheet which we had predetermined. Following a series of meetings and reviews, we narrowed the list to five providers, agreed the facilities for each of them, confirmed their agreement to the financial covenants we sought and ultimately agreed to a tailored loan agreement, which was consistently adopted by each of those providers. This process, although somewhat lengthy, means that we have a much more streamlined arrangement with the banks, making management of those relationships more straightforward.

4. Comprehensive reporting systems
A comprehensive reporting system is in place whereby senior management are appraised of the treasury position on a monthly basis. This includes a comparison of the balances outstanding at the end of each month with the prior year and with the facilities that exist. This is broken down between short term, medium term and long-term facilities as well as finance leases. Additionally, the key financial covenants are included (gearing, interest cover and net debt: EBITDA) and a comparison of these covenants is made against the measures agreed with our bankers

Treasury policy linked back to group strategy
In conclusion, across all of its operations, the Heiton Group endeavours to ensure that, the divisions and central functions adopt and work with policies which are consistent with the Group’s overall objective. Treasury policy and operation is no exception.

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