In an opening day dedicated to flexibility and coping with volatility the 1,800+ treasury attendees at EuroFinance 2015 in Copenhagen, Denmark, on 23rd September heard from José Barroso ex-EC President and Lord Rose, ex-head of UK retailer M&S, about how to get fighting fit in a corporate world shaken by Greece’s near eurozone exit, possible Brexit, the Chinese stock market tumble, oil price and currency shocks, unnaturally low interest rates and much else besides.
"The existential crisis is behind us. The EU could deal with Grexit now if it happens," said José Barroso ex-EC President, at EuroFinance 2015, citing sovereign debt and Greece’s possible exit from the single currency as one of the major causes of recent volatility.
Concern has been growing about the future of the eurozone and Europe’s “fitness” for business. Syriza has just been reelected in Greece after all, with Alexis Tsipras again prime minister – perhaps he’ll search for any wriggle room in the most recent Greek bailout?
Barroso refuted these concerns. He believes that “weak energy prices and the recovery of Ireland, Portugal and even Spain are reasons for optimism in the EU.” The worst of the never-ending eurozone crisis could be over.
According to Barroso, “the good EU internal market is also a reason for optimism, but we need to spread this to the services sector,” he admitted. In his opinion the digital economy also offers much needed growth prospects.
Brexit a “Disaster” says Barroso
Grexit aside, Barroso was also concerned about the possibility of a British exit from the EU. The UK’s referendum is on the horizon over the next couple of years and was much debated at EuroFinance 2015. “It’d be very negative if the UK leaves …indeed, it’d be a disaster for Europe.”
“I hope it [UK exit] won’t happen,” said Barroso. “I’ve fundamental trust in the wisdom of British people and I believe they won’t vote against their interests.”
“Britain will lose if it does leave the EU as it is the biggest trading bloc in the world – representing 25% of global output,” continued Barroso, sounding a clear warning to Britain not to action a Brexit.
“America wants the UK to stay in the EU …they’re now calling Germany as they recognise that the UK could be moving to the periphery …remember, the US wants to talk to a country at the centre of the EU.”
The Economist Editor, Zanny Minton Beddoes, joined the former Prime Minister of Portugal and ex-European Commission (EC) President, José Manuel Durão Barroso (2004-2014), on stage for the opening plenary session at the 2015 EuroFinance 3-day International Cash & Treasury Management conference at the Bella Center in Copenhagen, Denmark. She was much less optimistic about EU growth prospects, commenting that the EU is still “unfit” for business in some respects with high unemployment, debt levels and so forth. The UK may not stay in the EU either if financial regulation becomes too onerous.
Barroso countered that “the Euro still exists”. Yes, but the ECB is papering over things, responded Zanny Minton Beddoes. “The debt crisis is still there.”
Beddoes touched on the macro-economic picture for the treasury attendees highlighting the structural reforms, which in her opinion, Europe needs to make to allow investment, employment and political stability to return to debt-laden and unemployment stricken countries in the eurozone.
Barroso and Beddoes then took questions from the floor and via the Slido.com mobile app in this opening plenary at EuroFinance 2015. They debated the health or otherwise of the euro single currency; the anti-establishment backlash evident in the election of Syriza, the new British Labour leader Jeremy Corbyn, and so forth. Banking regulation; German leadership of the EU; and the European migrant crisis were also discussed during the Q&A.
Migration Crisis: Bigger Threat than Eurozone Crisis?
“The migration crisis is a bigger threat than the eurozone ‘crisis’ at the moment,” said Barroso, adding that “the EU has to admit refugees.”
But will this spur more EU integration or a fracturing, asked Beddoes, highlighting the divisions between Eastern EU countries, like Hungary, that don’t want to admit the migrants and western EU countries, like Germany or Sweden, that do.
“We had a single banking union & other integration moves (under the impact of the 2008 crash and eurozone crisis). The migration crisis could similarly spur more integration,” responded Barroso optimistically.
“I want to see the refugee crisis solved by 2020 and the EU complete the internal market by 2020,” concluded Barroso.
A Rosy Outlook for Flexible Firms Only says ex-M&S Head
The competitive pressures facing companies and their treasuries can only be overcome by flexible firms that learn and change, said Lord Stuart Rose, former chief executive (CEO) and chairman of British retailer Marks & Spencer (M&S), who is now at Ocado.
In the next plenary session at EuroFinance 2015 Rose outlined how innovation, effective metrics and the ability to take risks and reverse course, when needed, should all be encouraged in the search for competitive advantage.
Corporations must cast off unhealthy habits and develop new regimes, products and ways of operation if they are to cope with the volatile, tough new economic conditions evident in recent times.
“Treasury used to be seen as a service function in the past, but this is no longer valid,” continued Rose. “Finance and treasury are now at the centre of the business. Treasuries help to companies are ‘fit for business’.”
According to Rose, the relationship between a CEO & finance/treasury teams demands trust. It can make or break a business. “Finance should be at the centre of initiatives,” he said. “No CEO worth his (or her) salt should forget this.”
During the concluding Q&A session, Lord Rose made a plea for banker bashing to stop, salary carping to cease, and for business to once more be seen as a force for good in the world. “Equally, banks must work hard to regain trust. Ditto: VW & Tesco,” he added topically. Many of the attendees at EuroFinance 2015 had been discussing VW’s share price slide after it was revealed to have rigged pollution tests.
Macroeconomic Obstacles – A Guide to the Future
The macroeconomic risks facing treasurers attending EuroFinance 2015 were neatly highlighted in the next plenary session at the conference. Each member of the 9-strong panel of experts highlighted one problem in turn and what might be done to overcome it. The lively session was intended to give treasurers a 5 minute ‘peak’ into the more in-depth presentations that panel members are due to give later on during the 3-day conference programme.
Everything from emerging markets’ offshore debts and currency problems, notably in China; banks’ capital shortages and the funding problems they might present to treasurers; alongside cyber and compliance risks, was debated by the panel.
The ‘Negotiating the Global Obstacle Course’ panel consisted of Sebastian di Paola, a Partner at PwC as the moderator, with among others, Marcus Hughes, Director at Bottomline Technologies presenting on SWIFT connectivity & bureaux and what the rise of SWIFT accreditation, the AL2 solution and so forth, might mean for treasurers.
“The rise of Next Generation super bureaux (SSBs) can offer better cash management and regulatory compliance,” said Bottomline’s Hughes. He went on to explain that super bureaux arose due to fears about the operational risk resiliency of small bureaux, their cyber-security capabilities, and so on. “It’s why SWIFT introduced an accreditation programme, which has led to consolidation. Only 70 SSBs are left now, but they can do lots lots more. For example, handle faster payments, fraud prevention and other treasury processing needs. SEPA DD management is possible too. The PSD II regulation could even lead some super Bureaux to become PSPs,” he concluded.
Amrita Sen, Chief Oil Analyst, at Energy Aspects was the next ‘trainer’ to take to the stage. She discussed Oil Prices and the potential treasury impacts of: “5million-barrel-a-day projects being cancelled (as is happening) and Capex cutbacks among US shale gas & other producers.”
“US shale production has already peaked at 9.7m barrels a day,” said Sen. “It’s now at 9.1m barrels. There has been a 30% capex cut."
“2017 will see a sharp drop in OPEC production,” predicted Sen. Treasurers beware - and perhaps hedge now against future oil price rises - was the clear indication.
The other panel members, and their presentation topics, were as follows:
- Richard Turner, President EMEA, FireEye – on the cyber-security threat to treasuries.
- Paul Parkinson, Sales Manager, EMEA, Misys – on the European Market Infrastructure Regulation (EMIR), Re. derivative reporting.
- Daniel L. Blumen, CTP, Partner, Treasury Alliance Group – on the Basel III capital adequacy regime and its potential liquidity and bank funding impacts.
- Ian P. Farrar, Partner, PwC, Hong Kong – on China (volatile at the moment but still an engine of growth).
- Philippe Vyncke, Partner, PwC, Belgium – on tax and the need for greater corporate treasury transparency in the wake of governmental and consumer-led’ focuses on tax efficiency schemes.
- Eric Burroughs, Editor & Managing Analyst, Reuters Buzz, Thomson Reuters – on the dollar/euro FX outlook, particularly as the US Fed looks set to raise rates, while the ECB continues with its QE programme.
There were plenty of key macro-economic threats outlined by the morning’s final panel therefore, as attendees broke for lunch. The lively session was intended to give treasurers at EuroFinance 2015 the tools they need to overcome the risks and volatility evident in today’s marketplace – or at least an indication of where best to find a solution.
EuroFinance 2015 Day 1: Afternoon – Centralisation & Liquidity Case Studies
EuroFinance 2015 split into streams during the afternoon of 23rd September. The daily show report followed the Centralisation & Liquidity streams where Stewart Harris, Group Head of Treasury Tax & Insurance at Givaudan & Lars Cordi, Group Treasurer at Carlsberg, shared case studies of their firm’s respective centralisation projects, while Richard Abigail, Group Treasurer at Arup in the UK discussed its global cash and liquidity pool.
Givaudan treasury has centralised its policy setting, decision-making, staff, technology and execution on its Swiss HQ, explained Stewart Harris, Group Head of Treasury Tax & Insurance, at Givaudan, during his Stream 1 Centralisation speech at EuroFinance 2015.
The fragrances and flavours company has sales of CHF4.4bn; 9,704 staff worldwide across 82 locations; and sells 60,000 products, explained Harris, as he outlined the scope of his firm’s centralisation project. “We wanted to transform our treasury function so that it’s highly integrated, strategic and useful,” he said.
“You should strive to use a single instance of SAP if you can,” advised Harris. “It’s our ERP and treasury platform now … consolidated tech creates enormous power.”
“We’ve got a very strong core now, with centralised ownership and rationalised banking partners. Treasury has moved from 50 global banks, down to only 15 …and some of those are specialist banks for China and the like.”
“Givaudan has much better oversight of its payments, cash management, risk, and so forth (thanks to its centralisation project),” continued Harris.
In regard to the benefits of its Swiss HQ treasury centralisation project, Harris said: “We now control 80% of group liquidity in the centre. Almost all processes are electronic and automated.”
“FX risk exposures are now handled now daily – not monthly – and trading volumes are down by half, equating to a CHF20m per year saving.”
“Operationally, the centralisation project has saved CHF10m per year, but the intangible benefit is probably even more worthwhile – we’re now part of strategic discussions and decision-making.” Treasury has the time to get involved in more planning, strategy and value-adding boardroom meetings and projects because of the automated nature of its operation, which has freed up employee time.
Carlsberg Case Study: Probably the Best Treasury in the World?
Next up during the afternoon’s Stream 1 centralisation sessions at EuroFinance 2015 in Copenhagen was a local treasurer. Lars Cordi, Group Treasurer, at Carlsberg Breweries in Denmark discussed how to create core “fitness” as a company grows and goes global, as Carlsberg has done.
Carlsberg is now a EUR8.7bn business, as of 2014, with 46,000 staff worldwide, and a presence in 150 global markets. It sells 37bn bottles of beer a year. It has benefitted from centralising its treasury function in order to increase efficiency, data, oversight and compliance across its diverse global footprint.
Cordi’s centralisation and M&A integration talk finished with some sage advice for other treasurers that face having to adsorb a firm after a takeover, or those that are growing organically: “Keep it simple,” he advised. Good project management is also crucial if the objectives outlined at the beginning of a project are to be met.
Case Study: Arup Global Cash & Liquidity Pool
In a different conference room at the Bella Centre in Copenhagen, Denmark, Richard Abigail, Group Treasurer at Arup in the UK, shared a different case study at 4pm, as part of the Stream 2 Liquidity-focused sessions.
Abigail’s Arup case study was about the corporate’s global cash and liquidity pool. He effectively explained how to take your liquidity solution to next level if you’re a treasury professional – covering the cultural, structural and technology upgrades undertaken at Arup.
The engineering firm has introduced a notional pooling structure, with cross-border foreign exchange (FX) sweeping covering Chinese RMB, Emirati AED and many other currencies. The single global pool is based in London and has 24 entities and 40 accounts across 15 nations.
“We’re still rolling out the pool,” said Arup’s Abigail. “The Polish currency will be added next week, while Mexico is on the horizon. The project has been a ‘door opener’ for me and the treasury team. It’s meant we can start other risk discussions with the boardroom and get more involved in the business.”
Jennifer Doherty, Global Head of Commercialisation, Liquidity & Investment Products, at HSBC UK co-presented the session, entitled ‘How to Superset your Liquidity’. She outlined how best to manage a liquidity project – recommending EuroFinance 2015 attendees do their objectives first; identify quick wins and establish boundaries early on in any project.
“You [treasurers] should do all this to ensure you stay hydrated with your liquidity solution,” joked Doherty.
“You should be continually reviewing your liquidity solutions and structures,” added Doherty, citing efficiency as a key driver, but also compliance with regulatory challenges such as FATCA, Dodd-Frank, the Basel III capital adequacy regime, and so on.
Towards the end of the session, HSBC’s Doherty, had some reassuring words for treasurers at EuroFinance 2015, saying that despite Basel III, “notional pooling won’t go away.” But it will inevitably change, so treasurers shouldn’t be complacent about the regulation. It will bring change.
“Basel III could destroy Arup’s SuperSet liquidity structure,” said Arup’s Abigail, as he returned to the debate.
Other concerns for the future, according to Abigail, are the European Market Infrastructure Regulation (EMIR), covering derivative and trading activities.
“Brexit [a British exit from the EU] is also a concern for the future as we’ve got a UK-based (2-person) treasury at Arup.” This would be hard hit if the UK referendum, which is due in the next couple of years, was to end in a ‘no’ vote in response to the question: should the UK remain in the EU?”