About Me

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I am deputy editor at The Banker, a Financial Times publication. I joined the magazine in August 2015 as transaction banking and technology editor, which remain the beats I cover. Previously I was features editor at Profit & Loss, an FX and derivatives publication and events company. Before that I was editorial director of Treasury Today following a period as editor of gtnews.com. I also worked on Banking Technology, Computer Weekly, and IBM Computer Today. I have a BSc from the University of Victoria, Canada.

Thursday, 6 December 2012

AFP Conference: Interviews with Two Canadian Treasurers

At the AFP 2012 Annual Conference in Miami, which ran from 14-17 October, gtnews talked to Heather Campbell, treasurer, Gran Tierra Energy, and John Lee, vice president, treasurer, Ontario Power Generation, to get the Canadian perspective on treasury trends this year.

Question (gtnews): What do you think were the hot topics at this year’s AFP Conference in Miami?

Answer (Heather Campbell, treasurer, Gran Tierra Energy): It may be my particular bias for I am fairly concerned with forecasting, but I think that rolling forecasts and the ‘beyond budgeting’ concept were among the hot topics this year. There is a certain amount of discussion around trying to move away from the historical variance analysis and getting ahead of the budgeting cycle, which is not easy to do. My company has started to think about this but moving away from an actual budget would be extremely difficult.

Risk management is a hot topic every year at the AFP conference because it is something that can be quite visible - making the wrong choice can lead to big swings within a company. Commodity price volatility is one example. As an oil company, we consciously don’t hedge our commodity price risk because our investors are interested in commodity price exposure and they would prefer to do their own risk management.

Answer (John Lee, vice president, treasurer, Ontario Power Generation): This year, the classic topics such as cash management are still there, but a new theme that I have picked up on is the uncertainty around what the future holds. People feel that their ability to predict has been compromised by significant world events. Risk management is an important aspect because not only do treasurers have to run their processes, but they need to be able to react and adapt to the new environment.

Globalisation is another aspect that everyone is acutely aware of. As Canadians, we always see ourselves being impacted by what happens in the US, but now the Americans are being affected by global change, whether that is by what is happening in the emerging markets or Europe. As Canadians we have never felt as exposed economically and politically to global issues as we are today.

A third area of interest, which reflects the uncertainty of the times, is cyber fraud. There is an unknown aspect of where the internet will lead. With rapidly changing technology and payments becoming more electronic, control becomes an issue.

Question (gtnews): How, in your opinion, has the role of treasurer changed since you started your career?

Answer (Campbell): The treasurer’s role has broadened. When I started at my company I was a controller with an accounting background, so I have only been a treasurer for five years. But even before I was a treasurer, I could see this broadening when I dealt with treasury. A lot of people think of treasury as foreign exchange (FX) hedging and liquidity management, but my responsibility includes insurance programmes and enterprise risk management (ERM).

Even cash forecasting has evolved to become a management performance tool to fill in the gap between accounting reports. My cash forecast is not just used by me, but also by my chief financial officer (CFO) to determine the cash balance and capital spending efficiency. I do variance analysis that goes beyond just saying that our cash is lower because we are paying more invoices, and answer why and what are the business drivers for that. I think this is part of the maturity process of the ‘beyond budgeting’ concept - management now wants to be forward looking.

Answer (Lee): Treasury used to be viewed in isolation, solely dealing with cash and funding, but today it is more integrated with the strategic aspect of the company. An effective treasury have to be adaptive so that you can look for opportunities as well as downside risks in these volatile times. The old days of projecting and assuming the world is going to move in a similar pattern are over; you have to react because there are many major events that could impact you at any time as a result of globalization.

In order to be effective in the strategic aspects a treasurer needs to be upfront in the decision-making process and more proactively dealing with internal and external user groups. At Ontario Power Generation we have made a conscious effort to increase the awareness of liquidity and financing implications in our upfront planning and decision making process because you end up being reactive if you don’t. Nowadays there is more work being put on the treasury group, so you have to be much more effective and proactive. You either let problems manage you, or you try to manage the issue before it becomes a problem.

Because of resource constraints treasury has to become much smarter. I have found that in our group there is a higher expectation despite less staff. The integration with the business side is crucial. In decision-making, the normal business case analysis looks at net present value (NPV) and the internal rate of return (IRR), but they don’t take into consideration the timing of cash flows. We have put it in metrics to address that it must be part of the analysis - the business has to look at cash flow impact and funds from operations (FFO) coverage in the short term as well as the long term. NPV ignores the aspect of liquidity constraints and short-term risk. We have pushed this upstream so it is integrated as part of our business case approval analysis.

Question (gtnews): Are there specific challenges to being a Canadian treasurer, whether that is changing regulation, liquidity, funding opportunities, risk or changing payments environment?

Answer (Campbell): When you get to a certain business size in Canada, you can’t be domestically focused. We are an international company and consciously not in the Canadian domestic market; but even if we were a domestic oil and gas company, we would not necessarily be able to rely on the Canadian market. First, the capital markets are much smaller and second there are no global prices denominated in Canadian dollars. World oil prices are denominated in US dollars. Even if all our production was in Canada instead of being in South America, we would be exposed to US FX through the price of oil.

This may be an industry bias, but it is true in many industries because Canadian companies have to deal with the global markets sooner than if they were operating in a larger economy. Even though the Canadian dollar is a hard currency, it is not a reference currency.

Answer (Lee): What has cropped up on the near-term horizon is Basel III. Canada is adopting the regulations much earlier than other countries; consequently the banks are reacting earlier. However, banks are moving at different paces, so it is a real challenge for us in terms of managing relationships with various Canadian banks to ensure transparency and consistency in pricing.

Another concern relates to the political uncertainty we are facing. In Canada we are somewhat insulated, but if other countries catch a cold it is likely to spread to us.

Question (gtnews):Do you think the role of the banks will further diminish in future? If ‘yes’, which alternative sources of funding will fill the gap?

Answer (Campbell): The banks need to come up with a way to get back in the game. Corporates are building up cash, but it remains difficult for us to deal directly with other corporates. My treasury investment policy is conservative and I can’t deal directly in commercial paper, so I need a third party to provide the assurance that I know what I am dealing with.

Everyone is frightened of what happened in 2008 and regulation is getting piled on, but at the same time banks need to have the flexibility to operate. The banks are a marketplace and we need that marketplace.

The bank market didn’t really dry up in Canada. From our point of view, the bank market in the US only dried up for a short period of time. We have a credit facility that we never draw upon - because we are in the lucky position of being cash rich ourselves - but we have always had banks knocking on our doors to lend us more cash.

Answer (Lee): The banks’ role won’t diminish but they face increasing challenges because of return requirements on their capital. We are a highly-rated entity and banks tend to gravitate towards stronger credits that have need for ancillary financial services. However, banks may choose to leave lower-rated companies because they perceive them to be a higher risk unless they are able to achieve the appropriate returns. If you are core to the bank’s business, then you will be fine; but if you are more peripheral, it is going to be very challenging for you.

Corporate treasuries have to react to the new banking products - we are trying to have some impact on what the banks are developing. One thing the banks can do is be more effective in communicating why they are doing certain things and what is driving them to change certain products.

Some companies are exploring new funding avenues, such as the private placement market. We have tapped this market as a source of funding. What changes, such as Basel III, will mean for treasurers is that they will have to diversify their funding sources and ensure sufficient liquidity is available. It is important to diversify so that you don’t get caught if a certain funding source experiences problems.

Question (gtnews): What steps will you take in the year ahead to make your treasury department more efficient?

Answer (Campbell): We have embarked on a cash forecasting project which encompasses different time horizons. We define short-term forecasting as four to eight weeks ahead, medium-term is up to a year ahead and longer term is two years ahead, understanding that the second year is less accurate. We are just trying to reach the two year mark and are working with the business development group that is steering the process to get the information needed.

The one-year forecast, which we do ourselves, is very manual - we use Excel. But we are trying to make it more efficient and focus each time period on its objective. Presently each week we do an eight-week plus four-month forecast, which focuses activity in the wrong area. A lot of time is spent on the four-month forecast, whereas we don’t need to do that on a week-to-week basis unless something big changes. We need to make the weekly forecast more operationally focused and make the medium-term forecast more strategic.

Whenever I go to conferences like the AFP, I always look for cash forecasting answers because it is so difficult. In a way it is reassuring to me that we are not an exceptionally stupid treasury department and that this is difficult for everyone. But at the same time I wish that someone could say this is how we do it and the light bulb goes on for everyone. But there hasn’t been that epiphany moment yet.

Answer (Lee): Presently, we are fulfilling the requirement to reduce our overall staff from the company’s perspective. Our corporate footprint is getting smaller as we move out of the fossil side of the business - this was mandated by the government. At the same time, we are going through a refurbishment phase in our nuclear business, which means additional capital requirements and much more work for treasury.

We are trying to increase the value-added aspect of treasury and be more proactive. For those who play football, we are using a ‘zone defence’. Traditionally we would have people that specialised in certain areas, but today we don’t have enough people so they have to be cross-trained on FX, cash management and financing to support one another in a team. The problem with this set-up is that if you lose a person, it leaves a gap because you are spread so thin.

From the technology side we are also looking at evolving the treasury platform to be an enhanced repository for Treasury information. This will enhance our reporting capability and hopefully reduce manual work.

Question (gtnews): Although Canada remained relatively unscathed by the financial crisis of 2008, do you expect several more years of difficult economic conditions? If so, how will you respond to the challenge?

Answer (Campbell): Yes, I think there will be a few more difficult years. Canada is tied to the US economy, although we have our own natural resource base that insulates us to a certain extent. I am hearing a lot about the fiscal cliff. No one will do anything before the US elections, of course, and then there is only six weeks after the election to act. Maybe it is a bit Y2K-ish when everyone thought the world was going to end and it ended up being a non-event, but it still makes me nervous.

Scenario planning is something that we are doing to mitigate the big economic issues which have huge impacts on oil price as a global commodity. What I am suggesting now to management is to create a playbook, which is the next step in planning what we are actually going to do. For example, it would be a disaster for us if the oil price crashed down to US$30 per barrel again. We wouldn’t have to shut down the company but our activity would go back to only absolute essentials. The playbook will lay out a few generic decisions that we can stick to. If you talk about highly emotive issues in a ‘what if’ scenario, then it is easier to make the hard decisions.

Answer (Lee): The key thing for Canadians is that we had a fair amount of reserves, our banks were relatively strong and we are more conservative than other countries. It is like having a full inventory. But if things are going from bad to worse and you start drawing down your inventory, at some point you will run out as the crisis overtakes you.

Many people are saying that there will be limited growth - about 2% - even with many positive underlying assumptions, such as if we get through this fiscal crisis in the US, if Europe doesn’t implode, and so on. There are many positive ‘ifs’ that will have to happen even to get a modest outcome.

We are going to face challenging times for a while with the fiscal cliff in the US, the ongoing European sovereign debt crisis and global economic slowdown.  Given the uncertain environment, driving efficiencies, maintaining effective liquidity management, diversifying funding sources, and developing good business relationships with key banks will be critical for treasurers today. 

First published on www.gtnews.com

Friday, 23 November 2012

EuroFinance 2012: Q&A with Damian Preisner, Global Treasury, and Gerd Klevenz, Head of Treasury Operations, SAP Germany

23 Nov 2012

gtnews spoke with SAP Germany’s Damian Preisner and Gerd Klevenz about their sessions at EuroFinance 2012. Preisner led a discussion on the strategic advantage of the ISO 20022 eXtensible Markup Language (XML) payment standard, while Klevenz participated in a panel discussing what a centralised treasury looks like in different industries.

SAP is a global software vendor, headquartered in Germany, with annual turnover of €14bn. The company’s treasury team is made up of 30 employees, is organised centrally and uses a treasury management system (TMS) that is part of the SAP enterprise resource planning (ERP) system.

Question (gtnews): What were the main discussion points during your session entitled ‘Changing Standards: Is Anyone Using Them to Strategic Advantage?’ at EuroFinance 2012?

Answer (Damian Preisner, global treasury, SAP Germany): The session examined the business case for moving to the ISO 20022 XML payment standard now and the amount of preparation still needed on the banks’ side. The financial industry is being pushed to adopt XML by the single euro payments area (SEPA) end date, but there is much more to it than SEPA Credit Transfers (SCTs) and Direct Debits (SDDs).

The Common Global Implementation (CGI) initiative, which includes banks, software vendors and corporates, is trying to develop a more standardised global approach to payment formats. Its aim is, to quote, for “a corporate to be able to use the same message structure for all their payments with all of their transaction banks reaching any payment system across the globe.” SAP participates as a software vendor, so treasury is not involved directly but we have chats with our colleagues who are.

A standardised global approach will provide a level of bank interoperability that has not been reached before. Previously, there were other so-called global formats, such as MT 101 or Electronic Data Interchange for Administration, Commerce and Transport (EDIFACT), but now XML has begun a new journey. SEPA is a part of that journey, and the CGI and the new version just agreed by banks and software vendors should be another step in that journey to support corporates operating globally.

Question (gtnews): Are banks keen to adopt the ISO 20022 XML standard?

Answer (Preisner): We have worked with two banks, the Royal Bank of Scotland (RBS) and Bank of America Merrill Lynch (BofA Merrill). It requires significant investment from the banks, but it provides them with better transparency and visibility. A few banks truly understand that transparency is an advantage, not a disadvantage. That means that only a few will make that investment; if a bank believes that this is its core business, then it will invest.

Question (gtnews): Are corporates adopting the XML standard?

Answer (Preisner): SAP is an early adopter, and we one of the corporates which are ahead of others  since we use only one SAP version for all subsidiaries and have set up a payments factory. In the past few months I have discovered other early adopters, each facing specific pain points. Every company has its own organisational history and is confronted by different challenges with regards to master data, processes and shared services. It is difficult to compare, but there are some common experiences.

Answer (Klevenz): For example, some corporate treasury departments are solely responsible for treasury payments. They need to cover critical payment types with the XML format on a global scale but they may not have the volume within treasury needed to make this a feasible option. Others are considering XML from a SEPA-compliance perspective - they have to be compliant and instead of tweaking an old format in one country, they see the potential of standardising payment files at a global level. If you go that extra step and cover most of your entities, then it gets progressively easier to support payment files. The end point is when you only need IT knowledge based on XML. Currently if there is a problem with a German payment file, you need someone who knows the structure of a German payment file; or if there is a problem in France, you need to understand the French rules. SEPA is a trigger for many corporates to adopt XML.

Answer (Preisner): This is a great chance for treasury to explain how an XML migration can provide efficiency savings for IT because they do not have to support local formats. At SAP, treasury tries to find benefits for all stakeholders.

Question (gtnews): Did you start the journey from a SEPA-compliance perspective?

Answer (Klevenz): The XML project was connected to the integration of a newly acquired corporation for which we had to deliver new payment files out of the ERP system. It was the right time to connect closely the two initiatives and work with banks in the CGI group to deliver the new format.

Answer (Preisner): We took the chance to innovate. It was a strategic decision not to use the old payment file but to innovate instead. We had some early adopter pain points, but we have a holistic approach as a software vendor. We want to reduce the pain for our customers by solving problems in advance so that no one else has to experience them or at least “limit the pain” for the customer.

Question (gtnews): Moving on, Gerd what were the main discussions points during your session entitled ‘Centralising the Treasury Function Can Mean Different Things’?

Answer (Klevenz): The panel, which included Irina Bobrysheva, head of group treasury, Severstal, and Rudmer Wedzinga, international treasurer, Coty, discussed what a global infrastructure looks like for treasury. The main discussion points were around how treasury can achieve transparency with regards to cash: where is it, how much is there, what are the different approaches, etc. Everything came back to how important good data is as a basis for sound decisions.

The panel consisted of three corporates - a retailer, a large steel conglomerate and an ERP software provider - with different approaches due mainly to the business model. Severstal, for example, has to focus on commodity risk. Foreign exchange (FX) risk is also top of mind - even though it is a Russian company, it has US dollars as the functional currency, which is not the currency in which it pays salaries.

At SAP, we have a special approach to managing FX risk by securing the balance sheet of each legal entity. The euro is our functional currency as a German company. If a Swiss legal entity has local currency Swiss francs, then it is exposed to risk. From a group perspective, many companies wouldn’t hedge because it gets converted one-to-one to the group balance sheet. However, we will hedge because we want to secure the local profit and loss (P&L). If a company has a large euro exposure in Switzerland and doesn’t hedge, then the local entity will suffer if the market moves in the wrong direction. We try to ensure that the local subsidiary hedges its exposures, not externally with the bank but with SAP AG. Then we look at the exposure from a group perspective and hedge it externally in the market.

The panel also discussed how to centralise liquidity, which raised differing opinions. One treasurer said that their company uses zero balancing with cash pools across different currencies. SAP, on the other hand, focuses on zero balancing in euros and US dollars only. We don’t centralise other currencies daily, but rather on a monthly basis to avoid daily changes in our FX exposure. We also discussed problematic countries for extracting money, such as China, India and South Africa.

For all these risks we depend on our ERP system to get information in real time. We get most of the risk data from the accounting/financial system of SAP. Our TMS, which is part of the ERP system, is then used to enter hedges.

Question (gtnews): What do you think were the hot topics at this year’s EuroFinance?

Answer (Klevenz): Executing on the ISO 20022 XML file is a hot topic because having a plan is just a small part of the whole project - execution and going live takes a lot of time.

Answer (Preisner): The SEPA end date is putting a bit of pressure on the industry; however solely focusing on SEPA misses the bigger picture. The journey has started and SEPA is one milestone, but the whole industry could go further. Treasury should take this as a chance for further investments to restructure or rebuild whatever is there, not only in payments but looking at other business processes as well.

Answer (Klevenz): We haven’t touched on the transmission channel for the payment files. It is counterproductive in a shared service environment if corporates have to use a variety of electronic banking (e-banking) systems to serve different countries. In the end someone ends up with 10 different tokens to administer these payments. It is also difficult to centrally control a variety of e-banking systems which are partly maintained in Cyrillic, Urdu or Chinese characters, so compliance becomes an issue.

Answer (Preisner): All these multiple channels should be reduced to a minimum or in a best case scenario to one channel - for example in a global payments factory -. SWIFT could be part of the solution because it eliminates proprietary banking connections.

Answer (Klevenz): Yes, if treasury deals with several banks, SWIFT might prove to be a good solution. If you have a single banking infrastructure for most of your payments then a host-to-host connection might be acceptable. For us it is SWIFT.

Answer (Preisner): As we said before, every corporate is set up differently. If you have one or two banks, then it doesn’t make sense to invest in one pipeline such as SWIFT; instead it makes sense to invest in proprietary e-banking connections. But that set-up may restrict you - in a crisis you never know whether the bank you are with today will be there tomorrow. You have more flexibility with one channel that is ready for multiple banks. From an end-to-end perspective, if a XML payment file format, which contains all the data needed, is extracted from the source system, accepted by many banks and routed through a multi-banked channel such as SWIFT, then you have the possibility of being more flexible to change bank for any reason.

Question (gtnews): Is there is one thing that would make treasury more efficient?

Answer (Klevenz): That is easy: having direct access to IT resources in order to be able to react more quickly. That is an issue even for SAP treasury - we do not have immediate access to developers because they have to focus on developing. Having access to IT resources is critical, no matter if it is internal or external developers or consultants.

First published on gtnews.com.

EuroFinance2012: Q&A with Harry Blok, Director Corporate Finance, AkzoNobel

19 Nov 2012

AkzoNobel is the largest global paints and coatings company and is a leading producer of specialty chemicals. gtnews interviewed the company’s director of corporate finance, Harry Blok, to get his views on the hot topics at EuroFinance, as well as adjusting to a ‘new normal’ of limited growth going forward.

Question (gtnews): What do you think were the hot topics at this year’s EuroFinance?

Answer (Harry Blok, director corporate finance, AkzoNobel): This is a cash management event and many treasurers will be looking for solutions for cash management problems, but I am not sure that they will find new solutions for day-to-day issues. What they will be looking for are the relationships that will help them develop a way forward. New ideas and innovations are desirable, but you do not need an event such as EuroFinance to get up to speed with new technologies. The event is useful to meet with the people behind the technologies, in order to get a better understanding, or just meet new people and expand your network.

If you look at the speakers and panel discussions, the conference is focused on risk management and volatility. I expect to hear about regulatory changes that are coming in as a result of the economic downturn, how to handle your cash management affairs in a volatile environment, etc. A panel earlier today said that you don’t need to know exactly what is going on - when and what will happen - but you need to be prepared for change and able to deal with volatility. The situation is not as predictable as it was before and the models we used to work with are no longer relevant.

Q (gtnews): How, in your opinion, has this volatility affected a treasurer’s job?

Answer (Blok): This level of volatility is new for most treasurers. A treasurer typically wants to know what is going to happen, what the cash flows are and how to manage foreign exchange (FX) and interest rate (IR) risk. A treasurer typically wants to forecast, anticipate and hedge risk. But the outside world is changing and treasurers need to find ways to deal with this instability. Most importantly, they need to understand the fundamentals behind this volatility. I guess this is the most important reason for treasurers who come to EuroFinance.

Looking at the poll conducted in the opening plenary session, many believe that they are well prepared to solve certain problems, even though their treasury systems are not up to speed. People trust that, within their network, there is someone who can support them. This relates back to volatility: you can’t always anticipate what is going to happen, but you must ensure that either you are well prepared for different scenarios or have access to the right resources - people and systems - to be able to manage new situations. The new dynamic within treasury is to deal with such uncertainty and to operate more like a businessperson who normally operates in a changing market, looking for new opportunities, looking to build the network, making it stronger and creating value with partners.

Partnering is extremely important. When I first joined AkzoNobel, as an in-house tax advisor, we cherry-picked our consultants depending on the region/country and specific expertise but then we decided to go with one global non-audit service supplier. That move was extremely difficult, because we had to build new partnerships and that takes time.

I see the same thing happening today with banking relationships. It is not just a product that a corporate buys; banks need to understand your needs and you need to understand what the bank can offer. Trust is so important within my team, banks, government bodies and regulators. It is important to invest in the relationship, which is why treasurers are here.

In addition, corporates want to learn from each other, and this conference is an easy access point for knowledge without spending too much money. A treasurer can discuss with a peer from another company about a SAP problem, for example; whereas if they hired an SAP consultant they would have to pay for that expertise. That is the beauty of a professional peer network.

Q (gtnews): What keeps you awake at night?

Answer (Blok): I sleep very well. But if you are asking me what the top priorities are, fundamentally I think we need to adjust to a situation where there will be limited growth in the mature markets going forward, within the foreseeable future. As a company, if we still want to outperform in the market then we need to focus on operational excellence, innovation and sustainable growth. These are key themes and I am concerned that not everyone is aware of this.

If you only assume that your company’s growth rate will be the same as the gross domestic products (GDPs) of the countries where you operate and expect to stay alive, then I think you are wrong. These GDP growth estimates are based on historic data and are still too optimistic, as far as I am concerned. In business we need to be very realistic about where our opportunities lie and where we can still grow, or project our growth as well as we could in the past.

If you translate that into what a director of corporate finance does, I try to efficiently fund our operations and repatriate cash as efficiently as possible to headquarters to distribute to our shareholders. I want to make sure that these are based on realistic business growth projections. I believe that there are many opportunities in the areas of innovation and optimisation of current businesses, but we need to make sure that these are incorporated adequately in our businesses’ projections.

Global sustainability is one issue that personally concerns me. If the world continues at the current level of material consumption, then I do not believe that it is sustainable. We need to have a clear view as to how to meet future demands/requirements, not only set on a voluntary basis by consumers, but also by what the planet can handle. The challenge is for corporates to anticipate and behave accordingly. The main focus is not only sustainable finance, supply chains and value chains within the group, but also in terms of interacting with governments, banks and funding.

Banks have an important role here. There are many small and mid-sized enterprises (SMEs) that are extremely concerned about funding. Innovation does not only take place at the blue-chip level but especially at SME level. This is an untapped market for banks. These entrepreneurs are worried about funding, but they also believe in their ideas and innovative capabilities enough to be willing to pay risk premiums. I believe that sustainable growth comes from a very healthy SME market with innovation, entrepreneurship and risk taking.

Risk is also about opportunities. Entrepreneurship requires risk taking and looking for challenges, and for some people to do the things that other people won’t do. This requires a different mind-set from traditional banking and treasury.

Q (gtnews): Do you think the role of the banks will further diminish in the future?

Answer (Blok): If I look at the overall trends in the market, I find a strong focus on IT and process efficiency in cash management. Companies want to integrate their IT systems and processes with their banks, to make cash management as efficient as possible. But by offering this process optimisation, banks - to a certain extent - make themselves redundant.

For example, a company wants its cash management bank to work as efficiently as its in-house bank (IHB) in cross-border cash flows. This is not currently possible due to monetary restrictions, but also because within many banks there is a lack of IT system and process harmonisation. But if cash management is viewed purely as a process that can be automated, then an off-the-shelf product should fulfil the requirements. Will that part of a bank’s activities disappear over time? In the long run it may be destined to, because cash management could be considered a routine/standard process that can be automated.

However, banks do much more, and offer other products and services complementary to cash management services. And one cannot ignore the role banks play in debt and capital markets transactions. As the market requires them, I am sure that banks will continue to be - or become more - innovative and remain in business. But as in any other industry, the landscape will look different in 10 years from now.

Q (gtnews): What effect will new regulations have on the relationship between corporates and banks?

Answer (Blok): Basel III is one of the reasons that the blue-chip corporates with strong investment grade ratings have access to cash and credit. The question is whether the capital requirements set by Basel III are really as rigid as people think, or are they just typical given the type of business the banks are in.

Solvency II, Dodd- Frank and Basel III all aim to force financial institutions (banks and insurers) to manage their risks appropriately. Should banks be risk-averse in this volatile environment? Probably not, as the economy needs entrepreneurs, also in the banking sector.

Large corporate are well represented at this EuroFinance event, and there are only a few SMEs. If you posed the same question to the SME market, you would get a very different answer because they are concerned about liquidity. Although this conference focused on the big corporates, the needed boost to the global economy will also come from the SME segment, which is full of entrepreneurship, innovation and creativity.

In short, the question, what effect the new regulations will have on the relationship between corporate and banks is not easy to answer because there are different effects for different corporates. But banks and regulators should be mindful of the fact that credit is not only required by blue-chips with strong ratings, but also by SME’s with higher risk profiles. And, again, this should not be seen as a risk only but above all as a growth opportunity.

First published on www.gtnews.com.

EuroFinance2012: Q&A with Daniela Sibille, Director, Corporate Treasury EMEA, SunGard

13 Nov 2012

Cash and risk management were the hot topics at this year’s EuroFinance event, according to Daniela Sibille, director, corporate treasury Europe, Middle East and Africa (EMEA), SunGard. The eurozone crisis still looms large and contingency planning is the order of the day.

Question (gtnews): What do you think were the hot topics at this year’s EuroFinance?

Answer (Daniela Sibille, director, corporate treasury Europe, Middle East and Africa (EMEA), SunGard): The hot topics were cash and risk management. Although these are usually good generic topics for most treasurers, this year they are even more important because of the constraints in the marketplace. Although we always talk about cash management, it has become more important because liquidity is much scarcer than it was previously. As treasurers, we must strive to ensure our companies have the liquidity that they need to run the business.

In this way cash management touches on risk management. The market is changing - banks have had to review their balance sheets because of incoming regulations, which will impact their ability to lend. As it becomes more difficult for corporates to access bank funding, they will need to rely much more on their own cash. Treasurers will also need to look at alternative sources of funding.

In the various EuroFinance sessions these two themes came up quite often, even when we spoke about credit ratings agencies (CRAs) and why it is important to review your rating. Because if you want to move away from bank funding and look at issuing in the bond market, you will need to have a good credit rating.

The conversation was really around how we can raise funds for our companies and make sure that the liquidity is available, when and where it is needed.

Q (gtnews): What keeps you awake at night?

A (Sibille): If I knew what the next big issues were going to be, then I would be more relaxed. What is troubling is that the economic crisis does not appear to be winding up. Things are not improving and it seems as though the current situation will stay as it is, or get worse. The euro crisis is a big issue, particularly the situation in Greece. During the Vivartia presentation, I was surprised that some companies think that it would be better if Greece defaulted, or even left the euro. Unfortunately this is still a possibility and it is very difficult to anticipate what the consequences would be.

We can try to build contingency plans, but this is something we have never dealt with before. So theoretically we can try to mitigate risk, but we don’t really know how big the impact will be and whether other countries would then leave the euro. A Greek exit could have an avalanche effect. This is the biggest issue at the moment, although as a company we do not have much exposure to Greece. But any repercussions across the eurozone would be a concern.

Q (gtnews): How, in your opinion, has the job of treasurer changed since you started your career?

A (Sibille): It has changed considerably. The crisis has put treasurers in the spotlight. We have moved from a role that was within the finance department, or close to accounting, to a more defined role in the company and have taken on responsibility for a large proportion of the company’s risk management. The constraints on financing, and also the currency volatility seen in the past few years, have meant that there is a greater awareness of what treasurers do and their role within the company. Today treasurers have greater access to the board of directors and are able to add insight to commercial decisions.

Q (gtnews): Do you think the role of the banks will further diminish in future? If ‘yes’, which alternative sources of funding will fill the gap?

A (Sibille): Banks are challenged in today’s environment and will continue to be challenged by the economic crisis and incoming regulations. They have had to change the way they approach lending. The new regulations are here to stay and there may be further regulations that make the lending business even more difficult. It is quite possible that some banks may have to withdraw from the lending arena.

This means that corporate treasurers will have to look at alternatives source of funding. Banks will still be there for the cash management and foreign exchange (FX) activities, but companies need to start thinking long term about funding alternatives in case their banks are not able to lend. Corporates can explore cash retention, or look at borrowing in the Asian markets where there is more cash availability. Maybe Asian banks will have a greater appetite for business in future years.

Q (gtnews): What steps will you take in the year ahead to make your treasury department more efficient?

A (Sibille): It will be important to focus on the information quality that we produce internally, particularly cash flow forecasting in terms of amounts and currencies. It is possible to be more precise in understanding our cash needs and surplus. We plan to do an in-depth risk analysis in order to begin to understand and forecast risk before it materialises in front of us. These are the two main areas we are looking to improve.

We want to be able to do an evaluation of risks versus opportunities. It is important to clearly define what level of risk you are comfortable with and also identify opportunities. You might be prepared to take on a certain level of risk if you see a good opportunity from an investment or other activity. This is a decision that should be taken together with the business.

By undertaking a risk analysis, it may be possible to find another way to achieve the same end. It does not mean that we are not going to do the activity. If we can identify the risk and measure it, we can hedge to eliminate the risk. For example, we proactively hedge and use insurance policies.

It is important not to ignore risk because it is not going to go away - it is still there whether you like it or not. Risk analysis is also an opportunity to learn because once you have done it, then you have a path to follow. You may find some new opportunities just by taking a look at the risk and alternatives open to you to offset it.

Q (gtnews): Do you expect several more years of difficult economic conditions? If so, how should a treasurer respond to the challenge?

A (Sibille): The current economic environment is here to stay, or even get worse. A treasury needs to ensure that the company is covered to face a longer crisis period. The company must be funded and should never face the situation where it can’t access funds. Treasurers should review every opportunity to fund the company, which may include improving and enlarging banking relationships. This is now the time to examine how the company is funded and look for possible alternatives. This should be done now because it needs to be effective in two, three or four years.

We need to be looking at the medium- to long-term cash flows. We can’t look just at one to two year flows, but must look at least five years out and understand where the company will be at that time. Previously, it was possible to refinance six months or a year before you needed the funding, but now you need to start at least two years in advance.

First published on www.gtnews.com.

EuroFinance2012: Q&A with Marie-Astrid Dubois, Assistant Treasurer EMEA and Asia, Honeywell

13 Nov 2012

Marie-Astrid Dubois, assistant treasurer Europe, Middle East and Africa (EMEA) and Asia, Honeywell, talks about the effects of Basel III on banks’ lending practices and corporates’ access to funding, as well as the importance of attracting good staff, particularly in emerging markets such as Asia.

Question (gtnews): What do you think were the hot topics at this year’s EuroFinance?

Answer (Marie-Astrid Dubois, assistant treasurer Europe, Middle East and Africa (EMEA) and Asia, Honeywell): Treasury is a trade where things are always similar but, of course, the world changes around us. Therefore we need to anticipate changes and be ready to adapt to them. We need to be constantly looking at what is happening - and in that sense risk management is high on our agenda. I think that the hot topics this year include cash management and risk management, as well as process automation.

Similar to most treasurers, when I attend EuroFinance I am looking to achieve a number of objectives. First, I need to meet with my bankers and often I have topics to discuss if my company is looking at specific projects. I want to test these ideas out, not only with my bankers but also with my corporate peers. I also want to assess the general environment.

Conferences like EuroFinance are mainly about getting a general idea of where you are, compared against what is happening in the marketplace. It’s a unique opportunity to meet everyone at the same time. It is an intense three days of conversing with banks, corporate peers, software vendors and consultants. I try to gather all the ideas together to ensure that I am moving in the right direction in terms of the projects that I am working on.

Q (gtnews): What keeps you awake at night?

Answer (Dubois): Most people are concerned about funding and cash. Honeywell in the US does look closely at the funding part because it has debt there; outside of the US, which is what I manage, the company has surplus cash. This difference is quite important. Treasury must ensure that the company has access to funding on one hand, while at the same time making sure that it efficiently uses the cash it has. We need to effectively maintain and preserve capital, as well as ensure that it is safe in every country and entity that we have around the world - Honeywell is present in 100 countries. This is one issue that keeps me up at night.

Counterparty risk is another area of concern. Treasury needs to ensure that it observes certain parameters and is proactive in thinking through what could happen, as well as considers various alternatives and options on a forward-looking basis. One of the topics we will be examining in the next few months is zero yield. How do we handle that? What are the options that we want to capture? These are the issues that we need to solve.

Q (gtnews): Do you think the role of the banks will further diminish in future? If ‘yes’, which alternative sources of funding will fill the gap?

Answer (Dubois): Today, large corporates have access to bank and market funding and I think this will continue. The importance of building, maintaining and developing strong relationships will continue to be paramount. Bank funding will continue to be important but may develop into a different type of funding, for example supplier financing. In that sense, we need to explore different funding avenues.

Basel III will have an impact on the cost of funding and in the way some corporates will be treated by certain banks. Depending on your rating, it will be easier for some corporate categories to have access to bank financing, while others may not have the same level of access and will have to explore different avenues of funding. I feel confident that Honeywell will have access to bank funding.

As a result of the Basel III capital ratios, banks will try to demand certain things from corporates, such as longer-term deposits. In return, banks will need to develop new products - and some have already - that are flexible enough for corporates not to feel trapped or constrained. In this market banks will develop new products that are compliant with what Basel III requires but flexible enough for their corporate clients.

Q (gtnews): How, in your opinion, has the job of treasurer changed since you started your career?

Answer (Dubois): Corporate treasury has gained greater visibility in an era of crises - whether banking, economic or sovereign debt. With interest rate and foreign exchange (FX) volatility, our advice is sought more often at the board level. In addition, we now have input into a wider variety of business areas, such as supply chain, real estate and investment. The good news is that we are increasingly visible and closer to the business units. We have to be - we cannot be housed in an ivory tower and only speak to the banks. We need to communicate with the business units and really understand their needs, making sure that we help them drive growth for the company. I think all of those are important aspects of the job.

We also need to manage reality. Reality may be tougher but we need to find solutions. And that is the ethos I want to drive in the organisation.

Q (gtnews): What steps will you take in the year ahead to make your treasury department more efficient?

Answer (Dubois): To make treasury more efficient, we want to invest in automation technology. That is a big thing we are driving forward. We will also invest in staff. It has become more difficult to attract good individuals, so we need to ensure that we develop, coach, train and mentor them. It is important to ensure they are engaged with what is happening around them, because the last thing you want is to have a stale and inwardly focused treasury department. You want people who have an understanding of their business partners’ requirements and are able to bring value to the relationship.

Q (gtnews): Do you expect several more years of difficult economic conditions? If so, how should a treasurer respond to the challenge?

Answer (Dubois): I am a pessimist, so unfortunately I think the years ahead will continue to be tough. However, as I said, there are always options and alternatives. Basically we need to assess business requirements - their demands and what they need from treasury in terms of financing suppliers and customers, as well as making sure they have access to capital. We need to find solutions because fundamentally we don’t have a choice - the business will not develop otherwise.

Q (gtnews): Have you put in place contingency plans in case of a eurozone break-up?

Answer (Dubois): Honeywell’s Greek exposure is limited, so it is lucky to that extent. We have made some basic decisions similar to those taken by other corporates. For example, we have not left any cash in Greece. We have opened non-resident bank accounts, so entities have their own cash but it is no longer held in Greece. Of course they are part of the euro cash pool, so that simplifies things as well. For years now we have concentrated on monitoring counterparty risk, from a country, banking system and counterparty bank standpoint. We have also set up a euro task force and are frequently assessing various risks.

Q (gtnews): Are there specific challenges to operating in Asia?

Answer (Dubois): Yes. Understanding the regulations is very difficult, for example in China or India. It is important to have people that can decipher them for you. That is why finding the right people at the right level who really understand the corporate culture, as well as understanding the local culture, is critical to operating in Asia.

Honeywell has a regional treasury centre based in Singapore, with an arm in Shanghai. The red tape that we have to cut through is extremely cumbersome. And like many corporates operating in the region, cash mobility is a challenge.

First published on www.gtnews.com.

Corporations Expand Mandate for Treasurers, Finds AFP Survey

16 Oct 2012

As a result of the critical role that corporate treasury departments played in sustaining their companies through the recession, companies are expanding the role of the treasury function, according a survey by the Association for Financial Professionals (AFP), released on 15 October at the AFP’s annual conference. With the crisis abating, corporations are not scaling back this role but doubling down on it, while continuing to lower treasury banking costs and demand efficiency from the function.

The 2012 AFP Treasury Benchmarking Survey, underwritten by PNC, found that 55% of organisations expanded their treasury’s mandate over the past five years versus just 5% that narrowed the focus. This expansion is even more common at large companies with annual revenues over US$1bn.

Thomas Hunt, certified treasury professional (CTP), director of treasury services, AFP, said that external pressures, such as the volatility in the environment, stretched supply chains, rapidly evolving regulations and globalisation, were impacting treasury, effectively broadening its remit and encouraging treasurers to embrace a more strategic role within the company.

Two-thirds of survey respondents said that their treasury department now oversees at least 18 functional areas ranging from cash flow forecasting to financial risk management, financial planning and analysis (FP&A), M&A, and investor relations - all the way to employee benefit management. This expansion of the treasury role appears to be permanent, indicating the importance of treasury in good times and bad.

Significantly, the corporate treasury departments that have expanded recently tended to do so with normalised cost structures that barely differ from departments that have not seen a significant change in structure, though they also tended to have larger staff to absorb additional work.

Staff expansion was true of the two treasuries - Toyota Financial Services (TFS) and Cliffs Natural Resources - represented on the panel discussing the results. Both treasury professionals, Lisa Chao, liquidity risk and FTP manager, TFS, and Dwayne Petish, director, global treasury strategy, Cliffs, reported adding to the number of full-time equivalents (FTEs) in treasury, moving from 25 to 40 FTEs over a period of five years in the case of TFS, while Cliff almost tripled its number from five to 14 FTEs in 18 months.

Also indicative of the overriding efficiency concern: the two most common success metrics for treasuries are reduced banking expenses (79% of organisations) and improved efficiency (71%). Annette LaPrade, global deployment lead, IBM benchmarking programme, reported that organisations that measured an increase in efficiency typically boasted departments with fewer FTEs and lower costs for treasury operations.

Treasurers surveyed did not think that cost efficiency itself was a universal measure of a treasury department’s success, due to variables in business type, borrowing structure and business model. Anecdotally, some companies measured treasury success by maintaining liquidity and paying down debt whenever possible. Others sought opportunities to repatriate overseas cash to pay down US debt and measured success by the ability to keep interest expense below budget. A number of treasurers said they are judged on their ability to identify opportunities to put cash to use versus keeping it idle.

Read the article ‘Results of the 2012 AFP Treasury Benchmarking Survey’ for a deeper analysis of the survey results. 

First published on www.gtnews.com.

AFP2012: Increasing Your Organisational Influence

17 Oct 2012

In order to succeed in raising treasury’s profile and influence within an organisation, treasurers should look at three areas: initiation, education and communication.

In a world where being strategic is becoming a burning imperative for treasury, the question of how to raise the department’s profile within the organisation is one that resonates with many treasurers.

More than 150 financial professionals packed into an AFP conference session entitled ‘How Treasury Can Increase its Organisational Influence’, led off by Carrie Moore, managing director, treasury sales executive, energy and power at Bank of America Merrill Lynch (BofA Merrill). She was joined on the discussion panel by Kim Sipes, certified treasury professional (CTP), director of treasury, Duke Energy; David Symons, treasury manager, Southern Company Services; and Rene Bustamante, staff vice president and assistant treasurer global cash management, FedEx.


Bustamante tackled the first topic: initiation. FedEx, which is divided into four operating companies, operates in more than 200 countries and has 300 treasury team members in three treasury centres in Memphis, Brussels and Hong Kong. Bustamante has been at the company in different roles for the past 19 years; two years ago he was promoted to his current role. At this point he decided that it was critical to get to know everyone in treasury and set a time limit of 60-90 days to meet all that reported up to him.

“The pulse of any company is at the bottom,” he said. “I wanted to build bridges and hear what treasury employees has to say - the good, the bad and the ugly. Clearly, what they were saying was that they wanted to have more strategic input in business operations.

Bustamante said that it was important to educate the chief financial officers (CFOs) of the different business divisions as to what treasury did. “It is an invisible function that is the lifeblood of the company but no one understands what exactly we do,” he explained. However, he did not just stop at educating company CFOs, but also built bridges with tax, legal, accounting, HR and sales.

“The strongest bridge is with tax,” he said. “Tax tends to move to its own beat and treasury is the last one to know what they are doing, yet it has a big impact on treasury. Understanding what each other does is the first step in building a communication pipeline.”


Duke Energy’s Sipes continued on the theme of education. With seven million customers, Duke Energy’s business relies on customer service and satisfaction, and the treasury should be no different. “Treasury’s customers are internal business customers; therefore they should be treated the same as external customers. We work in partnership with many company parts. Education is a two-way street and it is important not just to educate others but also to be educated by them.”

Sipes said that treasury initiates contact and looks to be educated by business partners first to ensure that it has a seat at the table. “We go to them and learn about their processes, pain points, objectives and incentives. All of these business units touch cash, and in a situation where cash is king, incentives are tied to efficiencies around cash.” She added that treasury has the ability to see the big picture and how each business unit fits into that picture. Once the relationship is established, then it becomes easy to tailor the treasury message specifically to them.


Symons from Southern Company Services pointed out that for treasury to achieve its goals, it needs a communication plan to get across what it wants at the right level. It is important to identify whom you are speaking to and what do they know/expect from treasury.

He highlighted a number of useful tools such as networking and mentoring groups, which can be used to promote cross-functional understanding. “It’s not just about saying this is what we do, but a great opportunity to sell treasury by connecting it something meaningful to what they do,” he said.

Symons used the example of a mentor meeting when he was asked if treasury could help with a remittance project. “Even if it is just a minor part of your job, this is an opening to do something more. Don’t throw away such opportunities,” he warned.

Build It and They Will Come

Duke Energy’s Sipes outlined a number of tips for the audience:
  • Communicate both top down and bottom up.
  • Know your audience.
  • Give them a seat at the table and they will reciprocate.
  • Share webinars, articles, etc that will help in understanding treasury’s role.
  • Offer shadowing opportunities to help with knowledge sharing.
  • Bring in business partners for bank and vendor meetings.
  • Enthusiasm is contagious.
  • Listen well, be patient and follow through.
She concluded with a specific example of how treasury was engaged to review the company’s card programme, which was made up of three completely separate schemes - management, providers, etc. The company wanted to bring all divisions onto a single card programme. One division had to be brought kicking and screaming to the table. But as soon as they truly understood the benefits, they became the biggest proponents of the card programme and treasury.

First published on www.gtnews.com.

AFP2012: Risk Lurks in the Back of Treasurers’ Minds

15 Oct 2012 

The current economic environment, particularly with the threat of a fiscal cliff hanging over the heads of US treasurers, has done nothing to ease the minds of financial professionals. Therefore, it is not surprising that sessions dealing with risk management were a popular choice for attendees at the Association for Financial Professionals (AFP) Annual Conference in Miami.

Risk management remains a major concern for corporate treasurers attempting to steer their companies through choppy economic waters. Many are looking to uncover best practices in identifying, measuring, mitigating and measuring risk, but also trying to discover ways to turn risk into opportunity.

In the session entitled ‘Best Practices in Corporate Financial Risk Management: Market Study and Case Study with Pepsi’, Jiro Okochi, chief executive officer (CEO) and co-founder, Reval, presented recent survey results. Ada Cheng, vice president and assistant treasurer, Pepsi Co, joined him on the panel to illustrate treasury best practice in risk management.

The main findings of the survey include:
  • The vast majority (92%) of chief financial officers (CFOs) see the main objective of risk management is to reduce earnings volatility. Forty-one percent of treasurers chose reduction in profit and loss volatility, while an equal amount said that protecting cash flow was of paramount importance.
  • Most that review/update their risk management policy at least once a year. Still 12% say that they don’t have a formal risk management policy.
  • The overall hedging strategy has returned to a traditional conservative approach, compared with 2010 when treasurers used selective hedging in reaction to market volatility.
  • Exposure measurement is still a thorn in treasurers’ sides. Over half (58%) find measuring bank counterparty exposure difficult, whereas 63% find foreign exchange (FX) exposure difficult to measure. For most companies, FX is still not fully hedged.
  • Only 20% use either a treasury risk management (TRM) system or a treasury management system (TSM) to hedge. Almost half (45%) still rely on spreadsheets for hedging.
Case Study: PepsiCo

Cheng said that PepsiCo, which operates in more than 200 countries and has 60-70 employees working in a centralised treasury structure, has generic risk management policies that are reviewed once a year. This does not mean that they are updated every year, but are regularly reviewed. It employs a conservative hedging strategy for underlying exposures.

Commodities risk is a focus area for PepsiCo, as volatility in commodity pricing increased dramatically between 2007-2012. These market changes, as well as changes within PepsiCo itself, in the past two to three years drove the need for change in commodities risk management (CRM) approach. The main CRM questions revolved around the global scope of the company, transparency, clarity of roles and simplicity.

PepsiCo developed a new centre of excellence (COE) model and upgraded the CRM model in order to put in place key risk management processes. The CRM was global in scope and approach. It defined coverage standards, defined governance process and standardised performance tracking across geographies and commodities.

Treasury and accounting, in partnership with global procurement, played key roles in executing risk management as defined by the COE. The COE developed global commodity playbooks, a new governance model, global reporting and an underlying data infrastructure. The playbooks included category insights, market groupings, strategy and coverage horizons, as well as detailed geographic background.

Cheng stressed the importance of understanding the business manufacturing side in order to hedge. As a result, PepsiCo treasury works very closely with business, for any change in the manufacturing cycle or country specific issues will have an impact on the hedging strategy.

First published on www.gtnews.com.

Monday, 8 October 2012

EuroFinance 2012: Risk Management: Touching the Void

27 Sep 2012

Joe Simpson, mountaineer and author of ‘Touching the Void’, gave the participants at EuroFinance 2012 in Monaco a taste of what it means to be a diehard risk taker. What risks to look out for and how to manage them were two issues discussed during the second day of the conference operating under the theme of stability.

The highlight of day two of EuroFinance 2012 was ‘Touching the Void’ author and mountaineer Joe Simpson, the ultimate risk taker. He recounted his and Simon Yates's disastrous and nearly fatal climb of Siula Grande in the Peruvian Andes in 1985.

Despite meticulously planning the climb for more than two years, the unpredictable weather conditions and unstable mountain terrain during their descent led to a bad fall by Simpson, shattering his leg. Yates and Simpson continued down the North Ridge face as night fell, dehydrated and frostbit, but unable to stop because they “had not brought an extra canister of gas for the stove”. Simpson indicated this was the one piece of kit that could have been a game changer during their descent.

Tragically as Yates lowered Simpson down the mountain, the latter fell off a cliff. Because of the bad weather conditions, neither could hear nor see the other. Yates had little choice but to cut the rope in order to save his own life and Simpson fell down a crevice. However, he survived the fall and managed to crawl back to base camp alive.

Simpson’s harrowing account highlighted the fact that in these volatile times, you cannot plan for the unpredictable event. Yet risk management, which has become increasingly part of the treasurer’s remit, must encompass more than just the immediate risks faced by a company today. The strategic treasurer is now identifying key risk indicators (KRIs) and how they are interconnected in order to get a true picture of the risks.

In the plenary session entitled “It’s the Chequered Flag: The End of the World as We Know It?”, Alyson Warhurst, chief executive officer (CEO) and founder of Maplecroft, outlined the changes in the global economy, specifically the growth of emerging economies.

Although businesses need to be in these geographies, there are a number of risks outside operational and business that corporates need to consider:
  • Legal and regulatory.
  • Conflict and terrorism.
  • Corruption and lack of corporate governance.
  • Human rights.
These risks can conflate with exacerbaters, such as natural disasters, climate change and risk of hydro-meterological disasters, emergence of infectious diseases and food security.

“Many corporates do not look at the interrelation between these risks, which is a very important dimension,” said Warhurst. “For example, Egypt was a fast growing economy, but suddenly [during the political protests] corporate supply chains fell apart.”

James Lam, president, James Lam and Associates and author of ‘Enterprise Risk Management’ (ERM), outlined how corporate could minimise unforeseen risk factors by integrating ERM and business strategy. He said that corporate needed to:
  1. Define their business strategy.
  2. Establish key performance indicators (KPIs).
  3. Identify risks.
  4. Establish KRIs.
  5. Provide integrated monitoring with regards to points one to four.
Lam said that it was important for corporates to identify the few scenarios that would ‘break the bank’ and set up an early warning system. He also warned against not just black swan events, but the “grey swans”, or events that are now just part of a faster-changing and more uncertain world.

Developing Risk Policies for New Markets

Iain Wetherall, head of corporate finance at Wizz Air, presented a workshop outlining the characteristics that define risk in new markets. The Hungarian low-cost airline, which will celebrate 10 years in operation in October, has 16 operating bases in nine central and eastern European countries. It has experienced a 10%-15% growth year-on-year and has just opened up another route to Geneva with 50 new routes planned for next year.

The main characteristics of new markets include:
  1. Growth rates: high top line growth, but inflation may be an issue.
  2. Culture: different market policies and mentality.
  3. Workforce: young versus old generation.
  4. Technology: various levels of penetration.
  5. Distribution channels: medium to weak; fragmented regional markets.
  6. Infrastructure: medium to weak.
  7. Social networks: varying degrees of emigration/immigration.
  8. Regulations: stability of governments; regulatory and fiscal changes.
  9. Exchange controls: varying degrees of money flow in and out, and this can change quickly.
  10. Pace of change: rapid.
Wetherall was quick to point out that with risk policies, “one size does not fit all”. He listed a number of traditional risk concerns that is normally associated with emerging markets, such as foreign exchange (FX), convertibility and liquidity, devaluation, payments and collections, and corporate governance, including bribes and taxation.

“Operating in new markets is really a mixture of the good, the bad and the ugly,” said Wetherall. “The good includes exciting growth, operating a profitable business model and strong corporate governance. My advice is that slow and careful planning is key to success.

“The extreme bureaucratism is the bad. But it is important to remember that in many cases there is a reason behind the madness. The ugly is the cultural differences. These can result in sudden and unexpected changes which may turn a business model on its head.”

This blog was first published on www.gtnews.com.

EuroFinance 2012: A Greek Treasurer Outlines Contingency Plans

26 Sep 2012

EuroFinance 2012 in Monaco kicked off its first day on the theme of volatility. In these turbulent times, risk management is never far down a corporate treasurer’s agenda.

The first day of Eurofinance 2012 in Monaco began by looking at the crisis in the eurozone and posed the question of whether governments can end the crisis cycle. Corporate treasurers are taking a hard look at their global operations and putting in place contingency plans in case the unthinkable happens. It is unsurprising then that the content stream looking at risk management attracted more than 50 participants.

There is no one is closer to the coalface than the Greek treasurer. Marianna Polykrati, group treasurer at Vivartia, a major food conglomerate in Greece, sketched out the emergency plans the company has put in place since the crisis began in the session entitled "Euro Contingency Planning: Lessons Learned Along the Way". She revealed that Vivartia had not obtained a bank credit facility since the end of 2008, but had to manage this matter internally.

Not only has Vivartia, which has the majority of its production and distribution in Greece, faced a decline in food prices by 30%, problems with production in the country and also foreign suppliers that are now asking for pre-payments before delivering raw materials. In November 2011, the company decided to take action to prepare for a unilateral succession from the eurozone or a country debt default.

Treasury identified possible events, prioritised for action, developed plans and made a presentation to top management. “The presentation was definitely not a ‘walk through the park’,” said Polykrati. “This approach was viewed as pessimistic by many, but the plan was taken up by senior management.”

Vivartia set up a task force in April 2012, which included the chief executive officer (CEO) and chief financial officer (CFO) as leads, with HR, legal, treasury, production, IT, procurement and logistics all have a representative. It created two control rooms in northern and southern Greece, which operated as headquarters. These give a “bird’s nest view” of operations, said Polykrati. The task force meets every 15 days and assigns the company’s alertness level, i.e. green, yellow or red.

In May 2012, when there was no clear victor in the elections, there was a change in market sentiment and three possible scenarios emerged:
  1. Greece defaults on its debt and exits the eurozone.
  2. Exits the eurozone without defaulting.
  3. Parallel use of two currencies: euro and Greek drachma.
The company looked at extreme scenarios, particularly the possibility of a switch to the drachma overnight. There were rumours flying around that the Greek government was printing money ready for immediate use.

In June 2012, the company was facing a worsening of its working capital management. It had to frequently review client portfolios and also provide discounts for earlier payments.

To secure and manage cash is a priority for Vivartia. In case redenomination does happens, Vivartia decided to keep cash pools outside of Greece. It sweeps 50%-55% of its cash to its London accounts and pays its bills from there, while keeping the other 50% in-country in order to hedge its risk. Keeping cash in local banks opens the company up to risks concerning devaluation, frozen accounts, cross-border payment issues and bank defaults. Keeping cash in small in-house banks (IHBs) at a few of its large factories opened it up to security risks. And keeping cash in the company’s London accounts left it open to exchange controls, problems in cash repatriation and internet disruptions, as all of these accounts are accessed through e-banking.

Polykrati outlined how Vivartia planned out a three-step approach to making payments in a stressed environment. The prioritised payments are: salaries, suppliers and government, in that order. The three steps are:
  1. Barter.
  2. Promissory notes.
  3. Cash.
She said that companies were already operating a barter system in Crete because customers do not have the money to pay.

Polykrati also covered more risk areas, such as interest rate, credit, counterparty, debt and derivative risks, as well as other commercial and business risks, such as IT, security, legal, sales and procurement.


Vivartia has developed a two to three year contingency plan, which it hopes will keep it afloat as the political machinations play out. It is selling off parts of the business that do add to the profitability of the company.

It is not just sitting around waiting for things to happen but has entered into joint ventures, one with an Abu Dhabi company and one with an American company. It is stabilising its foundations and looking for a growth opportunity.

“There is no political will in Greece or the EU [to solve the crisis] - each level of government is waiting for the other to act first,” said Polykrati. “The Greeks are a resilient people, but we need a solution.”

This blog was first published on www.gtnews,com.


John Keells Streamlines Payment Processes in Sri Lanka

12 Sep 2012

Sri Lanka-based John Keells Holdings (JKH), a company that specialises in numerous sectors including food and beverage, transport, IT, business process outsourcing (BPO), and plantation and investor services, has implemented a hybrid payment solution from Deutsche Bank, which will streamline the company’s payment processes managed by its shared service centre (SSC), InfoMate.

InfoMate, a wholly-owned subsidiary of JKH, handles supplier invoice processing and payment processing for companies of the John Keells Group, as well as third party clients in Sri Lanka and Europe.

Due to its complex and diverse payment and collection requirements, the company's process workflow for its supplier payments was previously run separately from other payment workflows. In an interview with gtnews, Jehan Perinpanayagam, chief executive officer (CEO) of InfoMate, says: “With the previous process, once the payment run in SAP was executed, the agent was required to log into Deutsche Bank’s internet gateway and upload the payment file. This was a separate task that could take additional time depending on internet speed. Given the number of payment runs executed by multiple agents and multiply this by the number of clients, the time taken was considerable.”

JKH has now implemented a hybrid payment solution, which connects Deutsche Bank’s electronic banking (e-banking) and supplier finance platforms to JKH’s enterprise resource planning (ERP) interface, resulting in greater operational efficiencies within its SSC, as well as cost reductions. The company’s payment files are automatically uploaded from JKH’s SSC to Deutsche Bank’s platforms, thereby creating an efficient payment process.

Perinpanayagam says: “It has completely eliminated a task. It has also reduced the number of internet licences required, as agents are not required to log in. This has reinforced our belief that further automation is possible in other banking functions as well.”


InfoMate serves as a SSC for JKH and its businesses. The group set up the SSC mid-2005 in order to improve efficiencies in finance and accounting. Standardisation was also one of the main objectives in the first phase. The second phase focused on enhancing service levels, segregation of duties and reducing software licensing costs.

In the third phase, InfoMate drove process re-engineering, elimination of non-value adding tasks and productivity enhancements through automation. This resulted in process-driven uniformity, fewer errors and accurate information. InfoMate has now graduated to handling accounting and payroll work for third party clients in Sri Lanka and Europe.

This news focus was first published on www.gtnews.com.

Monday, 10 September 2012

ICD Harpoons US MMF Reforms Prior to SEC Vote

21 Aug 2012

The debate over the US Federal Reserve’s controversial plans to increase regulations overseeing the US$2.6 trillion money market fund (MMF) industry is coming to a head, as the Securities and Exchange Commission (SEC) prepares to vote on whether to take the Fed’s proposals forward for public comment. Many industry experts have alleged that these reforms, which would be in addition to those introduced in 2010, may prove damaging to the industry and potentially to the greater economy.

Echoing the expert viewpoint, a majority of corporate treasurers and financial professionals have reacted negatively to the Fed’s proposals. A June survey by the Association for Financial Professionals (AFP) found that organisations would be less willing to invest in MMFs and would either reduce or eliminate holdings of MMFs in their short-term investment portfolio under the three regulatory reform proposals:
  1. Shift to a floating net asset value (NAV): 77% of financial professionals say their organisation will either stop investing in MMFs or monitor the NAV and divest of holdings if its value falls.
  2. Impose redemption holdbacks: four in five financial professionals say their organisation would stop investing in MMFs if holdback provisions are enacted.
  3. Seek additional reserve capital through fees: two-thirds of financial professionals say their organisation would stop investing in MMFs if reserve capital requirements are introduced.
Across the board, nearly nine in 10 financial professionals say their organisation would make changes in MMF investment if the three reforms are enacted.


In advance of the vote on 29 August, Institutional Cash Distributors (ICD) has released a 12-point ‘myth-buster’ whitepaper, in order to convince more than 320 key regulators, stakeholders and policymakers to reject the new proposals. ICD’s Intelligencer edition ‘Closing Arguments: In Defence of MMFs’ aims to provide the facts and “get them into the hands of regulators, policymakers, corporate treasurers and industry professionals”, and draws on attorney Melanie Fein’s whitepaper entitled ‘Shooting the Messenger - The Fed and Money Market Funds’.

One of the main points of the ICD publication is to counter the argument that MMFs are systemically risky. This perception stems from the September 2008 collapse of the US$62.5bn Reserve Primary Fund, which 'broke the buck' when it received nearly US$40bn in redemption demands in a period of just two days. This resulted in a broader run on MMFs and forced others to reduce their holdings of commercial paper.

ICD argues that the market response to the 2008 panic sell, which included the 2010 reforms and increasing transparency through advanced analytics, was the “right level” of reaction. In an interview with gtnews, ICD’s chief operating officer (COO) and chief financial officer (CFO) Tory Hazard says: “With the 2010 amendments and the exposure analytics that corporate treasurers are performing now, the one run on MMFs in their 40-year history would have been prevented. Corporate treasurers are now looking at portfolio reports on a regular basis and keeping MMFs honest. In addition, the SEC itself is looking at them on a daily basis.”

“We feel the problem has been addressed, which was proven in 2011,” he adds. “At a time when he US debt was downgraded, the eurozone crisis was full-blown and the MMF industry had a similar percentage of redemptions as in 2008, MMFs held steadfast in those headwinds.”

Doug Brown, ICD’s head of global marketing, says: “There has been a transformation within five years. There is not a corporate treasurer that doesn’t have more responsibility and probably less staff today and yet they are providing the decisions that were almost impossible in 2008. The industry rapidly fixed itself.”

Unintended Consequences

Hazard outlines some of the unintended consequences of the Fed’s proposals. One is the consolidation that may happen in the industry due to the increase in capital buffers. Some MMFs will not be willing to hold back more capital, so they will exit the industry and the result will be less choice for corporate treasurers.

In addition, the floating NAV will fundamentally change the product. “The issue lies on the accounting side. Treasurers will have to mark-to-market, which makes MMFs less attractive and more costly for corporates,” says Hazard. “To do the transactions, they will have to post tiny gains or losses at some point during the day and then do the transactions after that. As a result the larger investors would get their trades through that day and put the smaller investors at a disadvantage. Therefore, many investors would be at T+1 instead of T+0, which would fundamentally change the product.”

A number of important questions are also raised: by making a drastic change and significantly reducing an important product in the marketplace, both on the investment and the financing side, what is the alternative for investors? Where are the investments going to go? How will this affect the US and global economy? According to Brown: “There are many local municipalities and cities on the brink [of insolvency]. If suddenly it becomes harder and more expensive for them to get short-term credit, then we could witness the collapse of a major city such as Detroit, Chicago or Los Angeles.”

Predicting the Outcome

ICD is waiting on “pins and needles” for the result of the vote, says Brown. When asked if he had any inkling of which way the vote might divide among SEC commissioners, Hazard says: “Rumour has it that Luis Aguilar may break ranks with [chairperson] Mary Schapiro and Elisse Walter and vote against [the proposals moving to the next stage].”

But even if the Fed’s proposals fall at this stage, the battle is far from over. Brown adds: “There is also speculation from insiders that if the SEC fails to pass these reforms for public consultation, then this issue would likely be reviewed at the FSOC [Financial Stability Oversight Committee], which includes the likes of [Timothy] Geithner and [Ben] Bernanke.” Both Bernanke and Geithner have been vocal in their support for the reforms.

This news focus was first published on www.gtnews.com.

Unpredictable Risks are of Growing Concern to Corporate Treasurers

20 Aug 2012

For three years running, gtnews’ Treasury Risk Survey has tracked the challenges that corporates face in mitigating risk and benchmarked best practice in risk management. According to the 2012 results, liquidity risk will continue to be a paramount issue for corporate treasurers, followed by counterparty and foreign exchange (FX) risk.

Liquidity, counterparty and foreign exchange (FX) are perceived to be the most important risks facing corporate treasurers in the next 12 months. Although retaining the top spot since 2010, liquidity risk saw a drop in importance: 5% fewer respondents than in 2011 chose it as a top risk for the year ahead, down to 23% of the total. This may be indicative of growing confidence in effective liquidity management. Reflecting the relative stability of the currency markets at the beginning of 2012, FX risk dropped in importance to third place behind counterparty risk, which picked up 6% more votes.

The increasing importance attributed to counterparty risk (chosen by 22% of the respondents; an increase of 29% compared with 2011), financial crime (a 100% increase on last year) and operational risk (40% increase) as important risk factors for treasury clearly testifies to the problems the treasury department faces in handling unpredictable situations.

“To some extent FX, interest rate, investment and liquidity risk can be anticipated by interpreting market statistics and public data sources,” according to Enrico Camerinelli, contributing editor, gtnews. “In fact, these risk factors show a decline in the attention attributed not because they are unimportant, but likely because they are manageable. Counterparty risk, on the other hand, depends on the ability of the bank or client to perform as expected.”

Liquidity Risk

Liquidity warranted its top ranking position in 2011, when the survey results showed that market conditions had worsened for a large portion of respondents and it was more difficult for them to access liquidity than in the previous two years. In 2012 a greater number of respondents find liquidity “a little harder” or “much harder” to access (34%, compared with 13% in 2011 and 30% in 2010), while those who find it “easier” or “a little easier” have dropped almost 50% since 2011.

However, looking at those who have noticed no change, despite the many difficulties, the overall situation seems less dramatic in terms of accessing liquidity. If you combine those who declared “I’ve noticed no change (it was, and still remains, rather easy)” together with the positive evaluations (i.e. “much easier” and “a little easier”), this totals 60% of all respondents.

From a geographical standpoint, no region expressed a completely negative outlook on their access to liquidity. Only Asia-Pacific shows signs of difficulty, with 45% reporting that they have found access to liquidity “a little harder” or “much harder” than in previous years. According to Camerinelli, this could be explained by mounting inflationary heat in the region. “Given the current issues in the eurozone, it is no surprise that western Europe faces problems as well, with 42% reporting issues,” he adds.

Respondents from the Middle East/Africa region actually show signs of an abundance of liquidity, which might be the direct consequence of increasing volumes of trade in these regions. Only 13% of North American respondents report some difficulty, whereas 58% report that they have seen no change in liquidity availability, either to easier or harder.

Counterparty Risk

The current economic climate demands that companies constantly update their positions with bank partners and anticipate any disruptive events: 33% of companies review the credit standing of their banking partners at least once a month (compared with 27% in both 2010 and 2011). Only 6% of respondents do not review their banks at all.

Companies with revenues of more than US$250m absolutely need to keep a tight control on their bank partners, particularly because they likely have a geographically dispersed set of banking relationships to deal with. Companies below the US$250m mark give less attention to their banks’ credit standing, mainly because the number of bank relationships tends to be smaller for these companies and therefore more controllable without the need to increase the level of scrutiny. “It is, however, advisable that these companies start giving more attention to their financial institutions in order to avoid adverse surprises,” says Camerinelli.

Many companies are increasing their attention toward the credit standing of their banking partners in the next 12 months. Although a minority (37%) of respondents answered “yes” and “would like to” to this question, the percentage is up from 31% in 2010. “This is a clear sign that companies are becoming more aware of the importance of regularly reviewing their financial partners as they would normally do with any supplier of goods or services,” Camerinelli adds.

Asia-Pacific-based companies confirm their intention to keep a high level of attention to improving bank relationships: more than half (53%) say they will or would like to increase the frequency with which they review their banking partners’ credit standing. Western European companies, on the other hand, show a balanced approach, which is odd given the tight conditions under which they must operate and the extremely strategic relevance of working with reliable bank partners: 32% said they were not planning to increase the frequency with which they review the credit standing of banking partners in the next 12 months.

Many companies have turned to alternative sources to measure counterparty risk of banking partners other than credit rating agencies (CRAs), with a consistent jump from 25% in 2010 to today’s 33%. The significant portion of “unsure” responses (35%) betrays a profile of respondents who are not responsible for taking decisions on this matter.

When respondents were asked how often a respondent review the credit standing of clients, 23% stated they did so at least once a month. However, the same percentage admits to doing a credit check merely randomly, while 8% do not review their clients at all. “Collecting receivables is a key area to watch, particularly under the current tight economic circumstances,” says Camerinelli. “The ability to anticipate issues in collecting credits represents a do-or-die competitive differentiator. There is still a worrying 31% of respondents who do not have a clear credit evaluation of their clients in place, to the detriment of their own company’s working capital ratios.”

FX Risk

More than six out of 10 (63%) respondents indicated that the primary objective of their FX hedging strategy is to “protect the company from adverse markets”. Only 7% say that they hedge to gain competitive advantage. However, even more interesting, an increasing number of organisations say that they do not have an FX hedging policy (17% today versus only 7% in 2010). It appears that respondents either hedge to protect from adverse conditions or simply have no reasons to hedge.

The number of respondents whose primary objective for their FX hedging strategy is different than the presented options dropped by a dramatic 35% in two years (20% in 2010 down to 13% in 2012). This leads one to believe that FX hedging - when performed - is done for the sole purpose of protecting the organisation from adverse markets.

Only 5% of companies based in the Asia-Pacific region say that they do not have an FX hedging policy, compared with 28% of their North American peers. This is a result of the number of intra-regional currencies and the level of intra-regional trade in Asia-Pacific.

Unsurprisingly, 86% of the smallest companies (those with revenue under US$50m) report that they do not have an FX hedging policy. Companies of this size are more likely to be purely domestic players and therefore are not exposed to FX risk.

When asked if their organisation’s strategic approach to FX risk management has changed in the past 12 months, the results indicate that economic conditions have worsened over the past year. After a small decline in 2011, the percentage of respondents reporting a more conservative approach has surpassed the 2010 level (23% in 2012 versus 21% in 2010). At the same time, for most respondents the approach has remained much the same during the past year (76% in 2011 versus 71% today).

Camerinelli says: “FX risk management plays a pivotal role in an ever globalising economy and the financial distress suffered by many companies requires close examination for any possible improvement in financial efficiency. Regions that show growing trade volumes, such as Asia-Pacific and Middle East/Africa, are the ones adopting a much more conservative strategic approach to FX risk management.”

The gtnews 2012 Treasury Risk Survey was conducted between 17 February and 8 March 2012, with a total of 158 respondents. Western Europe-based readers accounted for 42% and North American readers represented 29% of the responses. Respondents from Asia-Pacific made up 14% of the responses, while CEE, Latin American and Middle Eastern/African respondents made up the remaining 15%. Almost a third (32%) of respondents came from companies with annual revenues between US$1bn and US$9.9bn. Companies with revenues between US$250m-US$999.9m and also the largest companies, with annual revenues greater than US$10bn, made up 21% of the respondents respectively. Those companies with revenues between US$50m and US$249.9m made up 19% of respondents. Only 7% of respondents were from companies with revenue under US$50m. 

This article was first published on www.gtnews.com.