RegionsEuroFinance 2012 Show Report – Day 1: Opening Plenary and Sweating Your Cash

EuroFinance 2012 Show Report - Day 1: Opening Plenary and Sweating Your Cash

The EuroFinance show started with a welcome speech from managing director Carolyn Meier, in which she outlined the main challenges, and indeed themes of the three days, of volatility, stability and agility.

Volatility, the first theme for the opening day, is certainly evident in the uncertain global economic situation, with the Asian slowdown, on-going eurozone crisis and the impending US elections and financial retrenchment next year all impacting corporate treasurers, or at the least the outlook for their companies. As Meier admitted: “These are indeed interesting times”, for the 1900 attendees at the conference from 48 different countries, to gather and discuss possible responses to the present volatility across 80 conference sessions and with 90 different exhibitors. Needless to say cash visibility, access and management were all traditional responses envisaged by treasurers in the crowd to the tough times ahead.

David Blair, managing director of Acarate in Singapore, chaired the opening plenary. With 25 years of treasury experience, gained with Price Waterhouse, then ABB and Nokia, Blair said that he was looking forward to getting a macro-economic overview from the first panel of the day, comprising of a mixture of researchers, economists and journalists, which he introduced.

As the moderator, Robin Bew, editorial director and chief economist at the economist intelligence unit (EIU), admitted: “The eurozone is going through a difficult time and there are a number of different scenarios how it could play out. Principally, however, these boil down to three main options: it’ll fall apart, the euro will stumble on, or there will be very substantial political and economic integration [to save it].”

When asked what option he favoured, Charles Kennedy, a senior fellow at the Centre for Global Development in the US, candidly said: “I don’t know. It involves politics, Angela Merkel, central bankers and so forth so I honestly don’t know as the answer lies in the realm of politics, not economics.”

For Felix Salmon, a financial blogger with Reuters USA, it was appropriate that EuroFinance was in the original home of the casino in Monaco, where they know all about probabilities and calculations. “You cannot assign a 100% probability to any of the three eurozone options … but if I had to I’d say there is a 50% chance that Europe will continue to muddle through and there is an equal 25% chance that the eurozone will either break-up or undergo a complete fiscal union to save it.”

That’s the short-term calculation, of course. Stephen Boyle, head of group economics at RBS, is “fundamentally more optimistic as the consequences of a break-up are too dire, which means we’ll stumble along for some time until a more orderly solution can be found, which might eventually mean one of two countries [like Greece] leaving and a strengthened centre. It’ll take time.”

Simon Kennedy, chief international economics correspondent for Bloomberg UK, wittily concluded that it was the third year of the crisis and Europe’s leaders had never missed an opportunity to miss an opportunity so far, reiterating that the solution lies in the hands of politicians.

Reacting to the opening session, Wei Shi, vice president and head of treasury, finance and analytics at Toyota Financial Services (TFS), said that he found it insightful. “I had some economics training in Shanghai, before moving to the US in 1989 and latterly to Berkley in California, where the TFS treasury is based,” he explained, “so I know the world economy is a bit like a bicycle: in that if you stop it will fall over.” In other words, people find a way to move forwards, and this is no doubt that will happen despite the gloomy economic predictions about the eurozone crisis or the Asian slowdown. Growth is at least still happening in the emerging markets and that is some form of encouragement. A full interview with Wei Shi will appear later on gtnews, including discussion of the two projects that won categories at this year’s gtnews Awards 2012 in May in Amsterdam, the Netherlands, covering the mitigation of Brazilian sovereign risk and the establishment of a Toyota daily collateral exchange. For these and other projects, the treasury team at TFS was also recognised at EuroFinance with their annual award.

Afternoon Sessions

During the first of the afternoon sessions at 12 noon entitled “Treasury Verdict”, Joerg Burmueller, head of cash and risk management at Merck KGaA, Germany, sat alongside Patricia Greenfield, head of treasury operations at AstraZeneca, and Simon Jones, head of Europe, Middle-East and Africa (EMEA) corporate sales at JP Morgan Treasury Services, where they discussed the key trends impacting treasurers at the moment, ranging from global economic prospects to the single euro payments area (SEPA), money market funds (MMFs) and offshore renminbi (RMB) trade settlement services. All of these issues were voted on in an interactive session that featured live polling from the audience of approximately 100 people in the room and reactions from the panel.

When questioned about if they felt more confident about their corporation’s business prospects in the year ahead, versus last year, only 31% of treasurers in the room said yes, with 32% saying no and 36% the same. This compares to 54% who were optimistic last year at the EuroFinance 2011 show in Rome – a marked decline.

According to Greenfield, this result is not surprising. “It mirrors the discussions we were having earlier on in the day about the present volatile situation in the world at the moment,” she said.

The next question was essentially the same one, but this time focused on more general global prospects, not just treasurers’ own company, and a whopping 71% said they were more pessimistic this year compared to 2011. “This result surprises me,” said Burmueller. “I am a bit more optimistic than that!” (look out for an interview on gtnews shortly with Burmueller).

When asked what they planned to do with any spare cash, 33% of the treasurers’ in the room said ‘pay down debt’, with 23% answering ‘invest in my business’. Jones found the top voted for option here to be unduly pessimistic too, commenting that “There is growth out there, just look at the emerging markets.”

The ‘treasury verdict’ panel also looked at risk and regulatory concerns, with other votes held on:

  • SEPA.
  • MMFs.
  • Whether treasurers’ would have a problem accessing short-term funding.

The answer to the latter question was a resounding no, as 80% voted ‘not in the foreseeable future’.

Cash Management

The afternoon sessions continued in separate streams with conference stream five entitled “Supercharging the Cash Cycle”, which was chaired by Robert Dekker, a consultant and associate partner at ConQuaestor and programme director of the post-graduate treasury management course at VU University in the Netherlands. Conference stream five examined the most basic component of a treasurer’s duties – namely, cash management and how best to control it, accelerate processes, internationalise them and sweat payments to aid efficiency and flow, using in-house banks (IHB), shared service centres (SSCs) and payment factories, if need be.

The cash cycle is the foundation of any good treasury. Each element is a function with quantifiable objectives, outcomes and key performance indicators (KPIs) that cut across business lines and geographies. So a good way to ensure best practice across a corporation’s operation is to apply the latest cash management techniques in a methodical way to each of these elements. This bottom-up approach can sometimes be more productive than a strategic top-down analysis, which can get stuck in complexity and internal politics, asserted the chair.

This was the key message from the first session which looked at “The Urgency of Cash Control” and stressed the need to eliminate scattered cash, unnecessary overdraft positions and multiple systems and banks. A treasury dashboard, whatever form it may take, is necessary in order to plan and take decisions on cash with the right information in the right location, said the speakers including: Matteo Zanardi, corporate treasury manager at BCD Travel, the Netherlands; Alexandre Schmid, director of finance projects at Tetra Laval International, Switzerland; and Raffi Basmadjian, head of group cash management and treasury IT at Orange/France Telecom. The latter was naturally keen on integrated technology and reporting solutions, with his IT background, a view supported by fellow panellists William Dakin, global treasurer with SABIC Capital in the Netherlands, and Willem Dokkum, head of sales from ING bank in the Netherlands, acting as compere for the session.

Streamlining bank accounts and cutting surplus cash in unfavourable locations were highlighted as necessary moves, as well as how to move towards intraday continuous reporting on bank balances. Real-world examples from the treasurers present on the panel helped to illustrate the points being made about how to lower the cost of transactions and loans for corporations and how to cope with the volatility issues facing corporations today.

A series of seven questions were asked of the audience during the “Urgency of Cash Control” session, with responses to the votes coming from the treasury panel. The questions are outlined below, with the biggest vote in each category:

  1. What are the main drivers for cash control from a corporate treasurers’ perspective? Sixty-nine per cent said group-wide cash visibility.
  2. What are the main issues in trying to get cash in and control it? Forty-three per cent said incompatible technology systems.
  3. With the right technology systems is it easier to get optimal cash control? Only 32% said yes, with a further 23% saying yes, but it is rare to find good solutions.
  4. What have you been doing to improve your cash control? thirty-two per cent said they have been applying cash pooling techniques, with 24% of treasurers saying they’d been clarifying and implementing treasury policies or integrating group entities into using the same set of tools.
  5. Does SEPA help you improve your cash control? Only 28% said yes because they still need local payment and collection instruments, perhaps highlighting the crucial SEPA Direct Debit (SDD) mandate issue that still faces many treasurers.
  6. What SEPA solution are you expecting from your bank? Thirty-eight per cent said they want a truly global solution and global standards.
  7. What subject will have the highest priority with you over the next 12 months? Process redesigns and new solutions was the top answer with 40% of votes, but a combination of 37% mentioned SEPA and complying with this would involve a redesign too of internal treasury and technology systems.

Doug Adams, European supplier finance director at Avnet Comm, based out of Belgium, was next up. He talked about how electronic invoicing (e-invoicing) can help to accelerate cash flow in corporations and make the supply chain more stable and robust. His view was supported by Stephen Carter, a product manager with Bottomline Technologies, who provided the technology overview. According to the speakers, there were plenty of pieces missing to the e-invoicing jigsaw in the past, from a lack of security to poor tracking and audit trails, but all this has now apparently changed thanks to better interconnected networks, EU support and standardisation initiatives. Not everyone may agree, but the future would certainly be bright if all these initiatives came to fruition. Adoption is, however, by no means universal across the industry as yet.

Centralisation and Running a Global Operation

The lack of a truly global cash control function, which tracks liquidity and risk simultaneously by proactively providing a global cash overview, was highlighted in the next session, entitled “Achieving Global Control of Cash”. This consisted of a video presentation and case study from Patrick Pots, cash and treasury manager at Statoil, and his colleague Tor Stian Kjøllesdal, head of the financial supply chain, who talked about what they had done, with the assistance of SAP, to centralise and improve the efficiency of their treasury operation.

The Statoil presenters at EuroFinance showed how the oil giant’s quest for visibility and control over its cash worldwide led it to partner with SAP in setting up a fully integrated enterprise resource planning (ERP) solution and centralised cash procedure that means it now has an IHB and functioning payment factory. All accounts payable (A/P) and receivables (A/R) are naturally centralised using a multi-bank SWIFT gateway, leading to reduced bank account management and charges.

Of course, establishing an IHB, SSC and actually turning a payments factory into a reality, as opposed to the abstract theory that it too often remains, is the crucial final step needed to effectively sweat payments, centralise processes and achieve large efficiency gains. It is not easy to do, however, and as such it was the topic of the final cash management session of the day, looking at how to ‘sweat payments’ and get factory-like efficiencies. This presentation was provided by Paolo di Fabio, corporate director of finance at KME Group in Italy. He managed to illustrate how achieving centralisation is a complex, expensive, time-consuming and internally disruptive process. It should only be considered by corporates with large enough volumes, geographic and currency spreads, to justify the expense, he said. Coping with the procedural, legal and tax complexities involved is no mean feat, particularly when times are tough and the worsening global economic situation is placing enough pressure already on treasuries. Think about if you really want to take the final step in automating cash management processes at this stage of the economic cycle, advised the final speaker of the day. Sage advice as short-term concerns tended to dominate the discussions on day one of the EuroFinance show with volatility certainly to the fore.

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