Cash & Liquidity ManagementCash ManagementEuroFinance Show Report – Day 2: Agility in Uncertain Times

EuroFinance Show Report – Day 2: Agility in Uncertain Times

The chair of the second day’s opening session at EuroFinance Robert Novaria, an independent consultant based out of the US, commented that you cannot do treasury without reference to the global situation, and you need to be aware of the situation to create value or mitigate risk. Never was a truer word spoken as the 1900 attendees to the EuroFinance trade show awoke to news of overnight riots in Spain and Greece against the austerity measures being forced upon the respective governments in both countries to cut debt in order to remain in the eurozone.

The consequences of the on-going eurozone crisis for treasurers are plain to see, in terms of increased volatility and the need to have contingency plans in place to be able to respond quickly to changing situations – for example, covering a possible Greek exit. Rather than stability it is, therefore, agility that is needed in this type of situation, allied to good planning.

“Notwithstanding what is happening in Madrid at the moment I am optimistic about the global growth story,” maintained John Micklethwait, editor-in-chief of The Economist, in a speech covering the last year of “Political and Economic Threats”, and what opportunities and challenges might lie ahead for global corporations and their treasurers. “[President] Mario Draghi has done well at the European Central Bank [ECB], the US is looking better and the emerging market is still growing, so there are reasons to be optimistic, although I’d describe myself as a paranoid optimist,” added Micklethwait.

He cited four main risks as the cause of his ‘paranoia’:

  1. The aforementioned eurozone crisis and situation in southern Europe was of course one of the key risks to stability and growth.
  2. China, while providing growth, was surprisingly a cause for concern too because of the growing inequality in that country and the potential for a democratic upheaval as citizens become richer and more empowered which could, at least temporarily, negatively impact business and cause more short-term instability.
  3. Inequality itself across the world, including in America, was cited as another risk with Micklethwait speculating that, “business may well have to pick up the difference as the US continues to spend like a big country but tax its people like a small country”.
  4. The threat of antagonism between China and the US in future as the former increasingly challenges it on the world stage, not to mention the potential for war in the Middle East over Iran’s nuclear programme, was also mentioned as a risk for treasurers to bear in mind.

Against these criteria, Micklethwait listed his causes for optimism as the continued growth in emerging markets; the fact that historically the West’s debt problems are no worse than expected at this stage of the ‘cleansing process’ and will eventually end; and the rise of ‘big data’ technology and 3D printing industrial techniques, which mean that customisation will soon be available on an industrial scale. In Micklethwait’s opinion this could lead to a third revolution, namely, a technology one, to follow on from the farm and industrial revolutions that first spurred global trade.

This was a point taken up by Alyson Warhurst, chief executive officer (CEO) and founder of Maplecroft UK who took part in the next panel session with Micklethwait and James Lam, president of the Lam Associates consultancy, when she said that “the chequered flag had not fallen yet: there is still growth to be found in Asia and elsewhere”. The session consisted of Lam looking at the more extreme threats that are out there to the global economy and Warhurst attempting to illustrate how you should deal with them as  corporate treasurers.


After an inspirational talk from the famous British mountaineer, Joe Simpson, author of the book and subsequent film called Touching the Void, which Keara Killian, director of treasury and risk management at Getty Images, called “amazingly good”, the next presentation at EuroFinance 2012 came from Brent Callinicos, the vice president and treasurer at Google. He provided a fascinating overview of Google’s corporate culture, which seeks to encourage innovation, the sharing of ideas and entrepreneurship, via a hard-working informal style.

Callinicos gave a valuable insight into the changes he has made to the Google treasury since joining a relatively small team of seven people in early 2007, which has now grown to 60 staff worldwide. The treasury team’s duties have become much more comprehensive as the company has grown into a US$12bn business and as it has acquired YouTube and other firms along the way, while also launching the Chrome browser, Android mobile operating system and numerous other business and ad applications, explained Callinicos. He went on to demonstrate how he had either set up or expanded each of the following treasury areas at Google and what it might possibly be able to teach other treasurers:

  • How to establish a global foreign exchange (FX) programme.
  • Embed effective investment portfolio management.
  • Establish corporate finance departments.
  • Run financial risk management.
  • Comprehensive cash management and operational procedures.
  • Run risk management services and programmes.
  • Stock services. This is important to Google as many of the firm’s staff are incentivised by stock options.

Leveraging treasury to get involved in non-core areas like renewable energy financing and investments, insurance warranties and other projects was also discussed.

Afternoon Sessions

Responding to the threats and risks outlined in the morning’s presentations, conference stream two during the afternoon at EuroFinance 2012, entitled “Agility in the Treasury”, sought to show how to protect and grow your business despite the eurozone riots and present tough times. First and foremost this capability was demonstrated by Baudouin Courau, vice president of financing and treasury at Faurecia, a French-based supplier of automotive parts, who shared his company’s experience of getting a credit rating from Moody’s. Faurecia had to do this to diversify their sources of funding as bank lending dried up, but it was by no means an easy process.

Faurecia had to refinance €2bn of debt last year, so Courau talked the audience through how he went about this in order to ‘future proof’ his business. Just how important it is that treasurers understand how the ratings process works, how the ratings methodologies operate and the extent to which changes in a company’s financial operations and structure can positively or negatively affect credit ratings and firms was also detailed. Understanding, for example, that ratings are not absolute measures of default probability but forward-looking, relative judgements on your asset quality, funding quality, sector trends, profitability, acquisition strategy and peer group can help you to develop a “credit story” that is tailored to an agency audience rather than, say, your investors, asserted Courau.

The third iteration of the credit rating agency (CRA) regulations in Europe post-crash do not help either with the European Securities and Markets Authority (ESMA) demanding thousands of pages of documents, explained Courau and constant reporting. “Methodologies now prevail over judgement calls as getting a rating has become a tickbox exercise,” he said. “The new CRA regulations also mean that agencies will significantly restate your published figures, highlighting underfunded pension liabilities, income statements and so forth, alongside your liquidity status, so be aware of this” he added. “Your ability to withstand future market shocks will also be assessed.”

In terms of how long it all takes, Courau said it’s advertised as three to six weeks, “but this is a lie”. It will most likely take 3-6 months, he added to laughs of recognition from the audience. In terms of what a treasurer must do to be prepared, he suggested:

  • Sharing your company’s business plan with the CRA.
  • Spending time talking to, and getting to know, your assigned analyst so that you build up trust with them.

“Nobody really likes being rated,” he added, “but we all have to do it at some stage. It would have been very difficult to have diversified our funding without doing it [and to effectively protect our business].”

Continuing the theme of protecting your corporation via delivering an agile treasury, Andrew Leach, executive vice president, purchasing finance, Rolls Royce, was next up to discuss how to effectively “Marry Treasury and Procurement”. He used a number of slides that that looked like roller coasters to show how the fluctuating commodity prices of key aeroplane engine materials like nickel or cobalt had impacted his corporation’s business. Leach also covered how to cope with international buying procedures and FX fluctuations and supply chain finance (SCF) initiatives to illustrate how to protect a business using treasury procedures and techniques. “Remember, our customers don’t care about these challenges,” he concluded. “They just want their widget.” It is a treasurers job to ensure that they can get it but ensuring the survival of the business.


Appropriately enough, considering the location in Monaco and the French influence on the principality, the next session during conference stream two at EuroFinance 2012 entitled “Increasing Cash Torque” was from the iconic French firm, Pernod-Ricard.  The group treasurer, Olivier Guelaud, at the patis maker and second largest alcoholic drinks company in the world, outlined how the firm had undertaken a deleveraging programme over the past two years to pay down debt and improve cash visibility after previously going on a buying spree.

“We had a below investment grade rating after some acquisitions so had to do a rights issue and, crucially, improve our cash management performance,” explained Guelaud, who went on to show how by reorganising their treasury, processes and agility by deploying a cash tool kit, cash dashboard and cash in/cash out reporting system, with project partners PriceWaterhouse Coopers (PwC), the firm has been able to raise its credit rating back up to a triple B- rating. Long-term this success will assist the firm’s stability and prospects during tough times.

The final presentation of the day was from Ian Ladd, group treasurer at Dixons Retail in the UK, who discussed bond and bank market funding issues and highlighted a number of key trends such as the propensity of bond markets to open and close a lot recently, giving treasurers only very short  windows upon which to act. “It’s harder for single B rated issuers like Dixons, which is a discretionary electrical retailer facing a tough market sector at the moment, to raise bond funds right now due to this volatility,” he added. “You have to be ready to go to market quickly. For instance, we successfully went to market again recently, at the start of September, but I suspect that window has now closed since markets have tumbled after the news of the Spanish eurozone austerity riots.”

Ladd went on to detail the bank funding restraints facing corporate treasurers at the moment as lending levels fall, the ramifications of the impending Basel III capital adequacy rules begin to bite, and overseas banks desert foreign markets. All extra reasons why protecting the business by delivering an agile and quick witted treasury, is now such an important task for treasury heads around the world.

Reaction Quotes

The worsening global economic situation and need for treasuries to be nimble and innovation in the face of the challenges that this will inevitably throw up was a key discussion point at EuroFinance 2012, alongside regulations and the on-going eurozone crisis. “The latter will certainly have an impact on Africa; it’d be naive to think it wouldn’t,” said Clive Tasker, head of corporate banking coverage at Standard Bank before adding that the key problem is the political and economic disconnect with more integration clearly needed but resistance from nation states. “Our home market of Africa is still a bright spot, however, with multinational corporations (MNCs) very much interested in the region due to the phenomenal growth it is experiencing.”

For Jonathan Williams, director of strategic development at Experian, the show was all about the making sure you are prepared to meet the single euro payments area (SEPA) compliance deadline of 1 February 2014; understandably so as the vendor is expecting to pick up a lot of business from now until the start date. “Don’t leave it too late,” he warned, “otherwise you may not be able to get the necessary implementation time and you certainly won’t get the treasury centralisation benefits, only all the costs if you leave it too late.”

Karen van den Driessche, EMEA treasury director at electronics company, Avnet, thought that it was a god show but would have liked to have seen more discussion about the crucial relationship between the business and the treasury. “At Avnet, we do not see a difference between the business and the treasury: one cannot live without the other,” she said.

Delegates from the exhibition floor were less in numbers than previous years, but equally seemed happy with the event as the last full day of EuroFinance 2012 wound down towards its end. A procession of vintage cars awaited some lucky bankers and treasurers outside the Grimaldi Forum venue to whisk certain delegates off to the evening parties and eventually a flight home the next day. No doubt some of them will be sitting atop a Rolls Royce aeroplane engine on the way home: I just hope it’s considerably bigger and more impressive than the tiny scale model of a turbofan engine that Andrew Leach, executive vice president of purchasing finance at Rolls Royce, displayed during his earlier treasury presentation.

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