The need for UK companies to broaden their global horizons has intensified in the months since last summer’s referendum decision to exit the European Union (EU). This year’s Association of Corporate Treasurers (ACT) conference, held in Manchester this month, took ‘Opportunity From Uncertainty’ as its overall theme and a workshop session considered the opportunities presented by the world’ emerging markets.
As the outline noted, markets in Latin America, Asia and Africa are particularly promising. At the same time, moving into an emerging market presents the challenge of structuring treasury, along with managing risks such as central bank foreign exchange (FX) management and commodity price fluctuations.
The panel for the session was made up of financial professionals from corporates of varying sizes, each with operations in various countries. It commenced with a presentation from Linda Kemp, treasury manager for the UK and Ireland at Atos IT Services. The digital transformation technology solutions provider has a global workforce of around 100,000 individuals and operates across 72 countries, with India, the Middle East and Africa accounting for around 15%, the UK and Ireland 10% and Asia Pacific. Atos IT also has 15 research and development (R&D) centres in nine countries and no less than 5,000 active patents at group level.
Kemp acknowledged that Atos is “a very complicated group” and since joining its team 18 months ago it had taken her time to fully understand its component parts. The scale of its operations in India alone is immense, where a treasury team is based in the eastern city of Chennai. There is “an emphasis on choosing the right talent” and Atos recruits from the local university.
Treasury teams are also based in the UK, in London and Durham, and the “very motivated” team in India follow the same working hours as their British colleagues. The group’s currency hedging is coordinated by a group based in Geneva, transactions are conducted by those based in its head office in Bezons, a suburb of Paris, while the global cash report is handled by a team in Shanghai
“Atos ties to keep its banking groups small,” said Kemp, although the group can encounter “real difficulties” when venturing into a new territory. “We’re currently trying to devise a solution for Afghanistan and working through intermediaries, as there aren’t too many banks in the country.”
Hedging in certain territories can also prove challenging. Atos hedges in currencies ranging from Indian rupees (INR) to Philippine pesos (PHP) and its strategy includes the use of non-deliverable forwards (NDFs). Certain banks have also proved “squeamish” about the group having some business in countries when they are on the sanctions list, such as Iran.
“The sanctions issue is a difficult one, but emerging markets are where growth rates are in double digits,” agreed Paul Hedley, group treasurer at multinational mining giant Rio Tinto. “Companies need to look at these markets, as things aren’t growing much anywhere else.”
His group is also an internationally-recognised name. “We’re bringing dollars in African countries and the challenge is how we extract cash,” he said. “We’re generally buying local currency, rather than figuring how to get it out.
“We also face the question of how we get long-term funding into countries where, for example, we plan to be operating for the next 30 or 40 years.” More generally, as a multinational the group was concerned by recent protectionist rhetoric and the possibility that “the global trade that we all rely on” could be under threat.
However, recent successful fund raising had included US$4.4bn secured from a group of investors to expand operations in Mongolia at the Oyu Tolgoi copper mine. Rio has also been in discussions with UK Export Finance (UKEF) the country’s export credit agency, which has “an added impetus for arranging loans, post-Brexit.”
Hedley said that the group had the backing of its banks when, as at present, it was in discussions with entities such as Mongolia’s parliament. “It’s both a positive and defensive move, which ensures that your negotiations take place at the very highest level,” he explained.
Rio maintains a strong balance sheet in order to manage volatility in the commodities market, but “we don’t hedge – in line with our investors’ wishes”.
Another panel member, Heather Hope, former group treasurer for Fastjet, the UK-based operator of an African budget airline, was asked about maintaining a balance between using international banks and local ones in emerging markets.
“With the big banks, you have the assurance that everything is going to work smoothly,” she suggested. “Not so with local banks, where you have to adjust both your expectations and dealings accordingly.”
Both Hope and fellow panel member Scot Morton, group treasurer for personal healthcare and consumer products producer PZ Cussons, have experience of micromanaging in African countries such as Nigeria, whose economy depends heavily on oil revenue but has little else in the way of industry and is reliant on imports.
PZ Cussons has been established in Africa for more than a century and Nigeria is its largest and most diverse single market. Morton said that his company had widened its banking relationships rather than depend on major international banks and illiquidity had impacted on both its treasury activities and its commercial decision-making.
“Bank relationships in territories such as Nigeria are paramount and commercial decision- making has to be agile,” he added.
Among the other main considerations for treasury when the company enters a new market is ensuring that employees are paid promptly and in full, said Hope. “Sometimes the treasurer has to be the killjoy when getting money out of a particular country proves impossible.”
We have been witness to a series of significant security events recently around payment execution, from Leoni in Germany through to ABB in South Korea and SWIFT in Bangladesh to name a few of the major headlines.
When Mark Cuban declared that "Data is the new gold" he highlighted why information is possibly the most valuable asset a business has. APIs are the unsung heroes that make it possible to extract that value.
A decline in the return on capital employed of globally listed companies over the last decade has been noted in recent EY and PWC reports. This is despite businesses taking an increased focus on balance sheets since the financial crisis in 2008.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.