While the rest of the world has been a hotbed of financial and economic volatility in recent years, Germany and Switzerland have been rare outposts of stability. As a result, the treasury profession in both countries quietly got on with providing good work and good advice to their corporates, enjoying a greater profile and fulfilling an important professional role.
However, clouds have been gathering on the horizon: Germany’s struggles with both the eurozone’s more distressed member countries and the euro have been well documented. What was less visible was a hidden shadow over Switzerland: the strength of its currency. Without prior warning, on 15 January the Swiss National Bank gave up the Canute-like struggle of trying to hold down the Swiss franc (CHF) against the euro, via a three-year cap holding it at €0.83. Almost immediately, the currency soared to Alpine-like peaks.
“FX is quite volatile,” notes Pascal Frey, head of group treasury of Landis+Gyr AG, a Swiss-based world leader in smart meters. “Landis+Gyr set up a FX hedging policy, which we are in the process of implementing. What happened [on 15 January] showed how important the role of treasury is within the company to ensure that we don’t get caught in this type of action. Nevertheless, a company should anticipate anything such as volatility on the FX market – this is our role, particularly in hedging strategy.”
Aniket Kulkani, director in treasury and commodity trading at PwC, agrees that FX hedging has increasingly become important for Swiss companies, as trade with the eurozone area is so key to their commercial fortunes. “In the past, treasurers were always hedging their currency risk but it was reactive,” says Kulkani. “They used to get currency forecast and exposure from the business and then treasury used to go out and hedge in the market.
“In the past year treasury has been playing a more active role in currency risk management. Treasurers are actively looking out for exposure in the business. By looking at forecast and the business flows, the payables and the receivables and going out in the market and hedging them so they are taking more control of the exposures.” That strategy should feed through to the corporate bottom line fairly quickly.
Markus Bieri, head of corporate finance at Zurich-based banking software specialist Avaloq Evolution AG, notes that with so much FX volatility, the board is focused on treasury. “It wants to receive regular updates in the field of cash and financing,” he says. “These are the hot topics that board members are very much interested in – not only in the short term run but in the mid- to long-term run, which means three to five years. They want to have some comfort that the company is well financed over a period of time.”
Liquidity to the Fore
That focus on cash within Switzerland and Germany companies is a strong, common theme. Kulkani expects 2015 to be the year of liquidity forecasting, which has been steadily moving up the corporate agenda since the financial crisis: “Companies are looking at options to generate liquidity. In the past the options were going to the debt market and so on. Now treasury is optimising working capital in order to generate liquidity. But that goes back to the fact that treasury is becoming more active and getting integrated with the business.”
Frey’s company offers an example of the thought and the sophistication that is being applied. “For cash flow, Landis+Gyr uses a 12-month rolling forecast by currency, giving a global overview by entity and by currency,” he reports. “This enables us to have an idea on what action should be taken, especially what action on FX hedging needs to be taken.”
The forecast for the 15 currencies that Landis+Gyr deals in is produced using a treasury management system (TMS) – the company is one of a growing number to have abandoned note spreadsheets. It is made available to the business entity, as well as treasury, and can be viewed by region.
Germany and ‘Industry 4.0’
Darioush Zirakzadeh, a director in PwC’s Lausanne-based advisory practice, noted that there was a drop-off in the number of companies coming to Switzerland from mid-2011 on because of the strength of the CHF against the US dollar and the euro. For those companies already, there has been “a lot activity around acquisitions, mergers and expansion of bases in Switzerland,” he adds.
Switzerland’s neighbour, Germany, could be forgiven for feeling relief that the spotlight in the opening weeks of 2015 has been as much on the CHF as the euro, the currency used by Germany and 18 other member of the European Union (EU).
Yet even with issues such as meagre growth and ongoing euro tribulations, Germany remains dominant in Europe in many ways. Thomas Schrader, head of the corporate treasury solutions business unit at PwC says that there has been a turnaround in the German economy since the start of the century. A contributory factor was companies strengthening their capital base, enabling them to reboot quickly from the 2008-09 crisis.
Interviewed in late December, Schrader commented: “2015 is uncertain but we are still in a good shape and further growth is anticipated by all the economists. As a result of that confidence, German companies are not facing any difficulties in raising capital.”
Schrader adds Germany continues to look to the future with
, the government’s hi-tech strategy that first saw light in 2011 and which officially launched two years ago.
has the ambition of being Germany’s next industrial revolution – nothing less than the digitisation of the whole value chain of the corporate, an idea which is already underway in sectors such as automotive.
Schrader identifies the hot topics within German treasury as global transaction banking, cashflow forecasting, treasury reporting and regulation. In the case of the last item, he notes the trial unique to German corporates of facing a mandatory European Market Infrastructure Regulation (EMIR) compliance audit. He adds that
is a prime example of why treasurers should be good at taking the long view and not be easily swayed or dismayed by newspaper headlines.
The problems should not be exaggerated as both Germany and Switzerland enjoy an advantageous position in comparison to other eurozone member states. Nonetheless, troubling questions over the future persist and with so much uncertainty for their corporates it seems certain that in the region treasurers and their skills are set to remain in high demand.
This article has been excerpted from the January/February 2015 edition of Global Treasury Briefing. Read the full article here
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