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:
- Greece defaults on its debt and exits the eurozone.
- Exits the eurozone without defaulting.
- 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:
- Promissory notes.
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.”
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