EuroFinance 2013 Day 1: SEPA, Centralisation and Competition – What Doesn’t Kill You Makes You Stronger

“There is no doubt that the world economy is slowing down,” said Stéphane Garelli, Director of the IMD World Competitiveness Centre at the University of Lausanne, Switzerland, in his opening keynote address to the 2,000 treasury attendees at the EuroFinance 2013 conference, which warned that corporates are necessarily going to have to get more competitive to survive and prosper.

A ‘weather map’ showing sunshine in an improving US economy – admittedly threatened by the US government shutdown and wrangles over the debt ceiling which could imperil the recovery – and a heatwave in Asia show there is some growth in the world, said Garelli, in an entertaining presentation. “But China’s growth is ‘only’ 7.5% (i.e. slowing) and it’s overcast in Japan. It is a very mixed bag out there (with the eurozone still struggling) and you need to be flexible to cope.”

You also need to be competitive to cope with the economic situation today, especially as there are regulations out there that will impact treasurers and the pricing and methodologies of their bank partners, such as the US Dodd Frank Act and global Basel III capital adequacy regime. “Respectively, 848 pages long and 616 pages by the way, which is the equivalent of reading the ‘terms and conditions’ – not something that most people do,” he joked.  

There are tax changes afoot as governments seek to shutter loopholes that corporate treasures have been using, warned Garelli, pointing to the Irish government who have just announced their intention to close the tax loopholes that have allowed Apple and others to effectively become ‘stateless’. Tobin taxes, such as Europe’s Financial Transaction Tax (FTT) and the US FATCA regulation are also hot tax issues at the moment as governments seek to claw back money, so treasurers should be aware tax rules are changing and will continue to do so.  

The changing money flows from West to East, and vice versa, as Asia grows are also illustrating a truly global world trade scene where competition is on a planetary scale. There are population and consumer spend growth trends in Africa that will impact the world economy too and these should be considered alongside the US shale gas revolution, which will make production cheaper there, explained Garelli in his wide-ranging address. “Don’t forget that attitude matters as well. Change your mindset – and your organisation’s – so that the person who says it cannot be done doesn’t interrupt the person actually doing it.” 

RMB and Business Prospects: Treasury Polling

The mixed picture ‘weather map’ of divergent economic growth region-by-region was illustrated in the EuroFinance 2013 session after the morning coffee break when a polling session with hundreds of corporate treasurers in the room revealed that compared to last year only 39% were feeling more confident about their corporation’s business prospects in 2014. ‘No’ they weren’t feeling more confident was the response given by 26%, with 35% stating they felt the same about their firm’s growth prospects, so there is cautious optimism at best concerning treasurer’s ‘own firm’ business prospects.  

The panel responding to the treasury verdict polling results included Patricia Greenfield, Director of Treasury Operations at AstraZeneca and Alastair McLean, Group Treasurer at Australia’s MetCash, who both said ‘no’ they were less optimistic about growth prospects for their companies and were acting accordingly. 

Surprisingly, question two in the Treasury Verdict polling session revealed a more bullish attitude from the audience of treasurers about global economic prospects (as opposed to their company’s), with 46% saying they were more confident about global growth this year. Just 9% gave this answer last year at the Monaco EuroFinance conference. 28% said ‘no’ they were not feeling more confident about global economic prospects, with 26% the same. 

A later straw poll questioning the uptake of offshore renminbi illustrated that this currency is increasingly being used by corporate treasurers for trade settlement and other purposes, but it is not perhaps as widespread as the hype suggests with 49% stating it wasn’t yet relevant for them.

Q. Are you using offshore Renminbi?

  • 13% For trade settlement.   
  • 9% For trade settlement and/or intercompany loans.  
  • 8% For trade settlement and/or intercompany loans / deposits.  
  • 21% Not yet but I will be.  
  • 49% Not relevant to me.   

SEPA Treasury Polling Shows Compliance Lag

The Treasury Verdict polling session at EuroFinance 2013 also contained three questions about the single euro payments area (SEPA) and companies readiness or otherwise to meet the 1 February 2014 migration deadline, which the European authorities insist they will not move, potentially causing non-SEPA compliant payments to be refused, fines, broken supply chains and all manner of other problems. The result of this SEPA compliance straw poll and the panel’s reaction to the findings are shared below.  

Q. For the single euro payments area (SEPA) specifically for payments, including payroll, I am: 

  • 14% Currently fully compliant. 
  • 50% Not yet fully compliant but will be by 1 Feb 2014.  
  • 13% Not sure.  
  • 23% Not applicable to me. 

“We’re one of the respondents in the 50% response bracket,” explained AstraZeneca’s treasurer Patricia Greenfield. “But we will be compliant by 1 February as we’re using a conversion service from our banking partner.” 

According to Alastair McLean, MetCash’s group treasurer, he answered not applicable. “SEPA hasn’t had many headlines in the Australian treasury world so it wouldn’t surprise me if there were some rejected payments emanating from there next year (or at least requiring conversion).”  

Q. For the single euro payments area (SEPA) for direct debits I am:

  • 8% Currently fully compliant.  
  • 35% Not yet fully compliant but will be by 1 Feb 2014.  
  • 21% Not sure.  
  • 36% Not applicable to me. 

This result isn’t that surprising because as Simon Jones, MD and Head of Corporate Sales, Treasury Services EMEA, at the sponsors JP Morgan, pointed out the European Central Bank’s (ECB) own SEPA Indicators, which are course regularly updated, show that at present only about 5% of organisations have converted to SEPA Direct Debits (SDDs). “This month, next, and in December there are a tremendous amount of SDD programmes due to convert so we’ll see a shift in the ECB volumes in the next couple of months,” he said, citing the large utilities in particular which will “move the needle significantly”. 

Q. My post-SEPA treasury structure is set up in the best way for my organisation?  (i.e. will you get any SEPA efficiency benefits)  

  • 31% Yes.  
  • 41% Not sure but we plan to change our structure.  
  • 28% No. 

A lot of companies are not going to be able to use SEPA compliance to get efficiency benefits, such as moving towards the mandatory XML ISO 20022 messaging standard throughout a treasury’s operations, because there is not enough time left to introduce these major kinds of changes before the deadline. Conversion services and stop gap compliance solutions will be necessary for any treasuries that haven’t already moved to centralise their treasury as part of a SEPA compliance project. This was candidly admitted by panel member Christof Nelischer, Global Group Treasurer at Willis Group Holdings in the UK, who said he isn’t making major efficiency or structural changes in his treasury at the moment on the back of SEPA. “I have enough IT projects on the go already.”

Treasury Centralisation

The issue of treasury centralisation, often introduced on the back of a SEPA compliance project with some treasuries implementing a shared service centre (SSC) and Payments Factory (PF) while complying with SEPA in recent years, was discussed in the conference stream 2 breakout session in the afternoon at EuroFinance 2013. The need for supporting technology and bank cooperation in moving towards the necessary standardisation was also addressed by the panel of Scandinavian corporate treasurers gathered for this strategy and treasury centralisation debate entitled ‘Beyond treasury: Moving Past the Rhetoric’. 

Lars Hove-Nielsen, Group Treasurer of the pump manufacturer Grundfos in Denmark, joined Joakim Flinck, Group Treasurer at Paroc, Finland, and Ulla Nurminen, VP, Cash Management and Treasury Support at Metsä Group Treasury in Finland to discuss centralisation, with Gunnar Berger, Head of CM Solutions at Nordea bank in Sweden sometimes coming under attack for a perceived lack of standardisation efforts by the banking sector.

Nurminen of Metsä’s treasury talked about how back in the 1990s her corporation underwent a huge cultural change when it moved towards an in-house bank (IHB) and Payments Factory. “It was a big cultural change for our treasury and was only possible with top management support,” she said, before going on to mention how the treasury is still centralising and improving by introducing a Collections Factory (CF). This is very unusual in treasury circles and the audience listened attentively as its automated receivables collection procedure was discussed.   

Grundfos’ Hove-Nielsen also commented that his corporation’s centralisation project, “was the biggest change management process we’ve ever had over the last 50 years”, illustrating just how much time, effort, technology and work is needed to centralise your treasury operations. The efficiency benefits described make it well worthwhile, however, if you have the necessary investment money and boardroom support.

 

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