Treasury on the Front Foot for Risk, Regulation and Recovery

The ACT Annual Conference 2011 took place last week in the city of Liverpool, under the main theme of ‘Risk, Regulation and the Recovery’. And while a steady stream of celebrities to the exhibition – such as England footballer Steven Gerrard and former UK Olympic athletes Sally Gunnell and Roger Black – caused a buzz of excitement, most of the treasury delegates at the conference were focused on interacting with their peers and making the most of the educational sessions over the two days.

Taking the Treasury Temperature

The first plenary session, called ‘What’s on Your Agenda?’, was an interactive voting session that quizzed the delegates in the auditorium on a wide array of topics, including treasury management, bank relationships from both the bank and treasury perspectives, regulations, politics and more.

When asked if it was easier to raise funds today than it was a year ago, 13.8% of delegates said it was now much easier, while just over half (50.1%) said that it was somewhat easier. While around a quarter (24.5%) said that they had experienced no change, some 11.6% said that they were now finding more difficult to raise funds than 12 months ago. Although the ACT’s head of publishing and chair of the conference, Peter Matza, quipped after the result that the 63.9% of delegates finding it easier to raise funds was a sign of the quality of the audience, these statistics also give an indication of the effect the credit crisis had on corporates, and their preparedness for such an event. The 11.6% of delegates finding it more difficult to raise funds – while being by far in the minority – do point to a small number of corporates having structural problems that were exposed by the credit crisis. Such problems have meant that they’ve been unable to take advantage of funding opportunities during the thaw of credit, or indeed have led to a downgrading of their own company credit rating that has made it more difficult to access credit at an affordable price. Certainly bank pricing transparency (or the lack of it) is a key concern for corporates today.

Looking to the banking sector, delegates were asked which of the following issues were more important to them:

  • Banking sector stability.
  • Increased bank competition.
  • Increased bank regulation.
  • Breaking up of retail and investment banks.

Perhaps unsurprisingly, given the bankers in the room, banking sector stability came out on top with over two-thirds of the vote (67.2%). The second placed answer – increased bank competition – trailed in with 19.8%, with a voting demographic presumably made up of mostly corporates. Again, increased transparency of banking prices would certainly force institutions to be more competitive.

Looking at the organisational approach to risk, a couple of questions put to the delegates examined their board’s approach to risk. A majority of delegates (62%) stated that their board had a balanced risk appetite, while nearly one-third (29.9%) thought that their board’s appetite towards risk was too cautious. This may reflect the view that some boards can take a long time to change their perspective on an issue. This is perhaps understandable, given the vast array of acronyms that non-financial board members suddenly had to understand – and, more importantly, find out if they were invested in – when the financial crisis first hit. The question of whether the appetite boards have for risk has increased over the past year garnered a similar split of results – 63.5% of delegates said that their board does not have an increased appetite for risk compared to 12 months ago, while 31.3% say that this has indeed increased.

Turning to politics, and as the first birthday of the UK’s coalition government coincided with the conference, delegates were asked if they thought the coalition would survive its full five-year term, or break up early. The tensions between the coalition partners – The Conservative Party and the Liberal Democrats – have been seized upon by the UK media, especially in the run-up to recent local council elections and a national referendum on voting reform. Clearly the headlines have had an effect on how the coalition is viewed, as more than half of the delegates in the convention centre predicted that it will collapse before completing its full term. Almost a quarter (24.1%) said they thought it will just survive for one more year, with another 22.5% putting its remaining life span at two years. Less than a half of delegates (46.3%) opted for the full term option.

The final question put to the audience asked for a prediction on global gross domestic product (GDP) growth in 2011. Delegates were largely split here between a growth of 1-3% (47.5%) and 3-4% (41.9%). Both optimistic and pessimistic delegates were hard to find – only 6.4% of those asked thought that global GDP growth will top 4% this year, while even fewer (4.2%) opted for growth of less than 1%. So from these results it appears that most people working in treasury and finance are preparing for a slow and steady year of growth, rather than a radical rebound out of the mire left by the credit crisis. For more results from the audience poll, on topics including treasury priorities, relationship banking and Basel III, please refer to my day 1 blog post.

Trading Into Recovery

A presentation given by Scott Barton, chief executive of Global Transaction Services at RBS, on the first day of the ACT Annual Conference looked at the challenges and opportunities currently facing UK businesses. The session had the heading ‘trading into recovery’, and Barton began by citing the host city of Liverpool as a good example of the benefits that trading can bring, both its 300 years as a trade hub, and the fact that it is now one of the government’s new enterprise zones.

To put his presentation into context, Barton outlined the following three points to keep in mind:

  1. The western world was only just coming out of recession and that the UK was hit hard by this.
  2. Both International Monetary Fund (IMF) and UK GDP predictions have been revised down.
  3. Growth predictions for the UK’s main trading partners isn’t much better.

While Barton made the point that recently there have been some positive signs – including a pick up in overseas trade outside of the EU and a narrowing of the UK’s overall trade deficit – there are areas that UK companies need to address:

  • Exports to the BRIC countries from the UK are lagging compared to other western European countries.
  • UK companies need to do more to promote their “world class” products and services.
  • The current 20% devaluation of the pound provides a perfect opportunity for exporters.

To take advantage of the opportunities available, corporates can also look at economies beyond the BRICs where growth is flourishing – Barton identified Turkey and South Korea as two such countries. But to take advantage of these situations, UK corporates need to be prepared for a number of eventualities, and not just the language and cultural considerations. There are a number of strategic considerations – credit risk, foreign exchange (FX) uncertainty, operational risk, transactional risk, funding solutions and ensuring sufficient cash flow – that can affect orders, contracts and business efficiencies. For businesses taking the first steps into international trade, or are moving to trade with a new region or country, Barton recommended the following channels as sources of help and advice:

  • British Chambers of Commerce.
  • British Exporters Association.
  • Institute of Exports.
  • UK Trade & Investment (UKTI).
  • The banks.

Barton concluded that, while the UK economy had suffered a “head wound”, growth opportunities exist in overseas markets and that the timing is also right – chief financial officers (CFOs) are keen on expansion, while Asia is poised to become the largest consumer block in the world. While the concept of globalisation has been shaken by the financial crisis, this presentation served as a rallying cry for the cause.

Positioning for Growth

In a track session on the second day of the ACT Annual Conference, Matthew Davies, head of EMEA corporate sales, Global Treasury Solutions at Bank of America Merrill Lynch (BofAML), chaired a series of presentations looking at the treasury focus for 2011 and beyond. Davies began by outlining the results of a treasury poll that BofAML had carried out on what issues treasurers are addressing right now. One of the highest ranked issues was cash flow forecasting, which agrees with the audience poll carried out on the first day of the conference. However, after cash flow forecasting, the BofAML poll found operational risk management and market risk management to be the second and third concerns – whereas in the ACT straw poll, funding was the second most pressing issue. For cash flow forecasting, Davies made the point that treasurers are under twin pressures here – tighter control over forecasting is required, but treasury departments are also having their resources squeezed. Other issues that fared well in the BofAML poll included disaster contingency planning, supply chain management and in-house banking.

Turning to some of the other results from the poll, Davies pointed out that, while the single euro payments area (SEPA) is still a low priority for corporates, there has been an increase in activity in this area over the past year. Davies said that, while SEPA can create operational risk efficiencies, a recent driver for corporates has been the chance to bring the receivables process fully in-house as part of a change of process.

Looking at current industry initiatives in the market, Davies specifically picked out electronic invoicing (e-invoicing) as an area gaining traction due to the straight-through reconciliation (STR) benefits that it offers. Davies said that e-invoicing could bring efficiencies to days sales outstanding (DSO) and client counterparty credit risk, as well as ensuring a better quality of receivables data.

Bringing a corporate perspective to the session were Nigel Youngman, group treasurer at G4S and Daniel Robrechts, senior vice president, corporate treasury with Deutsche Post. Providing background to his company, Youngman explained that the G4S group has a market capitalisation of £4bn, is investment graded, and is currently experiencing most of its growth in emerging markets. Turning to funding, Youngman said that G4S has reduced its reliance on banks since the credit crisis – in 2007 the group received 100% of its funding from banks, but by just 2009 this number had dropped to 45%. The way around bank funding in this example is that G4S began issuing bonds. On 1 March this year, the group also signed a new revolver, worth £1.1bn until 2016.

Robrechts spoke about how he manages his company’s treasury relationships in line with the risk priorities. When the credit crisis hit, he was faced with multiple risks over multiple currencies in multiple countries – a situation many of you will have also experienced. For Deutsche Post, the post-credit crisis environment was a time to reassess their risk management strategy. Key strategic points the company opted for included:

  • Concentration of available group liquidity at a central level.
  • Availability and diversification of local bilateral credit lines with key banking partners for overdrafts and loans.
  • Availability of centrally committed credit lines with key bank relationships and a maintenance of a liquidity buffer.

If you’ve recently amended your funding strategy, have you followed the same path outlined by Youngman, or have you followed a different approach? If you’ve reviewed your risk strategy, have you also focused on centralising liquidity and maintaining key banking relationships like Robrechts, or have you pursued other priorities instead? Join the debate by either using the comment box below, or email me, I’d love to hear from you.


Over the two days in Liverpool, there was a generally positive mood among the corporate treasurers at the ACT Annual Conference. While funding is clearly still an issue, the majority of delegates are finding the funding environment easier to negotiate than 12 months ago. Risk, in its many guises, is also still a top priority, but from the case study presentations and treasurers I spoke to, it seems like many companies have got to grips with their strategy in this area, and have implemented or are in the process of rolling out management and mitigation programmes that suit their business environment.

Corporates also seem to be much more prepared to look for growth opportunities where they exist, which in many cases is being driven by the CFO. As Steve Barnett, partner, financial services at Deloitte, put it in one of the tracked sessions, the appetite for risk among CFOs has risen in the past year, and the emphasis on growth and development is coming from this position. By using the forward-looking nature inherent in the treasury function, treasurers can ensure that they play a key role in delivering this business advantage to their organisation.


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