Transcript None - PwC

Treasury Hot Topics Seminar
Impact of the financial crisis: new opportunities
for the Treasurers
19 February 2009
PwC
Availability of liquidity has fallen rapidly
Financial Market liquidity*
“In the last 9 months credit has gone
from being a very positive market to
a very poor market.”
Group Treasurer, FTSE 100
Source PwC Survey 2008
Note: *the liquidity index shows the number of standard deviations from the mean. It
is a simple unweighted average of nine liquidity measures, normalised on the period
1999-2004. The series shown is an exponentially weighted moving average. The
indicator is more reliable after 1997 as it is based on a greater number of underlying
measure. The recent fall in the indicator is largely due to a sharp decline in the
interbank market liquidity measure
Source: Bank of England
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Slide 2
There has been FX volatility with GBP falling in value
© 2009 by Prof. Werner Antweiler, University
of British Columbia, Vancouver BC, Canada.
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© 2009 by Prof. Werner Antweiler, University
of British Columbia, Vancouver BC, Canada.
Slide 3
Credit risk has risen
UK, US and EU Bank CDS Spreads Index
500
450
400
350
300
250
200
150
100
50
0
Jul 2006
Sep 2006
Dec 2006
Mar 2007
EU Banks CDS index
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Jun 2007
Sep 2007
UK Banks CDS index
Dec 2007
Mar 2008
Jun 2008
Sep 2008
Dec 2008
US Banks CDS index
Slide 4
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ICE Brent
Chinese imports
04/01/09
04/10/08
04/07/08
04/04/08
04/01/08
04/10/07
04/07/07
04/04/07
04/01/07
04/10/06
04/07/06
04/04/06
04/01/06
04/10/05
04/07/05
04/04/05
04/01/05
04/10/04
04/07/04
04/04/04
04/01/04
04/10/03
04/07/03
04/04/03
04/01/03
04/10/02
04/07/02
04/04/02
04/01/02
04/10/01
04/07/01
04/04/01
100 = 04/04/2001
Commodity Prices have boomed and crashed
700,00
600,00
500,00
400,00
300,00
200,00
100,00
0,00
Source: Bloomberg data and PwC analysis
Time
LME Copper Cash price
Slide 5
Volatilities have reached record levels
80,00%
70,00%
60,00%
50,00%
40,00%
30,00%
20,00%
10,00%
Source: Bloomberg data and PwC analysis
0,00%
1
1
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08
12
05
09
01
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01
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02
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10
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10
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11
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22
26
01
04
08
14
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21
26
29
02
08
12
15
21
25
28
04
07
12
16
19
ICE Brent
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LME Zinc Cash price
LME Copper Cash price
Slide 6
The Rules of the Game are bound to Change because…
• Fully liberalised markets do not work for the good of the majority, but only for the
wealth of a minority. Wall Street has paid USD 18 Bln in bonuses this year…
• Plants are shut down, and jobs destroyed.
• Systemic Risk has become a reality.
• Taxpayers around the World are saving the Banks.
• AAA rated companies and bonds have defaulted. Rating agencies have lost
credibility.
• The Banking regulatory framework has failed.
• The SEC and SoX have not prevented a single guy to fraud USD 50 Bln in full day
light.
• Fair Value accounting is being blamed by Bankers as the root cause for the crisis.
• Corporate Governance codes have failed.
• …
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Slide 7
Time to Re-Focus on Financial Risk Management
•
Over the last years, the job of the Treasurer has to a large extent focused
on cash management, process automation and cost efficiency.
•
It is fair to say that many Treasury functions were and are still viewed too
much by the Boards as cost centres.
•
Financial Risks were thought to be acceptable and often absorbable by
the Equity of Companies. Key exposures were FX and Interest rate risks,
which have traditionally been well managed by Treasurers. Liquidity and
Bank Counterparty Risks had become somewhat “theoretical” in
financial markets thought to be “perfectly efficient”.
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Slide 8
Time also for Reflection, after the Storm.
•
•
•
•
Isn’t time to reconsider the risk appetite of the
Company for financial risks?
What should be the key mission of the Treasurer?
Is it acceptable for Boards and Executive Committees
not to invest more in a Treasury Function which is
the key safeguarder of the Company’s assets against
Financial Risks?
Is it acceptable for Companies not to have a well
structured and thought through Treasury Policy, which
is focusing first on Risk Protection, and not on Return
and Performance metrics.
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Slide 9
Proposition
“The downturn offers the
Treasurer great opportunities to
add value to the organisation.
Unfortunately for a variety of
reasons this may not be
maximised”
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Slide 10
As a result business priorities
have changed – treasury issues
to the fore
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Slide 11
10 priorities for managing through the downturn
Business priorities
1
2
Take a closer look
The goal posts are moving;
understand the true picture not
what you would like to believe. Get
to the bottom of what’s driving the
business; what you do best and
why. Understand how the business
is being impacted by the downturn
Focus on what really
matters
Evaluate which products,
customers and channels create or
destroy value. Revisit your existing
investment programmes – what
initiatives could you stop or defer?
3
Plan for different
scenarios
Winners demonstrate agility and
flexibility; model a range of financial,
operational and workforce scenarios
that reflect the impact of the
downturn on your business; adapt
quickly; explore your strategic
options
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4 Act decisively
With increased uncertainty and
volatility it is important to take
tough decisions early. Focus
relentlessly on the key value
drivers and the key risks across
the business. Don’t sit back and
wait; the winners will be those
that position themselves to take
advantage of the upturn
Specific priorities for the CFO Specific priorities for the Treasurer
7
Reliable management
information is key
Now more than ever you need
the right management
information; clearly defined
KPIs are essential. Decision
making needs to be based
upon facts; speed of decision
making needs to improve
advantage of the
5 Take
opportunities
Don’t stop innovating or investing in
those areas of growth you will need
for the future; don’t forget your
brand.
Have an eye for the future; think
beyond the next quarter
the value
6 Recognise
of your people
Regular and clear communication
with employees is key to their
engagement. Identify key talent and
develop appropriate Incentives for
them – retaining and Motivating the
best people is critical to your future
8
Manage your cost base
Focus on enhancing operational
performance; go for targeted
rather than across the board cuts;
extract better value; reduce
unnecessary complexity; look at
whether your business model
needs to change
9
Remember “cash is king”
Ensure that your finances and
working capital are in good
order; protect your liquidity; reexamine your treasury,
financing, funding and pension
exposures. Monitor your
performance against financial
and non-financial covenants.
Adopt a hands on approach to
cash management
your stakeholders
10 Take
with you
Evaluate the likely impact of the
downturn on your stakeholders;
make sure you understand their
agendas. Perception is often
reality so maintaining regular
and open dialogue is essential
Slide 12
Treasurer - Cash is “King”
•
Many companies will face severe financial pressures during the economic
downturn; more than ever, cash is “king”;
•
Businesses which emerged as sector leaders after the last recession
typically had an average net debt-to-equity ratio of half of their less
successful competitors before the downturn;
•
Successful businesses also held more cash on their balance sheet than
their less fortunate competitors.
Increased emphasis should be placed on…
• Assessing whether your external financing arrangements are appropriate in the light of
changing circumstances;
• Adopting a more proactive hands-on approach to cash management;
• Ensuring treasury management practices are aligned to the business focus;
• Optimising working capital management.
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Slide 13
Treasurer - Cash is “King”
Key focus areas for Treasurers attention
Financing
Arrangements
Cash Management
• Re-financing risks
• 0-30 days: Detailed
operational focus
(lessons from Private
Equity sector)
• Loan agreements
• 1 mth to 1 yr: Tactical
focus
• Adequacy of facilities
• Efficiency of
financing structure
• 1 yr +: Strategic
focus
Treasury
Management
Working Capital
Management
• FX volatility
• AP – efficiency terms
• Interest rate volatility
• Commodity price
volatility
• Credit risk
(commercial /
financial)
• Policies – aligned to
environment
– payment terms
• AR – reduction to
standard terms
•
- renegotiate
terms
• Contract compliance
• Inventory levels:
- direct
- indirect
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Slide 14
Treasurer - Take your stakeholders with you
Treasury issues
Treasury issues
Treasury issues
Stakeholders, Banks, Institutions and Analysts
•
•
Proactively appraise Investor / Analyst community about financial projections / outturns;
Regular scenario planning / modelling becomes critical as a source of strategic information;
• Be prepared and ready to tap investor markets as “windows of opportunity” open up.
Suppliers
Customers
•
Review contract and
procurement policies;
•
•
Categorise suppliers into
critical / desirable groups and
focus priority spend on
priority categories.
•
Value chain
•
•
Financing of suppliers a
possibility
•
Ensure any retention efforts
are targeted and cost
effective (rewarding loyalty..);
Greater focus on customer
credit to reduce bad debts;
Ensure plans are in place to
proactively capture customers
from failed competitors;
Examine sales aid / customer
financing opportunities
Management & Staff
•
Look at pay structures / flexible working time and benchmark remuneration against competitors;
•
•
Look at outsourcing opportunities; consider Works Council / Union implications;
Focus attention on retention of highest value employees – those that must be retained as growth engine of the business.
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Slide 15
So why might not treasurers be
able to fully respond ?
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Slide 16
Not enough people / too many business constraints
Limited resources (people)
41%
Compliance requirements or regulatory constraints
Decentralized nature of the underlying business
26%
Technology/IT infrastructure
24%
Lack of understanding of what treasury really is
24%
Insufficient info of underlying fin.risks/exp
Restrictive management mandate
and / or support
Limited resources (budget)
In-house skills
Poor management
reporting or poor KPI’s
Other
4%
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27%
22%
17%
14%
13%
12%
Source:
PwC European Treasury Survey 2006
Slide 17
Treasurers are most comfortable focusing on core financing / risk
mgt - other areas involve getting into the business which is
difficult!
PwC Treasury Survey 2006
showed treasurers
preferred banking and funding
to business issues
Stakeholders (CFO’s) wanted
them to concentrate more on
the business risks
“Treasury has always had a bit
of an ivory tower impression
– no one really understands what
they do. The challenge is to ensure
that treasury becomes part of the
everyday business decisions.”
Treasurer, FTSE 100
Source PwC Survey 2008
“I’m starting to take a wider
view of risk for the
organisation …
Treasurers can bring a lot
of benefit in terms of
understanding and
quantifying risks.”
Director of Treasury, FTSE
100-200
Source PwC Survey 2008
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Slide 18
The financing issue is just too big to focus on anything else
From The Times
November 5, 2008
Corporate debt
refinancing is the next
crisis
David Wighton: Business
Editor’s commentary
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“Developing appropriate
banking relationships –
treasury wants to partner
with banks on a long term
view. The banks need to
have a good fit with what
they offer.”
Group Treasurer, FTE 100-200.
Souce PwC Survey 2008
“Financing has become a
much bigger issue. Keeping
a credit facility in place has
become harder and more
expensive. If you wait until
you need the credit it will be
harder to obtain and much
more expensive than prior
to the crunch. The decision
is how much ‘headroom’
to maintain.”
Group Treasurer, FTSE 100-200
Source PwC Survey 2008
Slide 19
Influencing
business
performance
Integration with the business
Focus not in the right place
Controls / efficiency very
important but priorities
are up the value chain
Focus on
value throughout
the business
Maximising
shareholder
value
Focus on debt and
liquidity
Focus on efficient
and
effective treasury
processes
Minimising
costs
Complying
with
regulation
and
controls
Focus on regulatory
compliance
& control
Safeguarding
assets
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Time
Source:
PwC European
Treasury Survey 2008
Slide 20
So what should the treasurer do ?
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Slide 21
This is the opportunity for the treasurer
•
Be prepared to make tough decisions in
reshaping the treasury strategy. Focus
on key banks / lenders and key risks.
Cash is king.
•
Be flexible – just following policy may
not be good enough. Old certainties
have gone. Confirm principles but adopt
a more responsive approach. Report as
such to senior mgt and develop the
team.
•
It is not enough to merely survive –
take, anticipate and exploit opportunities
in the new world. Lead and educate the
business in focussing on FX, credit risk,
commodity risk, key suppliers and
customers etc.
Survive
A new world
for Treasurer
Adapt
Win
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Thank you!
Olivier Cattoor
[email protected]
+32 2 710 4118
Damien McMahon
[email protected]
+32 2 710 9439
Didier Vandenhaute
[email protected]
+32 2 710 9634
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