The X-Factor
The ‘superhero’ status accorded to treasurers on this month’s front cover may have an element of artistic license but it is no fiction that treasurers now find themselves at the forefront of their own, very real, struggle with the ‘dark powers’ of the current economic environment. Treasurers’ dastardly opponents include reduced lines of credit, tight cashflows, an increasingly risk-averse climate and purported failings in corporate governance.
The finance director may be the equivalent of the Metropolis police commissioner but it is the treasurer who is out there on the mean streets of finance, armed with the impenetrable shield of their invaluable ACT qualification and the powerful ray-gun of accumulated experience.
Recent editions of The Treasurer have covered these issues in depth (February: Corporate Governance, March: Financing Alternatives, April: Cash Management, and May: Risk Management). In this edition, we focus on one of the challenges which has the potential to be the green kryptonite for the treasurer. Without showing that treasury can provide tangible value to the company as a whole (whilst still improving internal efficiency and controlling costs), the very existence of the treasury function may be called into question when hard-pressed companies focus on cutting head count and overheads. As part of this Spotlight, we also examine what alternative or additional powers the superhero’s sidekicks, ASPs and agency treasuries, can usefully provide through the outsourcing market.
Partnership is important, even for superheroes. Just look at the X-men or Batman and Robin. I am therefore keen to highlight an exciting development from the ACT. As you will see from p12, we have announced a joint venture for the AMCT with the Association of Chartered Certified Accountants (ACCA), which is in addition to the existing arrangement with the Chartered Institute of Management Accountants (CIMA). This shows the extent to which the ACT is proving attractive to a wider community and is a recognition of the increasingly broad attraction of treasury.
To enable treasurers to benefit from support in numbers, the ACT is intending to hold its own annual members’ event next year. The conference is aimed at developing the profession through education and the exchange of leading edge views and is designed by treasurers, for treasurers. More details will follow in due course but you can read about our intentions in Richard Raeburn’s piece on p56.
Briefly, an apology to fans of Bottom Line by JF. Due to a lack of space, we have had to leave it out in May and June. He will return in July. Finally, I hope as ever that you find that The Treasurer is a useful tool in your armoury – if not, you need to let us know. Our work is never done!
MIKE HENIGAN
Managing Editor
FACT: Predictions for the future are notoriously unreliable and difficult to frame with any degree of certainty, regardless of subject or walk of life; doubly so when the party forecasting the future has a vested interest in pressing for a specific sequence of events or championing a particular view. Would it not therefore be somewhat presumptuous for us to seek to put forward a balanced assessment of the future evolution of the European cash management business without some readers hinting at an element of bias?
BEFORE 1 April 2002 it was possible for the local authorities that were responsible for managing pension funds (about 100 of 440) to invest any pension fund cash in money market funds (MMFs) but the same local authority could not use such funds for its general cash. This was clearly an anomalous situation and resulted from the different regulations applying to the two types of fund. The regulations for the general fund cash were written in the early 1970s, long before MMFs came into existence.
After a long period out of the spotlight, the exchange rate is once again featuring strongly in the economic debate. There are two aspects to the renewed interest in the pound. First, sterling’s 10% drop against the recovering euro has arguably removed one of the largest practical hurdles to UK entry into the single currency. In old money, the pound is now at the equivalent of just 2.80 against the Deutschmark, its lowest level since 1998 and close to the bottom of its trading range in the Exchange Rate Mechanism (ERM).
These are a selection of bonds announced recently. The details, updated to the middle of last month, were supplied by Thomson Financial Securities Data and other sources.
Force majeure
The ACT believes that documentation, not legislation, will be key to corporates protecting their interests in the event of a major disruption to the UK financial markets.
Widely held assumptions about managing cash mean that many treasuries may be misallocating resources, achieving poor investment returns and taking on unnecessary risk. But it does not have to be like that. Below are eight common misconceptions that, if addressed, can lead to more efficient cash management.
The introduction of the International Accounting Standard 39 (IAS 39) Financial Instruments: Recognition and Measurement has been long-awaited by companies throughout Europe.
The requirement for an investor relations manager arose after we listed on the London Stock Exchange in May last year. It was decided to use current in-house resources to fulfil this responsibility and, as Corporate Treasurer, I was chosen to carry out this role alongside treasury as there was a good fit between the roles.
The time has come for treasurers to step up to the plate. In a new world where the financial professions are in the spotlight, the opportunity is there for treasurers to take on new challenges and responsibilities, including those in the Boardroom. This was the theme of the keynote address by Ronan Dunne, Head of Finance at mmO2, to corporate treasurers attending the UK Treasurers’ Conference (UKT) held by The Association of Corporate Treasurers (ACT) in association with EuroFinance Conferences in Brighton from 29 April to 1 May.
Treasurers are currently facing a difficult commercial environment in which to run a treasury department. There are significant challenges, with the focus on cost reduction in many companies, reduced availability of credit, tight cash flows and an emphasis on risk and corporate governance issues. This means that treasurers must aim to deliver responsive and value-adding services to their organisations at the most cost-effective price available.
The Association of Corporate Treasurers’ (ACT) recent UK Treasurers’ conference in Brighton was headlined ‘Reshaping treasury policies and processes in a new world’. Not surprisingly, one of the key themes throughout the event was the combination of business drivers and technology enablers that together are causing the treasury community to focus on operating as efficiently as possible.
Over the past 12 months, the increasing acceptance of the benefits of corporate treasury outsourcing by treasurers and finance directors, and the maturing services from suppliers, have led to a continuing steady growth in the market. However, there has not been the big surge in demand that many were expecting. In the current difficult financial environment, outsourcing services that provide medium- to long-term solutions to specific problems are not the quick cost-cutting fix businesses are looking for.
In June 2001 ACORDIS started implementing the outsourcing of the transactional side of its treasury department. A couple of years on and Group Treasurer Teri Barlow reckons it is one of her better decisions.
Companies use different principles to guide major decisions and these principles change as market conditions change. Broadly, these principles can be captured as: reducing or containing costs; improving operations; enabling strategy; or organisational restructuring.
Taking the time to find out how your banks operate can help build a relationship that’s better for everybody, says John Steedman of John Steedman Training.
It is not easy being a treasurer in today’s environment. On the one hand, there is the pressure to downsize, cut costs and achieve greater efficiencies in treasury to mitigate the general downturn in the economy. On the other, the role of corporate treasury is changing from a profit centre, making money on taking risks, to a new role as a service centre, focusing on adding value to the business, including its subsidiaries. Also, regulatory demands have dramatically increased during the last few years, prompting global control of all financial activities. The IT infrastructure, however, generally remains fragmented on a global basis.
The skills of an experienced corporate treasurer can make all the difference in delivering a responsive and effective treasury function at key stages in a company’s strategic development. However, as in many specialist functions which are dependent on expert, qualitative decision-making, staff costs may contribute a significant element to the expense of delivering this business support. Therefore, the leverage of expertise on an interim basis may be a cost-effective solution to meeting the needs of a business when the demands on the treasury function are particularly acute.
As I write this I am just back from attending our joint venture conference in Brighton. An immense amount of work goes into organising these events but the reward comes in seeing excellent attendance, valuable presentations from senior ACT members and keynote speeches from two members of the ACT’s advisory board, Mary Keegan and John Plender. Feedback on the Brighton event has been very encouraging, particularly as we formulate our new plans for next year (see more below).
