In these unprecedented times, the COVID-19 pandemic is having a profound effect on individuals, families and communities in many countries, as well as on sole traders, SMEs and larger organisations.
Where corporate treasurers are concerned, the rapidly evolving situation is bringing different challenges for different sectors. At the same time, there are many common themes for the treasurers we have spoken to, both on and off the record.
Treasurers with business-continuity plans in place are now finding those plans tested in ways that may not have been envisaged when they were first drawn up.
“Normally, if a company has a disaster-recovery plan, the focus is on specific situations – such as one where your own office is inaccessible, in which case staff can work from another site,” says James Winterton, associate director of policy and technical at The Association of Corporate Treasurers (ACT).
The way to get through it is the way treasurers always cope: we put in the hours and deal with it
What’s unique about the current crisis, Winterton says, is that every element of the business ecosystem is being impacted at the same time – including customers, suppliers and staff, as well as the ability to ship supplies.
What started as a social health crisis has led swiftly to an economic crisis. Many governments and central banks have announced unprecedented measures to respond to the crisis by providing liquidity, monetary stimulus and innovative forms of state aid.
Nevertheless, the beginnings of the pandemic in Asia gave treasurers in other countries a forewarning of the resulting challenges, and in recent weeks many have been implementing business-continuity plans.
While the current situation brings extensive challenges, the focus is relatively narrow in the short term, with treasurers seeking to put in place the measures needed to keep their own operations going.
But these measures are likely to be only the beginning of the profession’s response to the crisis, which currently threatens the viability of whole industries.
As Naresh Aggarwal, associate director at the ACT, comments: “It’s unclear how extensively the COVID-19 virus will spread or how long it will continue to disrupt – our initial advice assumes that disruption could continue for up to six months or longer.”
In the medium and longer terms, the range of outcomes will be considerably wider, from the impact on liquidity to changes in customer behaviour.
“As we move through this crisis,” Winterton says, “treasurers will need to pause for breath after the initial phase to test their medium-term decisions against the longer-term scenarios in order to navigate the evolving situation.”
Treasurers are of course already being challenged with the short-term impacts of the pandemic. Immediate concerns comprise areas such as:
For many treasurers, one of the most immediate aspects of the current situation is the need for individuals to work from home. Treasuries will have been taking strides to ensure they have the necessary processes in place.
As this article was being finalised, many governments were extending lockdowns and restrictions on their citizens’ movements in efforts to reduce the spread of the virus.
Anu Mensah, head of treasury at residential developer L&Q, says the company recently carried out a trial to ensure that all employees could continue to operate on this basis.
She notes that historically things like Citrix access would have presented additional challenges, but today all staff are able to use work laptops to access everything remotely.
The team has technology in place to pick up phone calls for themselves and colleagues remotely. Staff also have card readers at home as well as in the office, and can access business-critical systems using personal laptops if needed.
“The only thing we can’t access from home is physical post,” Mensah adds.
Also essential to a working-from-home treasury model is the ability to ensure controls are in place. Joe Peka, deputy treasurer of nuclear fuel company Urenco, says: “One thing we have been very keen to do is make sure we do not change or alter our control processes.” As such, the treasury is applying the same level of scrutiny and review as in the past, but with some different processes in place.
“For example, we might give approval via email instead of with a physical signature – but we’ve also added an extra layer of control in the form of a callback,” he explains.
“The mantra we’re hearing today is ‘liquidity, liquidity, liquidity’,” says Winterton. While the present challenges are a major focus for treasurers currently, treasurers are also considering the impact on their businesses over the medium term.
This will involve considering whether profits will be affected in some or all jurisdictions, and whether capex-intensive projects will need to be postponed, and how own and counterparty credit ratings may be affected.
Treasurers will also need to consider whether the crisis could affect any of their covenants, and whether the timing of planned debt issuance will need to be changed.
Where staffing levels are concerned, treasurers are adjusting not only to the possibility of longer-term working-from-home models, but also to the prospect of situations in which multiple members of the treasury team may be off sick at the same time.
“We’re in a fairly good position, in that our team is cross-trained – so if we had a case where two or three people were unable to work, we could shift things around so that we were still compliant with policy and still able to enforce segregation of duties,” says Mensah.
In the medium term, working-from-home models may give rise to additional challenges, such as the need to provide physical signatures for some banking or legal documentation. In some cases, this may necessitate individuals printing documents at home and sending them to colleagues by courier – assuming those are still available.
Another consideration is the impact of new working methods on staff wellbeing over time.
As the treasurer of a FTSE 250 company remarked: “As treasurers, we will need to think about mental health and the wellbeing of employees through isolation and the undue pressure of continuing work through difficult periods.”
For some companies, collaboration tools such as Slack and Microsoft Teams may play a role in helping maintain strong communication within the team. Many are using WhatsApp groups to stay in touch with their teams – if only to check on everyone’s wellbeing once a day.
Other considerations over the medium term include:
1. Counterparty risk. Peka says this is a key area of focus – “meaning customers as well as our banking counterparties. We will be enhancing our review of those counterparties going forward.” He points out that banks have largely separated staff into A and B teams that do not come into contact with each other in order to minimise the risk of infection. “They are also doing what we are doing and working from home where they can,” he says.
2. Supply chain risk. Where this type of risk is concerned, Peka says preparations for Brexit had already prompted the company to review its supply chain. “Fortunately, we have operations in the UK, the US, the Netherlands and Germany, with some flexibility around fulfilling our contracts,” he says. “Clearly, cross-border supply may become challenging, but at present our contingency plans allow for flexibility around fulfilment of our contracts.”
3. Debt issuance. One FTSE 100 treasury professional said: “One place where we may see delays is access to the debt capital markets. In volatile market conditions, organisations that require access to debt capital markets may find the markets closed for extended periods. However, given the history of debt capital markets, this is something they should plan for when they review their (re)financing requirements and liquidity facilities.”
4. Access to credit. A number of treasurers are monitoring the situation and gauging what the triggers might be to draw on credit facilities.
5. FX liquidity. Peka notes that recent FX transactions revealed potential stresses and strains in the market. “We had some feedback from the bank that liquidity was very thin for these FX deals,” he says. “That didn’t stop us from being able to do those transactions – but that was quite surprising, given we only deal with major currencies.”
Meanwhile, some companies may be facing more substantial threats in the coming weeks – potentially bringing personal as well as professional challenges for the treasury teams affected.
One treasurer pointed out that some professionals “will be seeing the numbers before anyone else in the organisation and will know if the company is going to run out of money”.
With the possibility that the pandemic will continue for six months or more, and the fact that it has already triggered a global recession, treasurers will also need to consider the longer-term implications for their businesses.
While business survival to the end of this year seems to be an immediate concern for many in the current environment, another consideration is that following any recession or crisis, companies may face further challenges as they move eventually into the recovery phase.
“When companies start producing more goods to sell, they incur higher costs but may not have cash coming in from debtors for more than 30 days if they are selling on credit,” says Winterton. “In such situations, companies’ cash flows will become stretched.”
Last but not least, in the coming weeks treasurers will be considering how the current crisis affects other activities that had been expected to be a major focus in 2020, such as the transition away from Libor interest rate benchmarks and Brexit preparations.
“In light of Libor changes, one of the things we are planning to do is adopt a new TMS,” says Peka. “We are still planning to do that, although it certainly presents some logistical challenges.
“You would normally expect in-person training and lots of meetings through the implementation – but we will have to do a lot by phone call, WebEx and online presentations.”
Conversely, another treasurer who wished to remain anonymous was less certain that a planned TMS upgrade would still go ahead in the summer.
“Most of it comes down to time,” Mensah concludes. “There are going to be some long days and nights ahead of us. It may become crucial to have teams that are cross-trained; that are able to pick up more. It will eat a lot of time that we didn’t originally plan for, but the way to get through it is the way treasurers always cope: we put in the hours and deal with it.”
A final thought from Winterton is that the present focus necessarily is upon staff welfare and business survival.
“But those businesses that succeed in navigating COVID-19 will be keen to ensure that their plans for a return to growth will be sustainable against the threat of climate change.”
Rebecca Brace is a freelance business and finance journalist
This article was taken from the April/May 2020 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership