Cashing in on Trends in Brno - The 8th CEE Treasury Forum
By Kornél Zipernovszky
More than 100 delegates from seven countries gathered to share experiences at this year’s Central and East European Treasury Forum held in Brno, Czech Republic, from 3 October to 5 October.
The national treasury associations of Austria, Croatia, the Czech Republic, Hungary, Slovakia, Slovenia and Romania met at the beginning of October to exchange ideas and learn about market trends and technological innovations. Ivan Haco, President of the Czech Treasury Association and Tamás Ónody, Chairman of the Hungarian Treasury Club welcomed 115 delegates together with guests from other European Association of Corporate Treasurers (EACT) countries. They also thanked the sponsors and organisers of the eighth Central and East European (CEE) treasury conference.
Helmut Schnabel, Chairman of the International Group of Treasury Associations, (IGTA) and head of the Association of Chief Financial Officers Germany (GEFIU), gave a balanced assessment of the crises financiers will be facing in the coming years. He underlined the fact that free international trade would always be the driver of growth in the globalised world. However, he said, the current push for a ‘trade war’ on the part of the US Administration, highlighted by the recent imposition of tariffs on European goods imported into the US, would have to end if a recession in America is to be avoided in 2020, which is also when the next presidential election will be held. Mr Schnabel added that if there were to be a recession, he expected it to be mild and short lived.
Meanwhile, the Eurozone could also be facing a crisis. He described the current, negative interest rates as “absurd”. He quoted Paul Achleitner, Chairman of Deutsche Bank, who also said the current situation would destroy financial markets in the long run. Answering questions from the floor, Mr Schnabel confessed his greatest worry is the political crisis in Hong Kong.
Asked if he thought Brexit would be reversed, Mr Schnabel reminded delegates that the UK is still the EU’s second biggest economy. “Observers say that if there were to be a second referendum on Brexit, it would be extremely controversial. And that could divide the country further. Whoever wins, the losing side will continue to spread opposition and even hatred, so many observers including myself, hope that there won’t be a second referendum. I think they should go ahead with Brexit and if they are not happy with it, they’ll have many years in which to correct it.” Delegates asked Mr Schnabel if he believed CEE countries could soon catch up with the larger European economies. He said: “Over time, they’ll catch up. The EU is giving a lot of help to the not-so-wealthy states and much of that [money] goes to structural investment in the countries we mentioned.”
Mr Schnabel went on to illustrate his point with the example of German automotive industry supplier Leoni. It produces cable beams for Boeing and Airbus and has around 50,000 employees. Leoni decided to open a factory in an East European EU member country mainly because the wages are so low. However, after discovering that the local labour force wasn’t as efficient as had been expected, Leoni closed the factory. He concluded: “The problem is really deeply rooted; when you are 100 years behind, you cannot catch up in five years. But these countries should never give up optimism. They will grow, they’ll catch up, even if some of them are catching up faster than the others.”
The next speaker was Maciej Swiderek representing Refinitiv, a global provider of financial markets data and infrastructure and an event Silver sponsor.
Mr Swiderek observed that the financial world market is constantly growing. He underlined the significance of four trends: first that the US dollar retained its dominant currency status with 88% of all trades; second that emerging market currencies gained ground and reached around 25% of the overall global turnover; and third that sales desks in five countries, the UK, Hong Kong, the US, Singapore and Japan facilitated 79% of all foreign exchange trading in April 2019. Finally, he also stressed the growth trend that FX trade with ‘other’ financial institutions (not banks) exceeded the volume of deals with interim dealers.
Another conference Silver sponsor, C2FO, was represented by Colin Sharp, Senior Vice President, EMEA . He explained the company’s mission is to assist businesses liberate global working capital. Much of C2FO’s work involves helping its 150 clients develop early payment systems that can be offered to suppliers in return for a discount. Mr Sharp was asked if the C2FO model could offer any insights to CEE corporations, for which delayed payments constitute a major issue and are a negative economic factor.
He explained: “That is one of the reasons why governments around the world are really interested in what we are doing. Often delayed payments hurt small businesses and most governments recognise that small businesses are the engines of growth for economies. Governments are concerned about increased length of payment terms and delayed payments. When you use us, you solve that problem, because we are paying suppliers much earlier. The UK and the Dutch governments are very supportive of us because what we do has a beneficial impact on economies.”
The afternoon session started by introducing the three Silver sponsors, Refinitiv, C2FO and EY, whose representatives chaired the roundtable discussion. The event was also supported by three Bronze sponsors, which were represented by: Theng Liu, Deputy General Manager, Bank of China; Gary Thomas, Executive Director, Salmon Software; and Gerry Daley, Head of Sales and Marketing, UK, Cashforce. They and Robin Page, CEO, TMI, were also introduced. Richard Cordero, COO of the European Association of Corporate Treasurers (EACT) then gave a detailed description of the organisation and its activities.
Next, another roundtable event examined the current issues of financing for corporates in the CEE region. It was hosted by Lászlo Haás, Head of Capital and Debt Advisory, EY Budapest, and Jan Pilmaier, Senior Manager, Capital and Debt Advisory, Corporate Finance, EY Prague. Mr Haás was keen to hear how participants viewed the availability of financial resources and alternative ways of financing, especially bonds.
Both Hungarian participants had first-hand experience regarding bonds due to a recent programme in Hungary launched by the National Bank to support this method of corporate financing. Gábor Ormosy, CEO of AutoWallis, explained that, as a small business, his company had been following the traditional business models of the past. Many similar businesses are still family owned and, as a result their financing is also conservative. However, the company shares were listed on the Budapest Stock Exchange earlier this year, as the management is aware of the need to adapt to environmental, technological and digital challenges. The company is now considering the possibility of issuing bonds to help it meet those challenges.
Hungarian panellist Lajos Dobai, Financial Director of Pannonia Bio, told the conference that the company, which is owned by an Irish family, is currently financed by banks. It is a single-aspect business producing ethanol from corn. Pannonia Bio was the first company to participate in the National Bank’s programme and has already issued bonds this year to self-finance its diversification. It plans to buy solar companies to increase its capacity. Mr Dobai added that one of the advantages of bond issuance is being able to learn from the report provided by an independent ratings company.
Ştefan-Alexandru Frangulea, Treasurer of Electrica SA, Bucharest, said the group, which is listed on the stock exchange, is also looking at the possibility of issuing bonds. However, this would happen only after a strategic business development plan had been agreed. He admitted that considering bonds was a way of showing banks that businesses were aware of alternative methods of financing. Mr Haás remarked that indeed banks are in competition with the bond market and this compels them to examine what they are able to offer to their clients. The Prague company NET4GAS, represented by Petr Jablonský, Head of Treasury, also shared a similar experience. He said NET4GAS is also considering issuing bonds because banks are not necessarily able to provide the best solutions to their specific needs. Stjepan Mandić, representing the World Bank in Zagreb, agreed with the panel co-chairs, saying there are currently plenty of ways to obtain capital other than through traditional bank lending. Mr Mandić, who also sits on the board of Allianz Pension Fund, stressed that corporate financial leaders should not be afraid to investigate equities as a means of raising private capital. Panellists then discussed the rating process, which had been mentioned earlier in the session. While some said they had been surprised by statements made in the independent reports, they also felt the points raised were helpful in the long term. Mr Mandić agreed that independent rating was actually crucial for businesses.
Setting up an in-house bank operation at MOL Group, an international oil company with headquarters in Budapest, was the topic of the closing presentation. A case study describing the work in progress was presented by Zoltán Balázs, Group Treasurer, Zoltán Szűcs, Head of Group Cash Management and Nóra Nemes, Payments Project Manager.
MOL operates in 30 countries across 800 bank accounts in more than ten currencies. The aims of the in-house banking project were to achieve increased efficiency through using state-of-the-art financial technology, to re-engineer cash management and to centralise treasury operations. Ultimately, the initiative was supposed to release significant amount of system cash. Mr Szűcs explained that corporate in-house banking was the method chosen to achieve these goals. The Group opted for a software package that united all operations. He added that now the legalities have been dealt with other elements of the project seem to be falling into place.
Finally, Richard Cordero, COO, EACT, commented on the conference discussions. He said he had been most interested to hear the presentation by the MOL Group about its in-housing banking initiative. This, he explained, is one of the areas in which Western Europe is still ahead of the CEE countries. The MOL Group’s project is, he said, a progressive step that sets a good example in the region.
Mr Cordero said he had just one observation regarding gender equality: there should be more women on stage next year.
At the closing of the conference, Andrej Révay, Chairman of the Slovak Association of Finance and Treasury, invited all participants to the Slovakian capital Bratislava to attend the 2020 event.