IAFEI Quarterly - 32nd Issue

Press, Journal Article

INSIGHT

www.treasurers.org/thetreasurer

March 2016

The Treasurer

“We are aiming for real-time information

about liquidity and the FX exposures that

are arising in different parts of our business”

extremely volatile start to the year when

inancial markets gyrated as a result

of crude oil slumping to a low $27 per

barrel, and the 16 December decision of

Janet Yellen’s US Federal Reserve to raise

US interest rates for the irst time in nine

years. The changes hammered home the

message that a major unexpected shock

may be lurking around the corner at

any moment.

All the more important then that

treasury functions have it-for-purpose

systems that create maximum visibility.

Developing real-time or near real-

time treasury management systems

is the “Holy Grail” for treasurers, says

Regus’s Wilkinson, and a key plank

in their defences against such shocks.

Ramamurthy says� ��ne of our treasury

priorities at Unilever is to ensure our

IT systems are fully leveraged. We are

aiming for real-time information about

liquidity and the FX exposures that

are arising in diferent parts of our

business, so the central treasury

team can apply the right hedging

strategy or the right liquidity

management strategy.”

�utreco’s Raymakers says� ��ne

of the immediate challenges we face

is to achieve real-time insight into

the development of cash, either from

bank accounts or accounting systems,

but also in the development of FX

exposure.” He added that: “luckily,

we have quite stringent discipline

where FX exposure is concerned.

The businesses alert us to their FX

exposures on a daily basis, and we hedge

them for them.”

European corporate treasurers also

say keeping track of their banking

partners has become more of a top

priority, in view of the fact that some

banks are shrinking – withdrawing

from geographies and lines of business

– potentially leaving clients in the

lurch as they retrench back to their

home markets in response to the

stresses and strains, and balkanisation

of regulation that followed the 2008

inancial crisis.

Assume that volatility

is here to stay

Some treasurers say they were caught

of-guard when the Royal Bank of

Scotland closed its global transaction

services arm last year. At its peak, the

unit provided 7,000 large corporates

with cash management services,

including overdraft facilities and

trade inance products, but when RBS

informed clients it was axing global

transaction services in February 2015,

the corporates were obliged to ind

alternative banking partners at short

notice. Raymakers says Nutreco has

already found alternative banks in

afected markets. Ramamurthy says

Unilever now keeps international

banking partners under constant

review, to ensure they’re appropriate

for the future.

Unilever’s Ramamurthy says that

treasurers should treat volatility like

sea captains treat the weather. Volatility,

within exchange rates, commodity prices

or other moving parts of the global

economy, is a fact of life that underpins

everything Unilever’s 25-strong central

treasury team does. “Anyone in treasury

should assume that the volatility is

here to stay. To assume that things will

normalise and stabilise would be the

wrong thing to do.”

Ian Fraser

is an award-winning inancial

journalist and author

JURY OUT ON TAX REFORMS

Where tax is concerned, major changes

are in the pipeline. The EU has, for some

time, been targeting multinationals

because of their ability to minimise

corporation tax through the use of clever,

but labyrinthine, corporate structures

that often rely on ‘captive’ companies

based in tax havens, and is seeking to

claw back taxes from US technology

giants like Apple. On 28 January, the

bloc launched an ambitious package

of measures aimed at clamping down

on such behaviour. Building on the

Base Erosion and Proit Shifting (BEPS)

agreement hammered out by the

Organisation for Economic Co-operation

and Development and inalised last

year, the measures include an anti-tax

avoidance directive that is scheduled

for sign-of by June.

Unveiling the European proposals,

EU economic afairs commissioner Pierre

Moscovici explained that the package

aims to level the playing ield between

SMEs and large corporates. “The days

are numbered for companies who avoid

paying tax at the expense of others,”

he said.

Some corporate treasurers welcome

the proposals, saying they will give

businesses greater certainty by reducing

disputes over the application of

international tax rules. Others predict

massive structural and behavioural

change among corporates. The

treasurer of one large European energy

company says: “This will change how

large European corporates structure

themselves, fund themselves, pay cross-

border interest and run their businesses

across Europe, perhaps using more

equity in certain positions as opposed

to debt.”

Regus’s Wilkinson believes the

proposals are going to be transformative.

“BEPS changes both treasury and the

thinking about how we do business,” he

says. He is also concerned that the EU

proposals will cause some irms to pay

“double tax” and signiicantly higher

tax. “One of the frightening things about

BEPS is the extreme transparency it

potentially gives to tax authorities in

diferent countries, enabling them to

make comparisons and making it easier

for them to challenge you.”

Others are more relaxed about the

EU’s planned tax reforms. Raymakers

says: “Nutreco’s tax department, of

course, is highly involved [with BEPS

and the EU proposals]. There might

also be some impact on treasury.”

Unilever’s Ramamurthy says the

proposals would have little impact

on the workload of the consumer

goods giant’s treasury department.