Managing Risk in Uncertain Times

April 17, 2012

There was drama in Liverpool today, as the cold spring sunshine of lunchtime was replaced by black skies and an apocalyptic hailstorm that vented tonnes of ice (possibly a slight exaggeration) onto the docklands. Had I not carried out a risk assessment this morning and implemented a proactive umbrella policy, I would have been soaked.

Appropriately, then, I attended a session entitled 'Managing risk in uncertain times' this afternoon at the ACT Annual Conference 2012. Introduced by Matthew Davies from Bank of America Merrill Lynch, the session saw two treasury case studies from Gavin Jones, VP Treasury at Ahold, and Philip Learoyd, Head of Funding & Treasury with SAB Miller.

Jones covered the treasury balancing act that he's contending with in 2012. The strategic priorities for his treasury this year are as follows:

Continue to support the business strategy and financial targets.

Ensure continued access to a diverse source of liquidity at a reasonable cost and be ready to support organic growth and potential M&A.

Eurozone contingency planning and a crisis management approach.

Due diligence on the financial health of banking partners and asset managers.

Future proof policy framework against the current and future needs of the business.

Implementation of the treasury five year business process improvement and IT strategy.

Understand the potential impact of regulatory changes on the use of OTC derivatives.


Some basic points from the treasury manifesto there, but it is interesting to note the way in which the financial crisis of 2008 is still casting a long shadow over certain aspects of treasury. This is particularly the case with eurozone contingency planning and potential regulatory changes.

Following Jones, SAB Miller's Learoyd spoke of the challenges his treasury has recently faced. Their approach to treasury fundamentally changed thanks to a perfect storm of circumstances. First, the company acquired the large Australian brewers Fosters - the largest purchase in US dollar terms in the company's history. The equity value of this transaction was around AU$11.5bn (I'm not sure what that is in pints) and the deal was 100% debt financed.

This situation would be enough for some treasuries to deal with alone, but Learoyd and his colleagues found that additional activity from their corporate finance department led to even more significant financing activity for them, including an acquisition facility in 2011 and a bond issue this year.

All of this activity was taking place against the backdrop of volatility and uncertainty in the market. Weighing up all these factors, SAB Miller decided it was time to make a change to their treasury structure. Having previously been decentralised, they decided to move to a more centralised structure. This didn't mean switching from decentralised to completely centralised, but instead they chose to move to a regional treasury centre structure. They were looking for benefits in process efficiency and capability - one way that this represents itself in the new structure is the ability to embed high quality staff in every regional treasury centre. In the previous decentralised picture, they would have been spread too thinly.

SAB Miller's example highlights the long-term planning that is required for successful treasury management. They began the structural change 18 months ago, and Learoyd says that he expects it to take another two years to fully complete the change over.

A final point of note from this session relates to counterparty risk. Both treasury professionals made the point that corporates are in a position where they are having to accept AA- rated banks as the new AAA in some cases. Ahold's Jones made the point that most treasurers will hope for some sort of reciprocation from the banks further down line. Treasurers have long memories. 


Navel-gazing West Could Miss Eastern Promise

April 16, 2012

The ACT Annual Conference 2012 kicked off this afternoon at the ACC Liverpool. While those arriving in the middle of the day ...

Continue reading...

Is SEPA Happening and Does It Matter?

February 1, 2012
These two questions formed the debating point at the Financial Services Club on Tuesday night, with two teams debating whether the answers were either 'Yes' or 'No'. The make up of the two teams was very reminiscent of the England versus a Rest of the World XI that you used to get at the old Wembley. No prizes for guessing which answer the respective teams were playing for in a single euro payments area (SEPA) debate.

The 'No' campaign were fully behind their argument, stating that in the curr...

Continue reading...
blog comments powered by Disqus