Held at London’s Leonardo City Hotel, the conference offered a chance for treasurers, consultants, academics and regulators to gather together once more to survey an economic landscape that looked significantly different to that which prevailed the last time the gathering was held in person.
Host Naresh Aggarwal, the ACT’s associate director of policy and technical, summed up the mood when he celebrated the return of the spontaneity and networking energy that comes from being with other people at the conference.
“Done well, working capital can generate really valuable insights into a business, and while it remains an undervalued and underrated source of finance, it’s a vital part of the mix for many treasurers,” Aggarwal explained.
The agenda focused on how treasurers are designing their working capital strategies in the face of some significant trends: inflation, supply chain disruption and resilience, as well as newly emerging tech solutions – some of which promise more than they deliver.
Delegates were welcomed by James Waud, head of banks and transaction services at the conference’s lead sponsor, NatWest. He hailed the treasury community’s resilience and adaptability in the face of another challenging year. “To see people and businesses embrace the challenges in front of them, finding solutions to seemingly daunting problems is really inspiring.
“In the context of this backdrop, the conference feels much more relevant than ever, with the importance of working capital management for treasury something that’s been a consistent theme for many years, and COVID-19 only added fuel to that.”
Central to much of the day’s work was the increasingly urgent impact of rising inflation across global markets. Speaking at a session on the impact of inflation on working capital, Dr John Whittaker, senior teaching fellow at Lancaster University, issued a stark warning for the coming year: “Inflation may stay higher, with interest rates rising higher. So, after 20 years of falling, the era of ultra-low borrowing costs is over. The question is: are you ready for interest rates of 5%? It might be an alarmist view, but is it so implausible?”
Brian Shanahan, director of Informita, pointed out that the extensive cash hoarding that began with the financial crisis of 2008 has been intensified by COVID-19 and its impacts, when companies drew down to the maximum extent. “However, imbalances remain. We can debate how transitory inflation might be, but it creates a level of uncertainty and discomfort, so the attraction of the safety of cash and its equivalents is clear,” he said.
The session also touched on how the continued supply chain disruption is driving much of the inflation across the globe. “That’s all because of COVID-19 and Brexit,” Shanahan explained. “There are other factors, such as climate change that leads to floods in certain parts of the world, that then disrupt production facilities. As long as that goes on, corporates will continue to reach for safety.”
What that will mean for treasurers remains unclear, and will depend in large part on individual sectors. But Paul Wilde, treasurer at Shawbrook Bank, said he shared the growing belief that inflation will trigger a paradigm shift in his role.
“We’re seeing real inflation that will drive that change; for instance, wage inflation tells me there is a supply and demand imbalance, so I need to focus on retaining my staff, while monetary tightening will force me as a bank treasurer to manage more closely the supply of funding and loans out of the bank.”
He was clear that the imposition of reduced liquidity in the system will make a material impact: “Liquidity is so important, and after 10 years when the Bank of England has stuffed it down banks’ throats, forcing it through the corporate sector. So, as the Bank of England tightens the supply of quantitative easing, there will be less money there, leaving some corporates stranded.”
Wilde was clear that things will soon change. “The reduction in liquidity will mean the cost of funds will go up, and covenants get difficult. We can’t say when that will happen, but it will probably play out over years rather than months. And does it need to happen from an economic allocation point of view? I think it does.”
Royston da Costa, assistant group treasurer at Ferguson, explained the benefits – and limits – of technology in optimising working capital management, and how to avoid the digitisation of the status quo.
“Sometimes we could be looking for a solution where there isn’t a problem. So, it’s the processes that we need to get right first – and then start looking at the tech. For us, it’s about adding value by becoming more streamlined and secure. As a decentralised business, we wanted a treasury management system to future-proof our business because we are acquisitive as well; so every time we onboarded a new company, we didn’t want to have to manually add new systems onto that. We wanted a plug and play.
“But today there are interactions with banks that still fall short, especially in the KYC area. So I want banks to up their game and help us to the next level. It is possible to change things, and let’s not forget that the economic crisis drove senior leaders to look to technology to solve some of the problems.
“There might need to be changes at the treasury end, too: historically, the business case has almost always presented a cost saving. When we did our last project there weren’t any real costs savings for me to present; instead, we could quantify the time saving – we managed to save 106 days in a year.”
Royston expanded on this theme in last month's newsletter.
