00;00;01;05 - 00;00;30;26
Unknown
What are Treasury managers’ priorities for 2025 and how should corporate FX risk managers prepare for the year ahead? Welcome to CurrencyCast! My name is Agustin Mackinlay, I'm the Senior Financial Writer at Kantox and your host. In this episode, we have the pleasure to welcome François Masquelier. François needs no introduction, he’s a very well-known figure in Treasury management, both in Europe and globally.
00;00;30;28 - 00;00;58;01
Unknown
He is the creator of the Treasury Tech Map and we're going to discuss. He is also the editor of Journeys to Treasury and CEO of Simply Treasury. If that wasn't enough, he is the head of the European Association of Corporate Treasurers, the EACT. François, a very warm welcome to you and thank you for joining us in this episode of CurrencyCast.
00;00;58;02 - 00;01;29;14
Unknown
Thanks for your invitation, Agustin. All right. Let's start right away with priorities for 2025. Tell us a little bit, François, how do you see Treasurers’ priorities in the year ahead, perhaps based on the results of your latest EACT survey? No, we launched that the EACT survey once a year in the first quarter of the year.
00;01;29;14 - 00;01;56;22
Unknown
So we will launch very soon in Germany is the next one. But the question addressing in the 2024 survey and it's the same question. Year on year so we can see the trend. And according to the survey of 24, so let's say, three quarters ago, the priorities for the next 12 to 24 months, what was the view for 25-26
00;01;56;22 - 00;02;18;23
Unknown
was the following. So I want to list the priorities and then I will comment what could shift. Because year on year you could have some shift in the priorities. So it was long term funding. But we understand why, because we knew that a lot of companies were about to refinance the company and with high interest rate it was really a key issue that popped up at the first place.
00;02;19;00 - 00;02;43;15
Unknown
The second one, no surprise, is still cash flow forecasting, highly ranked. And I guess at that cash flow forecasting will remain in the top three for 25 for sure. Capital structure also again is linked to the funding, the need to have a better capital structure, better proportion of equity. And by the way, it's one of the priority of the commission too, capital markets union.
00;02;43;15 - 00;03;19;13
Unknown
And we would like to be less dependent on bank borrowings and use more of the capital markets. It would be a great challenge for the next five years for the Commission. And by the way, it was underlining the Draghi report. And in fourth position, and it comes maybe to Kantox and currency management automation, is the digitalisation of treasury. So after years where we were simply updating our Treasury Management System by changing it was old standing and very outdated solution, some times people keep the same TMS for 10, 15, 20 years.
00;03;19;20 - 00;03;43;11
Unknown
Some are still on premise, so they have to move to SaaS solution and take the opportunity to upgrade the system. Now they have a new TMS or newer TMS, I would say, normally in SaaS mode and comes the question of: can I go to the next stage and next level of digitisation? What I prefer sometimes to call automation or hyper automation.
00;03;43;14 - 00;04;22;06
Unknown
So it’s highly ranked and we see that then the working capital, bank relationship, quite important, technology, etc.. So we have a lot of things and I guess we would have also the opportunity to talk about the political issue. That are the major things, if you ask me what will be my prediction for the result of 25. I would say that cash flow forecasting will be high, I guess the market risk, including FX, will be higher ranked because of the volatility of the market. And maybe because of the reduction of interest rate, it is possible that funding or financing of the company will come down.
00;04;22;06 - 00;04;48;28
Unknown
So we could have digitisation coming upper in the ranking, cash flow forecasting still up and market risk higher due to the volatility of the market and the economic and geopolitical environment. Yes, of course. Now, François, I have a bit of an issue with neatly separating one priority from the other because it might lead to a sense of siloed management.
00;04;49;00 - 00;05;19;14
Unknown
So, for example, can you neatly separate foreign exchange risk management, say from from liquidity management. There are overlapping themes there, say swap execution, collateral optimisation, and even if you sell in the currencies of your customers and the corresponding exposure, well, you might reduce the the credit risk in your receivables. So is it possible to really neatly separate those priorities?
00;05;19;17 - 00;05;47;17
Unknown
No, no. Actually, when we raise and re-address the question, we need to silo okay, identify priority by priority. But is where you look at with more detail, you refine or you focus. You see that is the result are very close, the priorities are very close to each other. But you're right, there is a high correlation between the priorities. If you say.
00;05;47;19 - 00;06;18;05
Unknown
You take, for example, the cash flow forecasting, per definition include also the FX risk. And of course, the cash flow forecasting is a commodity risk. So it's really connected. And together, if you want to improve the accuracy of cash flow forecasting, you need a better digitisation, better API, better straight-through processes and connection connectivity, etc.. And when you look at the funding capital structure of bank relationship, everything is more connected than it looks.
00;06;18;12 - 00;06;51;23
Unknown
So that's right. So it's difficult to we settled for the beauty of the survey, but in reality it's more correlated and, and it makes our life more complicated. Because when we have a risk, we need to consider the risk could be, lets say, adding to some others. When we talk, for example, the digitalisation of the Treasury, it's so important today to enhance the internal controls to obtain the processes because we saw a lot of frauds and a lot of error because of the excess use of Excel spreadsheet.
00;06;51;23 - 00;07;20;21
Unknown
So you're right, it's maybe more connected and correlated than it looks when you look at the results of the survey. All right. Now François, there's of course news, and the big news is the election of Donald Trump as the 47th president of the United States of America. Now, does that change in any way, say, your perception of Treasurers’ priorities for the year ahead?
00;07;20;28 - 00;08;00;11
Unknown
We know that Mr. Trump has been very vocal in terms of increasing tariffs. This talk of a 20% tariff across the board, 60% tariffs on all goods from China into the United States, and recently even a somewhat direct threat to Canada, to Mexico, to China. And that has created a bit of volatility. So does that election change in any way you think the priorities or was it already discounted by participants?
00;08;00;13 - 00;08;28;19
Unknown
Well, I don't, it's one of the elements of the geopolitical risk we've mentioned, ranked number 8 if I’m correct in the 24 survey. To answer your question, because there are many questions in your question, I said it was highly anticipated by the market. I remember I went to a conference about three months ago roughly, and one of the economists was predicting a very easy victory of Donald Trump, and he was right.
00;08;28;19 - 00;08;53;17
Unknown
So I think that, I don't want to talk about the politics because that’s not the purpose of this podcast, but just in terms of economics and impact for corporate treasurers and CFOs, I would say that so far we should not complain, the markets are doing quite well. For America, I think it's good news. So they will keep, let's say, pushing the economy and you see the results.
00;08;53;17 - 00;09;17;03
Unknown
So I won't be surprised with an increase of interest rates. And I'm not expecting a decrease of interest rates. So it means that we could have a high delta of interest rate. So high differential interest rate, so it’s not good for us and a strong dollar and more volatility. The major consequence for us and so really anticipated by the market is higher volatility.
00;09;17;05 - 00;09;53;10
Unknown
higher uncertainty. However, we could expect that it could maybe add up, giving an end to this and then to this war in Ukraine, maybe to accelerate the processes in Lebanon and Gaza. So I think that there are some economical good news. Again, I don't want to comment the political aspect. It's not my purpose, but in terms of economic impact for us as corporate treasuries and CFO, I think that it's okay and we don't have a lot of surprise.
00;09;53;13 - 00;10;20;01
Unknown
I would say, you know, I'm always surprised by the resilience of our economies. Because when you see the situation, we have a quantity, a huge quantity of bad news and still we are there and we are still, we are doing quite well and resisting. So I'm always surprised by this resilient economy. And again, to me it's been already discounted.
00;10;20;04 - 00;10;43;11
Unknown
It will only create more volatility and therefore more reason to consider, let's say, increasing the hedging strategy of just to be better protected. That could have an impact on the strategies. But all in all, I do not expect a lot of things. Of course, the war on the tariffs could have an impact, you know, here and there depending on your economy.
00;10;43;11 - 00;11;07;26
Unknown
So better not to be a producer of cognac in France, but I cannot tell you. But I think that I'm sure that the pendulum will come back. And it was not the first time, if you remember the first mandate of Mr. Trump was also a war. They were predicting a currency war, it was still okay. So I'm not too pessimistic, I would say.
00;11;07;28 - 00;11;40;28
Unknown
Right. I think we can agree that the results were largely discounted by participants, but still there. And I wanted to draw your attention to a piece that was published by the Financial Times Weekend Edition, citing the sources from the Chinese government that are they are given instructions to state on banks, of course, there in China to train corporate managers in foreign exchange hedging.
00;11;41;01 - 00;12;22;07
Unknown
So my reaction when I read that piece was really we're living in quite extraordinary times for foreign exchange risk managers. Just imagine what is going to happen there if the Chinese government instructs more training in foreign exchange risk management. Just from that point of view, I think we are we're living in extraordinary times. François, let's switch gears a little bit, discuss in more detail Treasury technology and the outlook for 2025 and beyond.
00;12;22;10 - 00;12;54;22
Unknown
So I wanted to ask you about the Treasury Tech Map. And tell us a little bit how the idea came about, tell us how you update the Treasury Tech Map, where do you publish it. And of course, this is every time we see it at Kantox, we're really, really glad to see currency management automation featured alongside the likes of ERP and TMS.
00;12;54;24 - 00;13;27;24
Unknown
So tell us about your creation there. Let's give a sort of background and a picture. So it started about three years ago and so I started a discussion with a lot of IT vendors, also with investors committee of VCs. And I realised, once that some of these investors make confusion between solution. They say is it an FX platform, is it a currency management
00;13;27;24 - 00;14;03;21
Unknown
automation, is it a system to manage your portfolio of complex products of hedging instruments. Is it a solution for commodity agents. So they don’t know these things, and for investors it's not clear. It's really opaque and quite difficult to find your way, but even for us as corporate treasurers. As we mentioned, we are quite busy. It's difficult these days to hire new people, corporate treasurers have a lot of focus, a lot of challenges, as we mentioned. Look at the priorities, we face the COVID crisis, now war etc.
00;14;03;24 - 00;14;36;13
Unknown
So we don't have time to dedicate to the search or what would be the solution we should consider and contemplate. So my first idea was to say, why not having a sort of cartography of all the solutions. But what was quite new, is the fact that I tried to separate the categories. So, okay, because for a lot of people it was Treasury Management Solution, in a way everything is a Treasury Management Solution. But not as defined with the acronym TMS. TMS
00;14;36;14 - 00;15;05;19
Unknown
is really a sort of database of all of the financial instruments the company would use. So Treasury Management System and ERP are the two backbone of the Treasury organisation. But around these tools, and because it's more and more SaaS, and more and more pret-a-porter solution rather than tailormade solution. It's important to add certain and to complement the solution to make sure that we can cover the whole change of needs.
00;15;05;19 - 00;15;25;11
Unknown
For example, if you need a bank guarantee tool to manage your guarantee because you have more than 100 or 1,000 guarantees, on Excel is quite difficult to track guarantees across the world. So you need some tools, but guess that the TMS are not doing that. So you need to find an extra tool in to plug in. So the same for the bank connectivity,
00;15;25;11 - 00;15;53;18
Unknown
you need to plug to a TMS. Same for currency management automation, you bring things that are missing in the TMS. So a lot of people have the impression that the TMS is like a robot in your kitchen doing everything. No, no. There's a certain part, and the fact that is more and more SaaS, more and more out of the shell solutions means that you cannot tailormade every part of the process of the system and to follow the feature of the system.
00;15;53;24 - 00;16;17;13
Unknown
And you have a lot of gaps in the system. So my idea was to say okay, let's have a better view of the true backbone and what is around that. And as I say, it's a jungle of solutions. So you have to have the names on my map and every day, every conference. I was in Paris for the AFTE conference last week and the week before in Bologna for the Italian conference.
00;16;17;16 - 00;16;39;06
Unknown
I can tell you each time I discover a solution that I've never seen in my life. So if it's the case for me, guess that for the majority of my peers it should be the same. So you need to, I wanted to give a sort of tool to say okay,t hat's the sort of the world map, all the countries, all the continents.
00;16;39;06 - 00;16;59;11
Unknown
And if you want to focus, you can focus. I would like to find a solution doing that or that, you can go more precisely in the category to focus to see the different actors, which is sort of, let's say, a technical sheet, giving some information about the company, about what they do. Potentially they could be in different categories.
00;16;59;11 - 00;17;35;10
Unknown
For example, if I take SAP, the ION the FireApps, they would be, of course, in different categories. But the idea was really to give a tool to better pre-select the solution or the solutions you need for Treasury by categorising the solutions. And the idea would be to update it, and that’s difficult because the logos are changing, you have a concentration in the sector, sometimes you change a name or you have different products, different brandings, etc. If I take the example of ION they have different brandings.
00;17;35;13 - 00;18;00;19
Unknown
So it's important to make sure that you can crank that and get an updated information. So it's a lot of work in my idea recently at category scope for the PSPs, payment service providers, because like a lot of new players like Visa, MasterCard, a lot of companies or banks like Revolut, etc. So it's important to and I will continue to add categories just to make sure that we can we find more and more.
00;18;00;19 - 00;18;26;28
Unknown
And so 2D map became in the meantime, meanwhile, a website at tresurymap.com go and visit it. I would also have a tool that is free for corporates and for the buy and sell side. Something that could be open and available for anyone and in English just to make sure that everyone could find information.
00;18;26;28 - 00;19;00;10
Unknown
So the challenge for me will be to maintain, to keep updating and feeding. And yesterday I was looking at the two new solutions I discovered. So I need to contact the solutions to make sure that they fit, they are interested, and to put it on the map. Just to be broader. I'd like to be as comprehensive as possible, but you can imagine it's a challenge and I don't claim to be fully exhaustive. But I try to gather the most let's say or the key information. And the good news,
00;19;00;10 - 00;19;24;00
Unknown
it has been endorsed by the EACT and we try to see what we can guarantee and ensure the quality of, again my idea is not to claim that this solution is better than the others. I tried to be comprehensive to give information to my peers but certainly not to judge what all the good and the bad solutions will be.
00;19;24;02 - 00;19;52;17
Unknown
It's not the objective of them to be, just to record into the database. But it's not a tool to, I’m not the x now, of the solution, it’s not the purporse. Right. And as you said, I look, I take two things from what you just said. First, the huge challenge and very, very useful for everyone involved in Treasury tech and Treasury management in general.
00;19;52;24 - 00;20;22;14
Unknown
And the second point I take is you mentioned that it's all those extra tools that work that complement the work of all the Treasury Management System, and that's how we we see Currency Management Automation. So when I discussed this issue with our engineers and what really is noticeable I think is that currency management automation,
00;20;22;17 - 00;20;55;16
Unknown
because it provides API-based real-time connectivity it allows for what we call monitoring the markets. That expression means a lot because it allows you as a treasurer to, while keeping all your exposure under active management or to delay the execution of hedges, giving you more time to update your cashflow forecasts and lower concerns about forecast accuracy.
00;20;55;16 - 00;21;20;28
Unknown
When you do so, it allows you also to reduce the cost of hedging when you're facing unfavourable forward points, like when you're selling a currency that trades at a forward discount or when you buy and hedge in a currency that trades at a forward premium. It also allows you to, well, maybe to uncover exposure netting opportunities and other potential benefits in collateral optimisation.
00;21;20;28 - 00;21;57;16
Unknown
And even, if you're lucky, to hit a take profit order and book an unexpected gain. What is your view there? The difference between all the, what does a Currency Management Automation solutions complement, as you said in your words, the work of a Treasury Management System? So as I said in, I wrote a lot on that because is really for me a piece of cake. The Treasury Management System are what they are and are quite great with different features.
00;21;57;19 - 00;22;32;29
Unknown
And of course you can record the FX, in your case, FX of management. But it's a tool that unfortunately is not covering what the Currency Management Automation intend to do. So the idea of the map was to put a name or an acronym on the different categories to make sure that we make a distinction. But to come to your point, it's because the TMS claim that they are decision-making tool, but when you say that they're just recording a sort of database of financial instruments. They give you some report.
00;22;33;02 - 00;23;04;14
Unknown
And by analysing the report, you can come to a decision in a blind respect the policy. But it's not proposing or doing the things for you. And it's why I like to talk about automation and hyper-automation. So why not automating this part of the FX management and do the same that the TMS is not there to do. For example a TMS is not there to execute when you are not working, you can work 24/7.
00;23;04;16 - 00;23;32;02
Unknown
I think it's quite important because these days we see the volatility of the market. So, first the machine could do the job 24/7, then to be more accurate and let’s say hedge a risk in the time. In a TMS you don't have this pre-trade phase because you need to link to other tools to get the information. Because the underlying exposure is not managed in the TMS, what is managed in the TMS is in the best case,
00;23;32;05 - 00;23;59;05
Unknown
s the hedge relationship, where we link to the underlying exposure. But you don't have a link to the, I don't know, the source of the exposure that could be depending on your industry. But if you are an airline company, I guess you will have portfolio of commodities and jet fuel. If you are a producer of cacao or chocolates, etc. you need to link to your purchase,
00;23;59;11 - 00;24;29;12
Unknown
your sales. If you sell software, etcetera. So that's the kind of thing, so you have tools for managing the underlying risk and it should be interfaced. Because the sooner you get information, the faster you hedge. And again, what is the value added for the company and for Treasury department? And I've mentioned the lack of resources in the small team, in all over in hedging, in hedging positions, especially when you apply 1 to 1 approach.
00;24;29;14 - 00;24;56;18
Unknown
So it's a lot of these and you know doing 1, 10, 30 deals on the platform, I don't know, but it's not really something important. And with the machine and with the platforms, you can execute and get the best execution, as good as if you were doing that manually or even with the for. So I think that what is quite important not to lose time in doing this kind of operation, is to let the machine doing that
00;24;56;18 - 00;25;24;11
Unknown
24/7 again. When you've bank holidays, your risk is still there. You cannot wait a weekend or a long weekend, Thanksgiving, and just discover that there are a one or two figure up before reacting. So I see the machine is very good because it's virtuous and coming back to the point of lack of resources, difficulty to increase your team because an FTE is difficult to get when you're a growing business with a lot of challenges.
00;25;24;13 - 00;25;54;06
Unknown
I think that automation is the best way to, on one hand to increase, or to enhance your internal control, to reduce your risk of error or fraud or whatever, and also to free some time to do the analysis. What we are missing today? It's one of my perception. Treasury Management System are not decision-making tools, they help you to take some decisions by providing some report.
00;25;54;08 - 00;26;32;26
Unknown
But with the AI and with the new technology, we can expect that the machine would go a step further, execute the operation for you. You would be just supervising the operation, then produce some report, configure and propose something that could be a step further. And with the genAI we have a lot of potential but we are not at that stage. And just wanted to come to your point, I think that's a TMS it's great, but it has some, let's say, a lack or gaps and we need to complement by adding some options here and there to make sure that we can fulfill the needs of the company. Right,
00;26;33;00 - 00;27;06;05
Unknown
Well, I absolutely agree. And I was forgetting when I mentioned those, well, ways to complement in TMS with Currency Management Automation, pricing within FX or making those combinations of hedging programs or hedging cash flow programs. François, let's again, if you don't mind, switch a little bit gears. And I'm interested also in knowing a little bit more about the Journeys To Treasury, that publication that you edit.
00;27;06;07 - 00;27;34;23
Unknown
So tell us a little bit more about the latest issue and perhaps in particular with the last section, which was so interesting about you having gathered a team of Treasury professionals to try and assess potential users of genAI or generative artificial intelligence in Treasury operations. Tell us more about this.
00;27;34;26 - 00;28;21;20
Unknown
No no. First, during the Treasury, we published at the location of Eurofinance in Copenhagen, we produced the 9th edition, so we are already working quite hard on the 10th edition and we will celebrate it. It's a combination of four, let’s say, main actors. PwC on one side, the leading Treasury practice as we know worldwide. SAP, the largest tech company in Europe. And BNP Paribas, the first bank of cash management in Europe so far, together with the EACT. And the idea was, okay, let's combine advisory, IT, banks and treasurers and think what are the leading, let’s say, or innovative solutions?
00;28;21;20 - 00;28;45;10
Unknown
So for the last nine years we’ve tried to identify this interesting case to this. And you see year on year the new technology deployed and the progress a lot of companies are doing. What we like is also the idea of co-creation. And then when it comes to last year, we sort of came maybe we should focus more on the AI, Gen-AI, the new technologies.
00;28;45;10 - 00;29;13;29
Unknown
So the idea of hyper-automation and we tried to brainstorm, to gather a group of end users, corporates together with the SAP, BNP, as I said, and PwC to work together. Because AI it's a great technology but it's not yet offering or proposing the full potential of the tool. So we are really at the early stage of the development.
00;29;14;01 - 00;29;54;04
Unknown
I think it will take more time than what we expected. It's like the flying cars or the cars without the drivers, so it takes more time than what we thought initially. But it's coming. And the idea was to see what are the areas where it already works quite well, like for cashflow forecasting, like for fraud detection, sanctions, creedings, this kind of thing that could be repetitive and require the use of the machine. Because the machines which are more performing and of course, FX management is also a good example where you can automate the execution, follow some pattern, apply some policy.
00;29;54;04 - 00;30;23;24
Unknown
Like what you propose with the currency management automation. So we define a policy or different policies, different strategies, different regions, and you can, let's say, combine everything of the machines working for you, including the production of reporting. And let’s say crunch figures, because working capital is also a good area where we see potentially or is quite promising because we see a huge interest from corporates who do produce easily figures data.
00;30;23;26 - 00;30;48;26
Unknown
But we don't have time to analyse, to see the trend, to detect the ratios. What is coming from what reason, what source and to try to find the source and the strength of all of these problems. We think that in payment, in wallet sizing or through KYC, we have a lot of progress to do and the machine would certainly bring a lot of, let’s say hope.
00;30;48;26 - 00;31;13;16
Unknown
And high expectation on that. Everything that could be that is more routine operations, and FX is a good example because sometimes you will rollover your portfolio because you don't need the currency right now, but you postpone the deal so you need to make a rollover. It’s the kind of thing where machine could do the things much more efficiently and faster than corporates.
00;31;13;18 - 00;31;37;24
Unknown
Trading is also important. So for those trading and for the execution of operations, for producing the report, if we talk about IFRS, hedge accounting. So it’s a lot of document and support so that could be good. AI could also be useful for training, for training teams, because we would also need to train the team. We mentioned the currency issue in China.
00;31;37;24 - 00;32;07;14
Unknown
So we need to train the team to explain what we're doing, so we are better to train the team, than to just execute that aggregation, exposure identification. So we’ll be able to identify the areas where we see that we have high potential. What we plan to do is to continue next year with these working groups, and I hope that Kantox will be involved in this group, to keep working and try to define where we can find the good.
00;32;07;17 - 00;32;37;24
Unknown
We as corporates, we can complain that we don't have the right solution, but why not participating to the design and the creation of the solution, that's a bit the idea we tried to do. And what we have also tried to do is to map and to explain why we see that there is high value quick wins, the longer term wins, and that's a long way.
00;32;37;26 - 00;33;07;27
Unknown
But we are pleased to have initiated this group. So Journeys To Treasury is not only a document you can download on the Journeys To Treasury website by the way. It's more than that. We have some webinars and we try to. It’s alive sort of, right? It is a continued process. Exactly. So because we see that in the coming years, the first time we talk about AI in this document, it was, if my memory is correct, four years ago with SAP Genova, in Switzerland.
00;33;07;27 - 00;33;32;02
Unknown
So they were using AI for cash flow forecasting, but in the main one, the technology had a lot of progress, the machine is also learning and we are doing much better. But is interesting to see the technical and the innovation evolution over years and the beauty of this document as the survey, for example, you can see the trends over the year and the new things.
00;33;32;02 - 00;34;00;10
Unknown
So the idea is to show to our members that there are some interesting case studies and these leading case studies could tomorrow be democratised and used for any type of corporates. So the co-creation and BNP is one of the leaders in co-creation. I like that because you have a problem, we try to find a solution, when it’s fixed maybe we can deploy and roll-out the solution across all customers.
00;34;00;12 - 00;34;38;07
Unknown
Right. Really, really interesting. You mentioned some uses that might have, although we're still not really seeing that much more AI an impact on foreign exchange risk management such as well, exposure collection perhaps, and the budgeting process. Why not? And when it comes to the idea that genAI is going to allow managers to arrive at more accurate cash flow forecasts, then we tend to have somewhat or slightly out of consensus view.
00;34;38;07 - 00;35;26;01
Unknown
We think that at least when it comes to currency management, right, maybe not in other areas, but in currency management, the importance of having super accurate cash flow forecasts is somewhat overstated. If you take the example, just two examples, you know, say in when you when you hedge firm commitment or invoices. Well the probability of occurrence is pretty high and you don't really are not dependent on your cash flow forecast, of course, automation there will help a lot. And in layered hedging programs the purpose is right from the start to build so to speak the hedge rates in advance.
00;35;26;01 - 00;36;01;08
Unknown
So, exactly to match that idea of the risk over hedging or under hedging so that's a slightly out of consensus of your work, but how do you see that? I do agree. So the products, why do we try to have more accurate cash flow forecasting for obvious reason to define what will be the level of indebtedness, what is the debt capacity for company, what would be the cost of funding?
00;36;01;08 - 00;36;25;09
Unknown
So that’s the idea of the cash flow forecasting and also for the investors, for the end users. So of course, if you are a listed company you need to give some indication of the evolution. But beside that I totally agree that for the FX of the product, we don't need this degree of accuracy because per definition FX we have different type of risk.
00;36;25;14 - 00;36;56;25
Unknown
But if you just take a transactional risk, of course you will hedge, the idea is not to hedge 100%. Because we know that we have a certain degree of uncertainty, as we mentioned, some of the risk with the tariff wars, etc.. So per definition when you hedge cash flow, you know that the cash flow it's a variable. So we corporates usually for the on balance sheet exposure, we hedge a 100% because it’s on balance sheet. So that’s obvious if is not hedge,
00;36;57;01 - 00;37;28;12
Unknown
you will have a fluctuation happening at let’s say closing for the on balance sheet exposure you have different time. What it is so let's say confirmed by a firm commitment 1 year contract that is considered a firm commitment according to IFRS rules and IFRS9. Of course you can hedge up to 100%, the idea is not to cover the next ten years of exposure, you need a gradual approach because I don't know where you would be in ten years.
00;37;28;12 - 00;37;51;18
Unknown
So you need to respect your policy and the policy could also be driven by the risk appetite of the company are you listed or not, are you a European or US company. It’s really controlled depends on the risk appetite. And then you have all this, let's say, highly probable transactional cash flow forecasting. So you know that you need to know turnover revenues of that level in foreign currency.
00;37;51;22 - 00;38;16;25
Unknown
It is extremely difficult to define that. And again, we are just talking about the transactional risk, we're not talking about translation risk. So it's extremely difficult. It's why I think it's good to a certain accuracy to know where you stand. But the definition, if you want to go too far in hedging your cash forecast, if it's not fully accurate that you cannot achieve the cash flow forecasting.
00;38;16;25 - 00;38;38;17
Unknown
Even if it's highly probable, the risk is to be over-hedge and being over-hedge, it's not better than to be over-hedge. So again, the policy, the very seldom seen policy where the CFO saying you should hedge at a personal request for forecast, firm commitment of budget commitments, it's extremely difficult. So you need to find the strategy.
00;38;38;17 - 00;39;11;02
Unknown
You mentioned the layer strategy, the budget strategy, which is for you to build your position over time just to benefit and to build your, let’s say, your position according to the evolution of your turnover. I think it's a good approach. I've never seen a policy where if you are too aggressive, the risk it’s to be over-hedge because these days that we saw that you remember when we have some lack in the credit X supply chain, chips where we're not produced in China, so we have cards without the chip.
00;39;11;04 - 00;39;30;12
Unknown
So some of the option of a new card where let’s say stopped all this. So I’ll sell you a card but you will open the XXX in one year, you want the chip for your card. So we have the lack of supply. You remember the committee surprise for what we're doing to the roof. So that kind of situation could create a risk.
00;39;30;12 - 00;39;52;23
Unknown
And if the underlying risk it's cancelled, the material won't be delivered, so we can be over it. So it's always good to keep this buffer for this year from the Treasurer to make sure that you can maybe potentially reallocate some hedging or not even in the position where you are being over-hedge because again over-hedge is not better than to be below-hedge..
00;39;52;25 - 00;40;23;06
Unknown
Of course, François we're running out of time here. I want just to maybe finish this conversation with one comment on your part is based on something that myself saw recently the earnings results of easyjet's the airline, which were not pretty stunning as they announced a £630 million in pretax profits for the 12 years up to September 2024.
00;40;23;08 - 00;41;08;12
Unknown
But at the same time, they mentioned that foreign exchange had not been an issue, in other words, that the performance was stable. And also in the same document, they appeared to show what is a layered hedging program as already the first half of 2026, the forecast is hedged at 26% which it seems to indicate, well, that is not the case, but it seems to indicate a sort of a link between good FX risk management and reducing performance variability.
00;41;08;12 - 00;41;41;12
Unknown
So here's my question and with that, we're going to finish. Isn't that precisely the role of corporate treasurers of CFOs in their capacity as FX risk managers, namely to enhance the value of the firm instead of worrying about saving one additional in trading costs? Yes, we should not forget that the corporate treasury could create and generate the value.
00;41;41;12 - 00;42;16;02
Unknown
And so the idea is of course, they need to protect their margin for saving a client, and it's good for the agents to protect your margin. So the idea is not to create value by speculating on and to make a FX results, but to make sure that you have no FX results. In the case of it, I don't know what is the function of currency of XXX, but I guess that it could have some impact on the result, maybe positive sterling when it comes to translation.
00;42;16;05 - 00;43;04;11
Unknown
But I can imagine that the word properly hedged, and if it’s properly hedged and it can be reflected in the margin and again, come to the situation where you can create value by having the right policy properly applied. Because one thing through a good policy, a good strategy, is to have a flexible and adaptable strategy because it should not be frozen for four years and to make sure that you are applying the strategy properly at any right time and why currency management automation and we certainly have to create right value you do need to act faster and to automate your processes. When I see companies having somebody the value in FX is because they are properly managing FX,
00;43;04;12 - 00;43;31;01
Unknown
and with the right tools to make sure that it’s been defined as soon as possible the risk. They communicate fast the information, and they can work 24/7 across the globe. Absolutely right. Yeah, I'm not surprised by that, so excellent result, but it's certainly due to the right management of through we usually forget. So for Treasury management, there is a notion of managing,
00;43;31;01 - 00;43;51;29
Unknown
so you need to monitor if we treasurers are doing anything. So we are just there to take more time, step back and say, okay, that's the result of what I can bring value work, and that’s the policy to make sure. But again, it should not be further the markets is moving too fast. We mentioned the geopolitical risk, so you need to be adaptable.
00;43;52;01 - 00;44;20;03
Unknown
One of the major liquidity for corporate treasury for good modern treasurers is to be adaptable, flexible to react and to be practical. So I think it's often the case to date. Absolutely. Well François Masquelier, head of the chair of the European Association of Corporate Treasurers, CFO of Simply Treasury. We've covered a lot of topics.
00;44;20;03 - 00;44;57;00
Unknown
We started with the priorities for 2025. We moved on a little bit of geopolitics, the election of Donald Trump as the 47th president of the United States. We went on with some degree of detail to discuss the Treasury tech map and TMS, Treasury management systems and currency management automation. We moved to the subject of the Journeys Treasury publication and that special task force on AI applications in Treasury management.
00;44;57;00 - 00;45;21;15
Unknown
And we concluded with some remarks on the strategic role of all Treasury managers and FX risk managers in general. So thank you very much for joining us today on CurrencyCast and I'm sure we'll be in touch and you will come back to the podcast in 2025. Yeah, yeah. Maybe to talk about the result of the 25 survey.
00;45;21;15 - 00;45;42;09
Unknown
I would be pleased to disclose that. And I really encourage the listener and the public to answer the survey. It is quite important to feel what is trading the market. But I will be pleased to comment and share the results with you. All right. Thank you very much and good bye.
00;45;42;11 - 00;45;43;13
Unknown
Okay. Thank you.
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