Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016 - (Page 5)

EDITORIAL Are we in a new economic era? Coming at the same time as this declining profitability, digitalisation is turning the models of the past on their heads and contributing to deteriorating profit margins. The "Uberization of the economy", a term coined by Maurice Lévy of Publicis, is now an established fact. A huge disruption or rupture between the old economy and the new has become a reality. It is as if a tsunami has hit every branch of business and industry. Today any industrial or service model whatsoever can have the bottom knocked out of it and find itself bled white. Anyone can become your competitor, appearing out of nowhere. No economic model is safe, and everyone can suddenly find themselves "uberized" without warning. However, these new models, for those that adopt them, do not yet produce the full return expected of them and their valuations in no way reflect their profitability. Sometimes they do not even generate any revenue or have any "defined business model". They monetise only a small proportion of "their customers". They are still a long way from These three factors, in addition to others, will ensure that companies will be different in the future, and sadly some of them will be less profitable. Profitability will certainly be relative, and will be measured by comparison and in relation to the current low rates of inflation or deflation. The transformation will be costly in earnings and in the fullness of time will not necessarily yield the same return as in the past. Shareholders, who are increasingly fragmented, will just have to get used to this and can no longer expect permanently ebullient markets. We have entered into another dimension and we have to accept lower profits, which have to be comparable to other asset classes. A return to family-based or smaller shareholding structures will also be a feature of this economic revolution. No, the capitalist economy will certainly no longer be the same as the one we have known for the last few decades. We are going to see a sort of economic Darwinism. Natural selection will take its course and the new economic function or environment will create the body or the structure most suited to the new situation. We have passed a milestone, and there is no doubt that it will mark a stage in economic history in which companies are forced to reinvent themselves through a root and branch transformation. "They did not know it was impossible so they did it" (Mark Twain) / AUG / SEP 2016 - JUL We also need to be concerned about the disillusion of some companies with stock market listings that are trying to escape from them. The cost of the listing has become huge. Ever more restrictive new regulations are costing companies dear, especially listed companies. The European Commission's idea of expanding the capital markets with the CMU is certainly laudable, but those companies that venture down that route will find themselves embroiled in additional costs. N°94 Businesses, like sequoias, are perceived as being entities that grow ever bigger and ever higher. Profitability is not boundless. A budget must not be what went before plus something else. Through having cut out the fat and brought down costs, companies have ended up more efficient and profitable in spite the crisis, more pertinent and with lower borrowings. However, the huge efforts made should not mask the fact that they cannot go on being repeated forever. Tomorrow's businesses will no longer be as remunerative as they were in the past, economic crisis or no economic crisis. There is one thing that we find to be a fact: profits are gradually dwindling. The prices and PEs seen in the stock markets do not reflect this erosion in profitability. Low interest rates have rerouted cash towards the stock markets. But current stock market valuations disguise this fall in profitability. The last financial crisis in 2008, which was perhaps the worst ever known, should at least put an end to these huge fluctuations and excessive peak to trough swings. The vectors and economic fundamentals may be expected to keep on moving but to a lesser extent and more smoothly, without the excesses of the past. The last reason that can be identified lies in the modern shareholder structure of (listed) companies. From companies that were held mainly by individuals in the 1960s, we have gradually moved to companies controlled mainly by institutions and funds. The value creation revolution seems to have been left far behind. Quarterly profit has become the yardstick for companies. Besides, people talk of "short-termism". Company directors no longer come from the families that founded the companies, and are far removed from the shareholders who are anyway impersonal because they are investment funds. We also hear of double agency, with assets held by millions of individuals who are in the hands of a just few asset management groups. They obviously no longer think like owners, and their lack of long-term vision could affect this muchneeded questioning of the economic model. - Surely some of the foundations of capitalism as we know them need to be redrawn, and we have to accept that there have to be a different dimension. fulfilling the promise people see for them. But in the meanwhile, every company needs to reinvent its business or businesses and to refocus intelligently and fast. Speed is the watchword for survival. You need to get on board the digital train and not to be left standing at the station. However, it is a matter of finding the right mix for the approach, of avoiding over-enthusiasm and falling into the trap of "excessive digital ". This disruption and transformation is the challenge for the years to come. It is a matter of finding the best mix and the right model that bridges the old and the new economies. This second factor may be explained by the theories of Adam Smith and the idea that increased competition brings down costs (in the interests of consumers and to the detriment of business). The feature of digitalisation as we know it is that at the outset it produces a whole crowd of new competitors. LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE The year just past may perhaps turn out to be a crux year in economic history. In a few years' time we will think back to that year as being a major turning point in modern capitalism. Perhaps we have moved into a new era for all commercial companies. Companies need to reinvent themselves to survive in this new economic dimension. This major inflection is explained by not less than three reasons that are totally unconnected with each other, but that contribute to the evolution of tomorrow's economic model. It is looking as if austerity may have its limits, and that cost-cutting cannot go on indefinitely. Companies will have to accept their future margins being lower. Yesterday's profit margins are a thing of the past, even in the digital economy. The digital revolution of the economy has speeded up dramatically. What went on here and there seemed to be the stuff of stories and fairly harmless until UBER made its appearance. UBER is only a minuscule part of this mega digitalisation, but it is very much a symbol that has caught people's imagination. And again, the structure of shareholdings in companies has changed profoundly since the 80s. These three factors, which are in no way connected with each other, explain amongst other things the need to move towards a different approach to doing business. François Masquelier, Chairman of ATEL 5

Table of Contents for the Digital Edition of Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016

Cover
Table of contents
EDITORIAL
FINANCIAL HIGHLIGHTS Luxembourg Tax News
INTERVIEW Philippe Gelis - Kantox - Fintech and the future of banks
FOCUS
Lost in transformation
Everything has a price – a transfer price
Treasury Survey - an unprecedented picture of treasury activities in Luxembourg
FORUM
The impact of negative rates on Treasury and Risks Management Systems
Towards reporting harmonisation?
Understanding the Treasury impact of BEPS
Impacts of Single Resolution Mechanism and Bail-in for European Banks
Supply chain? Not concerned?
Collateral management and the Corporate Treasury function.
Efficiently Managing Cross-Border Payments in Turbulent Times
CORPORATE FINANCE
How Mid-Market Companies Can Efficiently Manage Enterprise-wide FX Risk as they Grow
Investing surplus cash in repos
A wind of technology changes in the treasury management world
Invoicing can be fun….?
Comment améliorer la performance des fonds de pension européens
15 MINUTES WITH O2Finance
THE FINANCIAL RISK OBSERVATORY
NEWS
LIFE BEYOND NUMBERS

Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016

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