Corporate Treasury Preparation for Inflation Doubles in 6 months

Data and comments

Response	June 2021	Jan 2022
Concerned and treasury is prepared	11%	13%
Concerned and making impact assessments/contingency plans in treasury	18%	38%
Concerned – but no current action	53%	38%
Not concerned	8%	6%
Don’t believe inflation will cause any problems	5%	3%
Not something we have considered	5%	3%

Concerned & Treasury is prepared.

• We refinanced all term loans with bonds last year to benefit from the low interest rates. Concerned about inflation of energy and raw/input materials and how this can be passed on to our customers

Concerned and making impact assessments/contingency plans in treasury

• Inflation and interest rates do affect our business as it impacts demand and bank margins, and similarly, interest rates. I think it, generally, invariably, has an impact on FX rates too, so, broadly speaking, I think our position would be 2.
• 2 would be the closest fit though in reality we are between 1 and 2.To be honest, it is the rate hikes as opposed to inflation itself that we are focussing on in treasury. We know what will be impacted and have options to deal with it/mitigate impacts.
• Our answer to the below is probably between a 2 and a 3. We are looking at it and are evaluating our options/actions from a Treasury perspective, but have no firm plans in place yet.
• This is especially relevant for us in high interest/inflation jurisdictions (Egypt, Nigeria etc)
• Concerned in the sense that it will continue to cause monetary policy rate increases everywhere and thus increase the cost of FX hedging, thereby making it more difficult to “sell” hedges to operational entities when they come at a premium.
• I think it’s fair to say that the company (operations, supply chain) is very proactive and prepared. But at treasury specifically, we are not so concerned, and I believe we should… so I think it’s more around option 2
• We’ve managed the liquidity and asset position when rates headed south and will do likewise on the up. We’ve just refinanced so have available credit locked in at low spreads and need to tweak the investment strategy for diversification although this is not a risk given our portfolio mix.

Concerned – but no current action

• I think it is more like a no3 for us. We have a hedging policy, which we consistently follow, so no additional action here. Whenever we borrow in local currency, we always check the inflation vs cost of borrowing, so currently local financing may look relatively more attractive if inflation stays high, but interest rates stay low in such countries. The biggest question is whether the companies can pick up on pricing of their products or not to catch up with the inflation, but this is not directly treasury, but rather the other departments of the business to consider. Last but not the least, investment reviews become more challenging as inflation assumptions in WACC calculations are somewhat more difficult or potentially out of track especially in the next few years.
• My answer is probably #3. Since our product (oil and gas) is one of the biggest items in the inflation number, it benefits us for the most part. We’re also pretty used to managing around drastic price changes in this industry
• Concerned in the sense that it will continue to cause monetary policy rate increases everywhere and thus increase the cost of FX hedging, thereby making it more difficult to “sell” hedges to operational entities when they come at a premium.
• Business needs to be concerned with inflation and need to have an action plan. Some inflation if under control is good , may or may not be temporary and markets and companies do get hit.
• Largely this falls into supply chain issues and potential price increases for customers perhaps. Our debt is under control

Not concerned

• We are cash rich so increased interest rates would be a benefit
• It is something that we have seen coming for more than a year, is happening and that we have to deal with and are ready to deal with, without being concerned about it….

Don’t believe inflation will cause any problems

• From a non-financing perspective, I would say ‘5’. Meaning, I don’t expect material increases in labor costs, bank fees, collections, or impacts to cash generation in the business.

The impact of inflation has been mentioned more frequently in our calls and we expect to hear a lot more about it in 2022 and beyond.  We will continue to share and report on practical approaches.