Corporate financiers warn: this year is tough, we have to be smart

The evolution of raw material and energy prices, as well as the fluctuations in the forint exchange rate pose a major challenge for companies, but clever financial measures can significantly mitigate the negative effects, as can the tightening of bank credit and the rise in interest rates, according to a panel on corporate finance at the Future of Finance 2023 conference. Markus Schuller gave a presentation on the optimal design of family asset management, and Balázs Janositz on the finances and ESG challenges of UBM Holding Nyrt.

The recipient of the 2022 CFO of the Year Award, Balázs Janositz, Deputy CEO and CFO of UBM (pictured below), spoke about the following in his presentation:

  • UBM is a feed producer and top 3 grain trader with almost 240 billion in sales and 9 billion in EBITDA. In addition to Hungary, it is present in Romania, Serbia, Austria and now also in Italy, and the group's growth rate over the past three years was over 24%,
  • the company and the agricultural sector itself must meet a series of ESG targets, such as increasing the share of land under organic farming to 25% by 2030, there are specific requirements for the documentation of deforestation-free imports in the EU, and, e.g., the review of animal welfare standards is underway and will be faced by all agricultural operators early next year,
  • ESG targets are always set in parallel with, and often in contradiction to, the economics, generating significant conflicts between targets, e.g.: the life span of a farm chicken is twice that of a broiler chicken, so they eat twice as much feed and their emission is twice as high as those of broiler chickens; or such are the animal welfare rules, which result in higher energy use and emission per square metre,

  • UBM takes a scientific approach instead of myths, has a lively communication, has a published ESG roadmap, uses an external rating and a green financing framework, the ESG takes into account the CAP and other specific agricultural objectives in its investment decisions,

  • the group has achieved significant financing successes, and managed to keep pace with market growth in meeting working capital needs, while net debt portfolio did not increase, and now all their regional companies have local credit facilities, which can also make banks compete with each other in borrowing, and raising several billions in capital, they also participated in the Baross Gábor credit programme,

  • the chicken on the Sunday table can be cheap, green and happy, but our current knowledge is that we can only choose a maximum of two of these properties at the same time - concluded his presentation Balázs Janositz.

Markus Schuller, Managing Director of Panthera Solutions in Monaco (pictured below), spoke about how to design an investment and financing structure for the management of family wealth.


What is the financial health of the companies?

In the panel discussion on corporate finance chaired by Krisztina Bogdán (Credit Management Group), Diana Várkonyi (Magyar Telekom Nyrt.) said that consolidation is a constant task in the telecommunications sector, as it requires quick adaptation to the fast profit-generating challengers (e.g. streaming providers). Network development is a predictable, long-term investment for them, so they were less exposed to the current turbulent financial environment, they try to fund their investments primarily from cash flow.

Ákos Varga (IKR Agrár Kft.) said: the last two years have not been good for agriculture, but this year has brought good harvests thanks to good weather, however, prices have fallen sharply and this is a problem for trading companies. Despite deteriorating conditions for producers, 2023 could be satisfactory for both financing banks and owners.

László Ivan (Graboplast) said: they are involved in flooring production, a sector that has undergone continuous consolidation over the last ten years. In January, a transformation was launched in the company, and another factory was sold this year with an investment of HUF 1.1 billion, their high loan portfolio has been negatively affected by the flying interest rates, but the Baross Gábor credit programme helped to refinance them. He is not very optimistic: the turbulent period could be followed by an even more difficult economic environment.

István Hegedűs (BorsodChem) said: The chemical industry has been experiencing cyclicality for 20 years, explained by the non-parallel nature of capacity and product use, but in recent years the periods of this cyclicality have been extended. Kazincbarcika accounts for 4-5% of the country's energy consumption and has therefore been negatively affected by the evolution of energy prices, especially in the first half of this year. They are at the end of a major investment programme, but thanks to the support of the owners, they can launch new investments. The company basically has a euro surplus, so a weaker HUF is relatively more favourable for them, but they are interested in a stable exchange rate.

What is the situation in the credit market?

According to Ákos Varga (IKR Agrár Kft.), when producer prices were at their peak, they had to maximize their bank financing needs from bank sources, last summer it was close to HUF 100 billion, this year it is much less, while their credit lines have remained unchanged. He doesn't complain about the banks, he hopes they don't complain about their company, either.

The fundamental building block of a banking relationship is trust, said Laszlo Ivan (Grapoplast), so they strive for full transparency, they were able to expand their credit lines in 2023, both on the growth and development side and on the working capital side.

According to István Hegedűs (BorsodChem), the fewer companies need credit, the more banks want it, and vice versa. When companies really would like to save costs, they usually have to spend more on interest payments. They finance EUR 500-600 million a year, which is usually not a problem, but it is not a particularly high amount for the group.


How about artificial intelligence?

At Magyar Telekom, ‘Vanda’ customer service assistant is a solution that many people are familiar with, but the company also had a future of finance programme that focused on automation and digitisation. Analytical tools are also used in financial planning, which also helps the company to forecast customer solvency and manage liquidity.

IKR does not have one yet, but they are aware that they cannot be left out of it in the medium and long term. It can also help the company on the commercial side, in partner management, customer rating, and finance.

AI mainly works on the production side, and some software products in use rely on its assistance. They also see its potential in trade, but the foundations have yet to be laid, and they would like to do more in the future, said the Graboplast manager.

According to István Hegedűs, artificial intelligence may be useful primarily in production, but the application of the most advanced methods is also necessary in the field of finance. The use of robots usually raises fears among employees about redundancies. Technologies are available, but it takes human thinking to get to the point of using them.

Cover photo: Portfolio

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