Reporting sales of over €6 billion in 2007 and employing more than 17,000 staff, Belgacom provides telephone, internet and television services to residential and professional clients across Belgium. This month we talk to Benny Loix, Vice President Corporate Treasury, about current trends in the treasury world and their impact on Belgacom.

Please can you give me an overview of Belgacom?

The Belgacom Group is the benchmark Belgian provider of integrated telecommunications services with a turnover of over €6 billion and almost €1 billion income before taxes in 2007. With a history as the country’s incumbent operator, the Belgacom Group, through its strong brands of Belgacom, Proximus, Telindus and Skynet, has developed a complete range of offers and solutions.

The Belgacom Group offers a complete quadruple-play solution, based on fixed and mobile telephony, the internet, and television. It is committed to meeting the demands of its business and residential customers, and innovates in order to anticipate their future needs, incorporating the latest technological developments.

Most of our operations are in Belgium but in addition to that we recently bought Telindus, a Belgian ICT company active in more than 20 countries.

What are your responsibilities?

I am the Vice President Corporate Treasury. In the finance department I am responsible for all the cash management services in the group, as well as all the corporate finance, structured finance and M&A finance.

How is the treasury organised?

We have 10 people in the treasury department and we are organised in the classic front office and back office arrangement. In the back office we have five people dealing with the deal administration, control, procedures and policies, deal automation and financial services, and in the front office we have four people: one cash manager, one assistant cash manager and two corporate finance managers.

All of our treasury activities are centralised in what is called a co-ordination centre. This is a typical Belgian vehicle that facilitates the role of the in-house bank and the centralising of all the cash management activities and is associated with certain tax incentives.

How is the current market turbulence affecting your treasury operations?

If you look at Belgacom, among all the telecom operators we are the one with the best rating – we still have an A rating with Standard & Poor’s and an Aa2 with Moody’s. In Europe that’s the best rating in the telecom landscape. That means that we have a very low leverage. Our net debt to EBITDA is lower than one.

It also means that we are not very active in the debt capital markets. We are not looking for funding and we are not looking for refinancing. Not being active in the debt market means that the impact of the credit crisis is very minor.

We recently tested the market with our commercial paper (CP) programme – we have a CP programme of €1 billion. I saw that the levels that we had in the short term financing were the same as the ones that we had two years ago. So in terms of our CP and short term financing we haven’t seen any impact so far.

“If you look at Belgacom, among all the telecom operators we are the one with the best rating – we still have an A rating with Standard & Poor’s and an Aa2 with Moody’s. In Europe that’s the best rating in the telecom landscape.”

However, if the M&A team found the right target at the right price tomorrow and we needed funding for that, we would see the effect of the increase in credit spreads. To illustrate this, we did a huge €1.65 billion bond issue in 2006, for the acquisition of the 25% stake that Vodafone held within our mobile subsidiary, and for that we paid a spread of around 50 basis points for a 10-year bond. If we had to come to the market today, the spread would be at least 80-90 basis points, so almost double what we got two years ago. If we needed the money now we would certainly see the impact.

But even not being active in the credit market might have consequences on existing back-up lines. Knowing that the bankers’ own cost of funding remains very high, it might have an impact on commitment fees and spreads when back-up lines need to be renegotiated.

What about your competitors – are they seeing much of an impact?

Some of the regular issuers do feel the impact of the credit crisis and are paying more in terms of spread and moreover the timing to issue becomes crucial. Markets can close very rapidly, but if you look at it from an historical perspective, the all-in cost of funding still remains at a reasonable level.

What impact has SEPA had on your organisation so far?

SEPA will have quite a big impact on our company as a telecom operator, with a number of invoices massively impacted by the change in the credit transfers and the direct debits. Within Belgacom we appointed a project leader for SEPA last year. Last year some information sessions were organised at our company, and the project is still running, so we certainly will be SEPA-ready at the time we have to be.

With respect to the credit transfers, we have to adapt our invoices to the new paper forms containing IBAN and BIC, and on the accounts payable side to the new XML standards. One of the things we have in Belgium is that most of the credit transfers today have a structured code. This enables straight through processing as we can match all our payments through this structured code. Within the SEPA framework that is something that was not foreseen in the SEPA credit transfer. What is certain is that in the context of Belgium, the Belgian banks will still support that structured code, so that is positive news.

In terms of direct debits, there we will probably see the biggest impact. One is that the timing with respect to refusals will become much longer. So that means that before we can close a particular client’s account and say we finally have all the payments from that client, we will have to wait much longer than we do today.

“Today, if you as a client have to request a direct debit mandate, you go to your bank and the bank deals with it. In the future this mandate flow will be the responsibility of Belgacom. So we have to change our processes and clients will come to Belgacom to say they want to pay via direct debits.”

Also, if you look at direct debits in Belgium, there is the issue of mandate flow. Today, if you as a client have to request a direct debit mandate, you go to your bank and the bank deals with it. In the future this mandate flow will be the responsibility of Belgacom. So we have to change our processes and clients will come to Belgacom to say they want to pay via direct debits. We will then have to register all these mandates.

Will new mandates be needed for clients already paying by direct debit?

No, in Belgium there will be a mechanism where we will be able to download existing mandates from the National Bank, so the impact will be on all the new ones.

What other trends are you seeing in treasury at the moment?

Looking specifically at Belgacom, our involvement in the M&A process and M&A financing is becoming more and more important. This relates to the way we structure the deal, where we put the financing and how we put the financing together.

Apart from that, we consider the management of our bank relationships remains crucial, as well as remaining best in class with our services to all the business entities

And as we have discussed, SEPA is a very important topic on my desk today. These are the main priorities.

“With respect to all our foreign entities we would like to put the Isabel web installation over there and have the flexibility to opt for a centralised or decentralised payment, having the same standard for reporting and payments.”

What sort of developments are you seeing in terms of technology?

For all our payments in Belgium, and for the reports, we use Isabel. Isabel is also currently developing a web-based solution. With respect to all our foreign entities we would like to put the Isabel web installation over there and have the flexibility to opt for a centralised or decentralised payment, having the same standard for reporting and payments.

What developments are you seeing in terms of the treasurer’s role?

What I see is the treasurer is certainly still an expert – but if I look at the finance functions, treasury is involved almost everywhere:

• We have links with accountancy as we have all the links with IFRS.
• There is a role for treasury in the working capital budgeting.
• We have a very strong link with tax, as most treasury centres try to optimise in a tax efficient way.
• And of course we are responsible for cash management and funding structures.

As well as being an expert, you now also have to be some kind of generalist. You need the links with all the different areas of the business. For example, we feel that our foreign entities and our business units need more and more support from treasury, particularly when it comes to decisions relating to financing, leasing and renting. All these things have very close links with treasury.

“Particularly given the credit crisis, it is very important to have good and transparent relationships with the credit rating agencies.”

Another thing that I have to mention is the issue of relationships with the credit rating agencies. I do feel that the importance of this is increasing year after year. Particularly given the credit crisis, it is very important to have good and transparent relationships with the credit rating agencies. That’s my domain and it’s something that we are trying to improve day by day.

In practical terms, we try to have annual meetings with the rating agencies. We also have quarterly conference calls and from time to time we have ad hoc calls with them. This enables us to have open discussions with them and gauge their opinions on various topics. As treasurer it’s important that you also make sure that your company keeps a certain level of financial flexibility and that you keep the capital structure in line with what your board wants. The relationship with these rating agencies therefore remains very important.