Risk Management

2023: treasury battens down for tough times ahead

Published: Nov 2022

As companies prepare for a likely recession, operational resiliency is proving key from shoring up supply chains and working capital, to investing in technology to create efficiencies and the flexibility to manage change. For corporates with businesses in Europe, weathering the energy crisis is a key priority.

Amkor Technology, the US semiconductor packaging and services group, is well used to the cyclical ups and downs that characterise the industry. Over the years, periodic bouts of overcapacity in the sector have collided with slumps in demand building a resilience in the industry to downturns and the impact on revenue. “In these uncertain times it is hard, if not impossible to predict the 2023 economic conditions,” says Eric Chambers, Vice President, Finance and Treasury at Amkor Technology, speaking from the company’s Phoenix headquarters in Arizona. “I personally don’t believe this will be a transformational year, but as we have learned from past economic downturns, it’s difficult to tell.”

Still the prospect of recession, recently flagged by the IMF warning that more than a third of the global economy will contract in 2023 and the World Bank, cautioning central banks that hiking rates too aggressively risks a “devastating” contraction, leaves Chambers’ treasury focused on a handful of key priorities. Surety of supply chain and operational resiliency, even if demand falls, is front of mind. “Surety of supply chain is one of the industry’s biggest concerns and we will continue to work with our vendors and customers. This means a heavy emphasis on collaboration and working together,” he says.

Working capital is another priority. Particularly given the industry’s working capital is already stretched by rising costs, building inventory, and competing capital needs. Making payments out of the door to secure inventory and investing in equipment and capacity, naturally creates a bit of a working capital crunch, he says.

Elsewhere Chambers is keen to avoid volatile capital markets in the foreseeable future. “It’s not a good time to be borrowing, and the optimal strategy is to wait until borrowing costs and volatility have reduced. In this market, interest rates can change fast and any plans to borrow can be dramatically different by the time a potential borrower gets to market.”

But it’s not all negative. Reflecting further on the economic landscape, he says higher interest rates are already raising returns on investment, positively impacting corporate P&L over recent quarters. For the first time in years, corporate investment portfolios have gone from earning below 1% to above 3%. “Investment portfolio strategies are finally paying off.”

What to expect

For many treasury teams preparing for 2023, recession is now depressingly inevitable. What is more difficult to predict is whether two consecutive quarters of negative economic growth turn into something deeper and longer lasting. Treasury Today interviewees stress the importance of sticking with core strategies, preparation, contingency planning and acting proactively rather than defensively or reactively – frantic, survivor-mode cost cutting or letting go of talent have implications that can linger for much longer than a recession.

At the European and international operations of Japanese brewing giant Asahi Europe and International (AEI) treasury is also doubling down on operational resiliency – only their focus is navigating high energy and commodity prices. For its European breweries that use gas, the company has advanced business continuity plans which include the ability to immediately switch to alternative fuel sources if required, and where possible.

The energy crisis has underlined the importance for AEI of accelerating its transition towards green electricity and continuing to work towards its Legacy 2030 sustainability ambition of achieving carbon neutrality in all its breweries by 2030. AEI has already signed a ten-year electricity contract in Poland wholly tied to wind in a long-term offtake deal that helped the wind farm finance its infrastructure build, and the brewer is now looking at similar opportunities across European markets. Although it’s not the best time to fix long-term energy prices, the strategy fits with AEI’s carbon reduction pledges, explains Anthony Buchanan, Treasurer for Europe and International at AEI. “It is a challenging time, but the business is keen to look for opportunities to operate in clean energy in line with our ESG agenda.”

The company’s quest for greater certainty as recession looms is pushing its hedging strategy centre stage. In addition to hedging transactional FX of around €1bn, treasury hedges other material commodities with enough liquidity including aluminium and diesel. The team is currently looking at hedging additional inputs including sugar, maize, and bunker fuel for global exports – amongst others. Indeed, such is the current volatility in commodity prices, treasury, with the tools and policies to support, is increasingly taking over responsibility for elements of procurement, says Buchanan. “With all the volatility, procurement is finding it challenging to manage our inputs via supplier agreements.”

Treasury is also investigating the potential to proxy hedge some of the grains used within the brewing process. However, this is complicated by the fact AEI uses local, sustainably sourced grains in many of its beers. Yet these grains do not have a strong enough correlation to the Chicago Board of Trade or US barley indexes to hedge their exposure.

Value destroying

Managing FX risk in 2023 will likely be another headache. The dollar is up at an all-time high; sterling’s wild ride took it to an all-time low, and Japan’s government is frantically propping up the yen for the first time in decades. As central banks crank up interest rates in response to inflation after years of near zero borrowing costs, volatility is returning and corporates with exposure are looking to protect themselves. Kyriba’s latest Currency Impact Report estimates global corporates took a US$49bn hit to earnings in the last quarter thanks to volatility and the strong dollar.

At AEI, the team has the opportunity within the company’s corporate treasury policy to hedge all transactional FX out to two years with a keen focus on large exposures against the euro in Romania, the Czech Republic and Poland. The company doesn’t have a massive sterling exposure so has been spared the worst volatility in the pound, while exposures to Asian currencies, the dollar and CAD dollar are also smaller because AEI doesn’t brew in these countries. Still, Buchanan notes these exposures are growing as the company looks to increase sales in these regions.

But the quest for certainty must be balanced against the risk of destroying value, says Buchanan explaining that such are the moves in FX, the cost of hedging is starting to negate its value. “We have a €1bn total transactional FX exposure that our policies allow us to hedge two years forwards. But hedging has become so expensive because the forward points are pricing generally above where the underlying comes and have therefore become value destroying. It would be possible to hedge all currency risk, but it would be incredibly expensive.”

Looking ahead, he notes the possibility of some of the currencies AEI hedges beginning to fall towards the end of 2023. For example, Czech interest rates are slowing and flattening, and he thinks he might see some cuts in the tail end of next year. Still, currency uncertainty continues to plague Hungary and Poland and the UK where politicians recently triggered unprecedented market volatility.

Scaling automation

Elsewhere, companies are readying for recession by beefing up automation and investing in technology. Amkor is considering a TMS implementation in a sign that suggests treasury’s call for tech investment is increasingly heard. “Treasury is benefiting from more of a focus and willingness by corporations to invest in technology, enabling treasury to obtain information quicker and to make more informed decisions,” says Chambers.

Digitisation is one of the best ways to recession proof treasury, agrees management consultancy group Bain in recent research the ‘New Recession Playbook’ (https://www.bain.com/insights/the-new-recession-playbook). Automation brings transparency, helps cut costs and gives treasury the flexibility to manage rapid change like the introduction of new products or a shift in supply chains. Recessions can create wide and long-standing performance gaps between companies and better analysis helps treasury understand the business in a downturn and see where there is potential for operational improvements. “Companies that have neglected digital transformation may find that the next recession makes those gaps insurmountable,” warn the report authors.

AEI is already well positioned to benefit from technological efficiencies, says Buchanan. Five years ago, treasury introduced a new TMS system tied to trading platform 360T. Treasury has two SWIFT codes (but plans to rationalise further) and a single bank cash pooling solution with zero balances into London for most of its currency transactions. “We have a straight through process that comprises cash forecasts for three months and two-year FX forecast that we can drop into our system without too many variances and then trade straight out,” he says.

The missing piece is a similar commodity trading programme. “Commodity hedging is more manual because the tools aren’t out there yet. I keep asking providers why no one has developed a commodity trading platform. They always respond they are looking into it!” he says.


Pricing is another recession-busting tool. Many companies have increased prices to address rising supply and energy costs but may now find they have reached their limit on price increases. It means companies may have to develop more sophisticated strategies through 2023. This could include replacing broad-based price increases with strategic increases to protect margins informed by costs, but which also remain within the bounds of customer expectations. Strategies could include exchanging price for value, offering other benefits such as volume guarantees, bundled products, or adjusted service levels, lists Bain.

In another strategy tweak, some treasurers report plans to rationalise bank accounts for the first time in years. Bank fees may seem small but combined, quickly add up and pruning their number is low hanging fruit when it comes to cutting costs. Others say bank rationalisation is only likely on the margins, however. Avoiding the capital markets will leave treasury dependent on existing funding lines with their relationship banks.

Eileen Dignen, Global Head of Treasury Services, Corporate Client Banking, J.P. Morgan observes corporates dig deep into their banking relationships during a recession. Companies are still navigating a period of profound change following the pandemic when many switched to survival mode. “A recession always creates opportunities, but clients are holding a fairly conservative view of the year ahead, particularly in their approach to liquidity and working capital requirements.”


The idea that recession holds opportunities as well as challenges is shared by Treasury Today interviewees. Corporates make more dramatic gains or losses during downturns than during stable periods. Firms that have been able to restructure costs ahead, manage liquidity and balance sheet, focus on their customers, reignite growth plans that melted away during the pandemic via M&A opportunities, or selectively re-invest can emerge stronger. Despite uncertainties around deal valuations and credit markets – and the timing of the recovery – capital is still available for M&A deals and many businesses still have strong cash flows and balance sheets, opening possibilities for companies willing to act.

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