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Emu – what the FDs say.

Neal Gossage, financial director at Vaux Group, the hotel and pub operator and regional brewer. Turnover for the year ending 30 September was £293m. The group operates the Swallow Hotel Chain which generated about £22m from overseas visitors from Europe, the US and the Far East. Vaux will be prepared for the change in January 1999. We have had to update our computer systems in terms of general accounting and in terms of accounts receivable, but we have the skills and ability in-house to make the necessary changes. We deal with a number of companies based in the UK but with overseas parent companies. They will expect us to invoice them in euros and some have implied that they may well take their business elsewhere if we are not able to do this. Companies have to be ready for the euro or they will lose custom. We will primarily still handle our records in sterling, but with the ability to invoice or take payment in euros and then convert this into sterling. When, or if, Britain becomes a full member of monetary union, then we will switch our records over to euros. We will also need to be able to accept euros in our hotel chains. Stephen Hodge, group treasurer at Shell Transport and Trading, the UK half of the Anglo-Dutch oil company. Shell’s turnover for the year ending 31 December 1997 was £32.8bn and just over one third of this was generated in Europe. We are not planning an immediate switch-over in trade but we will be offering customers trading in euros if they so desire. Many think that multinationals will push for the euro but we will respect the “no compulsion, no prohibition” spirit during the transition period. A properly functioning single market will facilitate a progressive convergence of Shell operations in Europe, with benefits resulting from sharing our services, giving economies of scale in, for instance, administrative and transaction processes. The introduction of the euro will simplify all financial operations, will exclude exchange rate risks between currencies of participating member states and will reduce various transaction costs. (Britain’s reluctance to join) will mean that the simplification of using a single base currency for Shell operations in most EU countries, including the central offices, will not be achieved from the start. It could also lead to continued volatility of the GBP against other potential participating currencies. Mark Clare, financial director at Centrica, the provider of gas and energy related services to domestic and commercial users. Turnover for the year ending 31 December 1997 was £7.8bn. Centrica’s business is entirely conducted within Britain. On a practical level, our point-of-sale systems will need to be upgraded or replaced. And the billing systems for our customers will need to be changed to deal with the new currency and, if there is a period of dual operation, dual currencies. The most substantial cost we will need to deal with, alongside that required to address our systems, is retraining and communicating the changes. We have 19 million customers, 1.4 million shareholders and 20,000 staff and the whole focus of the organisation will be to manage the communication process to avoid service problems. As a UK-based organisation, we are likely to be in a position of bearing additional costs for limited benefit. While we would expect a lower cost of capital to result, and certainly a more stable one, this is unlikely to offset the changeover costs. Patrick Shanley, financial director at Courtaulds Group, the textiles manufacturer. Turnover was £2.1bn last year, with about £700m generated in Europe. The most significant impact will be transparent pricing across Europe. And previously domestic manufacturers will find it easier to conduct business in countries outside their national boundaries. This is because they will perceive that there is less hassle in terms of foreign exchange and exchange rate risk so their domestic market will become Europe. Transparent pricing will help Courtaulds in terms of purchases that we make across Europe as we will have comparability in pricing. We are well positioned to take advantage of the euro and to handle Europe because of our European spread. I do not think that it is actually something that you can sit back and wait for. It is not necessarily in our control; it is with our customers and suppliers. UK operations will have to accept that the euro is a currency just like the deutschemark or the French franc. We haven’t been sitting back here as a UK company looking out, rather we are a European company. We will be trading in the euro. Tony Isaac, financial director of BOC Group, the chemicals company. Total operating profit for the year ending 30 September 1997 was £540.4m of which £228.1m came from Europe including the UK. We suspect that the process of rationalisation in Europe (prior to the euro) will continue apace for several years – both through rationalisation of manufacturing and business facilities and through mergers and acquisitions. Within our own operations the rationalisation in Europe has largely taken place as far as technology permits. Thus the bigger impact is likely to be on the customer base in Europe, as they rationalise facilities, and this is a trend we are watching closely. Stable and lower interest rates in the UK are the principal prize that the euro may eventually bring. Otherwise, the benefits are likely to be quite small, as BOC’s net currency exposure in Europe is quite small. In addition, there will be some potential from a more dynamic market-place and benefits to arise in purchasing. We do not believe there are major problems for our business from the UK’s reluctance to join the first wave. Indeed, with most of our European business located in the UK, we are intending to learn from our experiences elsewhere in Europe for the time when Britain finally joins the single currency. Christopher Pearce, chairman of the 100 Group and finance director of Rentokil Initial. Major companies are already trading throughout Europe and so are having to cope with the implementation of the euro anyway. To these companies the euro is a practical matter that has to be dealt with, rather than a theoretical proposition. Major companies generally have subsidiaries in countries that are going into the euro and so are having to deal with it here and now. We can’t afford to hang around. Chris Banks, financial director at CMG, the information technology consultancy. Turnover for the year ending 31 December 1997 was £303m. About 80% was generated in Europe. We are not going to switch to the euro straight away in 1999 but all our share prices in Amsterdam will be quoted exclusively in euros. We would expect to be publishing euro-based financial statements fairly early on. As an IT services group we have been working with clients to help them convert their own systems. There will be great benefits for business across Europe and it should lead to a better economic climate on the whole. But to convert in the year 2002 there will be a very substantial IT cost as businesses will have to go through every currency item and convert them into euros. The costs may be greater for banks and insurance companies as there are quite significant systems implications because not all financial systems are standard throughout Europe. For instance, some calculate interest on the basis of 360 days a year but others use 365 days a year. Banks may end up spending many many millions in their preparations for the euro. I have heard estimates, although I do not know how reliable they are, that the IT costs of dealing with the euro will be 50% greater than those for the year 2000 bug. Graham Brock, financial director at Edinburgh Fund Managers. Turnover for the year ending 31 January 1997 was £31.1m. EFM currently has about £300m under management in Europe. As far as operations relating to our clients go, our systems can deal with any currency and the euro is just another currency so administration will not be a problem. There might have to be one or two minor changes to systems because of the way the euro will be quoted. The major benefit is that it will reduce the number of currencies for our clients who buy and sell stocks within Europe. But there is uncertainty over the timing of when the UK stockmarket enters and how this will affect UK stock settlements. Alan Rothwell, financial director at Greenalls Group, the hotel and leisure operator. Turnover for the year ending 30 September 1997 was £1,152m. Greenalls’ business is conducted entirely within the UK. We have two issues at the moment and they are the millennium and Emu. We are a domestic hotel and retail chain and most of our suppliers are also based in the UK. Therefore we are focusing our attention on the millennium at the moment and we aim to be millennium-compliant by the end of this year. As we are a domestic buyer with domestic suppliers, we really plan to turn to the Emu project early in 1999. So we have a different way of prioritising from more international companies as we are purely UK based. Of course, the eventual introduction of notes and coins is something that will be important in our hotel chain where we have overseas clients but the millennium is dominating our thinking at the moment. Neil Chisman, financial director at Stakis, the hotel and leisure group. Turnover was £307m for the year ending 30 September 1997. Stakis owns a hotel in Dublin and a casino in Gibraltar. The impact of the euro on UK business will come over the next five years or so. The biggest impact for Stakis will be when we have to take the actual notes and coins in the UK. We have very few operations outside the UK and so it will only really have a large influence on us when the UK joins. The euro will create a better business environment and a more profitable industry. For example, low interest rates are good for us but Emu is not going to change our business strategy. The euro means that we are more likely to roll out our hotel chains into Europe but it will not increase the rate at which we do this. We have a hotel in Southern Ireland and it will be trading in euros so we will get a trial run. The biggest impact will be changing the base currency from sterling to euro. Most people think that their accounting systems are technical enough to deal with this but this is not true when it comes to talking about changing the base currency. I think that we will be well prepared by the government in this country beforehand, just like we were for decimalisation.

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