Euro Contingency Planning
DACT workshop – ‘if a country left the Eurozone’
Courtney Keating (Nike)
Pieter Veuger (PwC)
November 9, 2012
News of today…
Financial times, September 5th 2012
Financial times, October 15th 2012
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Exit strategies, realistic or fiction?
Are you prepared? Implemented strategies…?
 Expectations of this meeting
 Business in Greece, Italy, Spain or … Germany?
 Sharing experiences
 What do you think are the chances for an exit by one of the European
countries
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Roadmap for today
 Predictions that proved to be true
 Four possible scenario’s in the Eurozone
 Consequences for corporates – how Nike ‘Just did it’
 What to expect in case of an exit strategy
 Nike’s 100k action plan and success factors
 Realistic or fiction – can we prepare (open discussion)
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Scenario’s for the Euro in problems
What was predicted in 2011
Scenario 1: Monetary and Fiscal action
Crisis initially contained by ECB bank financing and agreement on Greek debt haircut. As
a result of Greece failing to meet the conditions of the deal, this will trigger another round
of ECB financing coupled with fiscal transfers to peripheral economies in exchange of
austerity measures. A looser monetary policy is adopted at the end of 2012 to help restore
the competitiveness of the peripheral economies.
Scenario 2: Orderly defaults
A programme of voluntary defaults is agreed for the most indebted countries, which
triggers a contractionary debt spiral and a prolonged recession, lasting between 2 and 3
years, and which results in a cumulative loss in GDP of around 5%.
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Local
Market Impact
Europe
Potential strategies that may lead to recovery
Southern exit
Northern exit
Greece, Spain and/or Italy is compelled to leave the
Eurozone. The leaving country will then suffers a
sharp deterioration in its economy, a rapid
depreciation of its new currency and an inflation
spike. The Eurozone seeks to protect its currency
through tough fiscal discipline and other investor
confidence increasing measures, but still suffers a
recession that lasts for up to two years.
If ECB bought up all the bonds of Spain for
instance to save the country from an exit it will
drive down the Euro in foreign exchange and
stimulates inflation further. Alternatively, if
Germany and other Northern countries were to exit
the single currency, it will remove the devaluation
risk from the southern countries as Greece, Spain
or Italy. This would create smaller and more tightly
regulated currency blocs.
IOU (“I owe you”)
Privatization to decrease debt
Besides the bulk of cuts from pensions and welfare
IOU will be issued in the southern countries. An
informal document acknowledging debt. Along the
lines of a strategy followed by the state of California
the issuance of IOUs by these countries will be
necessary to meet their financial obligations. This
strategy buys them enough time to benefit from a
increasing economy the coming years.
The conditions for Greece to stay in the euro area
for more than a few months are not met. This will
imply a further privatization of Greece’s
infrastructure being able for them to write off the
about €300bn remaining sovereign debt. With the
Greek general government expected to run a small
primarily surplus next year, there is hope this will
enhance an economic rebirth.
Protective
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Strategy
Courageous
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Introduction
Initial focus by Nike was the Scenario of a Greek exit.
This was that the banks and advisory groups showed this as the highest risk
and a good basis to prepare for other scenarios
Project goals




Ensure the safety and well being of all Nike Employees in Greece
Continue to do business with the Nike Wholesale customers and DTC
Create a Playbook that can be accessed by all functions and can a plan that can be put
into action as soon as there is an announcement from the Government
The Plans should also be adaptable to other European Territories
Background information



Nike operates an agent model in most Eurozone countries
Centralized functions in Nike EHQ in Hilversum including treasury
Greece successful market . Italy and Spain larger markets more significant
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Europe finance
Expected Phases of Greek Exit
1. Pre Announcement:
Risk mitigation phase allows companies to adopt quick wins
2. Exit Announcement:
 Border Freeze
Capital controls
 Redenomination Details
New currency, debt and existing contracts
Currency stamping
Regulations and central bank powers for new currency
3. Currency devaluation
Expected significant devaluation / high inflation in first year
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Europe finance
100K Key Actions by Lead Function
Dept.
Finance
Now
Alternative banking
partners
Freeze
Redenomination
New customer
payment plans
Resolve open
payments
New currency
Asses hedging possibilities
Disclosures
Complete conversion
including accounting
implications
Assess guarantees
Merchandise
Establish pricing
strategy for new
devalued currency
Update price lists
DTC
Prepare stores for
possible new
currency
Consider taking
excess inventory from
wholesale customers
Adapt store processes
Sales
Develop holistic
strategy for key
customers
Stop orders
Discount corrections
Continuity Plan for Key
Customers
Customer Conversion
Reassess order book
Operations
Stop shipments
Clear back logged
orders
Implications for
“prepaid” customers
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Europe finance
100K Key Actions by Lead Function
Dept.
Legal
Now
Freeze
Redenomination
New currency
Key Contract
Review (including
Sports Marketing)
Legal implications
(as needed)
Nike Tech
SAP Prep
Customer Conversion
Other systems
Complete
Implementation
HR
Employee contract
review
Safety/well being of
employees
Brand /
Corporate
communication
Develop
communication
plan
Execute
communication plan
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Europe finance
Examples from 10K Plan
Risk Mitigation

Daily cash sweeps in place

New bank for payroll payments in place

Extra security on AR in place
Business Continuity

Prepared communication plan for employees , customers and Media

Trained local staff in Crisis Management

Communication list and protocols agreed with Global for day of announcement

War room set up in 2 hrs in Greece and EHQ to execute the Immediate Response Plan. Detailed X
functional plan

Agreed stopping shipments on route and changes to shipping lines with carriers

Scenario Planning done for the Key Accounts

Designed and tested changes in SAP and other systems

Nike Store POS system (Point of Sale) can convert in < 1 week

Worked with loss prevention on protection of Stores (shutters, etc.)
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Europe finance
Key Success factors
Project basis

Ensure senior management involvement and sponsorship

Involve country team and HR

Start with strategy that meets your company’s business
Business Continuity

Mitigate risks where possible as where aligned with strategy

Highlight open risks

Clarify pricing strategy before working on treasury needs or designing systems other changes

Compare with experiences elsewhere e.g. Argentina

Highlight differences with former experiences e.g. countries entering the EuroZone, then leverage

Cross functional discussions and alignment

Dynamic recording of decisions and ownership
Ongoing monitoring and updates

Regular discussion and assessment of risks and update of playbook
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Europe finance
Summary
 A lot can be done without major investments to increase response time and mitigate
impacts on employees, customers and other stakeholders
 Treasury has a key role in preparing and advising on contingency plans
 Most actions decisions need to come from the business
 Working with the business cements and reinforces the role of treasury
Find your greatness !
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Europe finance
Hot topics treasury seminar - Treasury Post-Crisis
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7 november 2012
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APPENDICES
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Play Book
One Click > High level Powerpoint
Two/Three Clicks >> Detailed Plans on Sharepoint.
http://euroswoosh.nike.com/EuroContingency/index.htm
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Europe finance
100K Plan
NOW
FREEZE
REDENOMINATI
ON
NEW
CURRENCY
4 weeks
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Europe finance
Methodology – High Level Diagnostic
This diagram sets out the main stages and activities in the high level diagnostics:
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What does the future of the Eurozone mean for your business
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