Introduction
Aldo Mareuse, 44, has been chief financial officer of Orascom Telecom Holding, the Middle East’s most successful mobile telecoms group since 2002. Based in Cairo, Egypt, Orascom Telecom is listed on the Cairo and London stock exchanges. Aldo Mareuse is also CFO of Weather Investment SpA, a private company that owns a majority stake in Orascom Telecom. Weather also owns Wind, Italy’s third largest mobile operator, and Wind Hellas, the third largest such operator in Greece. Prior to joining Orascom Telecom, Frenchman Mareuse worked in various positions and locations for the investment bank Credit Suisse First Boston. His last role was as managing director of CSFB’s investment banking division, telecommunications group, where he focused on advising telecom players in M&A, equity and debt financing. He holds an engineering degree from École Centrale de Lyon and is married with three children. When he is not traveling between Islamabad, Cairo, Rome or New York in the winter, he enjoys back country skiing in the Alps or in the Rockies, and in the summer he likes to cruise on the Mediterranean.
How has the CFO role evolved in the past five to 10 years?
The whole pace has stepped up a gear. Capital markets have evolved dramatically in the past five years and continue to evolve. As a result, the capital markets function has become much more central to the CFO role. Financings have become much more sophisticated and the products used for raising capital—including equity, debt, and a range of other instruments—have a much shorter lifetime. So the CFO has to be much more aware of his products and able to make decisions more quickly. In the old days, you could plan something six months ahead. That’s no longer possible.
Has Orascom Telecom been actively raising capital in recent times?
Even though it is a private company, Weather Investments SpA is much bigger than Orascom. Like Weather, we have raised a substantial amount of debt, across the spectrum including bank debt, bonds and mezzanine finance. So we have covered the capital markets spectrum and have been extremely active in the last three to four years.
Have you found that raising capital became more difficult since the credit crisis erupted in August 2007?
Basically the market has been frozen. So it hasn’t been difficult; it’s been non-existent. This has meant that, in the short term, the CFO role has been much more about looking at cost reduction and free cash flow optimization, rather than the capital market activities, which have been shut down. The CFO role has become a much more inwardly focused function than a year or so ago.
How do you predict the CFO role will evolve over the next five or 10 years? Will we return to a more outward-looking function and more active in capital markets?
I don’t think the capital markets will be nearly as active as they were in the period between 2003 and 2007. They’re going to be much slower for a very long period of time. It’s going to be much more difficult and expensive to raise finance. And the focus will be more on the cash flow a company generates, rather than raising it externally from third parties.
Will that make the CFO’s job more boring and/or more difficult?
I don’t know if it will become more boring, but it will certainly become more difficult. During the period of easy credit, you could simply put up your hand and five banks would come offering you whatever you wanted. It had become slightly artificial, slightly surreal. It’s back to basics now.
What other factors are driving change in the way finance departments must function?
As a result of Sarbanes-Oxley, we have an odd situation where corporates are obliged to be very transparent. They have to publish earnings releases quarterly, disclose numbers every quarter, and respond openly to detailed questions from investors. Yet, the hedge funds and long-only investors who are asking these questions are under no obligation to tell you how many shares they own, or indeed if they have any at all. There’s an un-level playing field in transparency. Investors want all this transparency, but they’re not being transparent themselves. I always laugh when I sit down with an investor and he asks me why my profit margin fell from 43.5% to 43.2% in a given quarter; I then ask him if he holds any shares and he says, “Sorry, I can’t tell you.”
Do you think that ought to change?
There’s so much pressure for hedge funds to be more transparent; yes, I think that this will definitely change.
How can finance managers, including CFOs, add value to their organizations and ensure standards of corporate governance are improved? What attributes do CFOs need to achieve this?
The best tools the CFO has in his armory are the financial results themselves. However, there’s lots of leeway in terms of how you present these results. You can present the same set of figures to the same accountancy standards. However, one version could be made so opaque that hardly anybody understands it, and another could be written so transparently that everybody instantly understands the issues.
What’s the temptation as a CFO? Is it to produce the opaque type or the transparent type?
That is a very, very important question, and I don’t really have the answer. If you disclose too much, and you don’t know the agenda of the investor, who is across the table from you, you could really suffer. In the past, I would always have advocated full transparency, but I’ve discovered that this can work against you.
Can you give me an example of how that could work against you?
Well, let’s say a corporate does an attractive financing. Let’s say the terms of this financing are based on the share price. If you were to disclose all the terms, some investors—and particularly hedge funds—are going to play against you.
Do you mean by pushing the share price up or down?
Yes, depending on whether your financing is built on the share price going up or down. With the derivatives tools that are available now, you can do whatever you want in terms of financing. And obviously people can play against you and they don’t have to tell anyone. If someone is a short-seller of your stock, he doesn’t have to tell you that he’s a shorter; yet, he’s going to ask you exactly the same sorts of questions that a long-only investor would ask you. It can be quite frustrating.
Would you say that part of it is trying to second guess these guys whenever you’re preparing how to release information to the market?
Exactly. Whenever you’re preparing financial statements and other reports, it’s difficult because these documents are going to be published and could be read by anybody.
What about ethical values? How do they sit in all this?
At the end of the day, what you always carry with you is your reputation. As a CFO, this is arguably the most important asset you have. Therefore, you need to maintain it at any price. Frankly speaking, I am not a big fan of all these Sarbanes-Oxley rules. I have been a board member of a company listed in the US and which has to abide by all these rules. It’s a lot of paperwork; it makes a lot more money for the lawyers, but it doesn’t increase transparency at all.
Did the use of “fair value” accounting exacerbate the recent financial crisis?
It definitely did. The US banks ran into trouble much faster than the European banks, because the European banks had more leeway in terms of not marking assets to market. That put the US banks in a very tight spot. I wouldn’t be surprised if there are still further big blowouts among European banks. I am not sure that forcing banks to mark to market immediately is a particularly good idea. It just intensifies the nervousness and panic in the market.
Should CFOs be more cognizant of nonfinancial performance indicators, including the environmental and social impact of their business, over and above their existing focus on financial performance?
As CFOs, we are not currently equipped to do this. However, in principle, I believe that the CFO should worry more about these things. In future, companies are going to have to properly allocate resources to measure all that.
What sort of relationship should the CFO have with the CEO, other board members and with investors?
At the end of the day, the CEO and the board decide on the allocation of capital.
The allocation of capital is an easy task if you’ve got good tools, and the CFO is there to provide these tools, both to the board and to external investors. Obviously, reporting to the CEO, the CFO has to provide all the relevant numbers and ensure these are robust, reliable and transparent, for the benefit of the entire board as well as investors.
In terms of the training required for a CFO, the traditional route is for them to first qualify as accountants, work in private practice and then move into the industry. Is this a sensible career path?
Accountants tend to be good at recording what has happened in the past but they are generally pretty clueless when it comes to thinking about the future. In today’s market, it’s more important to be able to raise funds. If you’re able to raise funds, you can talk to investors and you can probably also do a budget. These three functions are critically important. Because I was an investment banker at CSFB before becoming Orascom’s CFO, I found it easy to do the financing part, the investor relations part, the budget part, and the treasury part. It was more of a challenge for me to do the accounting part.
What is your view of the quality of audits provided by the “big four” accountancy firms PricewaterhouseCoopers, Ernst & Young, KPMG, and Deloitte?
There is substantial room for improvement in the quality of the audit reports. They don’t really understand the commercial issues. And, if you don’t understand commercial issues, you don’t understand risk. They’re just playing by the book. They are too focused on rules, and they often don’t understand the bigger picture. Accountancy firms and rating agencies need to improve their understanding of the issues before they can provide more added value. They’re more into preservation, acting as a safety net to ensure companies don’t do things that are completely stupid.
So what can be done to improve the quality of auditing?
I think audit firms should employ higher caliber people, which would make auditing more expensive.
But you, as a company, would be happy to pay more if you were getting better quality auditing?
If the entire industry was doing it, yes. It would enhance the quality of all companies’ financials and give investors less incentive to question the figures all the time. So, at the end of the day, yes.
A few years ago there were suggestions that it was somehow inappropriate for a Cairo-based group to acquire a mobile phone company in developed countries. Does that sort of prejudice still exist?
When we bought Italy-based Wind, people were saying, “What is Italy doing? They’re selling a mobile phone company to an Egyptian!” There was an assumption that we would turn up on camels wearing djellabas! Likewise, eyebrows were raised when Mittal bought Arcelor. Now, however, everybody understands that an Indian, Chinese or Asian company can manage assets in Europe or the US better than the Europeans or Americans. Whilst the credit crisis caused emerging markets to become less fashionable, in the long term, the growth is going to be these markets. Everyone understands they have disciplined management teams, who are capable of running assets anywhere in the world.
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