For the Dutch version, click here Earlier this year, the editors of Faces Online have published a reconstruction of the events surrounding the coronavirus. The lockdown measures are slowly relaxing, but the consequences of the corona crisis will be felt in society for a long time to come. The CPB and the DNB predicted at the beginning of June that a deep recession is inevitable. The economy is expected to shrink by 6.4 percent this year, twice as much as the credit crisis in 2009 and a historical low. It is clear that the current 1.5 meters society is affecting the catering sector, but what about the other business sectors? In this article we analyse the Accountancy and Financial sector, among others, and also reflect on the status of large Dutch companies. “An important difference with the previous major crisis is that the origin is now outside the financial sector and the financial buffers at banks are considerably higher than they were during the previous crisis.” The Financial sector (banks and pension funds) The banking sector is at the heart of this crisis as an aid provider for all sectors. With bridging loans and deferral of redemption and interest it is trying to help companies and consumers overcome the corona crisis. An important difference with the previous major crisis is that the origin is now outside the financial sector and the financial buffers at banks are considerably higher than they were during the previous crisis. This does not alter the fact that banks are becoming more cautious when issuing loans. Therefore, the acceptance criteria have been tightened in the second quarter. The purpose of the stricter criteria is to protect banking institutions against bad loans, which are at the expense of profitability. Though, the profitability was already under pressure due to low interest rates. The Dutch Central Bank does not expect the banking sector itself to run into problems in the moderate scenario. Only in the severe scenario, banks will be hit by a sharp recession, but they will still be able to fulfill their role as financial intermediaries. The pension funds have also been severely affected by the corona crisis. The decrease in the value of their investments have caused pension funds’ already vulnerable capital position to deteriorate further in the recent months. The policy coverage ratio, the yardstick for the current financial position of pension funds based on the average coverage ratio of the past twelve months, fell to 98 percent. This means that it is below the temporary statutory minimum of 100 percent. As a result, pension funds do not have sufficient assets to meet the mandatory benefits they have agreed on with its members. This can be remedied by either increasing contributions or reducing pension benefits. Fortunately, it seems unlikely to get this far, as a new pension agreement is about to be signed. In this pension agreement, the coverage ratio and actuarial interest will disappear. As a result, there will no longer be any promises for future benefits, which means that there will no longer be any shortfalls. Large Dutch companies The coronavirus also has a major impact on multinationals on Dutch soil. An example of this is the oil giant Shell. The combination of plummeting oil prices and the reduction in fuel consumption due to the coronavirus led to a drop in turnover of no less than 28% in the first quarter. That same quarter, Shell’s profits halved, forcing the company to reduce its dividend spending, for the first time since the Second World War(!). The decline in dividend spending is a bad sign for Shell, as liquidity was still reasonably good. It therefore deliberately reflects a rather negative picture for Shell’s future. A homegrown multinational where the corona crisis seemed to have a positive impact on is Unilever. Unilever has the ideal product portfolio, with sales of food, personal care and cleaning products. Due to the massive hoarding in the first weeks of the crisis, you would have expected the laundry and food group to have made a good start. However, this turned out to not be the case, as the sales figures for quarter 1 were roughly the same as in the previous year. The underlying reason for this is the fact that Unilever saw a decline in turnover as sales to catering suppliers stagnated. It is the sales to these consumers where they gain their highest margin. Lastly, a big player among the Dutch multinationals is the chip machine manufacturer, namely ASML. The corona virus had a major impact on the financial figures that the company had reported. The turnover in Q1 decreased by roughly 1.6 billion compared to the previous quarter in 2019. This was mainly due to the postponement of deliveries of the chip machines. Fears that transport would no longer be possible later also played a role for customers. The Accountancy sector The Accountancy sector appears to be one of the sectors that is quite capable of coping with the impact of COVID-19. Nevertheless, some of the largest accounting firms have prepared to withhold partner payments in an effort to mitigate the financial impact of the coronavirus pandemic. It is only one measure envisaged among the ‘Big Four’ accounting firms – KPMG, Deloitte, PwC and EY – and medium-sized firms BDO and Mazars, to withhold cash if clients’ fees decline. Top Accountancy firms are also looking into the possibilities of a temporary postponement of rules and legislation. These include the mandatory rotation of accountancy firms, counting physical stocks and filing accounts. Here, they argue that the coronavirus outbreak has created ‘unprecedented challenges’ for the accounting firms. However, it appears to be that most firms are healthier in terms of liquidity compared to previous years and decades, mainly due to some major divestments and cash savings. Finally, this sector seems to be more likely to be affected in the long term by the major pandemic developments since the beginning of 2020. This means that the effects are currently only
High Frequency Trading: COVID-19 Edition
For the Dutch version, click here Introduction Ever since Michael Lewis released his famous book ‘Flash Boys’ back in 2014, High Frequency Trading (HFT) has been a topic often discussed by investors. Although this is not a fairly new form of trading (some argue that it began in the 1930s), a lot of people and especially many retail investors are still not acquainted with this concept. This has left retail investors and people unfamiliar with the financial markets often questioned during the COVID-19 pandemic. What is High Frequency Trading? And what is so special about it during the COVID-19 pandemic? In this article Faces discusses with professional insight from Quirien Raat what High Frequency Trading is all about and what implications it has for the market during COVID-19. High Frequency Trading High Frequency Trading (HFT) is a type of algorithmic financial trading strategy that traders use to try to gain ‘alpha’. It is a strategy where devices and algorithms try to be the fastest in executing an order. This is where high volumes and low margins come into play. HFT does not only capture arbitrage in the market, it also helps to keep the market less volatile and provides liquidity to the market. Furthermore, HFT is a type of strategy used within market making. A company that continuously buys and sells shares at a listed price is considered a ‘market maker’. Even though the main emphasis of HFT is on speed, a market maker does not necessarily have to be fast. They can execute their orders manually and still be profitable. Nevertheless, the theory of HFT can sometimes be a little hard to understand in just one sitting. Thus, in order to gain more insight into this, it is important to take a look at a practice scenario of HFT. Flow Traders Quirien Raat, alumnus of Tilburg University and currently trader at Flow Traders N.V., guides us through the world of HFT at Flow Traders. Flow Traders was established in 2004 by Jan van Kuijk and Roger Hodenis and has since grown into an entity with a market capitalisation of approximately € 1.5 billion (per May 2020). Although many people know that Flow Traders is an active player in the HFT-market, this is actually not their primary activity. Flow Traders can be considered more as a market maker and executes multiple strategies as a market maker, of which HFT is one. As a market maker, Flow Traders mainly focuses on the so-called Exchange Traded Products (ETP). The best known of these are the Exchange Traded Funds (ETFs). These are the ‘trackers’ of the market. The AEX, for example, is an index of the Dutch market of which many ETFs are created and distributed. This implies that the value of the ETF should be in line with the sum of the value of the underlying shares, but this is seldom the case. Hence, how does Flow Traders respond to this as a market maker? Quirien mentions the following: “Flow Traders ensures that the market is efficient and is brought back into balance. We do this by providing a bid and sell price at all times around the actual value of an ETF.” Though, this might stir up questions such as: what’s it like to keep the market in balance during the COVID-19 period? How does Flow Traders deal with such volatile fluctuations? COVID-19 To date, 2020 must have been one of the most frantic years in modern history. Revenues have declined to levels never seen before and the unemployment rates around the world has been reaching new records. In addition to this, COVID-19 has had a huge impact on the stock market, especially at the start of the outbreak when many investors experienced a huge sell-off. With so much uncertainty and volatility on the market, this is exactly where Flow Traders comes into action as a market maker. “During such a highly volatile market, the price of the underlying stocks and related ETFs fluctuates enormously”, says Quirien. “Even in such situations, investors still want to keep trading. However, everyone wants to sell their securities and this causes the prices of ETFs to sink. Though, Flow Traders has the ability to then buy these ETFs, split them up and subsequently sell the shares separately. This then leads to the case that some people will still buy these stocks separately, thus preventing the ETFs from becoming worthless. Shortly, by continuously displaying bid and sell prices to the market for ETFs, volatility is curbed and this market then remains in balance.” This operating mechanism has led Flow Traders to realise a high operating result last quarter. Yet, one might assume that this would have been due to an increase in trading on the market. However, according to Quirien,it is not only due to the higher volumes in the market. “It is also due to the larger margins created by the increased volatility and uncertainty on the market.” “We don’t invest in stocks that ”add value”. We don’t keep a portfolio and our business model isn’t about having a long-term vision.” But if the market plummets, doesn’t Flow Traders’ market positions cause a negative operating result? No, this is not the case. Due to the fact that Flow Traders hardly holds positions for a long period of time, they are hardly sensitive to price changes in equities. “We don’t invest in stocks that ”add value”. We don’t keep a portfolio and our business model isn’t about having a long-term vision.” HFT is an essential part of market making during the COVID-19 period. Though, it is certainly not the case that everyone could easily start implementing this strategy in a short period of time. First of all, you need a large amount of capital to invest in top-of-the-line devices that can run your algorithms at an extraordinary speed to make sure that you are (one of) the fastest traders on the market. Next, according to Quirien, you would also need a special license to act as a market
Working at de Belastingdienst
Translation banner: This is Amanda, Trainee Accountancy at ‘de Belastingdienst’. She won’t just become an accountant, but a RA with fiscal knowledge. For the Dutch version, click here The first time I met with the Tax and Customs Administration (in Dutch: de Belastingdienst) as a potential future employer was at the Tax & Customs Museum in Rotterdam. I was with my fellow students of tax law on an excursion and the then General Director of the Tax and Customs Administration welcomed us with a chat. He did this so openly and enthusiastically; especially his passage about the training and development of employees sparked my interest. Working for the government had never come across my mind, but suddenly it was at the top of my list. Studying and working in accountancy I studied business administration and tax law, but I am also very good with numbers. Savings plans and budgets: leave that up to me. Afterwards, I soon discovered that you can do the dual track accountancy at the Tax and Customs Administration. In this trajectory you will develop yourself into a fiscal accountant within a few years. You will take internal courses at the Tax and Customs Administration Academy, follow a master’s and postmaster’s degree to become a chartered accountant at a University of your choice – which the Tax and Customs Administration will of course pay for you – and at the same time you will gain work experience. I’ve been on the road for over a year now, and I have already learned so much. Lessons from experienced specialists As a chartered accountant at the Tax and Customs Administration, you do not audit annual accounts, but tax declarations. So, I will not just become a regular accountant, but an accountant with a good dose of tax knowledge. This is why I consider my master’s degree in Accounting & Control at the VU to be just as important as the courses provided by the Tax and Customs Administration. From experienced accounting and control colleagues, I learn everything about control techniques, taking samples, recognizing fraud signals, and having conversations. Next to this, I also learn about the various means of taxation, such as income, turnover and corporate tax. “I don’t have a company car, but I do have a 36-hour week in which I work hard and get enough time to study. That’s worth a lot more than the material extras to me.” Doing practical internships You test the knowledge that you are taught directly in practice. In the dual track accountancy you will conduct three internships: one at the organizational unit, Small and Medium Enterprises (SME), and two at Large Enterprises. I have just completed my first internship at an SME. I went to check up on various companies, from a wholesaler that sells hair products to a remedial teaching agency. Knowing your theoretical material is important, but when you have the reality of such a company in front of you, and you enter into a conversation with the entrepreneur and/or advisor, the learning process really takes off from there. Lots of time to study For me, working for the Tax and Customs Administration brings a pleasant and safe working atmosphere. You can make mistakes and you can always contact your fellow students, internship supervisor or mentor. For the dual students there are also regular peer review meetings organized in which we can discuss everything we run into. In addition, I value the time I get to develop myself as a good working condition. I always say this: “I don’t have a company car, but I do have a 36-hour week in which I work hard and get enough time to study. That’s worth a lot more than the material extras to me.”
What happened last quarter? Q3: a recap
The third quarter of this academic year has been a remarkable period. The Coronavirus has halted some events and also forced Tilburg University to close its doors. Nevertheless, before these tumultuous times, several successful A&F events took place this quarter. In this article, the chairmen of the committees share their experiences of organizing their event. CityTrip 6-9 February, 2020 *By Martijn de Roover* From our first meeting in September onwards, we met weekly to organize the first A&F CityTrip. Despite the fact that the plane would only take off on February 6th, we had to hurry as travel and accommodation had to be booked in time. After we had chosen Sofia as our destination and booked the activities, we were ready for it! On the 6th of February, we travelled to the capital of Bulgaria with 15 students. There, we started discovering the local culture through a traditional Bulgarian dinner. The next morning, we took another good look at the Bulgarian culture during a city tour. We not only experienced the beautiful buildings and interesting history, but also the freezing temperatures and cold wind in Sofia. We also got acquainted with the nightlife in Sofia through a pub crawl. On Saturday morning, we started with a cat-and-mouse game through the streets of Sofia. After this it was time for a 1.5-hour travel to ski resort Borovets, which we explored on our snowmobiles. In the evening we explored the nightlife of Sofia for the 3rd and last time. After a successful last night, it was already time to return to the Netherlands on Sunday. In the middle of storm Ciara, we flew back and fortunately landed safely on Eindhoven airport. The reactions on return were solely positive. We as a committee look back with great satisfaction on the trip and the organization of this trip. We are particularly pleased that our choice for more active activities in addition to the more standard city trip activities worked out well. This was the first A&F CityTrip, but definitely not the last! FinanceDay – 18 February, 2020 *By Nina Thomas* We proudly look back on the sixth edition of the FinanceDay and through this blog I would like to tell you more about it. This year we were able to welcome accuracy, Duff & Phelps, FinanceIdeas, First Dutch Innovations, Marktlink and PGGM; a fine combination of the various pillars that finance has to offer. “Whereas one case uses complex datasets for the analysis, another case uses a fictional festival to translate it into practice.” As a summer external it was my honor to organize this day and so at 8 am I was ready to make the preparations. However, time management still remains a point of improvement, because despite the generous planning, the first company was suddenly in front of me while I was still walking around in my socks. Something with a ‘mild morning rush hour’: This can happen of course… A little later the students came in and the day could start. Whereas one case uses complex datasets for the analysis, another case uses a fictional festival to translate it into practice. An aspect that often remains underexposed during the study. This approach shows students how things work in practice. This helps them discover which pillar and work appeals to them the most. Information that can be of added value later on. The lunch, on the other hand, gave more insight into the different work atmospheres and company cultures, so that at the end of the day students walked out with a more complete picture of what each company has to offer. Finally, I would like to thank the companies and students for their contribution and enthusiasm. It has been a real pleasure and I am looking forward to the upcoming editions. Master Experience Days – 2-3 March, 2020 *By Nina Thomas* Where A&F offers job orientation with the FinanceDay, we also organize the Master Experience Days (MEDs) via Asset. During these days, students can orientate themselves on the masters of TiSEM by means of cases and presentations. As Asset | Accounting & Finance, it is, therefore, logical that we take on the organization for the MED Accountancy and MED Finance. For MED Accountancy, EY, KPMG, NBA and PwC were present. The NBA gave insight into the future perspectives after the Master Accountancy and the Big Four introduced students to auditing. By means of a fictitious audit case, students had to perform a risk analysis and analyze checkpoints. In other words, an instructive and relevant introduction to auditing. MED Finance had two separate cases, each with its own focus. Rembrandt Fusies & Overnames (Mergers & Acquisitions) dealt with a quiz on valuation, while students with a case of CapitalMind were working on financial numbers to get to a valuation. Again, it was a relevant introduction to (potential) tasks of your future career. All in All, I think students have gained more knowledge about the masters and maybe even got closer to a choice of study. Accounting Expedition – March 10-11, 2020 *By Melanie Sanders* That it has been a remarkable quarter, certainly applies to the Accounting Expedition. After a successful edition of the AccountantsDay, we started with a lot of energy with the preparations for the Accounting Expedition. With each weekly meeting we came closer and closer to March 10th and 11th, the dates on which the event would take place. The hotel in the heart of Eindhoven was booked, the promotional material was ready and the schedules for the lecture talks were ready. Now all that was left was the promotion and recruitment of the students. After an intensive promotion period we were able to communicate the CV’s of the interested students with the participating offices. “Despite this disappointing outcome, I think we as committee can still be proud of our achievements.” Unfortunately, we soon had to deal with the measures taken concerning the Corona virus. It started with a phone call from which it appeared that a limit of
Auditing in the Caribbean: An opportunity of a lifetime
Introduction On an island 8000 kilometers away from the Netherlands, where the sun always shines and where the average rainfall is less than 20 inches a year, there is a place called Aruba. Aruba is an island that forms part of the Dutch Caribbean and is part of the Dutch Kingdom. Many people are familiar with this island due to its beautiful beaches and friendly people. An ideal vacation destination that one of your acquaintances or relatives always talks about. Though, for some people, this place is considered home, which means that ‘real-life’ jobs also exist here. Reading the word auditing in the title may stir some confusion. What does this island have to do with auditing? What in the world would people audit on such an island? Coconut shacks? Jet ski rentals? Not quite. Aruba is known for its tourism industry and hence has a lot of commerce business on the island. Consequently, this stimulates the need for auditors on the island. On Aruba, the profession of auditing is mostly stimulated through endogenous incentives. Banks are the ones that are the most likely to ask for an audit to be conducted, however, there are also shareholders that require this sometimes. All of the hotels and activities that a person makes use of as a tourist have to be audited as well. Though, what is so different about auditing on the island of Aruba especially if one were to work there? In this article, Mr. Edsel Lopez RA and Dr. Robin Litjens RA guide us through the world of auditing on Aruba. Not only do they talk about the differences in the field of auditing, but they also talk about their experiences as an auditor there. One with a local background, and the other as an expat. The Setting on Aruba Mr. Lopez, current partner at Grant Thornton (former partner at PwC), is a well-known accountant on the island with more than 20 years of experience working on Aruba. He has been in the field of auditing ever since he completed his studies at Tilburg University. Lopez started his career in audit at Coopers & Lybrand in Amsterdam after completing a master’s degree in Administrative Information Science, at Tilburg University. Afterwards, he proceeded to obtain his post-master Accountancy degree at Tilburg University as well. Later, after working for a couple of years in the Netherlands, he then moved back to Aruba to proceed with his career. “As an auditor, you become much more of a generalist because you ought to audit many industries with minimum companies to compare with.” Looking out of his office right outside to the main road on Aruba with coconut trees waving after experiencing a heavy gust, Lopez mentions that the auditing scene on Aruba is to be looked at from a helicopter point of view. “There aren’t many companies in each sector on Aruba, for example, we barely have two complete hospitals on the island.” “As an auditor, you become much more of a generalist because you ought to audit many industries with minimum companies to compare with.” Lopez states that an auditor on the island of Aruba experiences a lot more from a bigger standpoint than the average auditor in a bigger city. Also, with minimum people to carry all the workload, the auditor tends to be placed at a much higher level very fast compared to if he/she were in a bigger city. However, there are other factors that are an outcome of a small island. One must note that there are approximately 120.000 people living on the island. So, one thing that becomes really important is your soft skills. How are you going to deal with a situation where you might meet your engagement client in the supermarket? Are you going to ignore his questions about the engagement and try your best not to create a social bond with him to keep your audit independence? Or are you going to deal with this differently? Hence, you are encountered with challenges that you are less likely to encounter in a big city or a big country where there are millions of people living. A different setting brings its challenges. However, coming from a point of view from someone who has spent a big part of his career on the island can be a bit biased. So, how did an expat experience this? Experience from an Expat During a cold winter day in the Netherlands, where the weather is all grey and it hasn’t stopped raining for the past couple of hours, sits in his office at Tilburg University, none other than Dr. Robin Litjens RA. Litjens is an assistant-professor at Tilburg University at the department of Accountancy. Though, before starting his career in academics, Litjens had been an auditor in practice. After completing his studies, and while he was already working for a couple of years, Litjens looked back at never having the opportunity to go abroad during his college years. “During my time studying, it was not so common for a student to go on exchange. Things didn’t go as easy back then.” This had left Litjens with the desire of moving abroad for his career someday. After going on vacation to Aruba, Litjens spoke with some people about the opportunities there. He immediately knew that this was the place to be. “It was not only the atmosphere that has made me attracted to Aruba, but also its people. I was on vacation and asking strangers about opportunities and people were already offering me positions as a business controller in the then newly opened telecom company Digicel.” However, Litjens wanted to remain in the auditing scene and got to transfer from KPMG Netherlands to KPMG Aruba. “To my surprise, I was almost immediately in a position where I had to make decisions on a higher level than which I had to make in the Netherlands. Some of these decisions entail decisions on what was feasible for the engagement(s) and what could
Just Graduated: Luc van den Tillaart
For the Dutch version, click here My name is Luc van de Tillaart and I am 23 years old. I completed my master’s in Accountancy last January and started working at Deloitte in February. In this article, I will talk about the transition from being a student to working at a company. How would you describe your student experience in Tilburg? I started my student life with a bachelor program in Business Economics. During my bachelors, I found courses in which numbers are important such as accounting and finance to be more interesting than for example marketing courses. For me, this was the reason to become active at Asset | Accounting & Finance during my second year as a student. During my time at A&F, I was active within the Activities committee, StudyTour committee, and Faces committee. I experienced this as a very fun and educational period which I would recommend to everyone. Through my activities within A&F, I got a better perspective on how work within a company would look like after completing a master’s in Accountancy or Finance. In the end, I choose to follow a master’s in Accountancy. I finished my master in one and a half year, which allowed me to be a working student at Deloitte next to writing my thesis at this company. This work internship gave me the opportunity to work at Deloitte for three days a week during a period of five months. The master program in Accountancy is very theoretical and working at a accountancy firm gives you a good view on how your working activities will look like. “For the past six months, I have been writing my master thesis at Deloitte’s office which already gave me a good impression of the atmosphere.” How did you end up choosing Deloitte? I’d recommend visiting as many A&F or accountancy firm activities as possible, in order to get to know which accountancy firm suits you the best. In the end, I went for a BIG-Four company, namely Deloitte Eindhoven. For the past six months, I have been writing my master thesis at Deloitte’s office which already gave me a good impression of the atmosphere. How did you experience the transition from studying to working? I have been working fulltime for four weeks now, yet the transition from being a student to working has been relatively easy for me due to the fact that I have been at Deloitte for one year already. The major difference between these two is spare time. During your studies, you do not have lectures all day and as a student you are very flexible to do other nice activities. If you want to party during carnival, which I like a lot, you first have to consult your manager whether this is possible or not. Another factor that I had to adjust to is waking up early on a daily basis, as this is not always necessary as a student. Therefore, going out during the weekdays is not possible anymore. Could you shortly describe your current function within Deloitte? At Deloitte, I started my career within the function of Staff Audit. I have clients within different sectors, which gives me the opportunity to get insights into different companies. My client portfolio consists of profit organizations, municipalities and educational organizations. During my internship at Deloitte, I also worked at several health care organizations. Another nice addition is that each time, you work within different teams and with young people. In addition, a major advantage is that during the weekends, you do not have to think about any study related stuff. What do you do besides your new job? From September on, I will start the post-master’s in Accountancy. Then, I will have lectures on Fridays, and I will have to study during the evenings or in the weekends. Besides my job, I am also active as city counselor within the municipality of Meijerstad, which asks for some hours of my spare time as well. I hope to be able to continue this once I start my post-master’s, yet so far so good. I still have spare time left to do some sports in the evenings and weekends, or to do other activities. To conclude, working within a company after your studies takes some time getting used to, yet it suits me well.