Treasury Today Country Profiles in association with Citi

Treasury on the move

Car speeding towards the city

In what areas are treasury teams taking centre stage to drive value across organisations, and is treasury getting the support it needs in its evolving role?

Treasury expertise and strategic advice, particularly around funding and exposure to risk, is increasingly valued within corporations.

The functions boosted role has its roots in the 2008 financial crisis. The banking turmoil sparked a recognition amongst corporate boards that finance wouldn’t be as easily available, leading to much more of a focus on cash management and raising finance.

For treasurers in companies with overseas operations, the focus on cash flow and capex discipline has turned the spotlight to an area that was already one of treasury’s biggest headaches. Repatriating trapped cash, or profits stuck overseas, is a complex task that demands more tenacity and more interaction with the wider business, than ever before. “Trapped cash has always been an issue for us but it has increased over the past three to five years because of problems in some jurisdictions around accessing dollars,” explains Carl Burman, Head of Treasury at Danish shipping and energy conglomerate Maersk. Encouragingly, the fact that emerging markets often produce the best growth has helped raise the importance of trapped cash within companies.

Bond skills

Treasury is also evolving and adapting to a changing lending environment. Banks’ new capital requirements mean they are lending less, and for shorter periods of time. This has left businesses having to tap different sources of funding. “There has been a shift towards seeking more capital markets debt amongst UK corporates because it offers a deeper pool of investors,” says Duncan Kellaway, a partner at law firm Freshfields Bruckhaus Deringer. It contrasts with Asia where banks still have an appetite to lend.

Issuing bonds requires proactive interaction with the capital markets. Successful issues call for imagination, and an ability for treasury to plan and forecast in advance. The focus could be on raising money for longer periods of time, or raising new debt whilst continuing to have existing debt in place. Treasury also needs to be opportunistic and ready to take advantage of market conditions.

And as companies increasingly tap the debt market, so treasury needs to forge strong relationships that allow visibility across the company. This means ensuring the company isn’t doing anything that could jeopardise its credit rating or that could breach any of its existing covenants, in particular its financial ratios. It is also important that treasury knows what is coming down the line in terms of major corporate events such as disposals or acquisitions.

FX management

“The decisions that treasury takes on hedging can make or break a company. We have a hedging policy in our operating rules, and how to manage the currency exposure is a key question,” says Singapore-based Damian Glendinning, Treasurer at Chinese PC giant Lenovo, outlining another evolving and growing treasury task. Glendinning oversees an important and strategic hedging programme shaped around managing the FX risk that arises from a mismatch between costs and revenue.

According to consultancy Deloitte’s 2016 Global Foreign Exchange Survey, corporate boards lack visibility of their company’s current FX exposures. This gives them a limited ability to challenge and guide FX strategy, and results in some companies being slow to measure the commercial effectiveness of their FX risk management activities, say the report authors. It could help if boards empower treasury to be more decisive. “Many corporations tie themselves in knots with bureaucracy and hierarchy when it comes to making a decision around FX,” notes Jonathan Pryor, Head of FX Dealing in Investec’s Corporate and Institutional treasury department.

Get smart

As companies’ demands on treasury change, so treasury skills are having to evolve. Today’s treasury needs people with accounting backgrounds and financial market expertise, regulatory knowledge and, importantly, an understanding of where risk lies within a business. It is an expanding skillset echoed in the ACT’s Strategic Treasury Report: 40% of respondents said they were spending more time on risk management compared to a year ago. Yet treasury teams remain small. According to the Nordea Treasury 2017 Survey, conducted by the Swedish financial services provider, the average team is now eight people, up from seven.

Technology to the rescue

Technological innovation is key to helping treasury improve efficiencies and reduce cost alongside an expanding workload. Maersk is in the process of implementing a whole new treasury system in its largest IT investment in “a long time,” says Burman. Treasury also needs clear visibility through the whole company. This helps the department negotiate with commercial teams if market conditions become more challenging, something UK treasury teams have had to do post-Brexit following the fall in sterling against the dollar.

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