In solving these issues, he says that the wider adoption of technology is an obvious answer. “Most companies are more open to using cloud solutions, whether that is their accounting system, cash forecasting tool or treasury management system. By adopting better and newer technology it then allows for easier sharing of information within this new environment,” says Eaddy.
Brett Johanson, a treasury management specialist and Partner at PwC in New Zealand, has also seen how technology and digital innovation – as well as cybersecurity – have become big issues for the treasury community.
One topic, in particular, is the use of APIs [application programming interfaces] and using them to streamline the use of different software packages. Eaddy comments, “Previously there has been a lot of talk around the use of APIs but we are seeing some of our clients asking to develop to our API so that they can import or export information more easily. We are seeing this happening with other systems as well as companies embrace technology and digitalisation.”
There have been other issues that the pandemic has also brought into focus for treasurers, many of which are similar to the challenges in other countries. Eaddy comments that the main impact for treasurers in New Zealand has been the sharper focus on cashflow forecasting. “Pre-COVID there was more certainty over supply chains, supplier payments and export markets remaining open. With all the issues attached to these new conditions, cash once again has become king. This has also brought a shorter-term focus as it has become more difficult to forecast out too far,” Eaddy tells Treasury Today. One effect of this is that there has been more focus on foreign exchange hedging. “Companies found some of their long-term hedges were not required and therefore these deals needed to be closed out or restructured. This has led to a shorter-term hedging focus for the moment,” explains Eaddy.
Johanson at PwC has also seen that COVID-19 and lockdowns in New Zealand have had an impact on cash and liquidity management, as well as working capital management. Also, he notes there have been increased committed stand-by facilities, with tenors lengthened. He also comments on the other challenges that treasurers face at the moment, which include the need for treasurers to have timely and reliable forecasts from their business units. Also increased costs and uncertainty are an issue due to supply chain disruptions and closed borders.
Despite the upheaval of the last year, the Herbert Smith Freehills Corporate Debt and Treasury Report 2021 notes that most treasurers who were surveyed reported that they had managed liquidity successfully through the pandemic. This, in part, was due to the measures that were put in place in the wake of the global financial crisis. PwC notes that this is also a trend among treasurers in New Zealand.
Also, according to PwC, there have been differences in how companies in the UK and New Zealand responded to government schemes. In the UK, many corporates registered for government schemes that would help their cash flow, but the majority – 70% – did not use them because they feared it would affect the perception of how well-managed they were when they sought funding in the future. “This strongly contrasts with businesses in New Zealand, where 77% reported having accessed COVID-19 related financial support from the Government in 2020,” the PwC June 2021 treasury newsletter stated.
Johanson at PwC also notes that other issues for treasurers include seeking alternative debt funding sources – such as non-bank lenders and credit funds – and their access to debt capital markets. This is an issue that Simon Till, Director Capital Markets at Fonterra, raised in a previous interview with Treasury Today. Given the size of a corporate like Fonterra, relative to the size of the New Zealand economy, it is crucial it can effectively raise funds in the global markets in all conditions. Also, corporates that rely on overseas funding need to build good relationships with investors around the world.
This is challenging in the best of times since New Zealand is so geographically isolated from the major financial centres. But in a pandemic, when treasurers can’t fly, it has disrupted the nature of the relationships with the investor community. Thomson explains that in the US private placement market, for example, “They like you to go and show your face,” which has not been possible in recent times. Although there have been alternatives like virtual roadshows, it has made maintaining those relationships more challenging.
Another hot topic in treasury in New Zealand, notes Thomson, is sustainable finance. “It feels like it has moved to the mainstream quickly – it was a bit niche, but now there is an explosion in expectation from investors,” says Thomson.
“We are quite well positioned for that,” says Thomson of Contact Energy, which has already gone green and converted its borrowing to sustainability-linked loans, for example. In a sense it has been easier for a company like Contact Energy to do this because sustainability already aligns strongly with what the company does. Thomson notes the energy company is already building a renewable energy power station, for example.
This focus on sustainability also echoes the comments of Fonterra’s Till in a previous interview for Treasury Today. In the past, he commented, it was only in Europe where investors would ask about the environmental impact of the corporate’s business. Now, he comments, it is the first question that investors ask in all meetings around the world. “Investors are increasingly demanding around sustainability and with that will come real change by the businesses,” Till said.