Treasury in 2016: no place for sissies

The role of the treasurer today is more varied than ever: from managing regulatory change to embracing new technologies, treasury departments around the world are juggling a diverse range of priorities as they work to streamline processes, increase efficiency and reduce costs. GT News spoke to several treasurers and bankers to focus on the challenges likely to be topping the treasury agenda over the next 12 months.

As in previous years, treasurers are likely to see their attention divided between a number of pressing topics. Amit Agarwal, head of liquidity management services for TTS EMEA at Citi, says that treasurers are building their strategies on five key objectives: enhancement of cash visibility and control; improved risk management; liquidity optimisation; cost reduction; and consolidating fragmented pockets of cash.

Steffen Diel, senior vice president, head of global treasury at SAP, gives a snapshot of the diverse challenges faced by a single treasury team. In 2016, these will include increasing efforts to follow up on financial market regulation and simplifying treasury processes to free up time for dealing with the growing complexity. Treasury in Europe will also work to avoid negative interest rates: “We will try to invest for longer time periods on average,” says Diel.

Every organisation is different, and the challenges faced by treasurers will vary significantly between companies, regions and industry sectors. Nevertheless, several core topics will rank particularly high treasurers’ agendas in the coming year:

External pressures

Agarwal says that treasurers’ objectives are being shaped by a number of external forces, including geopolitical developments and associated risks; interest rate fluctuations; and incremental downward pressure to negative yielding currencies. Other dynamics include increasing merger and acquisition (M&A) activity and the evolving regulatory environment.

As in 2015, regulation is likely to loom particularly large. “With increasing regulatory requirements, some treasurers may find that managing their workloads is becoming harder,” says Paul Thwaite, head of RBS Transaction Services. “Therefore, a key priority for 2016 is to ensure they are keeping an eye on the industry and the developments taking place, as well as effectively managing the treasury for their business.”

Jarno Timmerman, head of treasury South East Asia Pacific at Dutch multinational AkzoNobel, says that externally “the challenge will be to keep up with the fast pace of regulatory changes across the different countries in Asia, to understand them and determine how they will affect us.”

Francois Masquelier, head of treasury and enterprise risk management (ERM) at European entertainment network RTL Group, agrees that regulation will be a particular consideration this year, citing the new European Market Infrastructure Regulation (EMIR 2); the Markets in Financial Instruments Directive (MiFID) – now apparently delayed until January 2018; the US Foreign Account Tax Compliance Act (FATCA); and the know your customer (KYC) requirements being introduced to deter money laundering, as well as the new International Financial Reporting Standards (IFRS).

A further consideration is the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting (BEPS) package. Masquelier notes: “BEPS is another regulation to comply with; however it will offer lots of opportunities to revamp processes, to further automate them and to reinforce or to revisit internal controls and processes.”

Risk management

Risk will again be high on the agenda for treasurers in 2016 – although the specific risks that treasurers need to manage continue to evolve. “The geopolitical environment is different, underpinning the various risks that treasurers manage on a daily basis,” says Agarwal.

“Opportunity and risk are two sides of the same coin and [the company] needs to excel in managing risks in order to give us the best chance of leveraging the opportunities,” says Alison Wilson, treasurer of smoothies and juice producer innocent. “So, spreading the risk management love across the group will be a priority for me in 2016 and we’ll achieve that by focusing on how the development of great capabilities in this area can drive both scale and substance for us.”

Capital structure

Rick Martin, group treasurer of liquefied natural gas (LNG) shipping concern GasLog, says that he is focusing on continuing to diversify the company’s sources of capital. “Major challenges for the coming year focus on maintaining a prudent capital structure, even as my company continues to grow at a rapid pace,” he adds. “I make no claim for prescience on where rates are headed – ‘up’ seems a rather pale comment; rather, I continue to hold that having a range of options for funding remains by far the best approach.”

To that end, Martin says he will be aiming to look at both amortising and non-amortising debt, understanding the merits and demerits of convertible bonds and capturing opportunities for refinancing while interest rates in many regions remain at historic lows.

Capital allocation will also be a focus for professional information services company Wolters Kluwer. “We prefer to use capital to invest in the growth of Wolters Kluwer by spending 8-10% of our revenues in new products and strengthen our portfolio by doing acquisitions and divestments, ease our debt position and reward our shareholders via progressive dividend and share buy backs,” says George Dessing, the company’s senior vice-president treasury and risk.

“2016 will see a focus on choices around these capital allocation considerations, for our strategic financial direction and portfolio assessment in order to support the growth.”

Centralisation

Timmerman says that a key goal for AkzoNobel will be optimising and standardising the company’s cash management structure in the region, including creating more visibility and centralising control.

“One element of this will be optimising our in-house bank [IHB] set-up, which includes a payment and collections factory, by enhancing our treasury management system and implementing new and updated modules,” he adds. Other goals will include finalising the company’s centralised trade finance and foreign exchange (FX) platforms and processes.

Banking structure

Dub Newman, head of North America global transaction services at Bank of America Merrill Lynch, says that treasurers will be simplifying their platforms to improve transparency and efficiency, as well as “focusing on liquidity management and forecasting, as rates finally begin to rise and expectations of M&A activity continue.”
In order to achieve their goals, he says that treasurers will be reviewing the treasury platforms that they use, which may have evolved through acquisitions, as well as rationalising banks and bank accounts.

Talent management

Jack Spitzer, treasurer at multi-level marketing company Isagenix International, says he will be working to make better use of resources within his team. “The focus will be less on title and role, with more assignments based on talent/skillset, even if it crosses into another team. Hopefully this will achieve a consolidation – or at least improved interaction – across silos within the company, both at headquarters and with foreign offices.”

Innovation

RBS’ Thwaite says that treasurers will be examining how they can streamline their processes and embrace new technologies, with much discussion around topics such as blockchain and application program interfaces (APIs). He adds that embracing and adopting innovation will continue to be a key focus in 2016.

“Treasurers will be looking not only to their banks for help and advice in this space but also to fintech companies, which, in partnership with banks, are developing and enhancing solutions to help them optimise their working capital.”

Conclusion

From centralising cash and reviewing capital allocation to managing risk and streamlining bank accounts, treasurers around the world have plenty to get their teeth into in 2016. As well as improving internal processes, they will be working to ensure that their structures and practices continue to be relevant against a backdrop of regulatory change and technological innovation.

Despite the challenges – or perhaps because of them – there is much for treasurers to feel positive about. As Martin concludes, “Striking a good balance – at a time when markets are challenging for the near-term but very promising for the longer – is likely the greatest challenge my company and I face next year, but we welcome it. Bring it on!

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