Energy Sector Evolution: The Future of Treasury Management
As the natural resources and utilities sector re-emerges, new challenges lie on the horizon – ranging from regulatory change to the mounting risks posed by cybercriminals. At the same time, there are significant opportunities for treasurers not only to optimise their structures and processes but also to add greater strategic value to the wider business.
To explore how leading treasurers in the energy sector are preparing for the future, against an evolving regulatory and geopolitical backdrop, HSBC focused its second annual Global Liquidity and Cash Management Natural Resources and Utilities Forum around that theme. Held in March 2018 in Houston, USA, the Forum attracted over 60 attendees from upstream and downstream companies and was hosted by Lance Kawaguchi, Managing Director, Global Head - Global Banking Corporates, Global Liquidity and Cash Management, HSBC.
Eleanor Hill (Moderator)
A brave new world
In his opening address, Kawaguchi explained how, as a result of the complex and fast-moving environment in which treasurers are operating, they are having to re-engineer their processes, strategies – and people – to stay one step ahead. “This is especially true in the energy sector, where risk and regulatory reporting remain critical issues,” he said.
Kawaguchi also outlined how a confluence of external drivers – from geopolitical change to disruptive innovation and cybercrime – is resulting in far-reaching changes in the way firms conduct business. “Corporates must adapt to this brave new world by: embracing technology; striving for continuous improvement; and building talented, agile, and diverse treasury teams. Working closely with industry experts, including banking partners, will also play a key role in future-proofing treasury through having the right set-ups and solutions in place,” he said.
The digital revolution
Kawaguchi went on to explain how the bank is providing that collaborative support. Focusing first on the theme of digitalisation, he outlined how the bank is investing more than $2bn across the Group until the end of 2020 to make banking simpler, better and faster, for clients.
As well as refreshing the digital experience, the bank is also investing in innovation. “Wholesale customers can therefore expect to see more and more retail-like functionality in the functionality delivered through banking channels,” said Kawaguchi. “Mobile is a good example of this and, increasingly, users do not simply consider it to be a tool to manage small transactions, but it is a core element of their banking communications,” he said.
“Over the last few years we’ve been investing in our mobile channel, so much so that our customers have been sending increasingly larger payments. Recently we saw $2.6bn of transactions in a single week, and one transaction from a single client exceeded $1bn in size.”
He finished by saying that, “Innovation is an imperative for us and we are investing to get it right. We see this as key to building stronger client relationships, and to giving you the client the banking experience you require now, and in the future.”
Four treasury experts then took to the stage to engage in a dynamic panel discussion about preparing their systems, processes, strategies, and people for the future.
Regulation and reform was the first topic on their agenda. Here, David Andrada gave an insightful overview of the main trends impacting how corporate treasurers are preparing for the future. He explained how protectionist policies across the globe mean that “treasurers now have to be more agile than ever before – and increasingly connected to the macro world.”
Andrada also highlighted how real-time payments and digitisation are changing the way treasury operates. With payments now coming in on a real-time basis, seven days a week, “treasurers need to think strategically about how to put those monies to use – even at weekends,” he explained. Meanwhile, the treasury function must also be on high alert for fraudulent payments and cyberattacks, which are only increasing, he noted.
Looking specifically at the future of the natural resources and utilities sector, Andrada also spoke about the rise of national oil companies, and how their growing international activity would likely lead treasurers into more joint ventures in the future.
US tax reform and Brexit
The three corporate panellists then homed in on the protectionist point raised by Andrada, explaining their roadmaps for US tax reform and Brexit. Ballard advised the audience that “US tax reform provides a significant incentive to reassess the ROI of your cash, and reconsider how you can utilise it best – whether that be in a location abroad or in the US.”
Saront-Eisner then explained some of the challenges her French-headquartered company is facing around US tax reform. “One is the excise tax that will apply to cross-border payments between affiliates of the same company – and Air Liquide is largely funded through intercompany loans, so that will be difficult. The new tax also applies to everything from royalties to interest, and even CapEx, meaning that we have a lot to reconsider.”
Although Cougle has been diligently planning for US tax reform, and considering potential restructuring options, she added that Ensco is hesitant to make any firm decisions as yet. “While this might be the most comprehensive reform of the US tax code in the past three decades, it was pushed through Congress in the span of a few months and leads to questions as to whether the reforms could be undone in a similarly short timeframe,” she said.
When it comes to Brexit, Andrada commented that, “Treasurers in the energy sector have a particular incentive to undertake such a review, given the significant number of bank accounts they tend to operate.” He said that now is also a good time to revisit the financial products that the company has in place and to understand what the impact may be on those if the UK legal regime changes.