Published: March 01, 2018
It’s that time of year when a crystal ball would be incredibly useful. As we navigate through the first quarter of 2018, Eleanor Hill, Editor, asks five leading treasurers what is top of their ‘to do’ lists for the year ahead – and discovers what pitfalls they will be actively trying to avoid.
Turn the clock back ten years and the world was a very different place. 2008 was the year that Obama first won the US Presidential race and China hosted the summer Olympics in Beijing. It was also the year that SEPA Credit Transfers were officially introduced, changing the payments landscape across the Eurozone.
But of course, 2008 is most remembered among the treasury community for one thing: the collapse of Lehman Brothers. No-one needs to be reminded of the aftermath, and in many ways, it feels as though we have moved on significantly from those dark days. But the crisis cast a long shadow, and even in 2018 treasurers are still dealing with the consequences.
Regulation is a clear, albeit rather tedious, example of this. Thankfully, as well as the ongoing burden, there are now interesting treasury agenda items (alright, challenges) spinning off from regulatory obligations too. One of those ‘to dos’ for Jan-Martin Nufer, Director of Treasury & Funding, Borealis is further improving the automation of regulatory reporting.
“From a regulatory point of view, IFRS 16 and IFRS 9 are the main challenges we are facing in 2018,” he says. “These aren’t new topics, but there is a lot of ‘housekeeping’ still to do around these accounting standards, and we continue to look for greater efficiencies in the reporting process. That said, it’s a challenge to find the right balance between wanting to have the reporting as automated as possible and the cost of achieving that,” he explains.
Nufer goes on to say that the new transfer pricing regulations are also adding to treasury’s workload, since his team now has to work with individual credit ratings for all the entities and additional documentation requirements are emerging. As an example, he says that “the cost for automatically importing the CDS information required for the probability of default calculation is disproportionate to the value of that information to the organisation. But taking a manual approach goes against our overall aim to become even more automated and to report in real-time. It’s a Catch 22.”
François Masquelier, Head of Corporate Finance and Treasury, RTL Group could not agree more. “As regulations change, so do regulatory reporting requirements – and this leads to a paradox of systems sophistication. Take IFRS 9, for example. To comply with this new accounting standard, we have to produce a couple of new reports which TMSs are not capable of generating. As such, we generate the reports outside of the TMS, but that just adds another layer of unwanted complexity to our reporting.”
He adds that “BEPS reporting is also a headache, not so much the country-by-country reporting, but the level of documentation that is required to explain the process used to calculate the margin you take. Demonstrating the required level of ‘substance’ could be challenging for some treasury centres which exist more for tax reasons, and this could well be a hurdle during the year ahead.”
In addition to the difficulties around reporting, Masquelier believes that the expected credit loss (ECL) calculation part of IFRS 9 could be a challenge for some corporates this year. As he explains, most companies currently do not collect the credit information required by IFRS 9. They need to modify their current credit and information systems in order to collect required data. Management have to build new models to determine 12-month and lifetime ECLs. “This will require complex judgments and a significant time investment – and my impression is that many corporates are not quite there yet.”
And whilst the majority of post-crisis regulatory reforms have worked their way through the system over the last decade, regulation continues to evolve – as it must to keep pace with the world. The issue here, as Marie-Astrid Dubois, Assistant Treasurer EMEA, Honeywell, rightly points out, is that the unintended consequences of regulation still aren’t fully understood, and that is a concern.
She believes that, in 2018, corporates need to be more forthcoming in their views on new regulatory initiatives, and this is certainly something that Honeywell will be doing. “In the past, we have worked with various regulators to explain how corporates will be impacted, and we feel that is definitely a dialogue worth continuing this year,” she notes.
Unfortunately, there are other changes going on in the world that corporates have less sway over. US tax reform is just one example, but it is something that will be a significant priority for Honeywell this year, and “is certainly high on our CFO’s to-do list,” confirms Dubois. “As a US-headquartered company, we’ll likely be looking to bring cash back to the US to fund business development and capital deployment. But that will require some legal and tax work, especially since we have more than 1,000 legal entities across the globe,” she explains.
For Honeywell, and many other US multinationals, tax reform is also a trigger to revisit and potentially rethink treasury structures. “Should we consider one global USD cash pool? Or is an EMEA-based in-house bank still the optimal option, for instance? How can we achieve further automation? These questions will be front of mind as we head further into 2018 – and will require treasury to anticipate scenarios and be proactive within the organisation about communicating with departments such as tax and legal and our banking partners,” she says.
And for Dubois, as for many treasurers, keeping bank relationships in the best shape possible will be a key agenda item for this year. “For acquisitive organisations like Honeywell, it’s very important to be aligned with your banking partners. What we’ve been doing over the last few years, and will continue to do in 2018, is to let them know what we want to achieve, what we expect from them, which includes having a dedicated implementation manager,” she comments.
“For example, we will ask our banks to start drafting the implementation plan based on the available information even if it is not final. We will also launch the KYC process very early, as well as having them work on the basis of scanned copies of documents, rather than waiting for the originals to arrive. It’s about ensuring we are ahead of the game and not held up by counterparties who are simply waiting for things to happen, when they could be taking action.”
Related to that, Honeywell will this year become one of the first treasury departments to use DocuSign with its partner banks. This will make the whole process of document exchange more secure, more affordable, and even more enforceable. It will also be a huge help with all of the restructuring that the company does, especially given the number of bank accounts and signatories that Honeywell has across the globe. “We are live with the DocuSign project with two partner banks, one in the UK and one in the US, and already having discussions with five more in EMEA, but we’d love to see all nine of our partner banks sign up to this by September 2018,” she enthuses.
Just as Dubois will be doing this year, Adam Boukadida, Deputy Group Treasurer, Etihad Airways will be taking a very close look at the company’s bank relationships. He too has an exciting project under way in this space.
“Like every organisation, we have our core strategic partners and counterparties – over 100 in total. Not every organisation, especially banks, can be top of the game in every aspect of the product or service they are offering. As such, we continue to closely review which of our counterparties are best-in-class, in terms of how they fit with our particular needs,” he observes. “An objective for my team for 2018 is to enhance or even completely rebuild the current mechanism we use for tracking our counterparties, the time we spend benchmarking them, and the value we get from the exercise. It will cover every type of counterparty from leasing partners to cash management, FX, fuel, interest rate hedging and system providers.”
The end game, he says, is to have a way of quickly accessing and updating a summary of any given counterparty, including strengths, weaknesses and history. “I’m excited to see what the talented team here come up with.”
It is impossible to talk about concerns for 2018 without mentioning the geopolitical situation – from Trump to Brexit. But by and large, treasurers are taking the situation in their stride.
As Dubois observes: “While it may be a cliché, this is the new norm. The markets have been relatively stable, despite huge political upheavals over the last 12-18 months. What’s more, our risk is closely managed, and we are a diversified company in terms of products and geographies, which helps.”
Nevertheless, all treasurers will remain vigilant. Vlaminck, for one, has concerns about a possible equity market bubble in the US. “While I’m not an economist, it is looking rather top-heavy to me and if the bubble were to burst, that would impact markets across the globe. So that’s something I’ll be keeping a close eye on.”
Nufer, meanwhile will continue to monitor customer credit risk closely this year, watching for geopolitical events that may trigger a review of limits. “To ensure that we do this in a joined-up way, we have introduced a cross-functional taskforce consisting of my credit team, the sales team, and where appropriate the legal department or the FX team. This ad hoc taskforce gets together as soon as a new risk has been identified and assessed as important enough to deserve individual focus,” he says.
“Together, we find workable solutions to mitigate, or at least reduce, any additional credit risk arising from geopolitical events. This might involve asking for cash in advance or secured deliveries for all receivables in a certain country, or in rare circumstances, assigning an overall country credit limit which kicks in irrespective of the individual credit limit of each customer.”
Another top priority for Boukadida’s team this year is maintaining visibility of cash, together with accurate forecasting, and enhancing their reporting. “None of that is new per se, but what’s becoming increasingly important is working with the wider business to help them better understand how their actions impact the cash position,” he explains.
“We started a communication exercise with the business last year, and I see that evolving over the next 12 months. We have implemented a liquidity committee, which consists of various areas of the business along with key finance execs who sit down on a monthly basis and examine cash movements in and out on a line-by-line basis. This has helped the business to have more of a 24/7 focus on cash, rather than just on payroll day.”
Further improving the way internal departments liaise is also a priority for Nufer. “Since Borealis has communicated a growth path, we are – besides organic growth through building or expanding new facilities – also looking into potential M&A activity. One of the key action points for my treasury team here is to look to continue to improve their interaction with other departments during 2018. This will build on the very good work we’ve done over the last year or so to ensure that treasury is proactively involved in discussions impacting the structure and set-up of the business from an early stage.”
To give a very simple example, he says that rather than being asked about opening a bank account for a new legal entity in a specific country, treasury’s aim is to be involved in the initial discussion to decide whether that particular country is the right location for the new legal entity in the first place, or whether the anticipated set-up is needed at all.
“We’ve had very positive feedback from the business around this collaborative approach, but it has taken time to get to that point,” he admits. So, for treasurers trying to replicate this in their own organisations, or lying awake at night wondering how to do so, Nufer has the following advice: “At first, treasury needs to push itself into some of the projects by virtue of policies and procedures that point out what type of transactions somebody from treasury needs to be involved in and at what stage.
“That establishes a mandatory framework to give treasury the opportunity to demonstrate the value they bring to the discussion. Hopefully, that ‘push’ methodology should quickly transform into a ‘pull’ effect, once the business understands the benefit of treasury’s expertise in these matters – so you get to a point where people ask for you to join a discussion, rather than the other way around.”
Something else Nufer and Boukadida have in common is that both have excess cash to play with, although by virtue of the sectors each operates in, the amounts are somewhat different. Both are also thinking outside the box when it comes to putting that cash to use.
“We have started looking into more creative, yet low-risk, alternatives to traditional investments for getting a decent return on our excess cash,” confirms Nufer. “For example, we have launched a dynamic discounting programme using C2FO. The programme is only in its infancy, and Borealis has an unusual set of suppliers compared to most corporates, but I can already see the benefits for both sides.”
Meanwhile, Boukadida’s imagination is being applied in a slightly different way. “As an airline, we do have excess cash in some popular destinations, but as a result trapped cash is a challenge in certain geographies, across the Indian sub-continent and Africa for example. We always need to be on the lookout for creative yet controlled ways in which we can access that cash – at a competitive price.”
Linked to this, Etihad has been involved in some creative collaboration with other airlines and Abu Dhabi-based entities to share knowledge around releasing trapped cash. “I definitely see this collaboration continuing throughout 2018. There may even be an opportunity for us to club together to release cash from challenging geographies. The IATA Treasury working group is a great example of this.”
While the low interest rate environment continues to be a challenge for those with excess cash, it also presents opportunities for innovative financing. “We’re looking for opportunities to take advantage of the low interest rate market and put in place financing with the longest possible maturity,” confirms Luc Vlaminck, Group Treasurer, Rémy Cointreau.
“This is particularly important for us, since we often age our spirits for several decades and up to a century – but other corporates may have long-term financing needs too. The deal is still under discussion at the moment, but we are aiming for a maturity of around 15 years and we’re actually looking for a tailor-made product,” he says.
Elsewhere, Vlaminck is concerned about thoroughly protecting company cash from fraudsters and cybercriminals. He says that, “ensuring processes are as bulletproof as possible from a fraud perspective is a significant priority for us – and for all treasury departments – in 2018. Fraudsters are becoming more and more sophisticated and always seem to be a step ahead. Not only are they using the classic type of fraud techniques, like phishing, they are also now gathering important data about corporate organisations to help make their attacks more targeted.”
Vlaminck adds that today’s fraudsters are very patient and will painstakingly work out the hierarchy within a company, to find out who has decision-making power and who is a signatory on bank accounts, for example. Once they have gathered all of that information, then they will launch a thoroughly planned attack. As such, he stresses that keeping on top of the fraudsters requires close co-operation and co-ordination between treasury, audit and IT. “That’s something that we will be working on consistently throughout 2018. We’ll also continue to educate staff through internal training, and implement as many new security features as we can, including more alerts to flag suspicious payment activities, for example.”
Having the right culture in place is also important for tackling fraud, says Vlaminck. “If we are ever in doubt about a transaction, whether that be the amount or the recipient, we will double-check it before releasing it.” The Rémy Cointreau Group, he explains, has a great philosophy about this: no-one will ever be blamed for delaying a payment in order to verify any information. So, even if the payment was crucial and arrives one day late, it is far better to have thorough fraud controls in place – and staff should always feel as though they are able to check details twice if they are unsure or suspicious.
Etihad is similarly focused on fraud prevention and even has a payments fraud management function, which forms part of the group treasury remit. “As an airline, we pride ourselves on our safety and that doesn’t just stop at transporting our guests, that relates to financial risks as well. We have a host of fraud checks in place, as well as insurable policies for if and/or when we may be impacted,” explains Boukadida.
Interestingly, Honeywell’s Dubois feels that the legwork around fraud prevention shouldn’t necessarily be left entirely up to the corporate. She believes there is a greater role for banking partners to play in the fight against fraud as well. “Every treasurer under the sun is concerned about fraud, and we’re naturally doing all we can to ensure our processes and systems are secure. What we see as a growing trend for 2018 is getting banking partners more involved in fraud prevention measures. We’d like to see the banks offering more proactive assistance to corporates, with enhanced analytics around payment behaviours, for example,” she states.
“In the same vein, we’re also calling on our banks to help spot any efficiency opportunities within our payments process that can lead to simplifications in our workflows. Lip service and buzzwords don’t solve challenges. Proactivity does.”
Improving workflows and systems is also a concern, or rather priority, for Nufer. “Beefing up our treasury systems to stay ahead of the curve, and digitising as many processes as possible, are key priorities for the year ahead. We’ll also be looking for ways to optimise the workflows around our systems, adopting more of an ‘internal shared service centre mentality’ – whether that be ensuring invoices come in to one single location for the whole group internationally, rather than through different legal entities, or looking into new e-billing and self-service solutions for suppliers.”
He says that the ultimate goal is for the treasury department to be able to demonstrate to the wider organisation that it is, and will continue to be in the future, a centre of excellence. This will be a significant focus for the Borealis treasury team throughout 2018 and beyond.
Boukadida has similar improvements in his sights. “In recent years, we’ve made significant efforts to ensure our technology enables us to work smarter. We’re using SWIFT for Corporates, for example, and have had significant success using OpenLink’s Findur products to execute smarter in the financial and capital markets. Mobile is also becoming a key part of our technology strategy, such that I can view the cash position on my iPhone and approve payments and transactions on the go, which really helps when you work for an international airline!”
He is also well aware that as much progress as his team has made in this area, this is a continuous journey. “Throughout 2018 we will be on the lookout for tools to help us work more effectively – but they have to come with the right price tag attached,” he comments.
What’s more, new technology doesn’t always answer every prayer. With new technology comes an age-old problem: integration of systems and reconciliation of data between systems. As counterintuitive as it might seem, says Masquelier, “the more sophisticated a treasury department’s technology set-up becomes, the more frequently treasurers end up using Excel. Why? Because the more we use technology to drive automation, the more we must embrace multiple data feeds and formats.”
Having that data delivered in an automated way is one thing; but being able to extract information from that data is another matter entirely – one that requires both data aggregation and analytics. And Excel continues to be an affordable, flexible and user-friendly way of aggregating data from different sources. This is why even a cutting-edge treasury department might find itself exporting data from the TMS into Excel and then reimporting that information into the system, he explains.
No matter how much a treasurer spends on a system, it will never be perfect. “And no single ‘off the peg’ system that currently exists can act as a true treasury dashboard, which is why even world-leading treasury functions have cobbled together a DIY dashboard for decision-making. But soon, this situation will become untenable. The amount of data treasury departments deal with is only going to increase; and artificial intelligence is not yet advanced enough to compile, slice, and dice all the data for you.”
That said, tools are emerging that treasurers can leverage to help them extract and ‘translate’ their data into a single, usable format, he says. “These so-called Extract, Transform, Load (ETL) programmes come in many forms but, in my view, are the basis of modern financial reporting. I expect more and more treasurers to become aware of the benefits of ETL tools throughout 2018 as they look to implement these as an essential part of a treasury toolkit.”
In 2018, we will no doubt see more new digital payments solutions and cryptocurrencies emerging. But at a time when a number of businesses are moving from a solely B2B business model towards a more B2C model, Masquelier warns that treasurers will need to keep a keen eye on evolving payment methodologies in the year ahead.
“As well as ensuring customers can pay the company in whichever way they like, we also need to have multi-channel payment solutions on offer for our suppliers. And we don’t want to be tied in to one banking provider for those – not in the age of PSD 2 and open banking,” says Masquelier.
Masquelier also hopes that, despite the challenges associated with sophistication, treasurers will continue to be ambitious with the technologies they use in 2018 – and help to drive the industry forward. With this in mind, his treasury team is participating in the corporate pilot for the SWIFT global payment innovation (gpi). “Being involved at an early stage gives us the opportunity to make sure that gpi will truly work in corporate treasurers’ favour. You have to participate if you want innovation to move in the right direction,” he notes.
As with any pilot, there have been a few teething troubles – but Masquelier isn’t deterred. “No one can contest the potential benefits of gpi, but already we see that there are some creases that need to be ironed out. For example, a Unique End-to-end Transaction Reference (UETR) is required in order to track your gpi payments, but if any stakeholder in the chain fails to use the UETR, the payment won’t be automatically reconciled. Throughout 2018, we’ll test gpi more thoroughly and will flag any other potential pitfalls, but we see great potential for the solution in the longer term.”
Another collaborative project he has under way that seems to be taking a little time to come to fruition is a pilot for SWIFT’s KYC Registry. According to the first round of feedback received, the results look promising and Masquelier believes that the project has legs, but he also stresses that there are still a number of hurdles and standardisation issues to break through.
Just as Masquelier sees potential in many technologies, while the reality is not quite a match to his aspirations (yet), Vlaminck says that he is “eagerly waiting to see what blockchain technology will truly deliver in terms of concrete benefits for treasurers. At the moment, it is all talk – no action. The same can be said of many fintechs too. There has been so much hype that I’m now waiting for that to become reality”. Vlaminck would also like to see treasury technology turn into something that’s integrated, simple and intuitive. “Having smart tools that are as easy to use as the apps on an iPhone, for example, would give the treasurer more time for analysing and thinking, rather than simply controlling,” he explains.
In fact, the intellect of treasury professionals will become more and more valuable – and hopefully increasingly available – as technology becomes gradually smarter. Rather than being hand-cuffed to their desks performing mundane tasks, treasury staff will be freed up to better fulfil the strategic role that has been carved out for them in recent years. This will require a new skillset, however. As Nufer points out: “Soft skills are an important part of making a success of cross-functional dialogues. As such, it’s becoming even more important to have treasury personnel with great people skills, as well as project management abilities, for example.”
But that is not always easy, as Masquelier outlines. “The staffing of treasury departments remains a big concern. We still fight to attract talented people into treasury and to retain them. Nowadays, we need different and new skills and areas of expertise to fulfil our (new) missions. The technology part of our day-to-day job keeps increasing over the years. Furthermore, the millennial generation is coming and with it come new behaviours, new expectations and new ways of working.”
To succeed, senior treasurers must adapt their management and recruitment to this new demographic, he says. “We need to train young talent to acquire the required soft and hard skills. The role of corporate treasury associations across Europe will be crucial to help members to better recruit, especially since human resources remain limited given cost-cutting.”
Alongside recruitment, retention of existing treasury talent will also be critical, as Boukadida acknowledges. “Our people priorities for 2018 continue to be: recognition, reward and retention. Making sure team members have options and opportunities is vital to achieving this. Simply promoting talented people or giving them a pay rise isn’t always the answer; there are lateral moves that can give them new challenges and help them learn new skills too – like moving a tax accountant into the corporate finance team, for example.”
Dubois agrees on the need for proper retention of treasury talent, and shares some words of wisdom for the year ahead. “The recipe for retaining treasury talent starts with having good leadership and clear objectives in place. Enthusiasm is also another very important ingredient, making people feel as though they are part of a winning team, whether that be through innovative projects or external awards. People also need to be empowered and inspired to work to the best of their abilities. That means encouraging them to dream of the possibilities, instead of being defined by the limitations.”
And if people are allowed to dream and be enthusiastic about the work they do, then there’s every possibility they will be kept awake at night – not by nightmares but by ideas that will make the treasury role even more interesting in the years ahead.
Here are a few top tips for how to survive – and even thrive – as a treasurer in 2018:
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