The undercurrent of the recent NeuGroup T30-2 meeting was to position treasury as more than a stable cash distributor for investors for which they’re usually known.
Members of NeuGroup’s second group for senior treasurers, the Treasurers’ Group of Thirty 2, met at Citi’s Sanford I. Weill Center for Strategy & Executive Development in Armonk, NY to discuss a range of topics. The meeting began with a discussion on the need for financial flexibility in capital management, then went on to cover alternative approaches to supply chain and related financing, cash forecasting methods and a comparative review of member treasury organization charts.
The session on capital management, led by Citi advisors, established the undercurrent for the meeting: treasurers should seek to maximize financial flexibility for large-cap multinationals to pursue bolder growth initiatives. Otherwise, they will continue on the current path of being stable cash distributors for investors. Activist targeting, which most participants expect will continue, may tend to reward distribution and financially engineered boosts to share price, but eventually shareholders (including activists) will demand real growth.
This undercurrent was also seen in the current projects and priorities introduced in the opening session:
Non-US/US capital structure. The US tax code continues to be a big obstacle to US MNC financial flexibility. Working around and seeking to dismantle this obstacle remains a priority.
Focus on new markets. Pursuing growth also means expanding in places like Africa, which creates challenges for setting up banking infrastructure and hedging FX risk.
TMS and transformation to better scale. Most members are in some phase of improving their treasury management systems and reviewing treasury org structure, particularly treasury and SSC alignment, to better scale and support global expansion.
In the capital management session, members also praised Standard and Poor’s for the added flexibility introduced by its new rating methodology and saw the financial optionality offered by working capital management.
Net cash approach. In particular, treasurers appreciate S&P’s added flexibility to view liability capacity net of cash, which, especially if they can get Moody’s to follow, will allow them more options to finance growth initiatives more effectively, without so much fear of the rating impact.
Leveraging working capital for financial optionality. An area of growing attention by treasury is involvement in improving working capital for both their own firm and key suppliers and customers. While improving working capital off-shore contributes to the off-shore cash dilemma, members also saw the benefits of helping, different segments of suppliers improve their working capital financing via programs that leverage the member firms’ credit/payment standing. New methods of pooling and securitizing trade payables (and receivables), moreover, offer risk mitigation and asset-backed financing alternatives.
Treasury supplementing or replacing FP&A. Treasury usually gets involved with truing up the corporate cash forecast to assess true liquidity and funding needs. As a result, treasury often is inclined to see if it can extend this effort to supplement, advise on or replace the corporate cash forecast usually owned by FP&A. No one likes cash forecasting, so FP&A as well as the business unit managers that feed it information will be all too quick to give it to treasury.
Finally, a comparative review of members’ treasury organization charts revealed some interesting things for treasury transformation projects:
Continuity vs. rotational roles. While all acknowledge the benefit of rotational programs, several members noted the importance of continuity in key treasury roles and recent rebalancing of roles included in rotational programs.
Project/process managers. Treasuries more reliant on SAP often had a PM headcount to help with system support of treasury process and workflow issues. One member had such a role independent of treasury systems support (e.g., process excellence). This may be an emerging trend that will be seen on treasury org charts more broadly.
Don’t centralize out of effective BCP. Financial flexibility tends to cease up if treasury misses a debt payment, so members cautioned against on org structure that impeded an effective business continuity plan—e.g., by having key people and system connected in only one site.
Positioning the company to respond with sizeable growth initiatives also helps manage the downside risk too. Uncertainty created by recent geopolitical turmoil only stresses the importance for treasury to pursue effective risk management as part of their flexibility program. As one bank presenter noted, while the outlook for growth is improving and the ability to fund it in capital markets continues to be robust, a dispersion in views on rates and a return to volatility in FX markets (in part, in reaction to geopolitical tensions) will continue to link effective risk management to valuation benefits.