Treasury in the spotlight

Treasury’s vital role in navigating a company through crisis has never been so keenly felt, as the ACT’s International Treasury Week highlighted.

Back to basics

It was against this backdrop that International Treasury Week kicked off, hosted virtually by the Association of Corporate Treasurers . And while the physical setting might have been dispersed this year, regular attendees would have found a reassuring mix of high-profile speakers and industry experts gathered from across the globe. Topics have included how the crisis has impacted them so far, and the measures they have been taking to navigate the short-term shock.

Automation, planning, communication: all vital parts of the treasury toolkit in the face of a crisis. Neil Cotter perhaps summed things up from his position as the director of treasury for GVC Holdings. “It’s hard to believe how we’ve been impacted in the short term,” he conceded. As one of the world’s biggest gambling firms GVC immediately felt the heat: all its betting shops across Europe closed, while the total shutdown of sporting events further compounded the misery.

“At the same time, of course, our costs were continuing – rent, salaries and so on; while offices across the world were also closed. So priority one was business continuity – ensuring employees were safe, productivity was maintained and online systems for customers remained open.

“But then from the treasury angle the focus fell on cash flow; ie, a short-term liquidity action plan that was helped by the government tax relief schemes. We’ve taken advantage of some of the tax holidays and cancelled our dividend. All capex was then assessed: can it be stopped, delayed, or renegotiated? We then looked at the impact that would have on EBITDA [earnings before interest, taxes, depreciation and amortization], both in the short and medium term, to establish a priority. Meanwhile, accounts payable were monitored closely and all physical payments going out were then subject to sign-off by department heads. Treasury’s ability to collect and classify cash movements to bank account level is massively important and we now have 95% visibility of our position.”

Known unknowns

And, as usually happens when a crisis hits, focus tends to fall on the basics: what’s our cash position, where are the key exposures, what’s the short-term plan to get us through this? For Richard Moore, treasurer at Caterpillar, that meant the first priority at the outset of the crisis was to mobilise and organise his teams.

“That meant knowing where everyone was, and then it was a case of accessing our contingency planning,” he said. “And there were several key areas: the first was to evaluate our liquidity position and working closely with forecasting teams on that; we had our global cash management team to look at how to roll down investments to make sure cash was more readily available.

The adrenaline that first fired everyone up is starting to give way to more anxiety. So focus on empathetic leadership – that means communicating clearly, with compassion, on a results-driven basis

Matthew Hurn
CFO at Alternative Investments and Infrastructure, Mubadala

“And we assembled a team to look at receivables and work with customer and marketing sales groups to make sure that we knew what some of the likely impacts would be in terms of delayed payments; and then we had a team to look at delays around suppliers and procurement to look at the supply chain – and working with banks to keep suppliers up to date with cash.”

That emphasis on effective communication was echoed by Sharon Wang, who, as director of treasury at the Chinese e-commerce giant Alibaba Group has been central to the company’s efforts to ensure that operations weren’t too disrupted and that the business’s leaders were fully up to speed.

“We’ve definitely been working more closely with other senior members of the business’s management,” she said. “We are needed more than before. I think perhaps before we were a little bit invisible but now we are actively needed as a source of advice across the world.”

Don’t panic

Wang explained that, as with the immediate aftermath of the 2008 global financial crisis, the pandemic has meant that treasury’s profile has risen once again. It was something Matthew Hurn, CFO, Alternative Investments and Infrastructure at Abu Dhabi-based investment firm Mubadala, agreed required a slight change of approach as the volatility and uncertainty continues.

“I think you’ve got to have a calm mind in the middle of it all,” he said, pointing out that the tone from the top matters. “There’s no need to panic, and for us leaders we have to bear in mind that this is the first time many of our people have encountered something like this. The adrenaline that first fired everyone up is starting to give way a little to more anxiety and fatigue. So focus on empathetic leadership – that means communicating clearly, with compassion, on a results-driven basis. And while there are problems out there to be solved we need to understand what the impact is on the business so that everyone understands.”

Certainly, the need for an effective liquidity strategy was echoed across a number of sessions – with David O’Neill of McKinsey reporting that three key themes are emerging. “Firstly, C-suite members urgently want to know the business’s liquidity position; secondly, we’re getting a lot of questions around what levers to pull to stay in business. And then thirdly, what is the recovery plan and what does the ‘new normal’ look like?”

In O’Neill’s view, as liquidity has risen rapidly up the agenda, there is a growing need for more granular focus and transparency around liquidity. “Leaders want to drill into 13-week cash-flow forecasts, they want to know when suppliers are due to be paid, what’s the capex situation, the FX exposure. There’s far greater desire to really test the company’s tolerances on covenants, headroom and so on.”

Achieving that in a timely fashion is placing some strain on treasury teams, making the importance of effective systems even greater. “We’re seeing companies scrambling to get visibility over their systems and focusing heavily on automating processes to achieve that,” O’Neill said. “And there have been challenges in supporting companies in the current crisis. But ultimately the resilience of companies and their treasury teams will make an enormous difference as the crisis proceeds.”

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