SF IIA Fall Seminar The Evolving Role of the Treasurer and Current Trends

The evolving role of the Treasurer Business and Technology Disruptions are Changing the Treasurer’s Profile Balancing a Strategic Mindset with Continued Operational Focus Market place disruptions and, for many companies, a record accumulation of cash, are requiring Treasurers to provide more strategic insights and business advice on how best to deploy that cash while balancing their responsibilities as stewards and operators. Business partner: acting as an advisor to the business Change champion: working with key finance stakeholders on change initiatives e.g. working capital initiatives, M&A integration Process innovator: streamline inefficient operations and reduce costs Portfolio risk manager: Taking total performance perspective to managing risks and improving risk analysis With increasing demands on Treasuries we see greater focus on improving their capabilities around some core treasury areas. We’ve talked about treasuries evolving roles as business partner and change agent; but also expectations to improve operations and reduce costs by investing in technology to automate manual processes and establishing global bank connectivity strategy to improve STP Liquidity management has moved beyond visibility to cash to visibility to cash flows. We see companies investing in IHB capabilities (where treasury is internal bank to subsidiaries) to achieve operational efficiencies in cash concentration, intercompany funding and settlement, FX management to reduce costs. Common for this strategy to align with broader SSC and Finance strategies to gain efficiencies e.g. common SSC infrastructure and bank connectivity strategy; treasury aligned SSC focused on understanding business cash flows Technology strategy – increased investment in TMS technology and integration to banks and ERP FX – with rising $ we see greater demands by the CFO and business for treasury to advise on FX exposure management. Many lack confidence in exposure forecasts; and Non- transparent risks can be up to 50% of FX exposure Where do you see your treasury organizations investing in capabilities? Example: Find a company that went under and was on the cover of WSJ, had cash flow issues….why did they fail and how does it get fixed….an example that got fixed would be ideal Could use this to describe the whole page 83% of corporate treasurers play a greater strategic role compared to 5 years ago and expect this trend to continue¹ ¹Source: Strategic Role of Treasury (AFP, 2014)

Overview of corporate treasury’s responsibilities Corporate treasury responsibilities are becoming more strategic in nature and driven by CFO mandates to address business priorities. Time and effort spent on transaction processing versus strategic advisory activities are indicators of maturity and the value of its contribution to broader finance goals Transaction Processing Treasury Strategic Advisory Treasury Operations Financial Risk Management Debt / Capital Markets Investments Global Cash Management Short-term Funding Cash Reporting & Visibility Risk Policies & Procedures Capital Allocation Strategy Credit Rating Agency Relations Corporate Direct Investment In-House Banking Daylight & Overnight Lines Confirmation & Settlement Develop Risk Strategies The role of treasuries has evolved and matured since the financial crisis with increasing focus on strategic and analytic priorities over tactical tasks The treasury functional model in the diagram illustrates common treasury responsibilities across operations, financial risk management, financing strategy and capital markets activity. Responsibilities on the left are often seen as more tactical / transactional processing tasks; while those on the right more strategic that supports broader business and finance goals. Today, we see treasurers being asked to spend more time on strategic, analytic and advisory tasks across hedging strategies, financing strategies, liquidity management, repatriation strategies etc and related analytics. Although, most of their organizational support model is focused on the left doing tactical tasks. Today, treasurers need to think: are they focusing on the right things? Do they have the time to focus on the right things? Do they have the right skillset in their organization? Can investing in technology to improve STP help free up resources to focus on more strategic tasks? Has the treasury function at your organizations evolved their focus since the financial crisis? Become more strategic and aligned with CFO priorities? Where would you say they focus their time? Tie in operating model….Size can vary but operating model should be to make sure you are as lean as you can be Financing Relationships Financial Covenant Management Investment Management Performance Treasury Liquidity Forecasting Intercompany Funding, Netting & Settlements Collateral Management Exposure Measurement Financing Strategy Share Repurchase Program Pension Funds Investment Management Collections & Disbursements Bank Account Administration Counterparty Maintenance Hedging Execution Insurance Treasury Controls (Collect/Disburse Cash) Bank Fee Analysis Short-term Investing FX Accounting Rates Insurance Risk Management Treasury Accounting, Reconciliation, and Reporting (in Controllership / SSC) Treasury Technology Enablement & Support (either in Treasury or IT)

CFO mandates While Treasury continues to be viewed as a risk management function, there is an increasing trend towards supporting business strategy and delivering greater cash efficiencies through capital management. Interestingly, 15% of respondents, distributed across all industries and revenue brackets, highlighted their mandate to become a profit centre – a shift from traditional Treasury as a cost centre of past years. Another slide from our survey on top treasury challenges. Key pain points related to FX volatility, transparency to operations and risks; inadequate treasury systems. Treasury organizations have invested a lot in technology, automation and process improvement since the financial crises. Treasury functions are much better integrated with the broader finance architecture to help improve processes and data acquisition. However, despite these investments we still see recurring challenges for treasurers related to FX volatility, visibility to global cash/risk and operations, inadequate systems infrastructure which means this return on investment hasn’t been fully realized. While treasury capabilities have improved more still needs to be done in these areas. While other challenges seen in the past related to leverage and liquidity seem to be of less concern these days Tax holiday, talk about that here: Facilitate by asking questions…….do you know what a tax holiday will offer Source: 2017 Deloitte Global Corporate Treasury Survey

Top treasury challenges Continuing to challenge Treasurers are FX volatility, visibility of and access to group cash, operations and exposures, and working in restricted markets, with 75% of respondents identifying 3 or more concerns for their company. A key concern around technology is the speed with which the market is moving and being able to identify ‘which train to jump on’, and the impact of banking and tax reforms is an emerging challenge. Another slide from our survey on top treasury challenges. Key pain points related to FX volatility, transparency to operations and risks; inadequate treasury systems. Treasury organizations have invested a lot in technology, automation and process improvement since the financial crises. Treasury functions are much better integrated with the broader finance architecture to help improve processes and data acquisition. However, despite these investments we still see recurring challenges for treasurers related to FX volatility, visibility to global cash/risk and operations, inadequate systems infrastructure which means this return on investment hasn’t been fully realized. While treasury capabilities have improved more still needs to be done in these areas. While other challenges seen in the past related to leverage and liquidity seem to be of less concern these days Tax holiday, talk about that here: Facilitate by asking questions…….do you know what a tax holiday will offer Source: 2017 Deloitte Global Corporate Treasury Survey * Multiple selections possible

- Payment risk: A recent survey¹ showed that 74% of survey respondents were targets of payment fraud last year, which is a significant increase of 11% from 2014. Treasury trends Payment Risk and Cyber Risk Threats Payment fraud continues to escalate and be of critical concern to treasurers. Managing payment and cyber risk is of critical importance and can be done through fraud detection and cybersecurity protection programs and cyber insurance Treasury Operating Models Increasing demands to reduce cost are forcing Treasurer’s to review their operating models and consider utilizing shared service centers or other cost effective models Treasury Technology Enablement Investments in treasury technology, especially cloud solutions, have been increasing because of cost pressures and the desire from IT departments to rationalize technology platforms and reduce process latency and IT costs Emerging Technologies/ FinTech Robotics Process Automation, Blockchain and FinTech solutions have the potential to provide the means to achieve lower costs and increased efficiencies. There are several relevant use cases for Treasury (e.g., trade finance, loan syndication) Regulation Changes and Tax Reform Regulatory changes (e.g., S385) and broader tax reform will require Treasurers to understand operational compliance impacts and cash repatriation strategies

Payment and cyber fraud 40% of participating companies indicated that their Treasury team has been recently affected by fraud, with most indicating that more than one remedial program has been required to stem the issue. The results do not include known attempts at committing fraud. Leading companies are leveraging detective controls in addition to implementing preventative technology enabled controls to reduce their risk. Another slide from our survey on top treasury challenges. Key pain points related to FX volatility, transparency to operations and risks; inadequate treasury systems. Treasury organizations have invested a lot in technology, automation and process improvement since the financial crises. Treasury functions are much better integrated with the broader finance architecture to help improve processes and data acquisition. However, despite these investments we still see recurring challenges for treasurers related to FX volatility, visibility to global cash/risk and operations, inadequate systems infrastructure which means this return on investment hasn’t been fully realized. While treasury capabilities have improved more still needs to be done in these areas. While other challenges seen in the past related to leverage and liquidity seem to be of less concern these days Tax holiday, talk about that here: Facilitate by asking questions…….do you know what a tax holiday will offer Source: 2017 Deloitte Global Corporate Treasury Survey

Core treasury technology While investment in Treasury Management Systems (TMS) has increased, over 20% of each functional area is still being managed in spreadsheets, leaving the company open to both operational and fraud risks. Of the companies using a TMS, implementation of cloud and managed services solutions has increased to nearly 50% – a trend expected to increase as vendors transition to cloud only offerings and treasury teams seek to shift the burden of IT support to vendors. Another slide from our survey on top treasury challenges. Key pain points related to FX volatility, transparency to operations and risks; inadequate treasury systems. Treasury organizations have invested a lot in technology, automation and process improvement since the financial crises. Treasury functions are much better integrated with the broader finance architecture to help improve processes and data acquisition. However, despite these investments we still see recurring challenges for treasurers related to FX volatility, visibility to global cash/risk and operations, inadequate systems infrastructure which means this return on investment hasn’t been fully realized. While treasury capabilities have improved more still needs to be done in these areas. While other challenges seen in the past related to leverage and liquidity seem to be of less concern these days Tax holiday, talk about that here: Facilitate by asking questions…….do you know what a tax holiday will offer Source: 2017 Deloitte Global Corporate Treasury Survey

Treasury in the digital age Another slide from our survey on top treasury challenges. Key pain points related to FX volatility, transparency to operations and risks; inadequate treasury systems. Treasury organizations have invested a lot in technology, automation and process improvement since the financial crises. Treasury functions are much better integrated with the broader finance architecture to help improve processes and data acquisition. However, despite these investments we still see recurring challenges for treasurers related to FX volatility, visibility to global cash/risk and operations, inadequate systems infrastructure which means this return on investment hasn’t been fully realized. While treasury capabilities have improved more still needs to be done in these areas. While other challenges seen in the past related to leverage and liquidity seem to be of less concern these days Tax holiday, talk about that here: Facilitate by asking questions…….do you know what a tax holiday will offer

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