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Rethinking Treasury: The road ahead 2021 Corporate Risk Management Survey
Contents
3 Foreword and methodology • Inflation and interest rate risk • CFOs are on top of the
are back on the horizon, blockchain agenda
4 Key findings but limited action – so far
• Q&A: Karsten Kabas,
6 Part 1: The strategic • Future risks Merz Pharma Group
evolution of treasury
• Where is there room and 28 Part 4: The road ahead:
• The view from the CFO ambition for improvement? New frontiers and themes
• Higher importance • Q&A: Per Hjorth Poulsen, • ESG is on top of the
of C-suite communication Vestas C-suite agenda
• More resources and 23 Part 3: Technology as enabler • Impact of other megatrends
efficient outsourcing and differentiator
• COVID-19 recovery
• Q&A: Uri Gordon, • Digitisation and day-to-day expectations vary across
Incitec Pivot finance decisions regions
13 Part 2: Risk focus today • Resource allocation differs • Opportunities – emerging
around the world markets, M&A and
• A return to the traditional organisational adjustments
• FX execution patterns are
• What works well changing – and banks need 34 Conclusion
to respond
• Better, but far from perfect,
picture on FX handling
3
Foreword
In 2018, we surveyed Chief Financial to this process – a fact acknowledged in the next few years, and financial
Officers (CFOs) and treasurers from by CFOs and treasurers alike – partners need to catch up to meet
around the world to determine whether alongside careful resource allocation, digital demands from corporates
they were rising to the increased risk whether people or technology. in areas like FX. And most agree
management challenges they were that blockchain has a future in their
facing. At the time, CFOs were being ® Cash has become king once again, business – though what that may
given expanded responsibilities – from risk which means “traditional” treasury be is not uniquely defined.
mitigation to strategic execution – and the tasks remain vital. Treasurers are
treasury was expected to raise its game. taking this on board, treating cash ® CFOs are optimistic about
flow forecasting and monitoring, a return to growth, with
Three years later and COVID-19 has both FX risk management and liquidity sustainability a necessity on
pivoted and grown those challenges, management as priorities. At the same the way. Environmental, social and
pushing CFOs and the treasury even time, there is work to be done. A lack governance (ESG) criteria are high up
closer together. The treasury is now more of hedging continues to cause issues, on the CFO’s agenda, with a switch to
widely included in the company’s plans though progress has been made since ESG-linked financing on the cards for
for growth, while also implementing even our 2018 survey. New risks have also most – though treasury is still catching
more rigorous risk management across come to the fore, including supply up. Emerging markets are also on the
the board. chain disruptions, liquidity issues and CFO’s radar, topping the list of trends
potential interest rate rises, but most they expect to significantly benefit their
The 2021 HSBC Corporate Risk CFOs are confident that their treasury business model. And as protectionism
Management Survey explores this is well placed to cope. and the prolonged impact of the
evolving relationship and highlights the pandemic remain global concerns,
trends that are driving change through ® Technology has moved from “nice the treasury will be trusted to navigate
the finance function: to have” to a key differentiator around all obstacles.
for the treasury. Automation and
® CFOs acknowledge that the digitisation are opening doors to Ultimately, the relationship between
treasury has earned a seat at the outsource more financing functions, the CFO and treasury will continue to
strategic table – especially in the giving treasury greater freedom to evolve even as the world moves beyond
Western part of the world. The consider the best way to fulfil their the pandemic. The hope on both sides
treasury is now expected to offer company’s strategic objectives. is that, by working even more closely
counsel on decisions being made at the Digitisation is also expected to give together, they will drive beyond their
executive level. Communication is key business models a significant boost current targets.
Methodology
In Q3 2021, Acuris surveyed 200 CFOs EMEA region, 20 within the Americas, 2021. The EMEA region generated 47%
and their equivalents (the most senior and 40 were from Asia. of participants, with 40% from APAC and
member of a finance department) from 13% from the Americas. Some 37% of
multinational corporates across a range HSBC’s survey includes responses from participants generated annual revenues
of sectors. Of those, 100 corporates 433 senior treasury professionals from of less than $1bn in their latest financial
had revenues of $1-5bn, while the other multinational corporates across a range year, 33% recorded revenues of $1-5bn
100 had revenues of $5bn+.* Within of sectors. The survey was conducted in and 31% more than $5bn.
each of these two revenue groups, 40 a multiple-choice, online format and was
respondents were located within the open for a six-week period until 30 July *
$ denotes USD throughout
4
Key findings
These are interesting times for CFOs and their counterparts
in treasury, as the world looks to a post-pandemic future
while still dealing with its impact. How are CFOs and
treasurers working together to set the stage for growth
amid ongoing uncertainty?
The strategic evolution of treasury
Most CFOs agree that the treasury is becoming an increasingly important part of their company’s strategic journey, particularly
those in EMEA – though Asia is still catching up.
Treasury role has Effective More resources
changed (again) communication on the horizon
82% 61% 74%
of CFOs overall agree that the role of of CFOs state their communication with of CFOs expect the level
treasury has changed dramatically during treasury has improved in the past three of resources (for both employees
the pandemic, rising to 93% in EMEA. years and 58% of those in EMEA rate the and technology) within their treasury
current level of communication between department to increase in the next
their treasury department and C-suite as three years, bridging the gap between
highly effective. wider responsibilities and aspiration.
CFO risk focus today
For corporates, cash has become king once again during the pandemic and, for most companies, treasury has responded well
to the challenge.
What works Supply chain issues Room for improvement
for CFOs? demand solutions on FX risks
74% 78% 57%
of CFOs rate their treasury’s cash flow say they have moved production and of CFOs say they suffered lower earnings
forecasting and monitoring as “best in logistics centres closer to customers, in the past two years due to significant
class”, with 58% saying the same about as supply chain-related risks rank near unhedged FX risk (rising to 77% in EMEA)
liquidity management. the top of the agenda for CFOs in 2021. – a failure to address all facets of FX risk
management efficiently continues to have
an impact on corporate results and only
23% of CFOs view their treasury as “best
in class” in this area.
5
Technology as enabler and differentiator
Automation and digitisation* are becoming even more integrated into day-to-day finance processes and are influencing outsourcing
decisions for CFOs.
Digitisation has arrived A bright digital Blockchain technology
in treasury future ahead is on the doorstep
81% 53% 97%
of CFOs believe the digitisation of of CFOs overall say that digitisation will of CFOs expect to see a future use
treasury processes has increased in give their business model a “large boost” case for blockchain technology in their
importance in the past three years, in the next three to five years, while just company, with easier and leaner trade
while 70% of treasurers say the same. 1% expect it to produce a negative impact. documentation, payment security and
FX management at the top of their list.
Outsourcing is freeing up Digital platforms are
the treasury’s time becoming the norm
44% 55%
of CFOs in larger companies (with of treasurers overall say that, when
revenues over $5bn) have outsourced executing transactional FX hedges, they
some of their day-to-day treasury use digital platforms most frequently,
functions due to increased process rising to 71% in EMEA.
automation and/or digitisation, while a
further 29% are at least thinking about
outsourcing some functions.
The road ahead: New frontiers and themes
The environmental, social and governance (ESG) agenda is being driven by the C-suite, with CFOs expecting to switch largely to
ESG-linked financing (though treasury is still catching up). On the macro side, there is cautious optimism about post-pandemic
recovery and a return to growth, particularly in emerging markets.
Resources for stronger ESG-linked financing CFOs are keeping ESG
ESG focus are available as near-term standard principles front of mind
68% 62% 80%+
of CFOs say they are likely to invest of CFOs in EMEA say they embed ESG of CFOs see ESG principles as important
resources in ESG risk in the next criteria in their financing arrangements in their capex allocation (87%), supply
12 months (topped only by country/ predominantly by using ESG-linked chain (81%) and financial debt (81%).
political risk). financing/investments – but 42% of
treasurers overall still expect only 10%
or less of their gross new debt (including
refinancing activities) to include ESG
criteria in the next five years.
Economic recovery will Emerging markets will
be decisive for success be a major driver
60% 79%
of CFOs see a global economic rebound of CFOs expect their company to see a
from the pandemic as one of the two most positive impact from the development
important factors for earnings growth – of emerging market economies over the
but 56% of CFOs overall still expect it to next three to five years and 50% expect
have a negative impact on their business the same from electro-mobility.
model in the next three to five years.
*
In this report, "digitisation" is used as a general term referring to anything involving digital processes and tools in an organisation.6
Part 1:
The strategic evolution
of treasury
CFOs and The pandemic and its sweeping
impact on economic activity, combined
Most CFOs agree that the role of the
treasury has changed dramatically during
treasurers with unprecedented monetary
intervention, have made macro and
the pandemic, with 73% from smaller
organisations (those with revenues of
agree the role market risks incredibly difficult to
gauge. The need for clear lines of
$1-5bn) and 90% from larger firms
agreeing on this point.
of treasury communication and coordination
between CFOs and the treasury function According to our survey in 2018,
is shifting, has therefore never been more critical treasurers were being called upon to view
the world through a strategic lens and
accelerated
to secure both the financial health and
growth of the business. support decision-making with their risk
in part by the
mitigation expertise, and their priorities
The unique pressures of the pandemic changed accordingly. The pandemic
challenges posed are being felt across financial functions.
CFOs have been forced to revise financing,
adjusted their priorities again – treasurers
had to act, under increasingly volatile
by COVID-19 as investment and capital allocation
strategies accordingly. In its supporting
circumstances, while continuing to think
years ahead to protect the short- and
well as the ongoing role to the CFO, having navigated
one of the most challenging business
mid-term financial resources.
evolution of their environments in recent memory, the
treasurer is stepping up and assuming
There is solid evidence that they are rising
to this challenge. Just over two-thirds
relationship. more strategic responsibilities. (67%) of CFOs in the larger organisations
surveyed say that their treasury
How are both The view from the CFO department is involved in providing data,
parties balancing
Since we last surveyed CFOs in 2018, analysis and counsel on decisions when
there have been large gains in their it comes to the strategic planning of their
the need for more confidence in the strategic skill levels of
the treasury function. Nearly two-thirds
organisation’s capital allocation, compared
with 58% when this survey was last
rigorous risk (64%) of CFOs in Europe and 58% of
those in larger firms (with revenues
carried out in 2018. Regionally, however,
there is considerable divergence: 79% of
management with above $5bn) say they have total
confidence in their treasurers in this
CFOs in EMEA say their treasury function
does the same, falling to 50% for the
their company’s regard, a positive step towards a joint
vision shared by the two roles.
Americas and only 29% in Asia.
long-term strategic This is also important given that, as
This is a consistent theme. The treasury
profile for EMEA corporates includes
aspirations? shown later in this report, the dual impact wider responsibilities, with C-suite
of the pandemic and protectionism are insights and digitisation sitting more
currently the largest macro concerns for frequently with their treasury – with
CFOs globally, both of which will require Asian organisations least developed in
strategic planning and coordination. those aspects. More intuitively, treasurers
in larger companies are also called on
Without a doubt, the past 18 months as a strategic partner more frequently
have made their presence felt. compared to smaller organisations.7
Most CFOs say their treasuries provide Fig 1.
either data on its own or data plus analysis THE CFO PERSPECTIVE: Do you agree with the following — “The role of
for the strategic planning of M&A, no our treasury function has changed dramatically during the pandemic.”
matter where they are based or the size
of their company. In EMEA, 56% of CFOs Agree Disagree
overall also say their treasuries offer full
support to the strategy-making around
corporate M&A, including not only data
and analysis but also their counsel. Only 73% $1-5bn 27% 90% $5bn+ 10%
14% of treasurers in Asia do the same.
Instead, 49% of CFOs in Asia say the
treasury only provides data in these
circumstances, without any analysis.
This indicates progress has been made Americas 83% 17%
and a clear direction of travel since the
2018 vision of a more strategic setup
of the treasury function upon which Asia 70% 30%
the CFO will increasingly depend.
M&A is currently booming following EMEA 93% 7%
a pause in early 2020. The pandemic
has put pressure on many companies
to rethink their operating strategies
and business models, to respond to
rapid shifts in economic activity and
consumption. This will inevitably generate
more demand from CFOs for support
Fig 2.
from their treasuries, which can add
THE CFO PERSPECTIVE: To what extent is your treasury department involved
value in various ways.
in your strategic planning in the following areas?
In a cross-border deal, for example, this
may include identifying optimal sources Capital allocation
of financing prior to the acquisition to
minimise FX and other market price
Americas 50% 40% 10%
risks. In many cases, treasurers will also
be responsible for securing the debt
needed for the deal and will be expected Asia 29% 54% 17%
to source a financing package with the
best possible terms. Post-deal, they will EMEA 79% 21%
also need to integrate the treasury of
the acquired business into the existing
cash management, FX management and
M&A
banking structures. There is much to think
about and much more for the treasury to
offer than simply providing relevant data. Americas 38% 40% 20% 2%
Digitisation is another area where
Asia 14% 36% 49% 1%
treasuries can level up their support
to the business. Digitally-led functions
benefit from improved insights which can EMEA 56% 34% 10%
strengthen risk management capabilities.
Real-time data fed through dashboards
in areas such as FX forecasting can
also greatly improve visibility, ensuring Contributes data and analysis, and provides counsel on decisions
the C-suite is at all times aware of the Contributes data and analysis
organisation’s liquidity position. Contributes data only
Not involved
These benefits are especially valuable
in large organisations, which may be8
geographically diverse and have multiple decision-making processes of the Consistent with treasurers in larger
subsidiaries using a network of banking business. In the Americas, this sits at organisations and EMEA-based
systems and accounts. This explains why 50%, but just 14% in Asia. companies assuming more strategic
60% of CFOs of larger organisations say responsibilities, our research also shows
their treasury is responsible for digitisation The same is also true for treasuries that 78% of EMEA respondents say their
projects on financial data and processes, providing strategic resources across treasurer is currently already part of their
compared with just 38% in smaller business units, with functions in larger executive committee or even the C-suite
organisations. This also reflects the larger organisations (64%) and those in EMEA itself, compared with 55% in the Americas
budgets and resources often available to (70%) leading the charge in this respect. and just 29% in Asia. Similarly, while 42%
treasuries in these larger organisations. This indicates far better integration of CFOs from smaller organisations say
and trust across the business in these their treasurer is currently part of such a
These are all strings in the bow of instances, with the treasury being relied senior decision panel, this rises to 65%
a treasury with enhanced strategic upon for its unique financial and risk among larger organisations.
capabilities. It is not just the minutiae management insights and expertise in
of M&A and digitisation projects where optimising operations and achieving the
these capabilities can be brought to bear. overall corporate strategy.
Treasurers can offer more holistic strategic
support to the business – and there is This inclusion of the treasurer’s voice
strong evidence that this is happening. in strategic decisions should also result
in greater trust gained at the executive
More than half (54%) of CFOs in large level. For many, the natural progression
organisations say their treasury plays of a treasurer is to rise to the ranks of
a key role in strategic decisions, falling CFO. But they can earn a seat at the
to 28% for smaller firms. EMEA is out C-level table even earlier, made more
in front here once again, with 64% likely if they are seen to be augmenting
reporting this critical role in the broader strategic processes.9
Fig 3.
THE CFO PERSPECTIVE: Do you agree with the following statements:
Agree Disagree
Our treasury function plays a key role in strategic decisions
Americas 50% 50%
28% $1-5bn 72%
Asia 14% 86%
EMEA 64% 36%
54% $5bn+ 46%
We have found new ways to leverage the analytical skills of our treasury department in the past three years
Americas 90% 10%
92% $1-5bn 8%
Asia 96% 4%
1% EMEA 98% 2%
99% $5bn+
Our treasury department acts as a strategic resource for our business units
Americas 50% 50%
37% $1-5bn 63%
Asia 31% 69%
EMEA 70% 30%
64% $5bn+ 36%
We have changed the incentives of our treasury function to focus on the strategic rather than the tactical
78% $1-5bn 22% Americas 80% 20%
Asia 74% 26%
87% $5bn+ 13% EMEA 93% 7%
Our treasurer is currently part of the executive committee (C-suite)
42% $1-5bn 58% Americas 55% 45%
Asia 29% 71%
65% $5bn+ 35% EMEA 78% 22%10 10
Higher importance communication as highly effective This suggests that, while progress has
of C-suite communication (49% versus 25%) – while only 7% been made, treasurers must continue
As the role of the treasury takes on more and 20%, respectively, would describe to actively seek this dialogue as part
strategic value and previous routines it as not effective. of their enhanced strategic profile.
have been overthrown by the pandemic,
communication between the CFO and Not only is there a broadly positive More resources and
treasury is increasingly essential for perception of the effectiveness of this efficient outsourcing
the execution of those plans, but its dialogue, it has also improved in the CFOs and treasurers are under extreme
effectiveness may be influenced by past three years, most notably in EMEA pressure to protect the financial health
company size and region. where 75% of CFOs agree to this. The of their business. For many, cash flows
vast majority (80%) of CFOs overall have faced major disruptions in the
For example, more than half (58%) believe that dialogue with the executive past 18 months and insolvency risk is
of CFOs from EMEA rate the current committee/C-suite has become more expected to increase as government-
level of communication between their important during this period. based fiscal support comes to an end.
treasury department and executive These challenging conditions require
committee/C-suite as highly effective However, our data also shows that all hands on deck.
– but only 37% of respondents in the there is a large gap between CFOs
Americas and 16% of those from Asia and treasurers in terms of their view of Thankfully, some support has arrived.
report the same (where only 14% of the importance of these open lines of Almost two-thirds (64%) of CFOs say
CFOs say their treasurer is involved communication. Only 45% of treasurers there has been an increase in resources,
in key strategic decisions). surveyed, overall, say that dialogue in terms of employees and technology,
with the C-suite has become a more made available to their treasury
CFOs from the largest organisations important part of treasury operations in department in the past three years –
are also much more likely than those the past three years, significantly below though only 50% of those in
from smaller ones to describe their the 80% of CFOs who say the same. the Americas say the same.
Fig 4.
THE CFO PERSPECTIVE: How would you rate the current level of communication between your treasury department
and your executive committee (C-suite)? And how has this changed over the past three years?
Levels of communication Better or worse
$1-5bn $1-5bn
4%
25% 55% 20% 51% 45%
$5bn+ $5bn+
7% 2%
49% 44% 70% 28%
Americas 37% 53% 10% Americas 55% 40% 5%
Asia 16% 61% 23% Asia 49% 46% 5%
EMEA 58% 36% 6% EMEA 75% 25%
Highly effective Improved
Moderately effective Unchanged
Not effective Worsened11
As might be expected, it is larger Fig 5.
treasuries that are seeing more THE CFO PERSPECTIVE: How do you expect the level of
investment: 70% of CFOs in larger resources to change over the next three years?
organisations and 57% of those in Outer circle depicts $1-5bn Inner circle depicts $5bn+
smaller ones say the level of resources
available to the treasury has increased
Significant increase
over this recent period. 5% 3% Moderate increase
No change
This shows that promises have been 22%
6% Moderate decrease
largely kept. When surveyed in 2018, 6% Significant decrease
56% of CFOs of smaller organisations 24% 25%
10%
and 77% of those in larger organisations
said they expected the level of resources
to increase or increase significantly in the
subsequent two years.
This investment momentum is also 53%
expected to continue: 68% and 78%
of CFOs in small and larger firms, 46%
respectively, expect the level of resources
to increase in the next three years. In both
cases, this includes more than one-fifth
who expect it to increase significantly.
Fig 6.
Where exactly that investment is made THE CFO PERSPECTIVE: Which of the following risks is
depends on where a business sees your organisation likely to invest resources in over the
its greatest risk exposure. More than next 12 months? (Select all that apply)
90% of CFOs in both small and large
organisations expect to invest in country/ Country/political risk
political risks in the next 12 months.
92%
Clearly, this is closely tied to supply
chain, commodity price and FX risk – ESG risk
all of which are also mentioned by more
than 50% of CFOs overall – as rising 68%
protectionist sentiment, trade conflicts
Supply chain risk
and government policymaking affect the
timely availability of raw materials and 67%
other supplies, as well as the volatility
of local currencies. Commodity price risk
60%
Apart from FX risk, which is far more
frequently picked by EMEA CFOs (61%) FX risk
than their colleagues in Asia (48%),
54%
regional differences are small. For FX, this
can be tied to both the recent experience Interest rate risk
of Brexit-related FX volatility to which
38%
more European organisations have been
exposed as well as the general wider
Counterparty risk
international profile of those companies
that came out of our survey data. 38%
Environmental, social and governance Operational risk (internal fraud etc)
(ESG) factors also continue to rise 37%
the corporate agenda, as companies
recognise that a failure to act could Liquidity risk
cost them their reputations and their 34%
futures. More than two-thirds (68%)
of CFOs say they are likely to invest
resources to address ESG-related risks
(see Part 4 for more).12
Q&A: Uri Gordon, Deputy General Manager (Treasury) of Incitec Pivot
“Treasury, the CFO, the CEO, the board –
we’re all on the same page”
Q. What are the biggest challenges loan. It was an interesting process where We had to be able to work from
you’re facing these days? we had to ensure our KPIs weren’t simply home continuously, but the technology
Uri Gordon: For treasury, the biggest “greenwash” labels but were challenging investment to achieve that ultimately
challenge is capital management. Last us to drive positive changes. We thought, wasn’t that significant, and our basic
year here in Australia, many companies we can either be proactive and show treasury management and cloud
raised equity, only to find themselves leadership and commitment to ESG and systems allowed us to operate.
18 months later in a healthy position and do it now of our own accord or in three to
having to decide how to use that cash. The five years when the industry forced us to. Q. In terms of the relationship between
question now is whether to chase strategic treasury and the CFO, how does your
growth opportunities, given that multiplies This trend is gathering momentum – organisation balance the pursuit of
are high, or to do a share buyback. before we know it, banks will demand gross growth while mitigating risk?
it as standard. We are starting to have UG: We’re very lucky that, ever since we
Q. What opportunities are you more conversations with financiers got our external credit rating, our board
looking to pursue over the next around our customers’ carbon emissions became committed to that investment
12 to 18 months? and our own indirect omissions, not just grade. There’s even more discipline
UG: Optimisation is key. Earlier this our direct ones, and how we’re trying to around our growth agenda. We have
year we did a bond buyback exercise to reduce them. regular conversations, at least once a
discharge long-term bonds, because we year, with the board where we remind
figured out that we did negative carry, Q. In terms of resource allocation, them of that commitment. We emphasise
so it was better for us to buy back. That what are you focusing on? Is tech how much room we have within the
was around showing that the negative becoming increasingly important? debt part of the book to allow for organic
carry that you get from holding cash at Are you still very much a people- or inorganic growth, versus how much
zero from the bank isn’t hurting you too based business? equity you would need before we start
much. It’s all about how to deploy our UG: For treasury, we’re definitely still risking our credit rating. Again, we are
returns effectively. focusing more on people. We believe very lucky. Treasury, the CFO, the CEO,
it’s people that enable our development the board – we’re all on the same page.
Q. How do ESG factors play into and investment in technology. Half our
your role? company is in Australia and half in the Uri Gordon is Deputy General Manager,
UG: In March 2021, we converted all our US, and both economies were affected Treasury, of Australian chemical company
bank facility into a sustainability-linked severely by the pandemic. Incitec Pivot.13
Part 2:
Risk focus today
The challenges In a COVID-19 world, nothing is
guaranteed. The unpredictability of
For many CFOs, their attention has
turned to supply chain-related risks:
posed by the economic environment means
that traditional treasury activities have
commodity prices (37%) and supply
chain risks (30%) are cited as the top
COVID-19, come back into focus for CFOs, and
that cash is once again king. As many
risks (among many) occupying the
largest proportion of their attention.
protectionist as 82% say that keeping sufficient
cash buffers has become a more A return to the traditional
sentiment and important treasury duty in the past Supply chains have been massively
disrupted by pandemic restrictions and
ongoing trade
three years, with 84% saying the
same for optimising working capital. forecasting complications, the ongoing
disputes, among
global semiconductor shortage caused
The priorities of CEOs in the current by a stronger bounce-back in demand
other things, environment have also shifted.
According to CFOs in our survey,
not met by supply-side investments being
a case in point. Without the requisite
means that more CEOs ask questions relating to
cash flow and liquidity now than they
materials and components, companies
relying on them are unable to sell and
“traditional” did three years ago. This shift away
from more strategic topics, such as
distribute their products at their targeted
volumes and delivery schedules. This
treasury tasks financing and M&A, speaks to the
pressures the pandemic has put
reduces revenues while raising costs
to secure scarce materials, resulting in
are once again companies under. worsening cash flows, squeezed margins
the priority,
R TESTING from
20/9/21
and an overall weaker financial position.
liquidity to supply
Fig 7.
THE CFO PERSPECTIVE: When your CEO asks questions about financial
chains – though strategy, what are these questions currently most commonly related to?
What were these questions most commonly related to three years ago?
new challenges (Select one)
are waiting on 45%
the horizon. 35%
37%
24%
21%
18%
11% 9%
Cash flow and liquidity Hedging strategies Impact on capital Impact on financing
allocation and M&A
Current Three years ago14
Fig 8. Fig 9.
THE CFO PERSPECTIVE: Which of the following risks THE TREASURY PERSPECTIVE: Which aspects of treasury
currently occupy the largest proportion of your do you feel are the most important? (Select up to three)
attention? (Select top two)
Commodity price risk Cash flow forecasting & monitoring
58%
40%
52%
34% 51%
FX risk management
39%
56%
Supply chain risk 51%
35% 53%
Liquidity management
34% 40%
24% 47%
56%
Interest rate risk Group financing
20% 33%
36%
26%
36%
36% Providing analysis & strategic insights to C-suite
36%
FX risk
19%
20% 24%
25% Digitisation projects on financial data and processes
25%
36% 16%
27%
Liquidity risk
Working capital utilisation
28%
18%
21% 23%
13%
18%
Interest rate risk management
Country/political risk 9%
9%
17%
7%
25% Managing financial provider relationships
11% 4%
11%
ESG risk 9%
15% Commodity risk management
4%
15%
6%
16% 5%
Counterparty risk management
Counterparty risk
0%
15% 7%
7%
11%
Regulation, tax and (hedge) accounting
11% 5%
6%
Operational risk (internal fraud etc)
2%
10% Short-term investing
9% 2%
5%
9% 4%
Americas Americas
Asia Asia
EMEA EMEA15
Supply chain and commodity prices Fig 10.
are likely to be risk priorities for CFOs THE CFO PERSPECTIVE: In which of these areas would you rate your treasury
based on whether or not they believe department’s performance as “best in class”? (Select all that apply, leave
their organisation is able to cope with blank if not applicable)
them. Just 3% of CFOs say their business $1-5bn $5bn+
is best placed to deal with commodity
price risk and country/political volatility
Cash flow forecasting and monitoring 67% 80%
and only 7% think the same for supply
chain risk.
When looking into differences by business
Working capital utilisation 61% 72%
size, CFOs in smaller companies are far
more preoccupied with interest rates than
their counterparts in large organisations.
Just over one-third (34%) of this cohort Liquidity management 54% 61%
cite interest rates as one of the two risks
that occupy most of their attention,
well above the 24% of those in larger Managing financial
47% 59%
firms who say the same. This may be provider relationships
expected, given that small businesses are
more dependent on the timing of what
are less frequent financing operations. Group financing 37% 44%
While borrowing costs are currently at
historically low levels, that could change if
inflation proves to be more than transitory, Interest rate risk management 29% 39%
meaning CFOs will need to be keeping a
firm eye on rate-setting policies. Providing analysis and strategic
25% 33%
insights to C-suite
On a regional comparison, FX and
interest rate risks are also significantly
higher on the agenda for CFOs in Europe Counterparty risk management 29% 27%
than elsewhere. While the European
Central Bank has not yet signalled
FX risk management 19% 27%
any change in monetary policy and is
expected to keep rates at or below 0%
for the near future, the other side of the Short-term investing 19% 26%
borrowing coin is that rates on bank
10% 17%
accounts are miniscule, which presents Digitisation projects on financial
its own risks for companies holding a lot data and processes
of cash on their balance sheets. 12% 14%
Regulation, tax and (hedge) accounting
Treasurers are taking the call to focus
5% 4%
on cash flows. Just over half (53%) of Commodity risk management
treasurers say cash flow forecasting and
monitoring is one of the most important
aspects of their job, followed by FX
risk management (52%) and liquidity followed by liquidity management (51%) manage this liquidity in a challenging
management (50%). On the other hand and cash flow forecasting and monitoring environment of low interest rates and the
commodity risk management is seen as (51%). More than half (59%) of treasurers effects of COVID-19 still far from gone.
one of the three most important tasks in EMEA say liquidity management is one
by only 5% – possibly because most of the main things taking up most of their What works well
treasurers are not fully responsible for time, versus just 38% in the Americas and While treasuries have baseline strengths
those aspects, with procurement and 46% of those in Asia. in capital management, financing and
other departments being frequently hedging, all functions are not created
involved in the process. All of which suggests that, while CEOs equal. Where some excel, others may
may be keeping a closer eye on cash flow struggle to keep up. There’s been some
What’s more, the former are also the most these days, most CFOs believe their teams improvement overall since 2018, when
time-consuming aspects of the treasury’s have done the homework and assured CFOs were asked which areas of their
work: 55% of treasurers overall say FX risk sufficient liquidity during the pandemic, treasury function were “best in class” –
management takes up most of their time, with treasury fine tuning how to best specifically in working capital utilisation16
(67%, up 18 percentage points globally Better, but far from perfect, different functional currencies involved
since 2018), group financing (41%, up 20 picture on FX handling and different geographical profiles of
percentage points) and interest rate risk Despite the complications caused to cash business operations. The issues arising
management (34%, up nine percentage flow and earnings forecasting over the from not hedging FX effectively are more
points). CFOs in general also describe past 18 months, it is a lack of hedging pronounced in EMEA than they are in
their treasuries as best in class in cash that is causing more problems than other regions. Over three-quarters (77%)
flow forecasting and monitoring (74%) inaccurate forecasts – though progress of CFOs in EMEA report lower earnings
and liquidity management (58%). has been made since our 2018 risk due to unhedged FX risks compared with
management survey. Fifty-seven percent 61% in the Americas and just 43% in Asia.
This correlates with one of the of CFOs overall say they have incurred This is likely driven in part by the relative
most trying periods treasurers have costs due to significant unhedged FX strength of the euro especially to the US
experienced, as lockdowns in Q2 of risk in the past two years, above all other dollar between 2020 and 2021, resulting
2020 raised serious solvency concerns causes once again but notably lower in negative translation effects.
for countless businesses. Treasurers than the 70% who said the same three
were put to the ultimate test as far as years ago. This indicates that, while FX CFOs in the Americas, meanwhile, are
liquidity management and cash flow risk is not yet perfectly mitigated, some reporting more issues that could have
forecasting are concerned, and while weaknesses have been addressed. been avoided than their counterparts
some will have come up short, most in EMEA or Asia. This is especially true
excelled under this pressure. This positive direction of travel is when it comes to liquidity shortfalls due to
supported by the fact that almost equal inaccurate cash flow forecasts, with close
Commodity risk management, however, is percentages of CFOs – around 20% – to half (48%) of CFOs in the region saying
considered the weakest area globally, with say their organisation is best placed and their business has incurred costs because
just 5% of CFOs seeing their treasuries as least well placed to deal with FX risk, no of this versus a global average of 33%.
being of top-tier quality in this area. matter the size of the company. This is an
improvement on 2018, when only 14% There are differences among company
Overall, treasury teams in larger of CFOs overall saw their organisation size here, too, with cash flow forecasting
companies are seen as best in class as best placed to handle this and 51% issues being far more prominent for CFOs
in more areas by CFOs. This stands to said their treasury function was least well in smaller companies, whereas larger
reason as these organisations are better placed to deal with it. ones more frequently report having seen
resourced and have already invested their earnings negatively impacted due to
more widely in technology supporting There is a notable regional divergence unhedged commodity risk (60% versus
treasury (see Part 3). here, which may be expected given the 36% for smaller companies).
Fig 11. Fig 12.
THE CFO PERSPECTIVE: In the past two years, have you THE TREASURY PERSPECTIVE: Which of these is your
incurred costs in any of the following areas that you most important FX hedging objective? (Select one)
think your treasury department could (or should) have Minimising impact on consolidated earnings
been able to avoid? (Select all that apply) 29%
Lower earnings due to significant unhedged FX risk Minimising FX impact on booked exposures
61%
43% 28%
77%
Minimising hedging costs
Lower earnings due to significant unhedged commodity risk
52% 12%
48%
44% Protecting entity-level operating income
Lower earnings due to significant unhedged interest rate risk
12%
45%
34% Protecting budget rates
40%
Overhedging due to inaccurate cash flow forecasting 11%
32%
25% Minimising impact on financial ratios
44%
4%
Liquidity short fall due to inaccurate cash flow forecasting
48% Minimising impact on shareholders’ asset value
28%
28% 2%
Overborrowing due to inaccurate cash flow forecasting Providing flexibility to operating entities
23%
19% 1%
9%
Other
Americas 1%
Asia
EMEA17
Fig 13. Regarding the objectives of corporate the Americas claim that options are
THE TREASURY PERSPECTIVE: Which FX hedging, those remain widespread, permitted within their policy, although only
types of FX risk does your company topped by efforts to minimise the impact 26% have recently actively used them.
hedge? (Select all that apply) of FX on booked exposures as well as on Of the 22% of treasurers overall who say
consolidated earnings. Two-thirds (67%) they are not allowed to use FX options by
Forecasted cash flows of treasurers surveyed say minimising policy, half state stakeholder objections/
75% FX impact on balance sheet items strict policy as the main reason.
(booked exposures) is one of their FX
Balance sheet items (booked exposures)
hedging objectives and KPIs, with 28% Inflation and interest rate risk
61% are back on the horizon, but
saying it is the most important objective.
Ranked behind this is the group-level limited action – so far
Capital expenditure
bottom-line impact, with 45% saying Many CFOs worry their company is
26%
minimising impact on consolidated struggling to address risks that were,
Dividends earnings is one of their FX hedging until recently, effectively dormant.
21% objectives and KPIs and 29% saying
it is the most important objective. For over a decade, CFOs and their
Net investment treasurers have had to pay little attention
18% For actual hedging programmes, to inflation and interest rates, at least
forecasted cash flows and entity-level as far as borrowing is concerned in the
Corporate events case of the latter. Especially for smaller
hedging of booked exposures are by far
12% the most frequently implemented types of businesses, this is now firmly on their
hedging. Three-quarters of treasurers cite radar again, as the global economy
Consolidated earnings
forecasted cash flows as an FX risk that rebounds from the onset of the pandemic
11%
their company hedges, the top finding, and the dramatic impact of lockdowns
while 61% cite balance sheet items as a felt in early 2020.
FX risk that is hedged. Net investment risk
(arising from consolidating the balance Forty-two percent of CFOs in smaller
sheets of overseas entities within the organisations say that rising inflation is
Fig 14. their biggest macro concern in relation
group) are hedged to a larger degree in
THE TREASURY PERSPECTIVE: to their financial strategy, ahead of any
the Americas (30%) versus EMEA (20%)
To what extent have you used FX other concern. Notably, this falls to just
and Asia (10%).
options for risk management 24% for CFOs of larger firms.
purposes over the past year? At first sight, contrary to the FX hedging
objectives and KPIs, only 11% of Rising costs tend to have a greater effect
Currently used treasurers say they have an FX hedging on smaller businesses, potentially due to
programme for consolidated earnings lower bargaining power, making them
in place. However, this is frequently more vulnerable to price increases on their
32%
a combination of other hedging main input factors. At the same time, if
programmes already in place to reduce interest rates are hiked to keep inflation
risk at the entity level. The remaining in check, then borrowing costs will rise
translation effect on consolidating P&L commensurately, putting further pressure
Not currently used, but allowed by policy
statements across entities with different on margins. This is especially problematic
functional currencies is rarely addressed for companies that are not able to pass
46% these costs along the value chain.
separately – probably linked to the fact
that this is not an eligible hedged risk
As a response to forthcoming rate
from a hedge accounting perspective.
changes, many CFOs expect their
Not allowed by policy As far as the tools at the disposal of company’s proportion of fixed rate
treasurers for managing currency debt to increase so that they can lock
fluctuations and their impact on both in borrowing terms. Nearly half (45%)
22%
the balance sheet and the P&L, linear of CFOs overall expect the proportion
instruments such as FX forwards and FX of fixed rate debt to increase, rising
swaps continue to be used by a larger to 63% in EMEA, while this is only
share of corporates. When it comes shared by 25% in Asia.
to FX options, about a third globally
As for the drivers underpinning such
say they have used FX options for risk
change, 37% of CFOs aim to bring their
management purposes in the past year
ratio back into their long-term target
– largely unchanged since our survey in
range. Once again, this may speak to
2018. As many as 93% of treasurers in
the effects of the pandemic, which18
Fig 15.
THE CFO PERSPECTIVE: Which of the following risks is your organisation least and most well placed to deal with?
(Select top two)
$1-5bn $5bn+
Least well placed Most well placed
1% 52%
Operational risk (internal fraud etc)
2% 43%
24% 42%
Liquidity risk
10% 50%
26% 39%
Interest rate risk
9% 45%
9% 28%
Counterparty risk
13% 24%
21% 20%
FX risk
24% 20%
34% 7%
Supply chain risk
42% 6%
18% 4%
ESG risk
18% 7%
24% 5%
Commodity price risk
35% 2%
43% 3%
Country/political risk
47% 3%
Fig 16. Fig 17.
THE CFO PERSPECTIVE: To what extent do you expect THE TREASURY PERSPECTIVE: To what extent do you
your proportion of fixed rate debt (including hedging expect your proportion of fixed rate debt (including
instruments) to change over the next three years? hedging instruments) to change over the next three years?
85%
82%
77%
63%
54%
50%
35%
31%
25%
21%
15%
9% 11% 10% 12%
8% 6%
6%
Increase No material change Decrease Increase No material change Decrease
Americas Americas
Asia Asia
EMEA EMEA19
prompted a surge in borrowing in When it comes to changes in the service providers, likely in an attempt
2020 as companies sought to backstop borrowing profile, 31% of treasurers are to increase returns at least slightly.
themselves amid a period of great prepared to hedge interest rate risk in
uncertainty. In the process, this may advance via forward-starting swaps When it comes to other risk factors
have skewed the balance of fixed and (47% for larger companies), down associated with increasing cash yields,
non-fixed borrowings, calling for this from 45% overall in 2018. almost two-thirds (62%) of treasurers
ratio to be righted in the coming years. say they are not willing to accept
While assuring sufficient cash levels additional market risks (outside of
For CFOs of smaller businesses, 47% has risen in importance, cash itself is short-term counterparty risk) when
say a changing interest rate outlook is not necessarily ideal in an environment investing corporate cash, while 19%
the primary driver for any change in their where interest rates are low and inflation would accept FX risk to enhance yields.
balance of fixed rate borrowings, which is rising, particularly in the US. Minimal This is also, for many, the most natural
again speaks to the sensitivity of these yields and rising costs are not the best risk taken by their operating business
businesses to any base-rate fluctuations set of circumstances for a business and allows for instruments like dual
compared with their larger counterparts. sitting on piles of money. currency investments to be incorporated
into treasury processes rather swiftly.
However, this need to adjust has not For cash investments, 46% of treasurers
been communicated fully with the say they are prepared to accept the Future risks
treasury – 80% of treasurers say they current low (and in Europe frequently CFOs are looking to the treasurer to
do not expect a material change in negative) rates. This suggests that, while execute strategic plans and address
the proportion of fixed rate debt, the concerns over rates, inflation and cash macro threats, and most have faith
remainder being balanced between erosion are high, the liquidity aspect is in their treasury’s ability to navigate
increases and decreases. Both parties more important for treasury than yield these choppy waters. This will become
will need to agree upon a suitable targets for surplus cash. However, 44% an increasingly important value-add,
strategy to address this if they have of treasurers say they are diversifying given the many pressures being faced
not already done so. their cash investments across banks and by businesses.
Fig 18.
THE CFO PERSPECTIVE: Which of the following are your biggest macro concerns in relation to your financial strategy?
(Select top two)
2%
4%
15% 20% 12%
25% 28%
9%
57% 33%
11%
38% 4%
43% 36%
8%
Americas EMEA Asia
2%
22% 31%
23%
40%
35% 36%
17% 29% 20%
Rise of protectionism globally Prolonged economic downturn from the pandemic Rising inflation
Unwinding of asset-price bubbles Hardening of US-China trade conflict Hard landing of Chinese economy
US and global tax reform Energy transformation & associated costs A shift away from the political centre in Europe20
The two main macro concerns – strategic sectors in particular show that Fig 19.
each picked by 39% of CFOs globally – protectionism threats remain high. THE CFO PERSPECTIVE: Are you
are the rise of protectionism globally as confident that your treasury
well as a prolonged economic downturn This is a weak spot for companies of all department has the required skills
from the pandemic. While a relatively sizes, with 45% of CFOs reporting that to play a highly strategic role in
equal percentage of CFOs cite the their organisation is least well placed to your business?
pandemic as a concern across regions cope with country/political risk, ahead of
and company sizes, CFOs in EMEA and any other risk type. This is followed by
supply chain and commodity price risk. 4%
in larger institutions are more frequently 12%
concerned about protectionism (57% 21%
and 45% respectively). This ties up well Nonetheless, in larger organisations,
with previous observations about the 58% of CFOs are completely confident 32%
higher global trade dependency of that their treasury function has the
those organisations. required skills to play a highly strategic
40%
role in their business, the same
Broken down by location, other concerns percentage as in 2018. For smaller firms,
near the top of the list fall along clear there has been some improvement in 49%
territorial lines. For example, in the the past three years. In 2018, only 28%
Americas, 38% of respondents say they expressed this level of confidence and
are more concerned about tax reform this has since climbed to 36%.
(one of the Biden administration’s 64%
planned policies), while 33% of Asian On the treasury side, meanwhile,
respondents point to a potential hard digitisation is the challenge that is clearly 48%
landing of the Chinese economy. at the forefront of minds. Treasury
digitisation is the top trend that they 30%
While geopolitical trade tensions were expect to have a material impact on their
already running high pre-pandemic, this business and financial risk management
has hardly eased. Issues around vaccine in the next three years – 61% of treasurers Americas Asia EMEA
distribution globally and concerns overall picked this, while 50% also
over cross-border M&A activity in expect this trend to unfold externally via
Yes, complete confidence
connections to outside partners.
Yes, partial confidence
No
Fig 20.
THE TREASURY PERSPECTIVE: Which of the following trends has had a material impact on your company and risk
management strategy in the past three years? And in the next three years? (Select all that apply for each)
Past three years
Next three years
Treasury digitisation 41%
61%
Changes in operating business 49%
profile and global exposures 51%
33%
External digitisation
50%
43%
Geopolitical uncertainties
43%
34%
Changes in group structure
36%
30%
Changes in FX regimes and regulations
34%
62%
COVID-19
32%
29%
Changes to accounting and tax
26%21
More than half (51%) of treasurers also For example, 55% of CFOs cite regulation, in their treasury function, despite the fact
expect their company’s operating business tax and (hedge) accounting as an area that only 14% also believe their treasury is
profile to change in the next three years they would like to see improved in their best in class in this field. In other words,
due to global expansion, M&A or shifts in treasury function, rising to 65% in the CFOs see room for improvement, but may
supplier locations and chains, which will Americas. This is also an aspect where not be giving it priority.
inevitably require them to adjust their risk CFOs perceive limited excellence, with
management strategies accordingly. only 13% overall describing their At the same time, 41% of treasurers
treasuries as best in class in this area. believe that cash flow forecasting and
Finally, most treasurers believe that the monitoring is an area where they would
worst of the pandemic’s impact is behind And yet, few treasurers cite regulation, tax most work towards improving, in sharp
them. Almost two-thirds (62%) say that and (hedge) accounting as an area they contrast with CFOs, none of whom
COVID-19 had a material impact on their would like to see improved within their believe this requires development as
business and risk management strategy own function (15% overall). Such expertise many already rate their treasury as fairly
in the past three years, above any other could help treasurers further raise their strong. This disconnect could be attributed
factor – which aligns with the CFO view game in being consulted in more complex to aggregated data views available to
of the pandemic’s impact on the treasury. capital transactions across the globe in the C-suite that lack the detail of some
But only 32% of treasurers think it will advance of the execution stage. struggles still evidenced by treasurers in
continue to be a major factor in the next their drive to collect robust data from all
three years, suggesting (or hoping for) Treasurers are instead focused on entities and business partners.
a transition to a “new normal” for the digitisation and further improvements
treasury function. to bread-and-butter areas like cash flow Where ambitions and plans to improve
forecasting and FX risk management. align more closely is on FX and interest
Where is there room and More than half (53%) overall highlight rate risk management, with FX being
ambition for improvement? digitisation projects on financial data and the third most frequently picked area
In checking the pulse of both CFOs processes as a priority for improvement – where both CFOs and treasurers would
and treasurers, we can see where their their top answer, rising to 63% in EMEA. like to see improvement. For commodity
priorities lie and the changes they believe price risk, their views diverge again (as
need to be instituted. There are mixed Digitisation does not seem to be as big highlighted earlier in the report) but this
views about what needs to be improved, a development need for CFOs – it’s not may well be due to the fact that only a
representing one of the more noteworthy even one of the top three areas where portion of treasuries are fully responsible
disconnects between the two roles. they would most like to see improvement for related contracts.
Fig 21. Fig 22.
THE CFO PERSPECTIVE: In which areas would you THE TREASURY PERSPECTIVE: Which areas of expertise in
most like to see an improvement in your treasury your treasury team would you like to improve/improve
function? (Select top two, leave blank if not further? (Select up to three, top five shown)
applicable, top five shown)
Regulation, tax and (hedge) accounting Digitisation projects on financial data and processes
55% 53%
Commodity risk management Cash flow forecasting & monitoring
36% 41%
FX risk management FX risk management
24% 34%
Interest rate risk management Providing analysis & strategic insights to C-suite
17% 24%
Digitisation projects on financial data and processes Liquidity management
14% 21%22
Q&A: Per Hjorth Poulsen, Head of Group Treasury and Insurance at Vestas
“It comes down to the CFO knowing
that the treasury function is doing
what it needs to do whenever it is needed”
Q. What are the biggest challenges parts of the organisation. We’re also very close with the CFO. That has been
you face as a corporate treasurer? bringing that agenda into our talks key during the pandemic, when we were
Per Hjorth Poulsen: First, on the with suppliers and banks to make sure in the hot seat. But in the coming period,
supply side, is the challenge around they understand this is something that cash won’t be an issue, so we won’t
commodities, of dealing with raw matters to us. need to be brought in, except for the
material risks in the current climate. occasional FX challenge.
Second, and this is both a challenge This is something that is on everyone’s
and an opportunity, is digitalisation. radar in the organisation and which we It comes down to the CFO knowing
are going to build on over the coming that the treasury function is doing what
We are entering more and more emerging years to make sure that we do as we say. it needs to do whenever it is needed.
markets, and our current setup isn’t We don’t just want to kick in an open We’re ready to step up and deliver, which
optimised to work perfectly in each of door – we would like to do something I feel our CFO definitely appreciates.
these countries. We’ve started the work that affects real change in ESG.
to establish our treasury roadmap, which Per Hjorth Poulsen is VP, Head of
helps define how we would like our digital Q. When it comes to preparing for Group Treasury & Insurance at Vestas,
systems to look going forward. challenges, what kind of resources the world’s largest wind turbine
are you allocating? manufacturer, headquartered in
Q. What opportunities are you PHP: I’m fortunate to have a big team, Copenhagen, Denmark.
pursuing in your current role? but we are nevertheless always busy,
PHP: The goal is to free up our own time busy, busy. We need to be able to deliver
to be even closer to the business. Even no matter what and IT systems are the
though it’s 2021, we spend an enormous foundations that enable scalability without
amount of time verifying, extracting requiring additional human resources.
and managing data. But with the help I need to create the necessary platform for
of automation, we hope to improve the us to manage our FX exposure – we need
quality and granularity of our data and to manage commodities, interest rates,
make the ways we manage that data cash and everything else. To my mind, a
even more flexible. solid platform can only be created if you
have the right IT solutions in place, and
Q. What kind of influence is ESG then you can add the frosting on the cake.
having on your relationships?
PHP: We, by definition, have always Q. Do you see any disconnect
included ESG criteria in our approach. between CFO and treasury ambitions?
But, at the beginning of last year, we PHP: I don’t feel there is a disconnect. It’s
also launched our sustainability strategy, a matter of, when the treasury function
which includes quite firm targets for all is truly needed, we are brought in to beYou can also read
