NeuGroup meetings in 2023 H1 offered unique insights into critical concerns for treasury teams in the months ahead.
Hundreds of members of NeuGroup’s treasury peer groups met during the first half of the year to discuss a multitude of critical topics they face and share their main priorities for 2023. While the groups vary in company size, member titles and geography, 10 themes dominated the conversations in NeuGroup’s singular projects and priorities sessions. Here’s what’s top of mind:
1. Modernizing treasury’s technology. Treasury teams are on an automation spree: Many are replacing or implementing a TMS, investigating specialized solutions and integrating existing ones, often through an enterprise-wide migration to SAP S/4HANA. Members are also exploring new fintech offerings and technologies such as RPA, AI and ML, in particular for collecting data from diverse source systems, reducing swivel-chair activities and fine-tuning cash forecasting.
2. Data management and governance. Consistent data is the cornerstone of effective process automation and a prerequisite for running advanced analytics methodologies. Members are focused on standardizing data across the enterprise, including integrating multiple finance systems. The first step is establishing a robust data governance strategy and collaborating with IT on ownership and accountability.
3. Capital (re)structure. Borrowing costs and pressure on earnings sparked focus on optimizing companies’ capital structures. Members are exploring deleveraging by buying back debt at discounted prices and considering share repurchase programs and tweaking dividend policies.
- Debt planning also includes choosing between increasing borrowing flexibility through a downgrade or maintaining an investment-grade rating to cap borrowing costs and considering the use of cash to buy back stock and pay dividends.
4. Capital markets. Treasuries are working on refinancing maturing debt, as well as how to fund acquisitions and spin-offs, including hedging expected issuance and deciding on floating- vs. fixed-rate debt ratios. Members are also recalibrating their relationships with creditors and intensifying communications with credit rating agencies.
5. Bank counterparty credit risk. Silicon Valley Bank’s collapse triggered a review of treasury’s approach to managing bank counterparty credit risk. This focus outlasted the immediate crisis. Treasuries are including new risk metrics, shifting operational funds to MMFs, adding new risk metrics and considering aggregating different types of exposure (e.g., deposits, funding, investments and in-the-money derivatives) by leveraging cloud ERP migration and emerging tools like AI and ML.
6. Financial risk management. Financial market volatility has prompted treasuries to evaluate their FX and interest rate (IR) hedging strategies, with a specific focus on net investment and balance sheet currency hedges. They are also considering introducing greater flexibility into risk management policies to adjust to quickly changing market conditions. More companies are also launching IR hedging programs.
7. Liquidity management. Basel III and new Fed capital requirements put banks under pressure to raise prices on low-margin services, e.g., revolvers, supply-chain finance and LOCs, to maximize internal liquidity and cap the cost of capital holdings. Many treasuries are looking to defray higher future costs by establishing or expanding liquidity centralization projects, e.g., setting up in-house banks as well as notional and physical pools.
8. Cash forecasting. A perennial topic, forecasting gained importance in 2023 against the backdrop of earning pressures and higher borrowing costs. New projects include a review of strategies as well as the use of enabling technologies, such as experimentation with AI and ML.
- Many are trying to consolidate direct and indirect methods, often in collaboration with FP&A. Another trend is greater use of scenario analysis and predictive models.
9. Talent development. Rising reliance on technology is altering treasury’s talent profile, further complicated by the need to replace team members who left during the pandemic and adjusting to hybrid work. Treasuries are deploying capability assessment models to identify skills gaps and using rotation, shadowing and training programs to upskill existing staff.
10. Operating model. Treasuries are adjusting their organizational structures to prepare for a future of greater automation and rising management demand for decision-support. They are establishing treasury COEs in low-cost locales, leveraging existing enterprise SSCs and outsourcing some activities.
- Lifting and shifting legacy processes will not yield expected ROI, so leaders are preparing by standardizing and automating the process before migrating to a new operating model.
