Asia Pacific Treasury Management Barometer 2015

Transcription

1 Asia Pacific Treasury Management Barometer 2015 A comprehensive view into the priorities, processes and pain points for treasury management in Asia Pacific

2 2 Asia Pacific Treasury Management Barometer 2015

3 Contents Welcome Note 3 Major Findings 4 Working Capital Management 12 Liquidity Management 28 Transactional FX Management 48 Treasury Technology 60 Appendix 86 For an electronic copy of the Asia Pacific Treasury Management Barometer Asia Pacific Treasury Management Barometer 2015 is also available in Simplified Chinese and Japanese Questions about the survey? Please [email protected] [email protected]

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5 Welcome Note On behalf of Bank of America Merrill Lynch and SunGard, we are delighted to present the second edition of the Asia Pacific Treasury Management Barometer. This edition has set another benchmark in the breadth of response and diversity of participants. Approximately 1,350 treasury professionals from across all major markets in the Asia Pacific region, Europe and the United States shared their views, representing a 45% increase in participation since the first edition. This has resulted in a compelling set of survey findings that offer a highly relevant and insightful perspective on the challenges, priorities and opportunities for treasurers in Asia Pacific. In addition to summarizing results from the survey, this report includes expert perspectives on key treasury considerations and insights from respected treasurers with Asia Pacific responsibility. Participants highlighted the importance of a wide range of themes that are explored in this report, from liquidity management to the ever-increasing role of technology in enabling efficiency, control and sophisticated analytics. New topics for this year include foreign exchange and working capital, reflecting the depth and diversity of treasurers responsibilities and influence. We would like to thank all those who participated in the second Asia Pacific Treasury Management Barometer. We take great pride in the wealth of insights and opinions that are reflected in the survey findings, and sincerely hope that these resonate with your experiences. As always, we welcome any comments and feedback you have on this report, and ideas for future editions of the Asia Pacific Treasury Management Barometer. Ivo Distelbrink Head of Global Transaction Services, Asia Pacific Bank of America Merrill Lynch Paul Bramwell Senior Vice President, Treasury Solutions SunGard Welcome Note 3

6 Major Findings The Asia Pacific Treasury Management Barometer, now in its second edition, has quickly established a reputation as the most authoritative and wide-ranging study of the changing treasury landscape in this dynamic region. The second edition was commissioned between October and November 2014 by Bank of America Merrill Lynch and SunGard. The study attracted responses from over 1,350 treasury professionals from across the region and globally, an increase of over 45% on the first edition. As a result of this high level of engagement from across the treasury spectrum, the second Asia Pacific Treasury Management Barometer now serves as an industry benchmark for treasurers. The report features detailed and timely findings on many of the key cash and treasury management issues with which treasurers are engaged: liquidity management, transactional FX, trade finance and treasury technology. Treasury priorities Participants in this year s Asia Pacific Treasury Management Barometer study revealed a wide range of priorities for 2015 and beyond (Figure 1), consistent with the diversity of respondents roles, industries and operating models. In 2013, the Treasury Management Barometer revealed that achieving visibility and control over cash balances and flows was treasurers highest priority in Asia Pacific. This year, the same applies, with cash visibility again the most commonly cited concern (21% on a weighted sum basis) reflecting the common challenges that treasurers experience when operating in such a diverse region, including the range of banking relationships, large number of accounts and disparate means of accessing account information. Visibility and control over cash balances remains the holy grail of treasurers across the region. Concurrently, consistent with our conversations with clients across the region, the push for enhanced visibility over balances comes with more extreme challenges in Asia Pacific, given the large number of banking relationships, accounts and regulations in place. Ivo Distelbrink Head of Global Transaction Services, Asia Pacific Bank of America Merrill Lynch A similar proportion of respondents (11% in each case) identified process automation, working capital optimization and risk management as priorities for 2015 and beyond. As core treasury activities, these priorities will resonate with treasurers globally, but they have particular significance in Asia Pacific. Automating cash and treasury processes is typically a more significant challenge than in other regions. For example, diversity of payment and collection methods, widespread use of cash and paper instruments, and restrictions on cross-border flows in some currencies and countries, were amongst the obstacles that treasurers are experiencing in achieving higher levels of automation. Additionally, as many treasury functions have been established for a shorter time than those in Europe and North America, the use of sophisticated treasury technology is not yet universal, but this is likely to change quickly given the rapid growth in the scope and scale of their activities. These treasuries can often take rapid advantage of banking and treasury technology as the need to migrate from legacy processes and systems is less pronounced, facilitating higher levels of automation than their longer-established peers. Treasurers in Asia Pacific are becoming increasingly involved in initiatives to enhance working capital and liquidity management. Treasurers are well-placed to support working capital optimization due to their pivotal role in liquidity management, and expertise in centralizing financial processes with a high level of efficiency and control. The business drivers for these initiatives are increasing as corporations seek greater diversity in financing methods, including leveraging financial flows as part of working capital financing programmes. Furthermore, opportunities to unlock trapped cash from restricted markets are increasing as governments of countries such as China actively pursue a regulatory reform agenda. Steve Evans Chief Operating Officer, Treasury & Payments SunGard Treasurers in all regions, including Asia Pacific, have a growing focus on working capital optimization. Corporations operating in markets such as China, which have not been subject to the same constraints in market liquidity as those in other parts of the world, have seen 4 Major Findings

7 the biggest cultural shift. Today, multinational corporations of all sizes and in all regions recognize the strategic and competitive importance of reducing trapped cash in the working capital cycle and therefore reliance on bank financing. With banks adopting the requirements of regulations such as Basel III, corporations ability to maximize internal liquidity and leverage financial assets as a source of financing is likely to become an even higher priority for corporation. In addition to influencing the internal business activities that contribute to working capital, treasurers in Asia Pacific are looking outside of their businesses to identify and mitigate the potential impact of external events. Risk management, including currency, counterparty, commodity, liquidity, operational and interest rate risks, is pivotal to treasury policies. As multinational corporations expand their geographic reach across Asia Pacific, managing these risks becomes increasingly complex given the diversity in the region. What quickly becomes clear is the inter-relationship between treasury priorities, not only those already highlighted, but across the entire spectrum of issues that treasurers raised as part of this study, leading to a growing focus on cohesive treasury management strategies rather than individual, tactical initiatives. For example, respondents noted that effective risk management relies on timely, accurate and complete visibility of cash balances and flows, and secure, automated processes without risk of error or fraud. Similarly, achieving cash visibility is an essential first step in optimizing working capital and forecasting cash flow, as well as implementing liquidity solutions such as cash pooling. 2015: Please rank the three most important areas of focus for your treasury in the next 12 months. 21% 12% Improving visibility of balances and cash forecasting Enhancing cash and treasury management processes and automation 12% Optimizing working capital 12% Minimizing and mitigating risk (FX, credit, liquidity, counterparty, etc.) 10% Yield enhancement 9% Minimizing interest expenses 8% Domestic or international cash pooling 5% 4% 4% 3% 1% Rationalizing the number of accounts/banks Implementing technology for treasury management or bank connectivity Compliance with tax requirements (BEPS, CFC, etc.) Monitoring regulatory changes (Basel III, etc.) and impact on business Retaining and recruiting treasury talent Figure 1 Treasury priorities 2015 (weighted sum ranking) Major Findings 5

8 2013: What are the primary areas of focus for your treasury in the next 12 months? 60% Improving cash visibility 44% Yield enhancement and minimizing interest expenses 44% Concentrating cash 38% Rationalizing bank accounts 31% Counterparty risk management 17% Talent management 8% Other Figure 2 Treasury priorities Major Findings

9 Treasury priorities Improving visibility over cash balances and cash flow forecasting was the highest priority amongst treasurers in Asia Pacific (21% on a weighted sum basis), which is consistent with last year s findings. Treasury process automation, optimizing working capital and risk management, each at 12% on a weighted sum basis, were the next most commonly cited priorities. Liquidity management Liquidity priorities. Liquidity is a priority for treasurers on both sides of the balance sheet, from securing access to finance to ensuring that surplus cash is secure, accessible and generating a yield; however, working capital management was the most significant issue amongst respondents (21%). The need to optimize a client s treasury function to deliver growth, whilst managing risk and enabling new business models, is what is driving treasury advisory in 2015 across the region. Ivo Distelbrink Head of Global Transaction Services, Asia Pacific Bank of America Merrill Lynch What are your primary liquidity management objectives? 21% Working capital 18% Allowing local treasury control with regional or global oversight 17% Reducing financing costs 16% Regional control of liquidity 13% Yield enhancement 7% Facilitating intercompany lending 5% Repayment of debt 1% Other Figure 3 Liquidity management objectives for 2015 Major Findings 7

10 Financing costs. 17% of participants are focused on reducing financing costs, following a period in which this was a secondary consideration given liquidity constraints in some markets. To achieve this aim, treasurers are increasingly exploring alternative means of financing, to diversify funding sources, lessen reliance on bank debt, and reduce the cost of borrowing. Treasury centralization. 63% of respondents noted that they had, or were implementing a centralized treasury organization through one or more regional treasury centers (RTC) and/or a global treasury center. For these corporations, achieving synergies at a regional level is a priority, such as intercompany lending and cash pooling in markets where this is achievable. Treasury transformation is a reality that is gaining momentum in Asia Pacific with departments adopting cohesive strategies that rely increasingly on tactical initiatives rather than standalone implementation of individual programs. From where we stand, this shift in sophistication is no longer exclusive to multinational corporations, but is increasingly being viewed by top tier local corporations as a driver of revenue growth and enterprise value. Faisal Ameen Head of Treasury Products, Asia Pacific Bank of America Merrill Lynch Cash pooling. Liquidity management initiatives, particularly cash pooling, are often hampered by regulatory constraints and the number of currencies involved when operating across Asia Pacific. Furthermore, 86% of participants indicated that they had more than one banking relationship in the region. These factors all contribute to difficulties in cash pooling, with 62% of respondents noting that they have not automated the centralization of liquidity using cash pooling, despite the theoretical advantages of doing so. Cash investment. When investing cash, respondents noted that liquidity (23%), preservation of principal (18%) and yield (16%) were the most important considerations. Just as the cost of financing was less of a consideration during the global financial crisis than it is today, achieving more competitive returns on surplus cash has also re-emerged as a priority, particularly given the prolonged period of low interest rates. Cash flow forecasting will therefore become even more important to achieve this, in order to be able to invest cash for longer. Basel III awareness. Banks adoption of Basel III requirements, particularly the liquidity coverage ratio (LCR), will necessarily prompt treasurers to re-evaluate their cash investment policies, although corporations will be impacted to differing degrees. The Treasury Management Barometer reveals that there is a need for greater understanding of the implications of Basel III amongst corporate treasurers. 61% of respondents expressed either no, or little awareness of these implications, which are likely to be significant in the months ahead. RMB investment. As RMB internationalization continues, a growing number of companies are adopting RMB for trade purposes. 35% of participating companies use RMB for crossborder trade (compared with 16% in 2013), and 32% hold RMB cash balances, reflecting very strong growth. Increasing crossborder activities, more relaxed regulatory constraints, higher interest rates in both onshore RMB (CNY) and offshore RMB (CNH), and positive market opinion on RMB appreciation are likely to make RMB investment more attractive compared with currencies such as EUR. In less than five years, treasurers have placed considerable faith in the RMB. The evolution from an emerging to mainstream payments currency is seemingly now firmly established, with treasurers in Asia Pacific playing a considerable role in driving the ongoing move to a global payment currency. Venkat ES Head of Payments, Receipts and Liabilities Product Management, Asia Pacific Bank of America Merrill Lynch Transactional FX International reach. The Treasury Management Barometer reveals that managing cross-border transactions is a major issue for treasurers. 88% of participating companies make payments into three or more countries, and 31% more than ten countries, emphasizing the need for, and complexity of cross-border payments for procurement, trade, services, taxes and payroll. While progress has been made, managing cross-border payments and the associated FX requirement remains a challenge for treasurers in Asia Pacific, particularly given the range of currencies with varying degrees of restriction. Technology has a major role in supporting greater efficiency, cost reduction and control over risk, but this is part of a wider cultural shift towards the greater use of automated methods for dealing and transaction management. Paul Bramwell Senior Vice President, Treasury Solutions SunGard 8 Major Findings

11 Diverse currency mix. While most companies make crossborder payments in US$ (83%) and G10 currencies, 50% of respondents, including all organizations of all sizes, also make cross-border payments in local currencies. The challenge for smaller companies in particular is that while they face similar complexity to their larger peers, they lack the technology infrastructure and scale of treasury organization to manage these requirements easily. Dealing methods. Telephone dealing (39%) remains the most common means of transacting FX, despite the control issues that this presents, and difficulties in obtaining competitive quotes on a routine basis. Treasurers are increasingly seeking to overcome these issues, resulting in electronic dealing growing in popularity, with 36% of treasurers in Asia Pacific using single-bank platforms, and 16% using independent, multi-bank portals. FX booking on cross-border payments. 65% of companies book the FX component of foreign currency crossborder payment process alongside their payments process. A further 16% have extended this process to use automated FX booking with their payment banks, resulting in significant efficiency and control gains. FX transaction priorities. Participants indicated that desirable improvements in their FX transaction processing include cost reductions (30%), improved risk management (both operational and currency risk) and process efficiency. Trade and working capital finance Anticipated export growth. Growing exports in Asia Pacific remains a key objective, particularly in Greater China (59%), but also in regions such as South East Asia (46%) and the Indian sub-continent (24%). However, with North America (60%) and Europe (52%) of comparable importance, the study emphasizes the ongoing strategic importance of both northsouth and south-south trade corridors. 17% of respondents noted that Africa would become a more important export market for their business, signposting the growing importance of Africa as a future growth market. A regional approach to financing. Bank lending remains a popular choice of instrument for working capital financing (48%). This has increased significantly from 2013 (38%). Conversely, intercompany lending has emerged strongly as the most important financing method for working capital (53%) compared with (27%) in For corporations with cash surpluses, using these balances to fund working capital is typically preferable to seeking financing (43%). These two trends are closely related, and by using techniques such as cash pooling, companies are in a better position to mobilize cash surpluses in some parts of the business to finance deficits in others. How do you finance your working capital requirements? 53% Intercompany borrowing/lending 48% Bank loans under credit facilities 43% Surplus cash balances 28% 12% 11% Overdraft facilities Supply chain finance/ sale of receivables Supplier financing 9% Commercial paper 4% Distributor financing 4% Other Figure 4 Working capital requirements financing options Major Findings 9

12 Growth in working capital financing. Working capital financing is becoming increasingly important with supply chain finance and receivables financing (12%) now seen as viable methods for optimizing working capital. In contrast, this figure was 7% in Financing solutions, such as receivables financing and supply chain financing that are closely tailored to the specific needs of each organization, are likely to grow in popularity as banks adopt new regulations such as Basel III. Use of trade finance instruments. While the use of trade finance instruments such as letters of credit has generally declined in favor of open account transactions, these traditional instruments still play an important role in facilitating international trade. Participants choice of instrument is equally determined by liquidity and risk considerations (both at 36%) and balance sheet management. Export documentation. The majority of companies for whom it is relevant currently prepare export documentation in-house (69%). However, we are seeing a gradual shift towards outsourcing of export documentation as companies expand their geographic footprint and the focus on shareholder value increases. For example, resourcing requirements for preparing export documentation are high, with 10% of companies dedicating more than ten full-time employees. Trade finance priorities. Participants in the Asia Pacific Treasury Management Barometer emphasized that improving collection efficiency (28%), risk management in trade finance (22%), and supply chain management (17%) are their major priorities in the near-term. 47% of respondents identified collection efficiency as their top priority. Echoing our experiences across the region, trade finance activities in Asia Pacific require improvements in collection efficiency collaboration on risk management structures to meet business goals. While electronic document presentation is cited repeatedly, we see wide scale adoption of digital trade solutions as a longer term story. Kuresh Sarjan Head of Global Trade & Supply Chain Finance, Asia Pacific Bank of America Merrill Lynch Technology opportunities. Respondents identified electronic document presentation as the most compelling technology solution (50%) to drive efficiencies. The use of the Bank Payment Obligation (BPO) initiative driven by SWIFT (22%) continues to grow, and SWIFT s MT798 message type will become increasingly important in the future. Leveraging technology in treasury Treasury technology infrastructure. In 2013, 69% of Treasury Management Barometer respondents used spreadsheets in treasury. In the second edition, this trend has not changed substantially, with 67% of 2015 participants, with similar use of spreadsheets across corporations of all sizes. However, in many cases, spreadsheets are used as an ancillary reporting tool as opposed to the primary cash and treasury management solution. 23% of companies have built in-house applications, and 40% use either a specialist treasury management system (TMS) or treasury module of an enterprise resource platform (ERP), a similar number to the 2013 findings. Spreadsheets remains the backbone of Asia Pacific treasury reporting, with its predominance unlikely to decline meaningfully in the short term. However, the growth of TMS and cloud-based technology systems continues to rise and demonstrates that treasuries across the region are beginning to embrace change at an acceptable level. Cindy Murray Global ecommerce executive Bank of America Merrill Lynch Bank connectivity for payments. Host-to-host (H2H) connectivity (32%) is currently the most popular means of transmitting payment instructions, closely followed by the use of banks proprietary web-based solutions (30%). This reflects a considerable increase from the 2013 study, in which 16% of respondents use H2H connectivity. These solutions are likely to continue to form the bedrock of companies bank communication strategies in future. Conversely, the use of manual payment methods, currently used by 11% of respondents, is a sharply declining trend across Asia Pacific. 10 Major Findings

13 Bank connectivity for bank statements. The use of banks proprietary electronic banking tools has become ubiquitous for retrieving bank statement information (82%) a sharp increase from 63% in the 2013 study. Connectivity is also important for this purpose amongst centralized business functions (25%). Given the large number of accounts and banking relationships in many cases, manual methods are more commonly used for accessing bank account information (29%) compared to payments. Use of SWIFT and Alliance Lite2. 17% of respondents use SWIFT for payments transmission, with a similar proportion for bank statement retrieval, with little increase anticipated in the year ahead. This contrasts with the results of the 2013 study. This revealed that 20% were already leveraging SWIFT, and a further 23% were planning to do so in the following months. The game changer appears to be the expansion of cloud-based technology, such as SWIFT s Alliance Lite2, which provides similar benefits to SWIFT but with lower costs and greater ease and convenience. For example, although only 7% of participants use cloud-based solutions for payments today, 34% anticipate doing so in the future. However, the potential advantages of SWIFT connectivity via a service bureau, particularly which offers a wider range of ancillary services, should not be ignored. Increasingly, bank connectivity is becoming an integral element of software-as-a-service(saas)-based treasury and payments solutions, so treasurers and finance managers no longer have to manage bank connectivity separately. TMS deployment. Just as cloud-based solutions are becoming increasingly attractive for bank connectivity, interest in alternative deployment methods for accessing TMS is growing. Of the 31% that currently have a dedicated TMS, a third of companies have installed the solution in-house and a further 32% access a hosted/application service provider (ASP) solution or a cloud-based/software-as-a-service (SaaS) solution. Technology priorities. 63% of participants are seeking to leverage treasury and banking technology to optimize internal processes. This could include acquiring new technology (22%) such as a TMS, or making better use of existing systems. 34% are seeking to implement a bank platform/ portal (including Alliance Lite2) and 17% a more comprehensive cash management solution from their bank. Technology investment. Over half of corporations polled are planning a major technology investment in the next months, including installing or upgrading an existing ERP (34%) or TMS (23%) platforms. Mobile treasury. Use of mobile and tablet devices in treasury is growing rapidly. In 2013, only 14% indicated that they use mobile or tablet devices to access treasury or banking solutions. In 2014, this had risen to 41%. 63% of these do so regularly (i.e. at least once a week). To find out more from the study, please contact BofAML at [email protected] OR SunGard at [email protected] The use of SWIFT, particularly through a specialist service bureau that offers a range of complementary services, can be a valuable way of communicating with multiple banks in Asia Pacific through a single channel, and in a standardized format. As SWIFT connectivity becomes an integral element of treasury and payments solutions, treasurers are able to access the benefits of SWIFT without the need to dedicate additional resources. Jerome Albus Senior Vice President, Payments & Messaging SunGard Major Findings 11

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15 Working Capital Management Intra-regional and established trade corridors remain front of mind, but interest in Africa is building NA 60% Europe 52% China 59% Latam 28% Africa 17% India 24% SE Asia 46% Working capital strategies rebalanced towards internal funding sources Move away from LC to open account with credit 53% 48% 43% Appetite for non-traditional trade financing sources increasing 6% 16% LC Standby letters of credit (SBLC) 11% 12% 44% Open account with credit Interco lending Bank lending Surplus cash Supplier financing Receivables financing 9% Open account without credit/cash on delivery Export documentation outsourcing stalling as highly specialized skill sets prevail 42% Internal 80% have 1-5 staff 9% Advance payment to supplier Trade following electronic lead of treasury 10% have > 10 staff 50% 19% Outsourced Collection efficiency and risk management taking priority 28% Collection efficiency 30% 25% 22% 17% Financial supply chain management 22% Risk management Electronic document presentation Multi-bank platforms SWIFT Trade for Corporates Bank payment obligations (BPO) Working Capital Management 13

16 A Diversifying Landscape Trade, long established as the one of the most influential contributors for the collective economies of Asia Pacific, is experiencing a generational transition. The change can be seen regionally through the growth of intra-regional trade and broadening of manufacturing bases and locations. It is being felt globally via diversification of the supply chain and increasingly, the shift is being observed at the corporate level, whereby working capital strategies have been forced to adapt accordingly. The drivers behind Asia Pacific s shifting trade dynamics are as broad and diversified as the region itself. For example, with each year, new trade corridors are developing, the supply chain broadens to welcome new members from emerging trade economies and the working capital landscape expands to include alternative sources of financing, processing and technological innovation. Viewed through the lens of regional macroeconomic and global demand dynamics, the reach and importance of Asia Pacific trade is clearly broadening. Furthermore, it will be characterized by its ability to evolve with the times for the foreseeable future. Respondents to the Asia Pacific Treasury Management Barometer illustrate that an evolution is clearly underway. Participating corporations have already established an extensive presence across Asia Pacific, and remain steadfast in expanding their trade objectives and further diversifying their supply chains within the region. At face value, geographical shifts have been one of the most conspicuous characteristics to emerge in the Asia Pacific trade space in the past two years. Respondents reinforce this fact. For example, Greater China (China, Hong Kong and Taiwan) exemplifies this theme in 2015 whereby growth rates have slowed. This is particularly the case in China, as the country shifts from an investment and infrastructure-based economy towards a consumer-based economy. While corporations remain committed to opportunities, pinpointing Greater China as the largest market for anticipated growth (59%) in the region (Figure 1), the attractiveness gap between this economic bloc and other Asia Pacific regions is clearly narrowing. Corporations now consistently emphasize that the focus of the trade activities are not exclusively Greater China. South East Asia (46%) and the Indian sub-continent (24%) are cited as vital growth regions by respondents. This collective opinion is significant. Not only are corporations clearly more willing to expand trade activities beyond Greater China, but they now appear to be more prepared to confront operational issues including currency and regulatory considerations, taxation issues and cultural idiosyncrasies when conducting local and international business. Shifts in demographics and trade patterns have extended the collective trade focus beyond Greater China, with India and ASEAN now progressing from developing to established trade zones in this region. As China gradually shifts from an export to consumer-based economy, India and ASEAN will likely find themselves as more influential participants in global trade and supply chain. Kuresh Sarjan Head of Global Trade & Supply Chain Finance, Asia Pacific Bank of America Merrill Lynch 14 Working Capital Management

17 In which markets do you anticipate your company will increase the value of exports? Within Asia 59% Greater China 46% Southeast Asia 24% Indian Subcontinent 16% Australia 16% Japan Figure 1 Anticipated export growth markets in Asia Pacific Furthermore, exporters are not restricting their strategic vision to Asia Pacific markets as engines for potential growth. As Figure 2 illustrates, both traditional and non-traditional global markets play an equal role in companies growth strategies. North America, for example, is as an important trade player as China, noted by 60% of respondents. Despite the headwinds of economic volatility and demand stagnation, Europe (52%) was also cited as a strategic zone by respondents, emphasizing the importance of trade corridors between these regions and Asia Pacific, such as for manufacturing and energy. Unsurprisingly, international policy is supporting these sentiments. Over the past 24 months, a growing number of bilateral trade agreements between United States and Canada and Asia Pacific countries have been forged and will likely facilitate more opportunities to expand multi-lateral trade. Although less of a focus compared with other regions, 17% of respondents noted that Africa would become a more important export market for their business. While the trade corridors between Africa and Asia Pacific are less well-trodden than more established trade routes, increasing investment on the continent by both western and Asian corporations is spurring activity. Foremost, China which has for the past decade facilitated the uptick in Asia Pacific and Africa trade, underscores the growing importance of this continent. In which markets do you anticipate your company will increase the value of exports? Outside Asia 60% North America 52% Europe 28% Latin America 17% Africa Figure 2 Anticipated export growth markets outside Asia Pacific Working Capital Management 15

18 Financing growth: the importance of working capital Given that trade and financing are intimately linked, it is unsurprising that the application of nontraditional and innovative working capital strategies continue to gain traction in Asia Pacific. Since the global financial crisis, it has become increasingly difficult for many corporations to access the equity and bond markets, and pricing of external financing has become less attractive in many cases. Consequently, alternatives to bank facilities for financing working capital are becoming an integral part of contemporary corporate culture. Increasingly, particularly amongst smaller or lower-rated companies, this change in financing culture has become more of a necessity than an alternative. For example, even amongst corporations that face no challenges in obtaining financing, many treasurers are seeking to reduce their dependence on banks for working capital, and are leveraging bank facilities instead to invest in growth rather than daily liquidity. As the Asia Pacific Treasury Management Barometer results illustrate (Figure 3) while bank lending remains important for working capital financing (48%), intercompany lending is the preferred financing method (53%). With many companies building up large cash balances prior to and during the crisis years, surpluses are now being applied to fund working capital rather than seeking outside financing (43%) vehicles. In other words, corporations are in a better position to mobilize cash surpluses in some parts of the business to finance deficits in others. Conversations with clients consistently tell us that globally-headquartered corporations are increasingly aligning both their treasury and financial supply chain management activities with counterparts in this region. Significantly, given the shifts in supply chain dynamics, foreign multinationals will increasingly leverage financial supply chain solutions in Asia Pacific. Rakshith Kundha Head of Global Trade & Supply Chain Finance, South East Asia Bank of America Merrill Lynch Increasingly, companies are recognizing the potential to monetize their business flows. For example, supply chain finance and receivables financing (12%), and supplier financing (11%) are becoming more visible components of an optimized working capital strategy. Both external and intercompany flows can be used as collateral for financing. This is most evident where intercompany flows reflect genuine underlying transactions especially in areas such as commodities financing. As banks are required to comply with the requirements of Basel III over the coming months, and in some cases, become more selective about the organizations to whom they lend their balance sheets, alternative forms of financing are likely to grow in importance for working capital purposes. These financing solutions, such as receivables financing and supplier financing, are typically closely tailored to the specific needs of each organization and will likely gain further traction in the coming years. 16 Working Capital Management

19 How do you finance your working capital requirements? 53% Intercompany borrowing/lending 48% Bank loans under credit facilities 43% Surplus cash balances 28% 12% 11% Overdraft facilities Supply chain finance/ sale of receivables Supplier financing 9% Commercial paper 4% Distributor financing 4% Others Figure 3 Methods for financing working capital Use of trade finance instruments for imports There is no other region globally where paper and electronic trade instruments coexist more frequently than in Asia Pacific. Although the use of letters of credit (LCs) has generally declined in favor of open account transactions, LCs still play a central role in facilitating international trade in this region. Participants noted that their choice of instrument is equally determined by liquidity and risk considerations (both at 36%) with balance sheet management also a significant priority. When dealing with suppliers for import of goods and services (16%) use LCs reflecting the shift towards open account (53%). Although paper-based instruments remain prevalent in Asia Pacific, there is a notable shift towards electronic financing taking place. Open account transactions with credit terms are now preferred by many corporations (44%) with considerable growth in the use of credit insurance. 9% of corporations polled use open account without credit, or cash on delivery, although less commonly for more complex or higher risk transactions. An equal number pay suppliers in advance (9%). Stand-by letters of credit (SBLC) and payment guarantees are less popular, with only 6% of corporations using these instruments to finance imports, with similar use of other documentary collections such as documents against acceptance and document against payment (D/P). Working Capital Management 17

20 Which trade finance instruments do you use most regularly when dealing with suppliers? < US$ 500 million US$ 500 million - US$ 1 billion 39% Open account - with credit terms 42% Open account - with credit terms 14% Letters of credit (LC) 11% Advance payment 11% Advance payment 10% Letters of credit (LC) 11% Open account - without credit/cash on delivery 10% Document against payment 10% Document against payment 9% Open account - without credit/cash on delivery 6% Other 8% Standby letters of credit (SBLC)/payment guarantee 5% Document against acceptance 5% Document against acceptance 4% Standby letters of credit (SBLC)/payment guarantee 4% Other US$ 1-5 billion US$ 5-10 billion 43% Open account - with credit terms 47% Open account - with credit terms 18% Letters of credit (LC) 15% Letters of credit (LC) 10% Advance payment 10% Open account - without credit/cash on delivery 7% Document against payment 8% Advance payment 7% Open account - without credit/cash on delivery 7% Document against payment 6% 5% Standby letters of credit (SBLC)/payment guarantee Document against acceptance 6% 4% Standby letters of credit (SBLC)/payment guarantee Document against acceptance 4% Other 3% Other > US$ 10 billion 48% Open account - with credit terms 19% Letters of credit (LC) 7% Open account - without credit/cash on delivery 6% Standby letters of credit (SBLC)/payment guarantee 6% Document against acceptance 6% Advance payment 4% Document against payment 4% Other 18 Working Capital Management

21 All Revenue Size 16% Letters of credit (LC) 9% Advance payment 9% Open account - without credit/cash on delivery 8% Document against payment 44% Open account - with credit terms 4% Other 6% Standby letters of credit (SBLC)/payment guarantee 5% Document against acceptance Figure 4 Trade finance instruments used regularly with suppliers (imports) Importers are moving up the curve across the region in terms of credit arrangements with their suppliers. Increasingly, for corporations of all sizes, the shift to open account with credit terms has clearly emerged as the preferred method to deal with suppliers as opposed to letters of credit. We see increased usage of advance payment to suppliers from corporates in the mid revenue scale. Kuresh Sarjan Head of Global Trade & Supply Chain Finance, Asia Pacific Bank of America Merrill Lynch Working Capital Management 19

22 Use of trade finance instruments for exports As would be expected, there are considerable similarities on the export side, as reflected in Figure 5. There is more of a trend towards open account transactions with credit terms (41%) and open account without credit, or cash and delivery (10%). Similarly, the proportion of corporations using advance payment (10%) is consistent with our own interactions with clients looking to fulfill certain liquidity and risk management objectives. Which trade finance instruments do you use most regularly when dealing with customers? < US$ 500 million US$ 500 million - US$ 1 billion 40% Open account - with credit terms 38% Open account - with credit terms 14% Letters of credit (LC) 13% Letters of credit (LC) 12% Open account - without credit/cash on delivery 11% Advance payment 10% Advance payment 10% Open account - without credit/cash on delivery 9% Document against payment 9% Other 8% Other 8% Standby letters of credit (SBLC)/payment guarantee 5% Document against acceptance 7% Document against payment 3% Standby letters of credit (SBLC)/payment guarantee 5% Document against acceptance US$ 1-5 billion US$ 5-10 billion 40% Open account - with credit terms 44% Open account - with credit terms 18% Letters of credit (LC) 15% Letters of credit (LC) 11% 8% 7% 6% 6% 5% Advance payment Open account - without credit/cash on delivery Document against payment Standby letters of credit (SBLC)/payment guarantee Document against acceptance Other 13% 8% 8% Other 5% 4% 3% Open account - without credit/cash on delivery Advance payment Standby letters of credit (SBLC)/payment guarantee Document against acceptance Document against payment > US$ 10 billion 42% 17% 9% 9% 7% 6% 5% 5% Open account - with credit terms Letters of credit (LC) Open account - without credit/cash on delivery Other Advance payment Standby letters of credit (SBLC)/payment guarantee Document against acceptance Document against payment 20 Working Capital Management

23 16% Letters of credit (LC) All Revenue Size 10% Open account - without credit/ cash on delivery 10% Advance payment 7% Other 6% Document against payment 41% Open account - with credit terms 5% Document against acceptance 5% Standby letters of credit (SBLC)/payment guarantee Figure 5 Trade finance instruments used regularly with customers (exports) Open account terms continue to be the dominant mode of sales across corporate clients. Rakshith Kundha Head of Global Trade & Supply Chain Finance, South East Asia Bank of America Merrill Lynch Working Capital Management 21

24 Export document preparation Export documentation is another area where Asia Pacific trade continues to evolve rapidly. Typically, export documentation is prepared by a commercial function, rather than treasury. Given its sensitivity, it is understandable that many companies prefer to maintain this activity in-house (42%) as opposed to outsourcing to a third party. Progress in this area remains a measured process, however, as corporations expand their geographic footprint and the focus on shareholder value increases, there is often a greater appetite for outsourcing export documentation. It is clear that outsourcing offers considerable appeal given the internal resourcing that is required, as shown in Figure 7, with 10% of companies dedicating more than 10 full time employees to this specialist activity. While outsourcing to a bank or logistics company may be difficult culturally for some organizations, outsourcing providers have the specialist skills in-house and can potentially accelerate the order-to-cash process for exporters as they are already part of the supply chain. Do you prepare export documents in-house? 42% Internal 39% N/A (Not Applicable) 19% Outsource Figure 6 Preparation of export documents If you are preparing export documents in-house, how many staff members are dedicated to the preparation of export documents? 80% 1-5 staff 10% 10+ staff 8% 6-10 staff Figure 7 Number of FTEs engaged in preparation of export documentation 22 Working Capital Management

25 Focus on best practices Corporations of all sizes and headquartered in all regions are motivated to identify and implement best practices to enhance efficiency and control across their business activities. Respondents ranked the elements of their trade and supply chain activities that required the most improvement, as shown in Figure 8. Collection efficiency (28%) and risk management (22%) were identified as obvious starting points for an optimal approach to working capital optimization and supply chain efficiency. While best practices remain a priority, corporations unsurprisingly remain cognizant of challenges such as balancing growth ambitions with the need to manage risk and manage commercial counterparty relationships. Treasury departments have an important role to play in this respect by structuring trade finance solutions that meet both cash flow and risk objectives. For example, financial supply chain management was noted as an area of potential improvement by 17% of participants. Unsurprisingly, supply chain financing is not as prevalent in Asia Pacific as in European and North American markets. But rapid growth is expected. Consequently, with fewer programs and less supplier awareness, corporations have more limited opportunities to flex working capital dynamics, such as extending supplier payment terms. This will inevitably change as corporations headquartered in Asia Pacific align their treasury and financial supply chain management activities more closely with their foreign peers, and foreign multinationals leverage financial supply chain solutions that they have used successfully in other regions. Which key areas of trade and supply chain require the most improvements? 28% Collection efficiency 22% Risk management 17% Document preparation outsourcing 17% Financial supply chain management 15% Technology 1% Other Figure 8 Trade and supply chain activities requiring the most improvement (weighted sum) Working Capital Management 23

26 Trade finance technology Finally, new technologies, partnerships and alliances continue to emerge and influence trade strategy. While the immediate impact on trade may not be radical, new platforms and relationships will have a profound impact on the dynamics of trade going forward. One such example within Asia is the Pan Asia ecommerce Alliance (PAA) an alliance that works towards uninterrupted crossborder trading with ready acceptance of cross-border approvals and certification policy. Global banks, including Bank of America Merrill Lynch, closely monitor such developments and continue to embrace innovation and partnerships that add value to customers. As well as offering proprietary technology solutions, adopting technology-agnostic platforms and actively partnering with various providers ensures quick adoption and commercialization of new technology and processes in trade finance to ensure corporations have access to the best in the market. This trend will only evolve. In addition to technology and new processes, banks will not only help clients access new markets in a seamless and increasingly efficient manner but also better mitigate risk. As the dynamics of Asia Pacific trade diversify geographically, they are facilitated by different financing routes and rely on best practices and heightened innovation. It is incumbent on global banks to partner with clients and facilitate grown aspirations by offering customized and integrated solutions which are delivered to exceptional standards across the globe. This will be become the new normal in the rapidly evolving Asia Pacific trade space. The migration to electronification in trade stands as a natural progression from prior developments in payment initiation and settlement. Given this scenario, it is not surprising that electronic document presentation and multi-bank trade platforms are gaining traction in Asia Pacific. As electronic trade finance processes become more widespread and standardized in terms of both format and process, catalysts will emerge and electronic document presentation will become a standardized component in the trade finance dialogue. Kuresh Sarjan Head of Global Trade & Supply Chain Finance, Asia Pacific Bank of America Merrill Lynch 24 Working Capital Management

27 Which of the following technology solutions do you consider to be key to the future of trade finance? 50% Electronic document presentation 30% Multi-bank platforms 25% SWIFT Trade for Corporates 22% Bank payment obligations (BPO) 3% Other Figure 9 Technology solutions that will be key to the future of trade finance Working Capital Management 25

28 Revolutionizing the Financial Supply Chain Samsonite is a name synonymous with international reach and jet-setting prestige. Founded in Denver, Colorado, registered in Luxembourg and listed in Hong Kong, it is the world s largest travel luggage company, with a heritage dating back more than 100 years. The company is principally engaged in the design, manufacture, sourcing and distribution of products ranging from large suitcases to small toiletries bags and briefcases. As of December 31, 2013, its products were sold at more than 46,000 points of sale in over 100 countries through a variety of wholesale and retail distribution channels. Paul Melkebeke Vice President, Supply Asia Samsonite As Samsonite continues its expansion throughout Asia Pacific, it must consistently stay ahead of its competition to retain its leading status in the highly lucrative top end luggage and travel accessory segment. To achieve this end, the company has long recognized the importance of a world-class working capital structure. Specifically, Samsonite has gone to considerable lengths to enhance its existing supply chain finance and extend its payment terms to suppliers in Asia Pacific. Core to this strategic evolution, the international corporation looked for a costeffective way to finance its supply chain, while also recognizing the importance of establishing an efficient payment system to manage a large number of invoices to numerous vendors. At the center of this sizable project stands Paul Melkebeke, Hong Kong-based vice president, Supply Asia for Samsonite. Across the board, we have always set ambitious targets when working capital is concerned, he says. Monitoring both inventory and accounts payable has and always will remain key considerations of any working capital strategy at Samsonite. More recently, we have introduced a sweeping supply chain finance program that we believe benefits our suppliers across the region and assists the overall ability of Samsonite to keep costs in check and managed more diligently. Core to Samsonite s complex supply chain finance program is offering an alternative source of financing to its suppliers, strengthening supplier relationships and sustainability. Partnering with Bank of America Merrill Lynch, Samsonite was able to effectively extend payment terms to 105 days, enhancing its working capital metrics, with marked improvements in days payable outstanding (DPO) and gaining better visibility over cash flow. According to Melkebeke, the immediate impact of the solution was multi-faceted. Not only did the new supply chain program improve partnership metrics between Samsonite and its key vendors, but in addition, brought significant cost savings to both parties, which was an initial target, with RMB and US$ financing at more favorable rates to Samsonite s vendors than those offered by local banks. Elsewhere, the solution looked to address other ingrained issues including the need to improve inefficient trade payment arrangements and supply chain management with suppliers, the need to improve weak supplier payment workflow and enhance control and visibility over cash flow and the ability to support Samsonite s ongoing growth strategy. This supply chain program is totally unique in the market. When I talk to our suppliers, none of our competitors are offering this type of financing solution which clearly places Samsonite at a competitive advantage. Hence, we now insist that the suppliers that want to deal with us migrate to payment terms of 105 days, says Melkebeke. Key to this program has been getting our suppliers on board from the beginning, hosting joint meetings with Bank of America Merrill Lynch to understand the benefits and clearly explaining that by extending payment terms to 105 days, they were further cementing their relationship with Samsonite. 26 Working Capital Management

29 The response has been favorable, but implementing this revolutionary supply chain finance was not without challenges for both Melkebeke and his team, and their relationships with suppliers. Primarily, the challenges related to supplier migration and convincing many of its suppliers that extending payment terms is a beneficial move. In particular, for many of Samsonite s smaller suppliers, the 105 days payment extension has proven a difficult proposition. Additionally, the program offers Samsonite s suppliers peace of mind given the uncertainty of onshore bank funding in China. Unsurprisingly there have been challenges, but the vast majority of suppliers see the longer-term benefit of migrating to this program. Yes, in some cases, under this supply chain finance program, the cost of funding is lower than what the supplier would get, as this is on Samsonite credit terms and typically for smaller suppliers cost of funding is very high. We recognize this and know this change will not happen overnight. Typically, we start with 60 days payment terms and then slowly after maybe one year, we eventually move the supplier to 105 days, adds Melkebeke The program has clearly been successful. According to Melkebeke, more than 90% of suppliers are on 105 payment terms and as a result, many supplier relationships have been further solidified. This is particularly true in strategic manufacturing markets like China. For example, given certain FX regulations in China and the difficulty of some suppliers to obtain US$ funding, the benefits of migrating to this supply chain finance solution are clear. The program is targeted at suppliers that we see as strategic long term vendors and has been extremely beneficial in strategic manufacturing markets such as China and has helped lift the standards at many of our partners. From a cultural standpoint, we have also seen the program as a solidifier of trust in this market whereby we are entering as what we see as a longer-term relationship with suppliers in China, with payment extension as the key component. Our China suppliers recognize this and see the value proposition. With the successful implementation of a landmark supply chain finance solution, talk inevitably turns to broader adoption of working capital programs in Asia Pacific. Melkebeke sees a shift occurring, particularly in China, but acknowledges that a wider shift to complex programs across the industry will take time. In China, factories are far more concerned with managing cash flow, planning and less risky business practices than ever before. We applaud this and want to work with these progressive firms as we believe these are the suppliers more likely to survive. By integrating themselves within our credit terms, they clearly place themselves at a competitive advantage, concludes Melkebeke. Clearly, for Samsonite, remaining competitive and ensuring success in its Asia expansion strategy requires both a constant leverage of supply chain finance best practices and the maintenance of strong supplier relationships. The company set out to strengthen both areas with Bank of America Merrill Lynch and by applying its extensive vendor on-boarding experience, Samsonite has ensured that the solution benefits have been realized immediately after going live. Working Capital Management 27

30 Asia Pacific Treasury Management Barometer 2015 Liquidity Management 28 Liquidity Management

31 Asia Pacific Treasury Management Barometer 2015 Liquidity Management Liquidity priorities are evenly split across the region 21% 18% Working capital 18% Reduce Allow local finance cost control with regional oversight RTCs now an established element of the Asia Pacific treasury landscape 32% 16% 68% Regional control of liquidity The pursuit of yield driving cash investments Bank deposits dominate but alternative investment options gaining traction 93% Centralization of funds remains a largely manual process 38% No plans for RTC 62% Have RTC Liquidity 18% 15% Preservation of capital ROI % % 37% Bank deposit Manual Excess cash Investment 17% 23% Automated Money markets 27% Certificates of deposits Money markets 14% 10% 7% 6% Government debt Commercial paper 4% Repos Greater China and South Asia exports fuelling intra-regional trade Corporates admit to Basel III and LCR awareness shortfalls China 59% 21% 61% Not aware India Moderately aware 18% Well aware 24% SE Asia 46% Japan 15% 35% Exploring alternative investments Australia 16% 65% Not revising investment policy RMB clearly emerging as a legitimate challenge to dollar domination 72% 67% 32% 24% Local Currency Liquidity Management 29

32 Anticipating the New Liquidity Landscape Liquidity is a priority for treasurers on both sides of the balance sheet, from securing access to finance to ensuring that surplus cash is secure, accessible and generating a yield. The data in 2015 reveals the growing importance of working capital in Asia Pacific, an important shift since the first Treasury Management Barometer was conducted in 2013, and consistent with trends we are seeing at a global level. As Figure 1 illustrates, 21% of respondents identified working capital management as a key objective. However, while treasurers are accustomed to looking at the broad working capital picture, it is also important to understand working capital drivers in detail to identify potential efficiencies. For example, some treasurers have been proactive in participating in working capital initiatives such as negotiating customer and supplier payment terms, but there is often more that can be done. This includes focusing on fundamental techniques, such as cash flow forecasting, in addition to sophisticated solutions such as supply chain financing that companies may be considering for the first time. What are your primary liquidity management objectives? 22% 23% Working capital 18% 18% Allowing local treasury control with regional or global oversight 17% 18% Reducing financing costs 17% 16% Regional control of liquidity 13% 12% Yield enhancement 7% 8% Facilitating intercompany lending 5% 5% Repayment of debt 1% 1% Other Figure 1 Primary liquidity management objectives 30 Liquidity Management

33 A regional approach to liquidity The second most significant priority for managing liquidity is to reduce financing costs, a consistent finding to the 2013 study, noted by 18% of respondents. During the global financial crisis, the cost of financing was a secondary consideration for many companies, given the constraints on liquidity in some markets. This was not a sustainable situation, particularly as it seems likely that the Federal Reserve may raise interest rates, leading to growing concerns over the cost of financing. Consequently, treasurers have increasingly been exploring alternative means of financing to diversify funding sources, lessen reliance on bank debt, and reduce the cost of borrowing. One of the ways in which multinational corporations are optimizing liquidity is to leverage the group financial position more effectively, typically by centralizing treasury structures. Corporations are at different stages in their centralization journey, however. 18% of respondents indicated that allowing local treasury control with regional or global oversight was a priority, while 17% were seeking to achieve regional control over liquidity. These trends would appear to conflict, but this is not the case given that companies are at different stages in their organizational development, particularly in Asia Pacific where treasury departments have often been established more recently than in Europe or North America. 69% of respondents noted that they had, or were implementing a centralized treasury organization either/both through one or more regional treasury centers (RTC) and/or a global treasury center (GTC) (Figure 2). Do you operate a regional treasury center (RTC) in Asia Pacific? 33% No. We do not plan to have an RTC 27% Yes 36% No. The region is managed by the GTC 4% We are in the process of setting up an RTC Figure 2 Regional treasury centers in Asia Pacific Liquidity Management 31

34 For these companies, achieving synergies at a regional level is a priority. This may involve increasing the use of intercompany lending (specifically noted by 8% of respondents) to leverage surplus balances in one part of the business to reduce deficits in another, and therefore avoiding the need for external borrowing. Cash pooling, whether physical or notional may also be an option, depending on the business culture and regulatory environment. However, while cash pooling is well-established in regions such as Europe and North America, it is more challenging in Asia Pacific. Some of the issues include the number of currencies and bank relationships that are typically involved (for example, in Figure 3 86% of respondents indicated that they had more than one banking relationship in the region), and the lack of convertibility in many jurisdictions in Asia. Furthermore, with each entity often operating in different currencies, it may be expensive or impossible to transact the relevant currency pairs, compared with borrowing US$. For these reasons, it is not surprising that only 38% (Figure 4) of respondents have automated the centralization of liquidity through cash pooling, despite the theoretical advantages of doing so. Do you maintain more than one banking relationship in Asia Pacific? No 14% 86% Yes Figure 3 Number of banking relationships in Asia Pacific 32 Liquidity Management

35 Have you automated the centralization of funds? Yes 38% 62% No Figure 4 Centralization of funds Wider benefits of treasury centralization A more centralized treasury organization may offer other benefits in addition to the ability to pool cash, however. For example, centralization may be driven by a desire to reduce costs and increase operational efficiency through economies of scale in banking relationships, treasury operations and use of technology. Taking a regional approach to alternative financing techniques, such as supply chain financing, also offers advantages, particularly given the extensive reach of many companies supply chains. Centralization of treasury operations is a clear priority but at a different stage of development in Asia Pacific. Treasuries see the benefit of a hub structure but only recently has mainstream adoption of centralized treasury organizations become a more justifiable conclusion. Faisal Ameen Head of Treasury Products, Asia Pacific Bank of America Merrill Lynch Centralization should not be considered as a blunt-edged tool for structuring a treasury organization, and there are many variations and refinements amongst multinational corporations. We are observing a trend amongst more centralized treasury departments towards localizing some activities on a targeted basis. For example, where a company has a leading market position in a country, it may be beneficial to establish a treasury presence and forge banking relationships in that country. In addition, local borrowing and/or investment conditions may be favorable. This does not reflect a loss of treasury influence or control at a regional or global level, simply that treasurers are being pragmatic in meeting the specific cash and treasury requirements of the business, which Liquidity Management 33

36 is enabled through improved treasury technology and bank communications that allow visibility and control over cash, risk and treasury operations. Furthermore, given that 40% of Treasury Management Barometer respondents had local treasury responsibility, maintaining some local cash and treasury activities, in addition to regional or global oversight, is likely to be a higher priority. Pressures on cash investment On the other side of the balance sheet, treasurers of cash-rich companies are challenged to find secure repositories for corporate cash that enable it to be accessed when required. Just as the cost of financing was less of a consideration during the crisis than it is today, so too is achieving competitive returns on surplus cash. As many cash-rich companies have continued to increase their cash balances over the past decade, yield has returned as a more important objective. While yield enhancement was specified as a priority by only 15% of respondents, only a limited proportion of companies who participated in the study are cash-rich; similarly, the other priorities from which respondents were invited to select were all significant. As Figure 5 illustrates, treasurers major investment priorities remain the traditional tenets of a cash investment policy: liquidity (23%), preservation of principal (18%) and yield (15%). Typically, the relative importance of these three issues varies in importance according to market conditions: for example, during the global financial crisis, preservation of principal and liquidity were critical requirements, with yield virtually irrelevant in many organizations. Concerns over counterparty credit have now stabilized, and the prolonged low interest environment has prompted company boards to find ways of increasing the yield on cash without compromising security and liquidity objectives. Treasurers cannot afford to have inaccessible cash and during the global financial crisis, and some have been burned by the absence of a defined liquidity management structure. However, with the benefit of hindsight and the influence of global events and monetary policy, liquidity management has been thrust to the forefront of most treasury management strategies in Asia Pacific. E-May Neoh Head of Asia Pacific Liquidity Management and Solutioning, Bank of America Merrill Lynch 34 Liquidity Management

37 The primary objectives as part of your company s cash investment strategy. 1 23% 2 18% 3 16% 4 13% 5 7% 6 6% 7 6% 8 6% 9 4% 10 1% Liquidity Preservation of principal Return on investment Accurate cash flow forecasting Stability of investment portfolio Quality of credit process Cost of portfolio management Diversification of assets Performance benchmarking against peers Other Figure 5 Cash investment objectives To achieve this, treasurers need to be able to invest cash for longer, which requires accurate cash flow forecasting, and we expect to see a continued focus on this area as cash investment demands on treasurers are exacerbated by regulatory pressures in the coming months, as discussed further below. Not only was cash flow forecasting identified as a cash investment objective by 14% of respondents in Figure 5, but cash flow forecasting was highlighted as the number one treasury priority for the coming year. Evolving investment choices Treasurers evolving investment criteria are reflected in changing investment portfolios. For example, while bank deposits continue to predominate amongst treasury functions of all sizes (92%), treasurers are starting to invest in a wider spectrum of instruments (Figure 6). In 2013, only 22% of respondents to the Treasury Management Barometer used money market funds; 37% now do so. Similarly, use of repurchase agreements (repos) has grown from 4% to 10%, government debt from 7% to 17%, and commercial paper from 6% to 14%. This diversification of assets supports treasurers counterparty risk and yield enhancement objectives, but it will also become increasingly important as banks comply with the requirements of Basel III, and specifically the liquidity coverage ratio (LCR). Liquidity Management 35

38 2015: Which of the following investment instruments are permitted as part of your company s treasury policy? 93% Bank deposits 37% Money market funds 27% Certificates of deposits 19% Bonds 17% Government debt 15% Commercial paper 10% Repos 6% Segregated managed funds Figure : Permitted investment instruments 2013: In what instruments do you invest excess cash? 42% 32% Time deposits between seven days and three months Overnight placement 27% Seven day time deposit 23% 16% 10% Money market funds Time deposits above three months Structured deposits 8% 7% 4% Government bills/bonds Corporate commercial paper/bonds Repos Figure 7 Year 2013: Permitted investment instruments 36 Liquidity Management

39 Anticipating regulatory developments The rollout of Basel III in the coming months will have a major impact on corporate liquidity. The LCR, with which banks will be obliged to comply, will mean that certain types of deposit will be less attractive to banks than in the past, resulting in either zero (or negative) returns or in some cases, banks may not be able to take on some deposits at all. As Figure 8 illustrates, there is still the need for significant education on Basel III and the LCR amongst corporate treasurers, with 61% expressing either no, or little awareness of the implications. While this figure is lower for large companies (56% of companies with a turnover of US$ 5-10 billion and 50% of companies with a turnover exceeding US$ 5 billion) there is clearly still considerable progress that needs to be made. How is your company preparing to manage liquidity under the proposed Basel III/Liquidity Coverage Ratio (LCR) scenario? 17% We are well aware of the Basel III/LCR norms and are fully prepared 34% We are not aware of what impact Basel III/LCR would have on our liquidity 22% We are moderately aware of Basel III/LCR norms, but are not fully prepared 28% We are still trying to understand the impact of Basel III/LCR Figure 8 Preparations for Basel III/ Liquidity Coverage Ratio Similarly, most treasurers have not yet embarked on their Basel III planning, with 65% of respondents indicating that they have not, and have no plans to review or revise their policies to support the business in a Basel III environment (Figure 9). Once again, this figure is lower amongst the largest companies (above US$ 10 billion turnover) at 56%, but this still reflects a very substantial proportion. Banks have an important role to play in developing awareness and working with customers to develop a plan as necessary. This is particularly the case amongst global banks, who will typically need to comply more quickly with the LCR than their local banking peers. Furthermore, there are differences across markets: for example, while U.S. banks will need to achieve 80% of the LCR in 2015, 100% compliance is required in countries such as Australia, while this is only 60% in India. Consequently, just as banks will be impacted at different times, so too will their corporate customers; however, it is an important issue that all treasurers will need to address in the coming year. Liquidity Management 37

40 Not all companies will be affected by their banks compliance with Basel III in the same way. Some will inevitably need to diversify their cash investment choices, particularly those that depend primarily on bank deposits. However, this may be a positive development for a variety of reasons, and although Figure 5 suggests that diversification of assets is an objective for only 5% of respondents, we have already seen that counterparty risk and yield enhancement priorities are driving some expansion in investment policy. Treasurers therefore need to work with their boards and investment committees to ensure that they are authorized, and prepared, to invest in these instruments, such as commercial paper, money market funds and corporate bonds. Corporations routinely cite the need for guidance in the changing regulatory environment as a priority. Given the complexity of many new regulations such as the sweeping liquidity framework changes under Basel III, they increasingly see the expertise and analysis of global banking partners as essential to understanding the impact the impact of such developments. Venkat ES Head of Payments, Receipts and Liabilities Product Management, Asia Pacific Bank of America Merrill Lynch Others will be less impacted. Companies with a large number of banking relationships have greater opportunity to allocate cash more widely. Improvements in cash flow forecasting means that some companies will be in a position to invest cash in longer term deposits, but this does not solve the issue of how to invest cash for working capital purposes. Finally, as we saw in Figure 6, treasurers often already have investment policies that are sufficiently flexible to permit investment in other instruments, although they may not have taken full advantage of these policies in the past. Consequently, the issue for these treasurers is not necessarily the need to revise investment policies, but to ensure that internal investment skills, processes and technology support the full range of permitted instruments. Under Basel III/Liquidity Coverage Ratio (LCR) non-operational balances may not fetch any return/may attract negative returns. To what extent is your company revising your investment policy to reflect these changes? 1 36% We are not revising our policy at this stage but may do so in the future 2 31% We do not see any need to revise our investment policy 3 20% We will keep some of our cash in bank deposits but we are considering other alternatives too 4 14% We are exploring alternatives to bank deposits Figure 9 Plans to review investment policy 38 Liquidity Management

41 Under Basel III/Liquidity Coverage Ratio (LCR) non-operational balances may not fetch any return/may attract negative returns. To what extent is your company revising your investment policy to reflect these changes? 36% 24% 21% We are not revising our policy at this stage but may do so in the future We will keep some of our cash in bank deposits but we are considering other alternatives too We do not see any need to revise our investment policy 19% We are exploring alternatives to bank deposits Figure 10 Plans to revise investment policy views from companies with revenue > US$ 10 billion Beyond G10 Investing cash balances in G10 currencies is relatively straightforward, given the variety of high quality, liquid cash investment instruments that are available. Revising investment policy or practice is more challenging for non-g10 currencies, particularly in Asia Pacific where a significant number of currencies are non-tradable, have lower levels of liquidity, and/or the local markets are less mature. Multinational corporations headquartered outside Asia Pacific hold balances in local currencies primarily for local working capital purposes, so investments are typically shortterm, while investment balances are in US$ or other G10 currencies. Therefore, while 67% of respondents said that they hold balances in local currencies (Figure 13), investment challenges are not material in most cases. Corporations with a base currency in a non-g10 currency may experience more difficulties, given that their balances, and investment tenor, are typically greater. These companies should be working with their banks now to evaluate their situation and identify potential solutions as necessary. Investing RMB balances The exception, both for foreign and local multinationals, is cash held in RMB. While there is deep liquidity in onshore RMB (CNY), this is not yet the case for offshore RMB (CNH), particularly outside Hong Kong. According to the SWIFT RMB tracker, RMB is already the fifth most important payments currency globally (January 2015), and with 35% of participants in the Treasury Management Barometer now using RMB for cross-border trade (Figure 8), and 32% hold RMB balances (Figure 13). The proportion of companies that use RMB as a settlement currency for cross-border trade will continue to grow, with 59% of respondents identifying Greater China as a target region for export growth, and 46% in South East Asia (Figure 10), where we are likely to see CNH used increasingly for trade where neither counterparty is based in China or Hong Kong. Liquidity Management 39

42 In which markets do you anticipate your company will increase the value of exports? Within Asia 59% Greater China 46% Southeast Asia 24% Indian Subcontinent 16% Australia 16% Japan Figure 11 Markets in which export value anticipated Due to local regulations on currency controls, RMB liquidity had been largely an onshore story. However, with the liberalization of offshore RMB, the liquidity pool outside of China is poised to grow substantially in the coming years. Venkat ES Head of Payments, Receipts and Liabilities Product Management, Asia Pacific Bank of America Merrill Lynch How this will impact on the number of companies that hold cash balances in RMB will be interesting, however. On one hand, onshore RMB balances have historically been trapped for regulatory reasons, leading to larger balances than some companies may require to support their day-to-day operations. With continuing RMB liberalization, however, the opportunities to leverage RMB liquidity, such as cross-border cash pooling, are growing, so some companies may reduce their RMB balances. On the other hand, however, this enhanced flexibility may encourage companies to be more proactive in using and holding RMB that has more relevance to their Asia Pacific activities than G10 currencies. Higher interest rates in RMB, both on- and offshore, makes RMB investment more attractive than currencies such as EUR where interest rates are now negative, but this could change given that US$ and GBP rates are expected to rise in the foreseeable future. 40 Liquidity Management

43 In which currencies do you make cross-border payments for procurement, trade, services, taxes and payroll? 83% US$ 50% Local currency 45% EUR/GBP 35% 33% 21% RMB G10 (US$, GBP, CAD, EUR, JPY, AUD, NZD, CHF, NOK, SEK) Beneficiaries local currency Figure 12 Currencies in which corporations make cross-border payments In which currencies are your balances in Asia Pacific held in? 72% US$ 67% Local currency 32% RMB 24% 20% EUR/GBP G10 (US$, GBP, CAD, EUR, JPY, AUD, NZD, CHF, NOK, SEK) Figure 13 Currencies in which balances are held in Asia Pacific A catalyst for innovation While liquidity priorities have evolved in recent years, optimizing liquidity remains a priority for every treasurer, whether net borrower or investor. Companies today are at different stages of maturity in their treasury organization and the techniques they employ to manage liquidity effectively, but this is changing rapidly. Asian multinationals, for example, are catching up with their foreign peers that have longer-established treasury functions with projects to centralize treasury activities and implement industry best practices. However sophisticated treasurers existing policies and practices, regulations such as Basel III will have a profound impact on liquidity management for many organizations on both sides of the balance sheet, not least a change in the use of bank financing and deposits. This is not to say that liquidity conditions are worsening, rather that the introduction of Basel III should prompt treasurers to take a fresh approach to identifying their financing and investment requirements, and the best ways of achieving these requirements to meet the evolving needs of the business. Liquidity Management 41

44 A Conversation with Anshul Maheshwari Treasury organization Bechtel is among the most respected engineering, project management, and construction companies in the world. We stand apart for our ability to get the job done right no matter how big, how complex, or how remote. Bechtel operates through four global business units that specialize in infrastructure; mining and metals; nuclear, security and environmental; and oil, gas, and chemicals. Since its foundation in 1898, Bechtel has worked on more than 25,000 projects in 160 countries on all seven continents. Today, our 53,000 colleagues team with customers, partners, and suppliers on diverse projects in nearly 40 countries. Anshul Maheshwari Assistant Treasurer, Bechtel Corporation Our treasury team is centralized in the United States and is responsible for banking related operations globally. We also have shared service centers (SSC) in the United States and India that manage payroll, accounts payable, accounts receivable and accounting on a global basis. Treasury Trends The priorities that participants identified as part of the Treasury Barometer: cash visibility and forecasting; process efficiency; risk management and working capital optimization, are consistent with our experiences at Bechtel. What is apparent is the close inter-relationship of these issues. At the end of the day, one of the core responsibilities of treasury is to know where your cash is, why it is where it is, and how to best manage cash to optimize liquidity and returns. Visibility and control over cash is essential for managing risk and optimizing working capital. Similarly, leveraging technology such as TMS and H2H connectivity is helping reduce process inefficiencies, which, in turn, facilitate greater control and reduce operational risk. Given the project-oriented nature of our business, Bechtel is continuously moving into new countries, quite a few of which are emerging markets, which presents various treasury challenges. When expanding into new countries, treasurers typically prefer to implement policies and processes that are consistent globally. This is not always feasible, particularly in many emerging markets, due to local regulatory and statutory requirements and/or limited banking options. This drives the need to customize processes to support local requirements and, potentially, work with local banks. Treasury is always looking to strike a balance between addressing local requirements and optimizing its treasury operations. Although working with local banks brings some advantages, such as access to the local branch network, at Bechtel our preference is to work with one of our existing relationship banks when possible: leveraging existing bank connectivity, simplifying cash management and optimizing liquidity and control. With Basel III, there is an increased focus amongst banks on ancillary business such as cash management. We recognize that Basel III will introduce substantial new requirements for our banks, ultimately impacting our banking relationships and requiring deeper relationships with existing banks. As we all know, cash management is sticky business and none of us want (or have the resources) to disrupt an ongoing relationship. Also, there is only a limited fee wallet to go around. Thus, it is important to identify the banking partners with whom you can build a broad based relationship. At Bechtel, we have migrated to the concept of best in class and best in region with a select group of banks which allows us to leverage the banks core capabilities, maintain operational diversity and balance the fee wallet. 42 Liquidity Management

45 Liquidity management in Asia While we do maintain pooling accounts for a select set of currencies, our business concentration in the region today does not support the allocation of resources to set up a pan-asian pooling system. Furthermore, the benefits of a pan-asian pooling system may not be significant in light of the regional banking structure, some (although fewer) regulatory constraints on offshore accounts and currency convertibility issues. That said, because of the importance of the region, we do maintain strong relationships with a group of global banks which can support our regional growth from a cash operations and capital standpoint. Treasury technology infrastructure Bechtel is among the few companies on a single ERP instance across its business globally. This has been the cornerstone of our ability to standardize processes and controls and streamline the flow of information throughout the business. Alongside our ERP, we have implemented a TMS from SunGard which we use for cash, treasury and risk management. We originally implemented the system when the business was much smaller, but the scalability of the solution has allowed it to serve our treasury needs very successfully as our business has grown. While a TMS is expensive and can be complicated to implement, it has proven to be a worthwhile investment, allowing us to make our processes such as daily banking reconciliation, FX management, bank account management etc. highly efficient and automated. We continue to explore ways to improve our host-to-host banking connectivity such as migrating to the ISO20022 XMLv3 file format as a means to standardize our communications with the banks. We are also focused on evaluating alternatives which would allow us to create a bank agnostic connective environment. In the past, we have not considered SWIFT for bank communication due to the cost and complexity of doing so, but have started exploring the service, given its enhanced offering to corporate clients over the last few years. Additionally, we are also focused on further leveraging our TMS to automate processes and perform sophisticated analysis for cash management, bank fees, investments and FX risk management. Emerging technologies in treasury We recognize the advantages that cloud-based treasury solutions offer to corporate treasurers, by reducing upfront costs and IT resource requirements. For Bechtel, however, security remains a primary consideration, and although we may evaluate the use of cloud-based solutions in the future, particularly given some of the security improvements that we have seen, it is not a priority at this time. Security considerations also limit our appetite for mobile-based solutions in treasury, particularly in light of the highly sensitive information managed by treasury. We recognize the obvious advantages provided by mobile accessibility of treasury information for contingency or emergency situations, but continue to have overriding concerns with respect to security of data. We look forward to the day when these security issues are addressed and the sophisticated functionality presently available through our banking systems becomes available through secure mobile devices. Liquidity Management 43

46 A Regional Approach to Treasury Management For Fortune 500 company Sanmina, managing a treasury operation across 26 markets on six continents creates a defined series of cash management and working capital priorities. Headquartered in San Jose, California, Sanmina has 44,000 employees globally and serves as the leading provider of end-to-end design, manufacturing and logistics solutions for Original Equipment Manufacturers (OEMs) in sectors such as communications networks, computing and storage, medical, defense and aerospace, industrial and semiconductor, multimedia, automotive and clean technology sectors. Ada Cheng Treasury Manager, Greater China and Asia Pacific, Sanmina The firm is broadly active in Asia Pacific. It operates a regional treasury center (RTC) in Hong Kong to complement its other centers in the U.S. and Mexico. Sanmina s treasury priorities and approach to treasury in the region can be summed up quite simply by Ada Cheng, Treasury Manager for Greater China and Asia Pacific a commitment to building on a centralized model. When explaining its Asia Pacific treasury structure, the theme of centralization is immediately tabled by Cheng. We have a centralized approach to cash and treasury management with RTCs in the U.S., Mexico and Hong Kong. In addition to its treasury management role, the Hong Kong RTC also works and co-ordinates with the payment center in Mexico to provide centralized payments processing for Thailand, India, Indonesia, Malaysia, Singapore and Australia. We also have local finance teams in these regions to provide global coverage and consistent policies and processes. According to Cheng, within this treasury framework, spreadsheets are used for reporting and forecasting operations, akin to the processing techniques relied upon by the majority of respondents to the Asia Pacific Treasury Management Barometer. While most of Sanmina s treasury activities are spreadsheet-based in Asia Pacific and it has no concrete plans to implement a specialist treasury management system (TMS), the corporation employs a single global ERP system, a global data warehouse, and a cloud-based consolidation and strategic forecasting system. Despite the fact that we will remain spreadsheet-based, we are gradually increasing our use of technology in treasury to enhance automation and control, explains Cheng. For example, we use FXall and Capella for online dealing, FiReapps for generating exposure sets and we have implemented solutions from Bank of America Merrill Lynch for transaction automation, cash visibility and cash forecasting. A particularly valuable tool has been the bank s CashPro Accelerate platform. This enables us to achieve multi-bank global cash positioning, which is linked into our spreadsheet solutions. When outlining Sanmina s technological exploration, Cheng explains that its own treasury priorities will drive any decisions to implement new platforms and partner with third party providers. I think the priorities that were identified in the Treasury Management Barometer are broadly consistent with our own, such as cash visibility, enhancing treasury processes, risk management and working capital optimization, says Cheng. Of these, achieving complete, accurate visibility over cash and optimizing working capital are probably the most significant day-to-day concerns. In the latter instance, controlling the timing of both external and intercompany receivables and payments is crucial for group reporting purposes, particularly around our key reporting dates. Given this strategic direction, banking rationalization is one area that will play a more important role in delivering on Sanmina s treasury priorities. Cheng explains, as a target, Sanmina tries to rationalize its banking partners as far as possible, echoing sentiments shared by other leading professionals in the Asia Pacific Treasury Management Barometer. 44 Liquidity Management

47 Bank of America Merrill Lynch is one of our primary banks due to its global reach, consistent solutions and single access point for information and transactions globally, states Cheng. We use regional banks wherever necessary in Asia Pacific, but we aim to keep these to a minimum. The idea of consolidating banking relationships gains further credence for Cheng when considering the often challenging process of pooling cash amidst a backdrop of different Asia Pacific country regulations and multiple restrictions around currency movement. As is commonly described in this research project, many local providers lack the expertise to adequately provide on the ground cash pooling, prompting firms like Sanmina to limit this kind of liquidity management activity. Cash pooling tends to be restricted in the Asia Pacific markets in which we operate, so we have not implemented physical or notional cash pools in the region so far, she explains. In China too, although the opportunities for managing cross-border liquidity are increasing, these are generally still limited to pilot projects and early adopters. In addition, the potential cost of setting up a pooling program, and tax on foreign interest, does not necessarily make cash pooling an attractive option for us in China. The aforementioned challenges surrounding cash pooling are restrictive but by no means detrimental to Sanmina. The corporation s liquidity management structure is highly functional within its centralized operations in Asia Pacific and supported by proactive attitudes to cash flow forecasting. In Cheng s view, the fact that Sanmina operates with cash surpluses in all of its Asia Pacific entities makes functional liquidity management an easier treasury task. However, as she remains cognizant of operating with too great a surplus, Sanmina regularly relies on forecasting to manage cash flow requirements carefully. Adopting this strategy, balances remain in-country for working capital purposes and local tax payments. Cash is repatriated occasionally when not immediately required locally through intercompany loans or dividend declaration. Cash flow forecasting is an essential activity for our treasury team at Sanmina, and we produce both daily cash positioning and one-to-four- week rolling cash flow forecasts, explains Cheng. In general, we have achieved a fairly high degree of accuracy in our cash flow forecasts, but information from local teams can change regularly, so we need to set a cut-off time. Treasury then collates this data and produces a consolidated forecast. Like many other multinational corporations operating in Asia Pacific, effective cash flow forecasting is reliant on receiving reliable data, and therefore being able to produce an accurate forecast. In Cheng s view, this rests heavily on the relationship between the RTC and the local entities. In Sanmina s case, working closely with local finance teams and operations, so that they understand the forecasting process, why it is essential, and how they benefit as a result is uncompromising. Efficient and innovative cash flow forecasting will only become more prominent for a centralized regional treasury like Sanmina with the onset of new regulations, believes Cheng. Staying informed of new regulations, both in-country and globally, understanding the implications, and adapting policies, processes and financial structures is becoming an increasingly important element of a treasurer s role, she explains. At present, we are assessing the implications of local regulations in the region. For example, in China, we are reviewing our reporting obligations such as month-end reporting of cross-border foreign currency flows to SAFE and the opportunities evolving from the financial reforms of the Shanghai Free Trade Zone. Viewed holistically, the centralized treasury model adopted by Sanmina in Asia Pacific comes with clear benefits, but must operate with a high degree of flexibility to adapt to market conditions and to implement new efficiencies. Through the commitment of Cheng and her team, and the support of Sanmina s global treasury operations though, the significant undertaking of centralizing a treasury in a complex region is evidently paying off. Liquidity Management 45

48 Managing Treasury in Asia Pacific from the United States Jacobs Engineering Group Inc. ( Jacobs ), is an international engineering, architecture, and construction firm with offices located in numerous markets globally. As a publicly traded company, Jacobs has over 60,000 employees and 2014 revenues of more than $12 billion. Based in Pasadena, California, Jacobs offers support to industrial, commercial, and government clients across multiple markets from its network of over 250 offices. In 2014, Jacobs was named by Forbes as one of America s 100 Most Trustworthy Companies and based on annual revenues, Jacobs Engineering is firmly entrenched as a Fortune 500 Company. Michael Carlin Vice President, Global Treasury, Jacobs Engineering In recent years, Jacobs has undergone a period of significant transformation, particularly in the business critical Asia Pacific region. In 2013, the firm acquired SKM Engineering, an Australianbased engineering consultancy, in one of its largest pushes into the region. As is common with strategic acquisitions, the takeover resulted in a number of disparate processes and the challenge of an amalgamation of banking relationships across Asia Pacific. This was clearly a huge proposition for any organization. Enter Michael Carlin, Pasadena-based Assistant Treasurer at Jacobs. Carlin was tasked with implementing this sizable and strategic project and managing the various treasury challenges associated with a large acquisition, and immediately turned to his prior expertise in this area. From Jacobs perspective, its acquisition of SKM Engineering also precipitated the need to enhance the broader treasury structure of the expanded entity and to rapidly consolidate banking relationships in Asia Pacific. Given the emphasis placed on regional expansion by Jacobs, the project required the right level of leadership and flexibility to succeed, coupled with a broad understanding of not only centralized processes but also in-country idiosyncrasies and banking relationships. Carlin brought this level of expertise to the project. For all acquisitions, Jacobs follows a rigid criterion of process and bank account consolidation, Carlin explains. Experience tells us that when we acquire a firm outside of the U.S., we re more likely to inherit numerous bank accounts and an array of diverse processes that contrast with our existing processes. Typically, we make it our first priority to shift all accounts to our existing banking provider to start the migration process. When issuing its RFP to global banks active in Asia Pacific, the challenge of addressing multiple banking relationships in Asia Pacific was paramount, but there were other considerations that needed to be addressed for Jacobs. Furthermore, the firm wanted to limit the duplication of infrastructure post-takeover of SKM and also implement an Oracle ERP system to go live within a tight timeframe. To meet these complex demands, Bank of America Merrill Lynch was mandated by Jacobs and immediately solidified this partnership in the region by integrating its solutions within the corporation s treasury structure. When digging deeper it became clear that the process required in Asia Pacific was consistent with a four-pronged methodology pioneered by Jacobs to manage treasury outside of the U.S., where it operates its treasury operations, supported by its global shared service center in Oakridge, Tennessee. As Carlin explains, for projects in non-domestic markets like Asia Pacific, where Jacobs has a sizable presence and is looking to expand, its treasury methodology is implemented on the basis of consistent security, harmonized processes, a single protocol and minimal banking partners. 46 Liquidity Management

49 From where we stand, managing multiple banking relationships is a taxing endeavor for complex corporations with international operations, says Carlin. You require significant staffing resources to manage the bank accounts. Additionally, multiple banking relationships have come under Sarbanes-Oxley review which also provides added benefits of using fewer partners. And perhaps most pressingly, multiple banking partners also introduce counter party risks and bank guarantee risks. Although a challenging undertaking for any organization, I believe that rationalizing bank relationships in this day and age is clearly a strategically-beneficial move at the treasury level and will form a central component of our global strategy for the foreseeable future. Given its recent moves in Asia Pacific, conversation with Carlin inevitably turns to Jacobs broader treasury strategy in this region. For the time being, Jacobs will continue to manage its Asia Pacific treasury operations from the U.S. Currently, vendor payments are made from its home market as is functions such as accounting for the region. In addition, Jacobs does operate an India workshare program for project management purposes. For Carlin, there are several key components that Jacobs would need to address before establishing a dedicated Asia Pacific treasury operation to provide on-the-ground support for regional businesses. From the onset, language and infrastructure integration are offered as the primary impediments at this stage of Jacobs treasury journey. In Asia Pacific we don t run a shared service center, but we have looked at the advantages seriously. There are many considerations and integration issues that will guide any future decision though. In the past we did look at low cost center as a potential option in Asia Pacific, but language, system implementation, our centralized IT services out of the U.S. presented some issues that we couldn t ignore, says Carlin. While Carlin does acknowledge that markets like Singapore do provide attractive incentives for centralizing treasury operations in Asia Pacific, specifically tax savings offered by the Economic Development Board, labor costs are rising offsetting some of the advantages. Hence, Jacobs appears likely to continue to manage its treasury operations from the U.S., with help from Bank of America Merrill Lynch. Our staff in finance is relatively small but highly effective. Yes, we do incur cost in running the data in treasury from the U.S, but we create efficiencies given that reporting and analytics is a key area that we look at. For example, Bank of America Merrill Lynch s CashPro Accelerate is one capability we will increasingly utilize for global cash positioning and reporting. Elsewhere, technology will likely play a more important role in managing Jacobs Asia Pacific treasury operations. According to Carlin, single portal products, like CashPro, provide an attractive option for centrally managing treasury in Asia Pacific from outside the region. He also cites SWIFT as a treasury module that the firm has looked at, but is only applicable for certain processes and structures. When asked about next generation technology products, primarily cloud-based systems, Carlin does see the benefits but not a fit for a corporation such as Jacobs. In other words, across the board simplicity is the ultimate goal for Carlin. Having a bank that operates with select correspondents and has the right infrastructure in Asia Pacific is necessary for Jacobs to manage an effective and functional regional treasury. Being based in the U.S, a partner that operates in the same footprint is also an essential component for us, but also a provider with the systems to allow us manoeuvrability ticks all the boxes, concludes Carlin. Liquidity Management 47

50 Transactional FX Management

51 Transactional FX Management Globalization driving cross-border payment diversity but creating added complexities US$ remains the standard trade currency, but RMB has made large strides in a short period 30% 10 or more countries Corporate Corporate payment 83% 45% 35% 50% 15% 7 to 9 countries Local Currency 33% 3 to 6 countries FX dealing FX processes gravitating online as treasurers put down the phone Booking FX Automation seen as maximizing FX operational efficiencies Transactional FX workflow Corporations seeing value in booking FX in tandem with payments Telephone 39% Online platform 52% Automated booking 27% Panel of FX banks 65% 24% 70% 30% 16% 36% Single bank 16% Multibank platform High volume, low value supporting doc regulated currencies High value free market currencies Payment bank Book FX alongside payment Pre book FX, & drawdown Automated FX pre agreed spread Cost reduction and risk management remain front of mind in FX workflow 30% Cost reduction 19% Control & visibility 17% Manage FX volatility Transactional FX Management 49

52 Best Practices in FX for Cross-Border Payments Managing foreign currency payment obligations, and the associated risks, is a crucial requirement for every treasurer with international responsibilities. In Asia Pacific, this is particularly challenging given the number of currencies that are typically involved, and the regulatory constraints that exist in many countries. As the findings of the Treasury Management Barometer illustrate, foreign corporations doing business in Asia Pacific, and local companies establishing a regional or global footprint, are seeking to increase efficiency and control and create economies of scale by centralizing cash and treasury activities through shared service centers (SSCs) and regional or global treasury centers (RTCs). While this can be a valuable first step in streamlining cross-border payment processes, an essential element of this process is how to deal with the foreign exchange (FX) component in an efficient, auditable and cost-effective way. The growth in cross-border payments goes hand-in-hand with increased expansion of corporates into the Asia Pacific region and the ongoing evolution of a globalized economy. However, with increased cross-border volumes comes heightened risks, as demonstrated by the recent moves by the Swiss National Bank and its impact on corporations globally, creating certain challenges for the treasurers to manage FX efficiently and cost-effectively. Sunil Bhatia Head of FX and Clearing, Asia Pacific Bank of America Merrill Lynch The scale of the challenge Globalization is a reality for all sizes of corporation, leading to growing complexity in cross-border payment requirements, often in foreign currencies. The Treasury Management Barometer survey confirmed that 78% of participating companies make cross-border payments to three or more countries for procurement, trade, services, taxes and payroll (Figure 1), and 30% to more than ten countries. Into how many countries do you make cross-border payments for procurement, trade, services, taxes and payroll? 33% % % 10 or more 15% 7-9 Figure 1 Number of countries into which cross-border payments are made 50 Transactional FX Management

53 Not only is the number of countries significant, but the number of currencies is equally so. Although US$ remains the most popular currency in which to make cross-border payments (Figure 2, 83%), with a sizable proportion in EUR, GBP and other G10 currencies (45% and 33% respectively) 50% of respondents also make cross-border payments in local, non-g10 currencies. This situation is common to all sizes of company: for example, while this requirement is highest amongst the largest corporations with a turnover of US$ 10 billion or above (54%), 44% of small and medium-sized enterprises with a turnover of less than US$ 500 million also need to make cross-border payments in local currencies. The challenge for smaller companies in particular is that while they face similar complexity in their cross-border payment requirements, they often lack the technology infrastructure and scale of treasury organisation to manage these requirements. Treasury implications The need to manage cross-border payments in multiple local currencies has a number of implications. The first is the need to maintain balances in these currencies, which creates currency risk and increases the number of accounts that companies need to maintain. This may in turn result in fragmented liquidity, so solutions such as notional pooling and interest optimization play an essential role in leveraging surplus liquidity in the group to offset deficits, and maximizing the value of cash holdings. There are alternatives to this approach that meet the needs of many corporations. Some banks offer FX solutions for foreign currency payments and collections to eliminate the need to maintain accounts in multiple currencies, and mitigate foreign currency risk. The lack of a unified currency and diverse regulatory regimes presents specific challenges for treasurers operating both inside and outside the Asia-Pacific region. Encouragingly, treasurers recognize this and are acting, demonstrating a willingness to seek alternative solutions and utilize FX platforms provided by banking partners. Faisal Ameen Head of Treasury Products, Asia Pacific Bank of America Merrill Lynch Secondly, while many companies (particularly larger enterprises) are highly efficient in the way that they process cross-border payments, the challenge is how to manage the FX component of cross-border payments to achieve a comparable high degree of automation whilst still ensuring that competitive pricing is being obtained. This challenge is exacerbated by the need to produce supporting documentation in some countries, such as China. Transactional FX Management 51

54 Thinking about your international business, in which currencies do you make cross-border payments for procurement, trade, services, taxes and payroll? 83% US$ 50% Local currency 45% EUR/GBP 35% RMB 33% G10 (US$, GBP, CAD, EUR, JPY, AUD, NZD, CHF, NOK, SEK) 21% Beneficiaries local currency Figure 2 Currencies in which cross-border payments are made FX dealing mechanisms One key opportunity to achieve this automation and transparency is through the use of online dealing tools. Currently, a significant proportion of treasurers (39%) use telephone dealing to manage the FX element of cross-border payments (Figure 4). This is consistent with global trends which identified that a similar number of participants used telephone dealing. However, telephone dealing can take considerable time and resources, and as dealers then need to record the transaction manually into a TMS, ERP or spreadsheet, the risk of error or fraud may be high. There is also little auditability over the rates achieved, so companies do not have the assurance of best price discovery. In contrast, use of electronic dealing mechanisms allows better price auditability, and enhanced automation and control through integration between electronic dealing platforms and internal systems. Use of electronic dealing methods is growing, both in Asia Pacific and globally. Over half (52%) of Treasury Management Barometer respondents use online dealing tools, 70% of which use single-bank platforms, and the remaining 30% using independent, multi-bank portals. This differs from global trends where there is equal preference for single-bank dealing platforms and thirdparty platforms. There would appear to be three key reasons for this: High volume/low volume Firstly, treasurers handling the FX element of cross-border payments are often dealing with a large volume of transactions but these may have a relatively small value. Consequently, using a singlebank platform may be more efficient, particularly due to the opportunity to conduct automated dealing for high/low volumes of transactions based on a pre-agreed margin that these platforms can offer (see Figure 4 below). In contrast, multi-bank dealing portals are typically more suited to high value transactions conducted individually, with the ability to obtain competitive quotes. 52 Transactional FX Management

55 Supporting documentation requirements Secondly, and related to the point above, Figure 5 reveals that 70% of respondents book the FX component of cross-border payments with the payments bank, so it is more efficient to use the bank s electronic platform rather than accessing a separate portal. This is particularly the case for restricted currencies as foreign currency cross-border payments need to be supported with the appropriate documentation, so it is easier to set this up with a single payment bank rather than with multiple banking partners. In contrast, bank proprietary solutions may be tailored to support cross-border payment documentation. In China, for example, the State Administration of Foreign Exchange (SAFE) requires evidence of underlying business transactions for all cross-border RMB and foreign currency payments and receipts conducted in China. To streamline this process, Bank of America Merrill Lynch has launched a new service to corporate customers in China, the Online Balance of Payments (BOP) Declaration Module. This solution enables treasurers and finance managers in China to streamline payment execution, and simplify and automate documentation processing, including providing the required data in electronic data format. This reduces administrative effort, lowers transaction costs, enhances operational controls and increases productivity. As the use of RMB cross-border continues to grow, (35% of Treasury Management Barometer participants in 2015, up from 16% in 2013) solutions that have significant implications in facilitating efficient cross-border payments. 61% No, not planning to 2013: Are you planning to make payments and/or receipts through an offshore RMB account? 16% Yes, already doing transactions 23% Not yet, but interested and exploring Figure 3 RMB cross border payments in 2013 Clients will increasingly demand solutions that address FX risk, enhance payment processes and supported by a bank that offers advisory services as they look to improve the cross-border payment process. The answer to these demands is clearly rooted in electronic solutions. Sunil Bhatia Head of FX and Clearing, Asia Pacific Bank of America Merrill Lynch Transactional FX Management 53

56 Meeting local conditions Thirdly, multi-bank dealing portals that were developed initially in Europe and North America are typically designed to manage more liquid, less regulated currencies than we see in Asia Pacific. In countries such as India, for example, treasurers need access to local solutions and services rather than more generic dealing platforms to meet regulatory requirements, such as the need for supporting documentation. How do you treat the foreign exchange (FX) element of routine and recurring cross-border payments? 39% Telephone dealing 36% Online banking platform 24% 21% 16% Book FX with pre-agreed spreads (up to a certain threshold) FX is not required as we maintain accounts in the invoiced currency Multi-bank platforms (Bloomberg, 360T, FXall, etc.) Figure 4 How companies treat FX element of cross-border payments For cross-border payments only, who do you book the FX with? 27% Panel of FX banks 70% Payment bank 4% Non-payment bank Figure 5 Choice of bank for booking FX component of cross-border payments 54 Transactional FX Management

57 How do you treat the foreign exchange (FX) element of routine and recurring cross-border payments? < US$ 500 million US$ 500 million - US$ 1 billion 28% FX is not required as we maintain accounts in the invoiced currency 21% Book FX with pre-agreed 25% spreads (up to a certain 19% threshold) FX is not required as we maintain accounts in the invoiced currency Book FX with pre-agreed spreads (up to a certain threshold) 36% Online banking platform 39% Online banking platform Multi-bank platforms 5% (Bloomberg, 360T, 9% FXall, etc.) Multi-bank platforms (Bloomberg, 360T, FXall, etc.) 29% Telephone dealing 32% Telephone dealing US$ 1-5 billion US$ 5-10 billion 17% FX is not required as we maintain accounts in the invoiced currency 20% Book FX with pre-agreed 21% spreads (up to a certain 28% threshold) FX is not required as we maintain accounts in the invoiced currency Book FX with pre-agreed spreads (up to a certain threshold) 38% Online banking platform 36% Online banking platform Multi-bank platforms 19% (Bloomberg, 360T, 21% FXall, etc.) Multi-bank platforms (Bloomberg, 360T, FXall, etc.) 44% Telephone dealing 47% Telephone dealing > US$ 10 billion 17% 27% FX is not required as we maintain accounts in the invoiced currency Book FX with pre-agreed spreads (up to a certain threshold) 31% Online banking platform 26% Multi-bank platforms (Bloomberg, 360T, FXall, etc.) 46% Telephone dealing Figure 6 How companies treat FX element of cross-border payments (by revenue size) Transactional FX Management 55

58 Automating FX booking processes Some corporations are going one stage further in booking the FX component for cross-border payments by automating the FX booking with the payments bank. By doing so, transaction processing is streamlined and convenient, whilst ensuring that currency risk is mitigated. Furthermore, by dealing at a pre-agreed margin, treasurers maintain visibility over deal pricing which they can then benchmark as appropriate. Figure 7 shows that with 65% of companies booking the FX component alongside their payments process, extending this process one step further, i.e. automated FX booking, could offer significant efficiency and control gains, particularly for those enterprises that lack the scale and sophistication of a treasury organization and infrastructure on which the largest companies can rely. Implementing best practices While we are often asked by regional and global treasury centers in particular for our advice on industry best practices, there is no one size fits all solution as organizations have diverse crossborder payment requirements depending on their industry, geographic footprint, business model and treasury organization. For some, foreign currency payment and collection solutions may be a very helpful means of eliminating the need for foreign currency accounts. In other cases, online dealing, whether single or multi-bank, supported with automated documentation tools may meet efficiency and risk management needs. In others again, automated FX booking may be the best approach to meeting these objectives. It is therefore essential to take a personalized approach when considering how to adapt policies, processes and technology to meet industry best practices. What has become increasingly apparent from discussions with customers, however, is the significant demand for a combined approach to FX risk/volatility management, efficient payment processes and market insights and expertise. This has led to the development of Bank of America Merrill Lynch s FX Trade & Pay solution that enables customers to source FX expertise, book deals/ hedges and transmit single or multiple payments online using this foreign currency amount. The solution provides flexibility in FX execution (whether by phone or electronic dealing) and the ability to match to single or bulk payments. As companies of all sizes continue to centralize their treasury organization and processing through SSCs and global or regional treasury centers, whilst continuing to expand their geographic reach across Asia Pacific, we expect adoption of online dealing solutions that combine process automation and risk management to continue to grow. What is your current workflow for cross-border payments? 65% Book FX alongside payment processing 30% Pre-book FX and drawdown for payment 16% Automated FX booking based on pre-agreed spreads by the payment bank Figure 7 Current workflow for cross-border payments 56 Transactional FX Management

59 Desirable transactional FX improvements Leading banks such as Bank of America Merrill Lynch are always seeking ways to improve the services we offer to our customers to meet their needs more fully and precisely. Feedback from the Treasury Management Barometer, supported by ongoing dialogue with our customers, highlights that corporations are constantly seeking to reduce costs in their transactional FX process, (Figure 8) which is also a goal for banks and vendors in order to offer competitive pricing to maintain good customer relationships. In addition, enhancing risk management (both operational and currency risk) and process efficiency are also priorities. Banks such as Bank of America Merrill Lynch continue to work hard, both within the bank and in partnership with specialist vendors such as SunGard, to provide timely, automated processing, end-to-end visibility over transactions and to enable customers to manage their operational and FX risk as closely as possible. What FX improvements would you like to see your bank and/or treasury management system provider deliver? 17% Automation for efficiency gains 10% Visibility of FX rates on payment instructions sent via electronic banking (whether online, host-to-host (H2H) or via SWIFT) 17% Managing FX volatility 8% Making payments in beneficiaries local currencies to manage business requirement 19% Better control and visibility of cross-border payments 30% Cost reduction Figure 8 FX improvements that respondents would like their banks/ technology vendors to deliver Transactional FX Management 57

60 Sharing Insights From Detroit, Michigan, American Axle & Manufacturing (AAM) manages a global network of manufacturing businesses and facilities. Officially founded in 1994, AAM is now firmly established as one of the global leaders in the manufacturing of automobile driveline and drive train components and systems, including axles, drive shafts, universal joints and sealing and thermal management products. With an entrenched position in global supply chains and partnerships with major automobile manufacturers internationally, AAM faces many of the typical issues of running a complex treasury management structure, with the added challenges of limited resources. Chris May Treasurer, American Axle & Manufacturing, Inc. According to Chris May, Treasurer at AAM, the firm s cash management operations outside of the U.S., present certain complexities and challenges towards centralization. At present, cash and treasury management outside the U.S. is decentralized, with standalone operations in China, Brazil, Poland, India and Thailand, says May. There are a variety of reasons why we have maintained a decentralized treasury organization. Echoing the views of many treasurers with a broad Asia Pacific focus, May sees cash pooling as one area that is particularly challenging in Asia Pacific for AAM due to the lack of a unifying regulatory system and a prevalent local currency. He explains that restrictions on cash pooling in Asia, with multiple currencies involved, make it difficult to quantify the benefit of implementing a centralization project at this stage. China is cited as a specific example. Given that we do not have a comparable scale of operations internationally as we have domestically, we feel that the value of a centralized treasury model at this stage would be relatively limited, although we will continue to review our organization in line with evolving business needs and priorities, says May. The scenario faced by AAM is not unique by any standards. As further supported by findings in the Asia Pacific Treasury Management Barometer, limitations around centralization are impacting treasury priorities for all multinational corporations irrespective of industry and scale in this region. According to May, the key treasury priorities identified in the Asia Pacific Treasury Management Barometer are consistent with the experience at AAM. For us, cash visibility and forecasting, risk management and working capital optimization remain the most pressing priorities in the Asia Pacific region, but have evolved in their level of importance over the years. For example, risk management was viewed as a different priority before the global financial crisis, and given external events in the broader market, we, like our peers, have strengthened our policies and processes substantially, says May. Elsewhere, the priority of risk management inevitably leads to conversations about AAM s banking relationships globally and in the Asia Pacific region. Over the past few years, numerous multinational corporations in the region have re-examined their bank relationships, many of whom have been motivated by risk management concerns. Our approach to bank relationships has changed significantly since the global financial crisis, explains May. Ten years ago, like many corporations, our aim was to appoint a single global cash management bank. Our preference today is to work with banks that offer particular expertise in each region in which we operate, such as China, India and Thailand, that are then connected to our global bank for liquidity and connectivity reasons. 58 Transactional FX Management

61 In this changing world, whereby corporations are consistently re-evaluating relationships with banking partners, access to timely information on global regulatory change has become another key consideration for international leaders such as AAM. In particular, the impact of Basel III and the Liquidity Coverage Ratio (LCR), identified in the Asia Pacific Treasury Management Barometer as an area that corporations need to better understand, is a topical issue where May has views that are consistent with many corporate treasurers. We were not surprised that many companies included in the study had little awareness of the likely implications of Basel III and the LCR, he explains. We attended a specific seminar on this issue hosted by Bank of America Merrill Lynch in 2013, which was very informative, so we are probably better prepared than many. Even so, the specific impact on treasurers has not yet been fully described or quantified as banks continue to work though their own compliance processes. Consequently, while we understand that there will be implications on capital structures, pricing and bank relationships, we will not seek to revise our policies until these ambiguities have been resolved. More specifically to this region, and given that AAM has become more active outside of its home market in recent years, foreign exchange has become a broader focus for May and his treasury team. Increasingly commonplace in the treasury space, supporting the needs of a multinational business now means that managing foreign exchange risk is a significant activity for professionals like May. In a business with a small and efficient staff managing US$3 billion in transactions, it can be challenging at times to seek multiple competitive quotes for small, higher volume transactions, says May. Therefore, while companies with a larger treasury function may choose to manage the FX component of cross-border payments separately, it is more cost effective to book the FX component of foreign currency payments directly with our payments bank based on a pre-agreed spread. Finally, there is the topic of technology and its role in the treasury activities of AAM in the Asia Pacific and globally. Similar to numerous respondents to the Asia Pacific Treasury Management Barometer, there is an awareness of the enabling role of technology but concrete plans to implement solutions are still in discussion. Currently, we do not use a specialist treasury management system (TMS) and like many other companies with a relatively small treasury function, we tend to utilize spreadsheets, says May. This is something we have reviewed over the past 12 months, but we decided that the cost and complexity was too much for our business. We are, however, going through a major ERP upgrade process, which includes accounts payable, accounts receivable and cash management, so treasury is benefitting significantly from this investment. However, newer innovations in treasury technology will provide opportunities in the future for AAM. May states that AAM is starting to consider technologies such as cloud computing and the use of mobile capabilities in treasury, but remain at an early stage of these deliberations. One obvious issue we would need to work with our IT department to address is data security, but we are becoming increasingly aware of the potential value, convenience and cost-efficiency of these technologies for our business, May concludes. Clearly, by examining the broader priorities and plans for treasury transformation in the Asia Pacific Treasury Management Barometer, May s views are hardly standalone and are shared by many of his peers. Transactional FX Management 59

62 Treasury Technology

63 Treasury Technology Spreadsheets remain the status quo for now Bank platforms on the rise, but not commoditized Electronic statements forcing online bank statements into increasing obscurity TMS deployment heading further offsite 69% 67% 82% 33% On premises 13% 30% 28% 16% Cloud 4% 10% 2% 5% 15% Hosted / ASP Online Manual Cloud Next months (Future) The rise of digital connectivity to eliminate manual processing Internal improvements driving corporate ERP and TMS deployment and upgrades Future 16% 1% 63% H2H Cloud Online banking 31% 7% 29% 11% H2H Cloud 34% 1% Cloud Manual payments Online banking Manual payments 63% Improve internal process 42% No major tech spend planned 15% Staff training 52% Use banking portal adopt solution provided by banks 22% Acquire new technology 23% TMS 34% ERP installation & upgrade Major technology spend planned for next 2 years Mobile revolution underway: more treasuries using mobile solutions more frequently than ever % Use mobile 41% Use mobile 63% Use once a week 86% Not using mobile 59% Not using mobile Treasury Technology 61

64 Leveraging Technology in Treasury The right technology plays an increasingly important role in meeting treasurers operational and strategic objectives by automating processes, enforcing controls, providing sophisticated reporting and analytical capabilities, and facilitating the flow of information between internal departments and external counterparties. In Asia Pacific, given that many treasury departments are at an earlier stage of maturity than their European or North American peers, the use of specialist treasury management systems (TMS), whether provided by banks, TMS vendors or enterprise resource planning (TMS) vendors, is also less common. However, the results of the Treasury Management Barometer 2015 emphasize that an increasing number of treasurers understand, and are seeking to benefit from, best practices in technology deployment. Broader technology adoption will be one of the defining trends in cross-regional treasury management in Asia Pacific in the coming years. Attitudes to technology have changed substantially, with treasurers increasingly recognizing the value that process automation and sophisticated analytics can deliver in treasury and to the wider enterprise. Cindy Murray Global ecommerce executive Bank of America Merrill Lynch The end of spreadsheets The majority of treasurers, irrespective of the size of treasury function, use spreadsheets (Figure 1, 67%), similar to the 2013 finding of 69%. In some cases, particularly amongst smaller companies, treasurers may use spreadsheets exclusively, whilst in others, these may be ancillary to other treasury and finance solutions. While spreadsheets are both ubiquitous and convenient, the extensive use of spreadsheets is inconsistent with industry best practices given the difficulties in achieving segregation of duties, defining detailed user rights, auditing user actions, and automating processes. Calculations in spreadsheets are prone to error and omission, and there are often only one or two people in the department with a detailed understanding of how they have been set up, resulting in a high level of dependency on a few key individuals. In Europe and North America, there is a significant audit and compliance focus on eliminating spreadsheets from business-critical functions such as treasury, a trend that is likely to extend to Asia Pacific over time. Paul Bramwell Senior Vice President, Treasury Solutions SunGard 62 Treasury Technology

65 Which system(s) does your treasury team use for cash and treasury management? 67% Spreadsheets 23% 20% 20% 13% 9% 3% In-house applications Specialist treasury management systems (hosted in-house) Treasury module from our enterprise resource planning (ERP) vendor Application provided by banking partner Hosted/cloud-based treasury management systems Other 2% Outsourced to banking partner Figure 1 Systems in use for cash and treasury management, : What systems does your treasury team use for cash flow forecasting and overall treasury management? 69% 26% 23% Spreadsheets Treasury module from ERP vendor In-house applications 16% 10% 4% 4% 4% Specialist treasury workstations Hosted/cloud-based treasury management systems Treasury applications provided by banking partner via ebanking portal End-to-end treasury and liquidity solution providing by banking partner Other Figure 2 Systems used for treasury management and cash flow forecasting, 2013 Treasury Technology 63

66 Which system(s) does your treasury team use for cash and treasury management? < US$ 500 million US$ 500 million - US$ 1 billion 68% Spreadsheets 68% 24% In-house applications 16% Treasury module from enterprise 14% 16% resource planning (ERP) vendor 13% Specialist treasury management systems (hosted in-house) 14% 10% Application provided by banking partner 12% 5% Hosted/cloud-based treasury management systems 3% 2% Other 3% 2% Outsourced to banking partner 2% Spreadsheets In-house applications Treasury module from enterprise resource planning (ERP) vendor Application provided by banking partner Specialist treasury management systems (hosted in-house) Other Hosted/cloud-based treasury management systems Outsourced to banking partner US$ 1-5 billion US$ 5-10 billion 69% Spreadsheets 72% Spreadsheets 22% 19% 17% 14% 12% Treasury module from enterprise resource planning (ERP) vendor In-house applications Specialist treasury management systems (hosted in-house) Application provided by banking partner Hosted/cloud-based treasury management systems 27% 24% 19% 13% 13% Specialist treasury management systems (hosted in-house) Treasury module from enterprise resource planning (ERP) vendor In-house applications Hosted/cloud-based treasury management systems Application provided by banking partner 3% Other 4% Outsourced to banking partner 2% Outsourced to banking partner 3% Other > US$ 10 billion 61% Spreadsheets 33% Specialist treasury management systems (hosted in-house) 32% In-house applications 23% Treasury module from enterprise resource planning (ERP) vendor 16% 14% Application provided by banking partner Hosted/cloud-based treasury management systems 3% Outsourced to banking partner 2% Other Figure systems used for treasury management by corporations of different sizes 64 Treasury Technology

67 The rise of specialist treasury management systems (TMS) While the use of spreadsheets is prevalent, this does not prevent treasurers included in the study from embracing other technology tools. Overall, 23% of participating corporations have built inhouse applications (Figure 1), which vary from simple databases through to more sophisticated solutions that mirror some of the capabilities of a specialist TMS. However, while in-house applications can be structured to meet a company s specific cash and treasury management needs, and therefore may offer some advantages upfront, the cost of maintaining the application over time can be very high, for example, to support new versions of operating systems, programming languages and security protocols, as well as adapting functionality to meet companies changing requirements. While these costs are effectively shared when accessing a third-party solution through maintenance or rental fees, a treasury that has developed proprietary tools has to carry the full burden of these costs. To address the efficiency and control challenges associated with spreadsheets, whilst avoiding the resource overheads of developing in-house solutions, a growing number of treasurers participating in the Treasury Management Barometer are adopting specialist TMS or treasury modules of ERP solutions, particularly in larger companies. 49% of respondents use either a specialist TMS or treasury module of an ERP, but this is higher amongst the largest organizations (above US$ 10 billion turnover) at 70%, two-thirds of which use a specialist TMS. Corporations in Australia and New Zealand were early adopters of TMS: indeed, the best-known solutions today, AvantGard Quantum and AvantGard Integrity were developed initially for these markets. We are now seeing this trend move northwards, with a growing number of corporations in ASEAN and north Asia adopting these specialist treasury solutions to manage the increasing scale and complexity of their multinational treasury requirements. Steve Evans Chief Operating Officer, Treasury & Payments SunGard Expanding functionality TMS solutions have been developed over a number of years, and therefore offer mature cash, treasury and risk functionality. As the scope of treasurers responsibilities has evolved, however, these solutions now offer a growing range of ancillary functionality. We are seeing considerable interest amongst corporate treasurers for complementary functionality, such as SunGard s bank account management (BAM) solution and bank fee analysis module. Of specific interest to treasurers in Asia Pacific, where treasurers often play a more active role in trade finance, we have started to offer solutions with an integrated approach to cash management and trade finance. Paul Bramwell Senior Vice President, Treasury Solutions SunGard Treasury Technology 65

68 Treasury in the cloud It is not only the number of corporations adopting TMS that is growing, but also the range of deployment options. For example, an important trend that has emerged in the 2015 data is the increasing number of companies using both hosted, application service provider (ASP) and cloudbased, software-as-a-service (SaaS) treasury solutions (both at 16% of those using a TMS, figure 4). A third have installed their TMS in-house, while a similar number are not sure, reflecting the fact that from a user perspective, there is typically no difference in experience. Commercially and technically, however, these deployment options are all quite different, therefore meeting the specific needs of corporations across Asia Pacific: An installed solution, as the description suggests, is an application that a company has licensed that they install in their own IT facilities and implement in accordance with their needs, closely supported by the vendor. The company is then responsible for maintaining the system, and installing upgrades, again with the support of the vendor. A hosted, or ASP solution is an application hosted and managed by the vendor or a third party in their own facilities, typically on a dedicated platform, which the company will often then access through a web browser. As the system is hosted and managed by the vendor, the amount of IT resource required is reduced, but the company maintains control over the way in which the system is used, such as workflows and reporting, and the timing of major events such as upgrades. Managed services are becoming increasingly important, initially in Europe, North America and Australasia, but interest is now growing across Asia Pacific. A SaaS (or cloud-based) solution refers to a TMS that is hosted by the vendor or another third party, with users accessing the application via a web browser. As with a hosted TMS, there is no software located on the company s own platforms so no dedicated hardware or IT resources are required. However, rather than each company having a dedicated platform and database, the TMS is hosted in a common environment with a shared database (although access is only permitted to the company s own data). Upgrades and corrections are provided automatically, as opposed to being scheduled between the vendor and customer. In addition, ancillary software and services such as bank connectivity are often provided as an integral element of the solution. SaaS solutions undoubtedly bring a variety of benefits to some organisations, and their appeal is growing fast: indeed, 80% of new customers implementing SunGard s AvantGard Integrity solution, for example, now do so on a SaaS basis. There is no need to dedicate IT resources to implementing and maintaining a treasury solution; similarly, internal and external interfaces (e.g. to ERP and banks) are managed by the vendor. The system, and related interfaces, is automatically kept up to date with changing regulatory, technical, security and functional demands, enabling treasury departments to operate according to industry best practices and regulatory obligations as these change over time. Paul Bramwell Senior Vice President, Treasury Solutions SunGard 66 Treasury Technology

69 There can be commercial benefits too. While both installed and ASP solutions generally involve an upfront license and implementation fee, and ongoing maintenance costs, SaaS solutions are typically accessed on a rental basis, i.e. a company pays a regular fee that covers use, maintenance and support of the system. It can be easier to calculate the cost benefit using this commercial model, and avoids larger upfront investment. However, while SaaS treasury solutions bring obvious advantages, there are some issues to take into account, particularly for larger organizations. For example, by using a shared treasury environment, there is less flexibility in workflows, instrument definition, reporting and key performance indicator (KPI) monitoring than an installed or dedicated ASP solution can provide, and no ability to add custom processes. For companies with relatively straightforward treasury requirements, these issues are likely to be insignificant. Companies with more bespoke functional, reporting or integration requirements may benefit more from a hosted solution, or a system installed in-house. A hosted solution, for example, still avoids the need for dedicated IT resources, but offers greater flexibility and sophistication in functionality, reporting, processes and instrument definition. What deployment method do you use for your treasury management system (TMS)? 33% Client/server (on-premise) 32% 16% 16% Do not know/information not available Private cloud (web-based, software-as-a-service) Server/application service provider (ASP) 3% Other Figure 4 Deployment of current TMS Treasury Technology 67

70 Amongst treasuries that have not yet started to use a TMS, more than half (57%) have not yet considered what deployment method they will use (Figure 5). This is understandable, and likely to be secondary to the decision to acquire a TMS in the first place. However, by exploring the diverse commercial and technical models that exist, many treasurers find that acquiring a TMS is a more realistic option than they had assumed. If you were to implement a dedicated treasury management system (TMS), which deployment method is likely to be the most attractive for your business? 57% No preference 16% Client/server (on-premise) 16% Private cloud (web-based, software-as-a-service) 10% Server/application service provider (ASP) Figure 5 Potential importance of TMS deployment methods TMS adoption continues to lag in parts of Asia Pacific as corporations cite the cost of ownership and complexity of their existing technology and organizational structures as obstacles. However, the range of commercial and technical models that is now available should help to alleviate these concerns and encourage greater adoption, with both strategic and operational benefits. Amit Sharma Head of ecommerce and Channels, Asia Pacific Bank of America Merrill Lynch Approaches to payments transmission While it is essential to leverage the right technology within an organization to achieve automation, control and visibility over cash and information, such as a TMS, the value of this technology is limited unless these capabilities can be extended throughout the lifecycle of a transaction, which will often include a payment. This involves sending the payment instruction to the corporation s cash management bank, which can be achieved in a variety of ways. 68 Treasury Technology

71 Host-to-host connectivity The most popular means of transmitting payment instruments to the bank (Figure 6) is host-tohost (H2H) connectivity, referenced by 32% of respondents. H2H connectivity offers secure, direct integration between a company s internal systems and the bank(s) and facilitates straight through processing (STP) for a high volume of transactions. Due to its suitability for transmitting high volumes of payment messages, H2H connectivity is most common amongst larger companies included in the Treasury Management Barometer: for example, 35% of companies with a turnover of US$ 1-5 billion use H2H connectivity, and 39% of companies with a turnover of US$ 5-10 billion, and 40% above US$ 10 billion. Which of the following method(s) of bank connectivity do you currently use? What plans do you have to change this over the next months? For Payments: 32% 26% Host-to-host (H2H) connectivity (payments) 30% 25% Online initiation/upload of payment files into banks proprietary ebanking platform(s) 17% 2% SWIFT 11% Manual (fax, , mailed paper 0% copy instructions, etc) 7% 34% 0% 0% Cloud-based (externally hosted third party connectivity) Other Current Situation Next months Figure 6 Methods of bank connectivity for payments - current and anticipated Treasury Technology 69

72 Which of the following method(s) of bank connectivity do you currently use? What plans do you have to change this over the next months? For Payments: < US$ 500 million US$ 500 million - US$ 1 billion 35% Online initiation/upload of payment files into banks proprietary ebanking platform(s) 34% Online initiation/upload of payment files into banks proprietary ebanking platform(s) 21% Host-to-host (H2H) connectivity (payments) 25% Host-to-host (H2H) connectivity (payments) 17% SWIFT 13% SWIFT 15% Manual (fax, , mailed paper copy instructions, etc) 12% Manual (fax, , mailed paper copy instructions, etc) 8% Cloud-based (externally hosted third party connectivity) 4% Cloud-based (externally hosted third party connectivity) 0% Other 1% Other US$ 1-5 billion US$ 5-10 billion Host-to-host (H2H) 35% 39% connectivity (payments) Online initiation/upload of 28% payment files into banks 27% proprietary ebanking platform(s) 19% SWIFT 16% Host-to-host (H2H) connectivity (payments) Online initiation/upload of payment files into banks proprietary ebanking platform(s) SWIFT 10% Manual (fax, , mailed paper copy instructions, etc) 9% 6% Cloud-based (externally hosted third party connectivity) 8% Manual (fax, , mailed paper copy instructions, etc) Cloud-based (externally hosted third party connectivity) 1% Other 1% Other > US$ 10 billion 40% 23% Host-to-host (H2H) connectivity (payments) Online initiation/upload of payment files into banks proprietary ebanking platform(s) 20% SWIFT 8% 6% Manual (fax, , mailed paper copy instructions, etc) Cloud-based (externally hosted third party connectivity) 0% Other Figure 7 Bank Connectivity used by companies of different size 70 Treasury Technology

73 Host-to-host (H2H) connectivity continues to make clear inroads as a payment initiation tool for corporates at the higher end of revenue scale. Smaller revenue scale corporates prefer ebanking as their payment initiation tool. Amit Sharma Head of ecommerce and Channels, Asia Pacific Bank of America Merrill Lynch Electronic banking solutions Web-based, bank-proprietary electronic banking solutions are the second most popular payment channel (30%). These are often the most familiar solutions for treasurers, in that they resemble personal banking solutions. They are quick and easy to implement, and provide convenient, secure access to bank services via a web browser, so users in different locations can access the same data easily. In addition, corporations using these solutions regularly define interfaces with in-house systems. Web-based electronic banking solutions are most prevalent amongst smaller organizations: for example, 35% of companies with a turnover of less than US$ 500 million use web-based electronic banking systems. Amongst larger companies, these tools are often used in conjunction with H2H or SWIFTbased connectivity by users based outside a regional or global treasury or shared service center. Both H2H and web-based electronic banking look set to continue in their popularity, with 26% (H2H) and 25% (web-based electronic banking) indicating that they plan to use, or extend the use of these techniques in the future. Manual payments transmission Manual methods of making payments, such as fax and hard copy instructions, are still in use by 11% of respondents, but this is clearly a sharply declining situation given that less than 0.5% anticipate that they will use these methods in the future, demonstrating that companies of all sizes and levels of treasury sophistication are seeking greater automation and control over payments. Use of manual payment methods is generally restricted to countries that have a less-developed payment infrastructure, and/or regulations that determine how certain payment types, such as tax or customs payments, should be made. In some cases too, small local banks,or subsidiaries of regional banks, have not yet developed electronic banking tools, but this situation is becoming far less prevalent. Manual payments will inevitably continue to decline across the region, driven by a heightened focus on risk management, and greater availability and accessibility of web-based electronic banking solutions. Faisal Ameen Head of Treasury Products, Asia Pacific Bank of America Merrill Lynch Treasury Technology 71

74 SWIFT connectivity While these findings are reasonably consistent with global trends, a contrasting trend that we see compared with regions such as Europe is the use of SWIFT. 17% of respondents noted that they currently use SWIFT for payments transmission to their bank(s), and only 2% expect to start using, or extend their use of SWIFT in the next 12 to 24 months. SWIFT offers the advantage of supporting multi-bank connectivity through a single channel, but the cost and complexity of implementation have been hurdles for many organizations in the past. This is an ongoing issue emphasized by the relatively large proportion of respondent companies (42%) that do not plan a major technology investment in the short to medium-term (Figure 10). As a result, unless the use of SWIFT is mandated at a headquarters level, many organizations in Asia Pacific have found it difficult to justify the cost benefit of using SWIFT over other forms of bank connectivity. This situation is exacerbated given that SWIFTNet FIN messages are restricted to Roman characters, so its value in China (particularly as the national payment system CNAPS is not compatible with SWIFT although this is changing with CNAPS 2), Japan and Korea is limited. The emergence of cloud-based connectivity solutions Just as we saw that cloud-based TMS are gaining traction, there is a similar increase in the level of interest in cloud-based solutions for bank connectivity, such as SWIFT s Alliance Lite2. In 2013, only 1% of participants used cloud-based solutions for payments; in 2015, this has grown to nearly 7%, and a further 34% anticipate using them in the short to medium-term, a five-fold increase. Alliance Lite2, for example, offers the benefits of multi-bank connectivity, bank neutrality, security and reliability of SWIFT, but without the need for large-scale investment of resources. Given the interest in cloud-based solutions, we are likely to see wider innovation in this area, not only in the corporate-to-bank space (both through SWIFT and proprietary banking solutions) but also more widely across the financial supply chain, such as facilitating corporate-to-corporate communication. Cloud-based solutions present an exciting proposition for cash and treasury management in Asia Pacific, not least due to the combination of lower upfront costs, shorter implementation times and reduced maintenance. Consequently, banks will increasingly use cloud-based platforms to address customer demand for agile solutions to cash and treasury management challenges. Amit Sharma Head of ecommerce and Channels, Asia Pacific Bank of America Merrill Lynch 72 Treasury Technology

75 However, while Alliance Lite2 plays a valuable role in supporting multi-bank connectivity to corporations that might not previously have considered a SWIFT service bureau offering, there are some considerations of which treasurers need to be aware: Firstly, while the base subscription fee may appear to be more cost-effective than a SWIFT service bureau solution, additional costs can mount up, so it is important to compare the full cost of ownership including all additional services, connectivity options, message types and volumes. Secondly, some service bureaux offer more than simply SWIFT connectivity, and these additional services can be valuable for companies of all sizes and complexity, reducing internal costs, increasing straight-through-processing, enhancing standardization and improving controls. Thirdly, treasury and payments solutions, particularly those offered on a SaaS basis, increasingly have connectivity services embedded within them, often via SWIFT, so from a treasurer s perspective, the specific deployment method used becomes irrelevant. As bank connectivity increasingly becomes an embedded component of SaaS-based treasury and payment solutions, treasurers and finance managers are looking for partners who can provide global expertise and end-to-end support. The way in which this connectivity is achieved i.e. Alliance Lite2, an external SWIFT service bureau or another connectivity method, is not as important as the capacity of their partner to commit to a global level of service for the solution. Jerome Albus Senior Vice President, Payments & Messaging SunGard While SWIFT initially served as an incubator for the global centralization story, its next chapter will be increasingly focused on bank connectivity across a secured network. In our view the adoption of SWIFT Alliance Lite2 will be the key driver within this evolving phase, whereby hosted connectivity, streamlined implementation and reduced IT investment will now hold a greater appeal for the commercial banking client space. Cindy Murray Global ecommerce executive Bank of America Merrill Lynch Treasury Technology 73

76 2013: What method of connectivity do you currently use with your banks (for payments and bank statements)? And will this change in the next months? 63% 51% Via ebanking platform 20% 23% SWIFT for Corporates 16% 21% Host-to-host connectivity 1% Cloud-based 5% (externally hosted third party connectivity) Bank Connectivity (%) Next months (%) Figure 8 Bank connectivity methods for payments and bank statements, 2013 Collating bank statements Bank statements typically need to be accessed by a wider group of people within an organization than payments, such as local finance teams as well as regional or global treasury centers and shared service centers. Consequently, while H2H connectivity is important for centralized business functions as a means of accessing balance and transaction information (25%, Figure 9), the use of banks proprietary electronic banking tools is widespread (82%, Figure 9) amongst companies of all sizes. While most companies work with only a small number of banks for payments processing, they may need to access balance and transaction information from a larger group of banks with which they hold accounts. These are often small local banks at which companies are obliged to open accounts for regulatory reasons (e.g. to make local tax payments) or in order to access the branch network for collection. This results in far higher use of manual methods for accessing bank account information (29%) than we saw for payments (11%) as not all of these banks have electronic banking tools. Even where these capabilities exist, it may not be cost-effective to implement and integrate these tools where these accounts are used infrequently. A similar number of companies use SWIFT (14%) as those who use it for payments, but there is somewhat more interest in the opportunities to use SWIFT in the future for accessing balance and transaction information (12%) than for payments, (Figure 6, 2%). Given the larger number of bank relationships, the use of a single channel for communicating with multiple banks offers some attraction, and a different value proposition to H2H connectivity. 74 Treasury Technology

77 It is therefore surprising that so few respondents (less than 2%) use cloud-based bank connectivity solutions today, and more surprising still than only 5% plan to implement these solutions over the foreseeable future. One possible reason is that treasurers and finance managers lack awareness of the potential to use solutions such as Alliance Lite2 for two-way, rather than simply one-way (corporate to bank) integration. In addition, there are increasing opportunities to collate balance and transaction information indirectly from a single source (multibank reporting via the core cash bank, Alliance Lite2, and cloud-based TMS that aggregate bank statements from multiple banks), rather than directly from each bank. By leveraging these solutions alongside the TMS or ERP, treasurers gain access to specific functional benefits such as the ability to schedule statement downloads, integration with internal systems, and automatic account statement reconciliation. Which of the following method(s) of bank connectivity do you currently use? What plans do you have to change this over the next months? For Bank Statements 82% 30% Downloading (statements) via banks proprietary ebanking platform(s) 29% 10% Manual (fax, , mailed paper copy instructions, etc) 25% 22% Host-to-host (H2H) connectivity - for reporting 14% 12% SWIFT 2% 5% Cloud-based (externally hosted third party connectivity) 0% 0% Other Current situation Next months Figure 9 Methods of bank connectivity used for bank statement retrieval - current and anticipated Treasury Technology 75

78 Planned changes in the use of treasury technology Looking ahead, treasurers have a range of priorities in the way that they manage their cash, treasury and risk management activities. The most important priority for treasurers, highlighted by 63% of respondents, is to improve internal processes (Figure 10). This could include acquiring new technology (22%) such as a TMS, or making better use of existing systems. Implementing bank solutions features prominently amongst respondents, with 34% seeking to implement a bank platform/portal (including Alliance Lite2), and 17% a more comprehensive cash management solution from their bank. As discussed above, SWIFT is a priority for 11%, but this is less significant than other communication methods. A positive finding of the Treasury Management Barometer is the importance of staffing. 15% noted the importance of staff training, and 7% indicated that they would be increasing the size of their treasury team. As companies implement new technology, and improve the way that they use existing tools, ensuring that new and existing staff have the right skills and support is essential to making the best use of these solutions, and achieving wider treasury objectives. What changes are you planning to improve treasury management in your company? 63% Improve internal processes 22% Use ebanking portal 22% 20% 17% 15% Acquire new technology We have no treasury improvement plans Adopt end-to-end solution provided by banking partner Offer staff training 12% Adopt a bank platform 11% 7% 3% Implement SWIFT connectivity Increase the size of treasury (staffing) Other Figure 10 Planned changes for improving treasury management 76 Treasury Technology

79 Technology investment plans Although 63% of companies said that they wished to enhance treasury processes (Figure 10), 42% of Treasury Management Barometer respondents are not planning a major technology investment (Figure 11), although technology figures prominently in treasurers plans and priorities. For this 42%, it will be important to find ways to leverage existing technology more effectively, and embrace new deployment and commercial models, such as cloud-based solutions, that do not require a large upfront investment. Over half of respondents, however, are planning a major technology project over the next two years, of which installing or upgrading the ERP is the most common (34%). TMS installation and upgrades also figure prominently (23%) which in some cases may be standalone projects, while in others, it may be aligned with other projects, such as treasury transformation or ERP rollout/ upgrade. What major technology investments are you planning to make in the next two years? 42% 34% 23% 16% 12% 3% No major technology investment ERP installation/upgrade Treasury management system (TMS) implementation/upgrade Improvement of risk management tools and processes SWIFT connectivity/payments Other Figure 11 Major technology investments planned over next two years Treasury Technology 77

80 Towards the mobile treasury Alongside these larger infrastructure projects, there is significant innovation taking place in related technology, such as the use of mobile devices for cash and treasury management. Banks and vendors alike continue to invest substantially in enabling their applications to be accessed via smart phones and tablet devices, supporting the needs of treasurers who travel frequently, and less centralized operations where treasury analysis, reporting and transaction approvals may be distributed amongst a number of executives. In the 2013 survey, only 14% (Figure 12) indicated that they are using mobile or tablet devices to access treasury or banking solutions. In 2015, this has improved to 41% (Figure 13), marking a major shift in behavior in only a short time. Of those that use mobile and table devices, 63% do so regularly (i.e. at least once a week) while the remaining use is still relatively infrequent at this stage. 2013: Do you access your treasury/banking systems on a mobile or tablet device? 14% Yes 86% No Figure 12 Mobile device usage in Treasury Technology

81 How often do you access your treasury/banking systems on a mobile or tablet device for business reasons? 59% Never 26% At least once a week 9% At least once a month 6% At least once in six months Figure 13 Frequency of accessing treasury/ banking system via mobile/ tablet devices 2013: If you have access to your treasury/banking systems on a mobile or tablet device, when did you last access it? 58% Within the past seven days 27% Within the past month 10% Never 5% Within the past six months Figure 14 Use of mobile for treasury and banking systems, 2013 Treasury Technology 79

82 Despite a considerable shift, there are still a number of obstacles in the use of mobile technology in treasury. Of those not yet using mobile devices, for the largest proportion, 44% (Figure 15), the primary reason was the lack of mobile access offered by their bank(s)/vendor(s) but this is likely to change quickly. Concerns over security were expressed by 31%, which is also likely to be reflected in the 22% whose corporate policy prohibits mobile access to business-critical, sensitive applications such as treasury and banking systems. For 24%, the lack of company-issued devices was a hurdle; while in other cases, although treasurers may be able to use their personal devices, the cost of roaming data charges outside their home country may be prohibitive. Interestingly, less than 10% noted that lack of functionality prevented them from using mobile devices. Given the shift that has already taken place over 12 months, we are likely to see further innovation in the mobile space, with banks and vendors offering a wider range of capabilities that leverage the unique proposition of mobile devices rather than simply replicating functionality of desktop and laptop PCs. The use of mobile devices in treasury can be valuable, so long as it is clear what tasks are best-suited to these devices. For example, the screen size of a mobile phone is too small to present sophisticated reports, but it may be a useful means of giving senior executives a convenient means of approving treasury transactions or payments. By offering our entire solutions via a browser, treasurers can determine what devices and workflows are best-suited to their business. Paul Bramwell Senior Vice President, Treasury Solutions SunGard Across borders, the inherent ease and convenience of phone and tablet platforms will drive clients towards action-oriented capabilities rather than information-based notifications. We see mobile usage better suited to service-oriented tasks rather than transaction initiation tasks. Cindy Murray Global ecommerce executive Bank of America 80 Treasury Technology

83 Why aren t mobile or tablet devices accessed for treasury/banking systems? 44% 31% 24% 22% 10% We do not have access to treasury/banking systems via mobile or tablet devices We are concerned about the security of data and/or transactions Our company does not provide mobile/ tablet devices Corporate policy does not allow access to treasury/ banking systems via mobile/tablet devices The functionality we need is not supported by mobile or tablet devices Figure 15 Reasons for not using mobile/ tablet devices to access treasury/ banking systems As the Treasury Management Barometer reveals, treasurers and finance managers recognize the transformational nature of technology in achieving cash, treasury and risk management objectives. In fast-moving businesses that are often experiencing considerable expansion in new markets, it can be difficult to justify significant investment in treasury technology rather than front end solutions that directly influence revenues. By making more effective use of tools that are already in place, leveraging new commercial and technical models, such as cloud-based/ SaaS solutions, and taking advantage of innovation in the mobile space, treasurers can make a substantial difference to the efficiency and control over treasury processes, visibility over cash and risk, and quality of reporting and analytics. Treasury Technology 81

84 A Culture of Constant Improvement A Major Multinational Technology Provider Creating a balance between a centralized treasury hub model and the diverse requirements of an Asia Pacific cash management operation is no easy task. For a major, U.S.-based technology provider that has a centralized hub in its home market, the challenge is even greater. With a broad presence in this region, and given many of the in-country regulations and market idiosyncrasies, the local finance and accounting team in Singapore undertake some daily cash and treasury management tasks, such as monitoring bank account balances. Apart from its Singapore operations, treasury activities in Asia Pacific are relatively limited at this stage, and are restricted primarily to research and development and sales functions, which operate on a relatively autonomous basis, according to its treasurer. Most of the contracts for these entities are intercompany transactions so the treasury requirements are relatively limited. The corporation operates shared service centers (SSCs) for finance and accounting in other regions, such as Europe. It has not yet had the scale to justify extending this model to Asia Pacific, but this could change in the future. However, there are many centralization projects in the pipeline for this leading technology corporation. For example, improving cash visibility and forecasting, enhancing treasury processes, optimizing working capital, and managing risk are major treasury priorities at both a regional and global level, which is consistent with other multinationals operating in Asia Pacific. The issue of multiple banking partners is another topic that is a focus for this corporation. The drivers of this shift are multi-faceted, according to its treasurer. For example, in this firm s case, as with multinational and regional peers, managing cash on a regional basis makes it easier to maintain visibility and control from the U.S. This strategy also allows corporations to avoid the need to maintain local electronic banking systems, and to centralize liquidity wherever possible. We are evaluating our banking relationships on a country-by-country basis, working with the local business to understand their needs and constraints, and identify opportunities to close accounts or migrate from local banks to our global partner bank, explains the treasurer. As a result, most countries now have accounts with Bank of America Merrill Lynch and we have an active program of closing legacy accounts that are no longer required to meet local regulatory requirements, such as for payroll or tax. As treasurers continue to express, concerns around regional cash visibility increasingly focus on effective and functional liquidity management structures. For this corporation, a variety of different liquidity management structures exist in Asia Pacific, with around 60% of accounts included in automated cash pools, and manual transfers between others, wherever this is permitted. 82 Treasury Technology

85 We have a notional cash pool located in Singapore in which entities in all eligible countries are included. As a result of the diversity of the markets and different regulations that control the movement and conversion of currency, managing liquidity in Asia Pacific is more challenging than in some other regions, says the treasurer. In India, for example, the company s second largest operation after Singapore, it uses offshore accounts wherever possible to pool US$, but offshore accounts are not permitted, impacting the ability to accurately forecast cash flow. We are always seeking improvements to our cash flow forecasting processes, says the treasurer. In the past, we have focused on the largest entities, but over the past year, we have received cash flow forecasts from all of our entities to support treasury decision-making. Accuracy and timeliness of data remains an issue, and we are trying to take a more proactive approach to resolving this by extracting data directly from planning and budgeting systems which business units then validate. The next step will be to produce variance reporting, so we can work with local entities to identify and address forecasting discrepancies in a more systematic way. Technology is an important enabler of improved treasury efficiency. The corporation utilizes a TMS for all aspects of cash, treasury and risk management, including cash flow forecasting. More recently, it has started migrating local entities from spreadsheets to its TMS to create more efficient cash flow forecasts, and integrating the solution with its ERP and planning system. However, the cloud-based nature of its TMS differentiates this corporation as a next generation technology adopter both globally and regionally. Our TMS is a cloud-based solution that we adopted in 2008, the treasurer explains. We were attracted to a cloud-based solution as the upfront cost was lower, and the upgrade process is undertaken automatically, allowing us to take advantage of the latest version of the software without the need to dedicate IT and treasury resources to lengthy upgrade processes. We have also been able to take advantage of additional modules easily as our treasury requirements have expanded, again without the need for a lengthy implementation process. Mobile technology also represents another strategic option for its Asia Pacific treasury going forward. As a business committed to innovation in the mobile space, we are actively considering the use of mobile devices to access our treasury and banking systems. Bank of America Merrill Lynch s CashPro mobile solution was recently reviewed and approved by our IT security team, so we are now authorized to implement this on permitted devices, which are usually company-issued devices which have more robust security and encryption tools in place, says the treasurer. For this leading technology provider, the key to maximizing its treasury operations and delivering on its treasury priorities will rely on ongoing investment in its technology infrastructure to enhance the efficiency and control of treasury processes and the quality of decision-making. Treasury Technology 83

86 Building Scalability, Governance and Efficiency in an Asia Pacific Finance Function As the world s largest data center and colocation provider, Equinix operates International Business Exchange (IBX ) data centers in 32 locations across 15 countries in North America, Europe and Asia Pacific, with a corporate mission to protect, connect and power the digital economy. Asia Pacific is of particular strategic importance to Equinix, representing the firm s fastest growing region, with 5% quarter-on-quarter growth in Q3, 2014 and 23% year-onyear on an as-reported basis. Given this impressive rate of growth, Wee Gee, CFO, Asia Pacific, discusses how he is positioning the organization both to meet current challenges and support future growth. Wee Gee CFO, Asia Pacific, Equinix Inc. Finance organization in Asia Pacific We host data centers and provide services in six markets in Asia Pacific: Singapore; Hong Kong; Japan; Australia; China and Indonesia. To support our operations in these countries, we have also established a financial shared service center (SSC) in Singapore, which provides transaction support in accounting, accounts payable and receivable, and treasury back office. The SSC works in close conjunction with in-country finance teams who provide local support and business partnering, and its regional headquarters in Singapore where value-added services such as financial planning and analysis, consolidation, internal controls, tax and treasury are conducted. Despite the opportunities for efficiency, control and economies of scale, Equinix has found that centralization comes with certain obstacles. Obstacles to centralization Based on our experiences, I was not surprised that only 37% of participants in the Treasury Management Barometer had set up SSCs in Asia Pacific so far, states Wee Gee. The size of an organization is often a major hurdle: too small, and there is not sufficient opportunity to leverage the benefits; too large, and it may seem too complex an undertaking. In Wee Gee s view, corporate strategy is also a consideration to any centralization project. If a corporation has reached a steady state, with relatively modest growth in a region, initial benefits may not be compounded in the future. In addition, it is often difficult to prioritize centralization projects over other potential projects, particularly given the political sensitivity of transferring responsibility away for certain activities from local teams, he says. A shared services vision at Equinix Equinix first proposed the concept of a finance SSC in Asia Pacific in early 2013 as part of a regional vision for financial optimization. Although the size of its business in the region was relatively modest at that time, growth rates were significant and senior management recognized the need to prepare for the next level in its corporate development. Wee Gee explains, When designing our SSC strategy, we identified clear objectives. We recognized that a decentralized finance model was not sustainable in the longer term given the need to add new resources to support business growth, so scalability was our first objective. Secondly, we wanted to address governance challenges: specifically, it was difficult to ensure compliance with group finance policies and processes without central visibility and control over activities such as accounts payable, receivable, treasury and accounting. Finally, we aimed to improve the efficiency of our finance processes, and deploy our resources in a way that offered the greatest value to the Equinix enterprise. And with the formation of an SSC, in-country finance teams could focus on business partnering with their local sales and operations teams. The SSC project progressed quickly and successfully but inevitably, there have been some challenges given the scale and complexity of the undertaking. With this backdrop, it was essential for Wee Gee to find the resources required upfront, with a shared vision and the right leadership for both setting up and managing the SSC. 84 Treasury Technology

87 It took time to put together this team, particularly as there is considerable competition for talent in Singapore, he recalls. We were also proactive in gaining local management support by organizing a road show of events to overcome concerns about the transfer of responsibilities from local teams to the SSC. While this was ultimately successful, it took time, which needed to be factored into the project plan. Having invested in building a SSC, we have achieved our short-term goals of enhancing compliance and efficiency, but also positioned the business for future growth. CFO priorities Establishing the SSC has been an important step in enhancing our broader finance operations, which forms a firm basis for implementing solutions to optimize cash and working capital management. We are currently working with Bank of America Merrill Lynch to introduce purchasing cards and T&E cards, and enhance payment and collection processes. In addition, we have recently embarked on a project to enhance its file-based integration between its ERP and the bank with a dedicated host-to-host connection. From a CFO perspective, managing risk is a key priority and a driver for solution evolution, which is again one of the areas highlighted in the Treasury Management Barometer. This extends not only to financial risk such as FX, interest rate and counterparty risk, but into wider concerns such as the slowdown of growth in China, the ongoing low interest rate environment and economic and monetary concerns in Europe. Banking partnerships In this environment, visibility of cash, and an efficient approach to cash and liquidity management, has never been more important. One of the key ways in which we achieve this is to limit the number of banking partnerships as far as possible. Although we work with a panel of banks, in order to diversify our counterparty risk and gain access to specialist services where appropriate, we partner with Bank of America Merrill Lynch for the majority of our cash and treasury activities. This enables us to minimize the number of bank accounts we maintain, simplify liquidity management, standardize processes and rationalize bank connectivity, In addition, by working with a trusted bank that has a deep understanding of our business and with whom we have strong personal relationships, we gain access to expertise and solutions that add value to our business. says Wee Gee. He continues, For example, we have a notional pooling arrangement in place with Bank of America Merrill Lynch, one of the first corporations in Asia Pacific to do so. Cash concentration was not achievable given the diversity of markets involved, and the potential tax and regulatory constraints. However, the solution provided by Bank of America Merrill Lynch has enabled us to gain the benefit of higher returns on cash, and lower borrowing costs, with minimal tax or regulatory implications. Cloud innovation Wee Gee concludes, Looking ahead, we will continue to review opportunities to enhance our finance and treasury activities further, including emerging new technologies such as cloud-based and mobile solutions. For example, Equinix Cloud Exchange enables seamless, on-demand and direct access to all major networks and cloud providers. Leading enterprises are recognizing the power of these solutions to improve cloud and application performance, and we anticipate that finance and treasury solutions will soon be available that will meet the needs of CFOs. We will continue to consider the cost benefit of potential solutions on a case-by-case basis, in line with changing business, regulatory and economic conditions. By working with a trusted banking partner, we are in the best position to identify the right solutions for our business and leverage them to our best advantage. Treasury Technology 85

88 Appendix

89 Appendix Respondent profile Organizational profile The Treasury Barometer 2015 survey was conducted between October and November 2014 and attracted 1,350 respondents across all sizes of organization (Figure 1). Respondents included privately owned (34%), publicly listed (64%) and a small number of state-owned enterprises (3%). What is your annual global sales turnover? 15% US$ 500 million - US$ 1 billion 12% US$ 5-10 billion 23% > US$ 10 billion 24% US$ 1-5 billion 26% < US$ 500 million Figure 1 Respondent organizations by turnover Appendix 87

90 All major industries were represented (Figure 2) with the highest level of responses from the electronics & technology (19%), manufacturing (16%) and financial services (9%) sectors. Other industries included retailers and other B2C businesses, consultancies and logistics. How would you describe the sector in which you primarily operate? 19% Electronics & Technology 16% Other 13% Manufacturing 9% Financial Services 7% Services - Non-financial 6% Chemicals 5% Healthcare 5% Fast Moving Consumer Goods 4% Energy, Power & Utilities 4% Automotive 4% Insurance 2% Communications 2% Conglomerate 2% Construction 1% Natural Resources 1% Agriculture 1% Private Equity 1% Media 0% Aerospace Figure 2 Respondent organizations by industry 88 Appendix

91 Asia Pacific coverage Respondent organizations have a presence across a wide range of markets in Asia Pacific (Figure 3) with the highest representation in China (71%) India (60%) and Hong Kong (57%). On average, companies had a business presence in seven countries in the region. Please select the Asia Pacific market(s) where you have business presence. 71% China 60% India 57% Hong Kong 55% Singapore 51% Australia 48% Japan 46% Korea 42% Taiwan 42% Malaysia 40% Thailand 35% Indonesia 31% Philippines 28% New Zealand 27% Vietnam 12% Bangladesh 11% Sri Lanka 5% Cambodia 4% Pacific Islands 3% Other Figure 3 Asia Pacific markets in which respondent organizations have a business presence Appendix 89

92 Regional treasury responsibilities Individuals who participated in the Treasury Barometer 2014 had diverse responsibilities, with the highest proportion (41%) responsible for the specific local markets, reflecting the relatively high proportion of decentralized treasury operations in Asia Pacific, with a further 6% responsible for treasury in Greater China, and 4% for South East Asia. 30% of respondents had pan-asian responsibilities, typically through a regional treasury center (RTC). 19% had global responsibilities through a global treasury center located either within or outside the region. Please select the market you are responsible for. 19% Global 6% Greater China 4% South East Asia 30% Regional: Asia 41% Local Figure 4 Respondents regional treasury responsibilities 90 Appendix

93 As Figure 5 shows, 27% of respondent organizations manage cash and treasury through an RTC for Asia Pacific, while 36% do so through a global treasury center, which may be based within or outside the region. A relatively high proportion of companies (37%) have not established an RTC to date, but 11% of these (4%) overall are in the process of setting one up. This reflects a relatively high level of treasury decentralization compared with other regions, but it is consistent with our experiences with customers. Many companies headquartered in Asia Pacific have somewhat less mature treasury functions than foreign multinational corporations and continue to grow rapidly. Treasury centralization has often not been a priority so far for some, but as the relative scale of their international operations increases, and liquidity and risk considerations become more significant, we expect to see further centralization in the future. Foreign multinationals that have often centralized cash and treasury management in other regions may not yet have done so in Asia Pacific both due to the relatively small scale of their business in some Asia Pacific countries, and the regulatory complexity and diversity across markets, such as China. Again, however, we would expect this to change as the materiality of the business in the region increases and regulatory barriers are removed. Do you operate a Regional Treasury Center (RTC) in Asia Pacific? 33% No. We do not plan to have an RTC 27% Yes 36% No. The region is managed by the Global Treasury Center 4% We are in the process of setting up an RTC Figure 5 Regional treasury centers in Asia Pacific Appendix 91

94 Amongst those that have set up an RTC to date, a third have chosen Singapore as a location (Figure 6) and 30% Hong Kong, reflecting the maturity of the financial markets, liberal regulatory environment, skilled, specialist workforce and connections to other Asia Pacific countries. China, particularly Shanghai, is growing rapidly as an RTC location (25%). This applies not only to companies headquartered in China, but also foreign multinationals, not least due to the pivotal position of China in companies Asia Pacific strategy. In addition, corporations that have grown through acquisition and/or have diverse business activities are more likely to have decentralized cash management. With the process of regulatory liberalization ongoing, the launch of the Shanghai Free Trade Zone (SFTZ) in 2013 and increasing opportunities to leverage RMB as part of a regional liquidity strategy, we would expect a larger number of corporations to base RTCs in China in the future. Where do you operate Regional Treasury Center(s) in Asia Pacific? 33% Singapore 28% Hong Kong 25% China 15% Other 6% Australia 1% Malaysia Figure 6 Location of regional treasury centers 92 Appendix

95 Shared service centers in Asia Pacific While the majority of respondent organizations have centralized their cash and treasury management function at either a regional or global level, fewer have so far established shared service centers (SSCs) in Asia Pacific (Figure 7). Only 31% had set up SSCs, with a further 6% in the process of doing so. Some of the reasons for this are similar to those that have prevented companies from setting up RTCs; in addition, however, the use of manual, or semi-automated payment and collection methods in many countries, diversity in financial markets and culture across the region, and restrictions on cross-border flows, continue to be barriers to SSC implementation. As financial markets mature, regulatory challenges dissipate, and the relative scale of corporations activities in the region grows, we would expect the number of SSCs in the region to grow. Do you operate a Shared Service Center (SSC)? 31% Yes 6% We are in the process of setting up an SSC 63% No Figure 7 Shared service centers in Asia Pacific Appendix 93

96 The study illustrates some the differences in criteria when selecting a location for an SSC versus an RTC (Figure 8). Although Singapore continues to be a popular location (19%) this is eclipsed by both China (35%) and India (28%). There are a variety of reasons why this would be the case. For example, given the pressures on SSCs to deliver economies of scale and cost efficiency, labor costs, as well as skills and education, are a key criterion. Furthermore, as these figures include both domestic and regional SSCs, the size of China and India as domestic markets has a significant impact on companies decision to base an SSC in these locations. Where is your Shared Service Center(SSC) based? 35% China 28% India 19% Singapore 11% Malaysia 10% Philippines 9% Other 9% Hong Kong 6% Australia 4% Thailand Figure 8 Shared service center locations 94 Appendix

97 The survey results and interpretations in this report are not intended, nor implied, to be a substitute for the professional advice you would receive from a qualified accountant, attorney or financial advisor. Always seek the advice of an accountant, attorney or financial advisor with any questions you may have regarding the decisions you undertake as a result of reviewing the information contained herein. Nothing in this report should be construed as either advice or legal opinion. Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ( Investment Banking Affiliates ), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and members of SIPC, and, in other jurisdictions, by locally registered entities. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed. THE POWER OF GLOBAL CONNECTIONS is a trademark of Bank of America Corporation, registered in the U.S. Patent and Trademark Office Bank of America Corporation. Survey prepared May AR6YDBFP. About SunGard s Corporate Liquidity SunGard s Corporate Liquidity is a leading liquidity and risk management solution for corporations, insurance companies and the public sector. The Corporate Liquidity solution suite includes credit risk modeling, collections management, treasury risk analysis, cash management, payments system integration, and payments execution delivered directly to corporations or via banking partners. Corporate Liquidity solutions help consolidate data from multiple in-house systems, drive workflow and provide connectivity to a broad range of trading partners including banks, SWIFT, credit data providers, FX platforms, money markets, and market data. The technology is supported by a full range of services delivered by domain experts, including managed cloud services, treasury operations management, SWIFT administration, managed bank connectivity, bank on-boarding, and vendor enrolment. About SunGard SunGard is one of the world s leading software and technology services companies, with annual revenue of about $2.8 billion. SunGard provides software and processing solutions for financial services, education and the public sector. SunGard serves approximately 16,000 customers in more than 100 countries and has more than 13,000 employees. For more information, please visit

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