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The Role of the Treasurer Today

In an environment fraught with high interest rates and low growth many companies both locally and internationally are facing a challenging path ahead. In this environment, the role of the corporate treasurer has never been more important. Navigating a path for any company, whether they have high debt or high cash balances, means having to increasingly engage with all stakeholders internally and externally in order to ensure better cash flow management. A corporate treasurer not only manages a company’s cash management and other day-to-day treasury functions but also provides strategic financial guidance which is equally important.

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A shift in the treasurer’s role

However, in a South African context, the role of the corporate treasurer appears to increasingly become a casualty of companies
trying to minimise heavy head- office structures and the ability to recruit and retain treasury talent remains a challenge. We have
seen a shift from a dedicated corporate treasurer towards a CFO-managed function. This detracts from the opportunity inherent in a well-run corporate treasury.

While the corporate treasurer would have historically reported into the CFO, this role is increasingly being disintermediated to the CFO holding the reins with treasury managers operating the function with limited strategic input. While the CFO should always be at the helm, we believe too big a disintermediation detracts from the ability of the corporate treasurer to add value in a way which was previously imperative to the organisation and additionally grow local
talent in this space.

As a result, many corporates have experienced some negative outcomes such as:

1. Limited active management of foreign exchange or interest rate risks

2. An increasingly complex intercompany loan structure between entities, fraught with its own risks such
as:

  • Tax risks on any write offs which may occur and resulting tax leakage without a structured cash management system in place;
  • A belief that intercompany loans would net on consolidation (due to finance running the function) and as such do not have to be settled.
  • This results in underperformance in some subsidiaries being masked and additionally the solvency being retained in entities which may be subject to other macro factors;
  • As a result of the above, there would be increased solvency risks should a subsidiary be sold, enter business rescue or be wound up with a large intercompany payable; and
  • Section 45 implications given how onerous it would become with a complicated structure

3. Inefficient short-term cash flow monitoring and usage within the group without an immediate focus on cash and its related applications (especially in the current economic environment)

4. Inadequate covenants set or the related measurement thereof for the debt instruments as this would largely be driven by the finance function without adequate consideration for cash flows;

5. A lack of strategic focus on the capital structure of the underlying subsidiaries and inefficiencies in moving money around; and

6. A lack of strategic engagement with lenders and other stakeholders to allow a company to be proactive in its engagements

This experience is true from medium sized enterprises to listed companies. A corporate treasurer adds an important layer on all areas from FX, cash and facility management to engagements with lenders which allows CFOs to better spend their limited time on more strategic endeavours.

The right arm of the CFO

Corporate treasurers and corporate treasury teams act as the right arm of the CFO and add a wealth of support. The corporate treasurer helps manage the financial risks which could impact the ability of the business to trade as a going concern and it rests significantly on the shoulders of the corporate treasury.

Corporate treasurers not only help businesses manage financial risks, they help firms establish a cash culture without relying completely on spreadsheets and numerous bank accounts. The corporate treasurer has gone beyond a nice-to-have to a must-have. The corporate treasurer deals with existing and expected cash. Simply put, the role of the treasurer is to ensure the availability of the right amount of cash, at the right time, at the right place, and in the right currency.

Similarly while the role of the corporate treasurer is important in a difficult economic environment, the role is equally
important in times of expansion and excess cash generation.

The corporate treasurer would be responsible for assessing the pros and cons of business expansion projects and finding the right areas to deploy cash to yield the best return. Many external and internal factors impact a business financially. The corporate treasurer keeps a close eye on these factors and sets up policies and strategies to mitigate any potential risks to the business.

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Corporate treasurers not only help businesses manage financial risks, they help firms establish a cash culture without relying completely on spreadsheets and numerous bank accounts.

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The successful treasury

Corporate treasurers also often find themselves in conflicting positions internally as they manage both external stakeholders and internal management. The ability to navigate these relationships is what defines a strong treasury department and a more effective corporate.

Experienced advisors can help provide independent competency and capacity to corporates wishing to manage excessive debt burdens, restructure their capital stack and manage cash flows more efficiently.

To foster a successful treasury department, opportunities for treasurers or independent advisors include:

1. Restructuring debt and equity instruments to best suit the needs of the company;

2. Negotiation of most cost-effective pricing and appropriate terms;

3. Navigating complex relationships with lenders including the right level of transparency and visibility to banking groups to maximise opportunities or trade through challenging periods;

4. Implementation of short-term cash flow forecasting for visibility of cash flows and cash generation at appropriate intervals (monthly/weekly) to support better decision making and the timing and use of cash resources;

5. Implementation of efficient cash management arrangements for tax efficiency in the underlying subsidiaries, including cash sweeping and group cash management;

6. Implementation of appropriate governance and contractual relationships to ensure compliance with the companies act and loan
undertakings; and

7. Implementation of the right level of education and reporting for the company or group. In these economic conditions it is more important than ever to acknowledge the importance of each area of the treasury department and the value it adds to the business.

Mahesh Patel

Director,
8Hundred Enterprises (Pty) Ltd

Mahesh is a Director of 8Hundred Enterprises (Pty) Ltd and has extensive experience in distressed assets, liquidity management, turnarounds and capital structuring. He has worked within the restructuring advisory teams of two of the Big 4 audit firms as well as within the treasury departments of listed distressed companies. He has managed cash flows, structured complex debt instruments and aided corporates in restructuring their balance sheets. Mahesh is a qualified Chartered Accountant and Advanced Financial Modeler and additionally has a certificate from the University of Cambridge in Sustainable Finance.

8Hundred is a Johannesburg-based strategic advisory firm that helps organisations across Africa access the debt and equity markets and advises on the treasury process within an organisation.

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