Bitcoin, Blockchain & Distributed Ledgers: Caught Between Promise & Reality

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Bitcoin, Blockchain & Distributed Ledgers: Caught Between Promise & Reality

Blockchain’s genesis in Bitcoin: in October 2008, Satoshi Nakamoto proposed a combined digital asset and peer- to-peer payments system in his paper, Bitcoin: A Peer-to-Peer Electronic Cash System. The first Bitcoin was minted on January 4th 2009, the first payment occurred on January 11th, and the software was released as open source on the 15th, enabling anyone with the required technical skills to get involved.

How has South32 streamlined its payments process?

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How has South32 streamlined its payments process?

The Australian mining giant has utilised SAP’s In-house Cash module to drive efficiency and reduce costs.

South32 is a globally diversified metals and mining company, with operations mining and producing bauxite, alumina, aluminium, energy and metallurgical coal, manganese, nickel, silver, lead and zinc in Australia, Southern Africa and South America. The focus of the company’s operations is in the Southern Hemisphere, with a head office in Perth and regional hubs in Perth and Johannesburg

Insights CFO Sentiment | Edition 3

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Insights CFO Sentiment | Edition 3

Confidence amongst CFOs continues to improve alongside the positive fortunes of the global economy.
That doesn’t mean that uncertainty doesn’t continue to prevail, but Australia’s most senior finance executives remain comfortable in the face of the challenges it presents. Risk appetite is up, innovation and technology – from blockchain to automation – remain keys to productivity improvements, and workforce wellness has emerged as an important focus.

What did Australia’s most senior finance executives make of the first half of 2017?

 

IFRS 9 – Good Things Come To Those Who Wait

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IFRS 9

Good things come to those who wait, Nik Tandy, Head of Thought Leadership – Asia Pacific Global Markets HSBC writes, IFRS 9 / AASB 9 finally becomes mandatory in Australia in 2018. Initial proposals for the new Standard were first made public back in 2009, but it took until July 2014 before a comprehensive Standard was issued.

The Exchange Magazine Issue 2 Out Now!

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The 2nd issue of the FTA’s Exchange Magazine is out now!

This issue, our feature article is the 2017 Corporate Borrowers Intentions Survey Report, great reading about the year ahead from a corporate perspective.

Don’t miss the interview with FTA Board Director and Fortescue Metals Group Corporate Treasurer Lee Trewartha about balancing work and life, as well as a wrap-up of the AGM from the 2016 Conference.

ETOS asks the question “How healthy is your Treasury?”

S&P provide some great insights, their “Australian Credit Outlook 2017” is a must read. 

To read the magazine click here

The ‘virtual reality’ of treasury

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The ‘virtual reality’ of treasury

PwC is proud to present the latest edition of there global Treasury Benchmark survey for 2017.

Before zooming in on the findings, I’d like to thank the 220 corporate respondents for the time and effort…

Read more

Fundamental review of the trading book

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FRTB program implications

While it is reasonably clear what is required for IT, data, and implementation, there are still some unknowns and some tough to deliver requirements, including Non-Modellable Risk Factors (NMRFs), Profit and Loss (P&L) attribution, and the question of whether full revaluation is needed to satisfy the attribution tests.

Although banks have participated in regulatory Quantitative Impact Studies (QIS) and industry surveys, not all banks have performed detailed analysis to determine impact on trading desks and business strategy. By doing so, there is an opportunity to shape the design and implementation of FRTB in a more optimal way.

With major framework changes, such as enhanced disclosure, and increased requirements for Risk-Finance alignment, framework challenges posed by the FRTB should be given early consideration.

Delivering the FRTB

A number of UK and European banks now have programs up and running, or preparing to formally launch, with a view to completing most changes and preparing for parallel run by the end of 2017 or the first part of 2018.

Different banks have focused initially, to varying degrees, on each of QIS and impact assessments, understanding the rules and engaging in lobbying and industry forums, and using FRTB to motivate major system infrastructure changes.

To read the report in more detail click here to download it.

For more information, contact Steven Cunico from Deloitte.

 
Steven Cunico

Steven Cunico

Partner, Assurance and Advisory

+61 3 9671 7024

 

What’s going on with WACC rates in Australia?

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What’s going on with WACC rates in Australia?

The technical committee discussed the topic of Weighted Average Cost of Capital (WACC) given that we are in the middle of year end reporting, and WACC is a critical input into performing asset impairment tests.  The general discussion acknowledged that there seems to be at times a disconnect between WACC rates used for investment and business valuation purposes versus WACC rates used by accountants and auditors for asset impairment testing (I may be stating the obvious here, but it is an issue that just won’t go away).

Further to this, there was long discussion around the impact of low interest rates, and what impact this was having on the calculation of WACC rates.  The RBA actually identified this issue within the last 12 months http://www.businessinsider.com.au/the-rba-just-acknowledged-interest-rates-wont-help-business-investment-in-australia-2015-6, as they noticed that the dramatic reduction in interest rates, has not necessarily flowed through into investment hurdle rates, therefore is not having the desired effect of encouraging more business investment and M&A activity.

The key components of WACC are cost of debt and cost of equity.  A key input is the risk free interest rate.  Ever since the onset of the GFC and historic low interest rates, there has been debate over what approach to use when determining the risk free rate.  Some suggest that some form of historical average is appropriate, as rates now are artificially low and will at some point revert to normal (whatever normal is).  Others take more of an objective view and simply use market observable risk free rates of government bonds, however simply adjust the equity market risk premium to offset this.  However we have had low interest rates for many years now, and have now seen rates turn negative.  In fact, it is difficult to foresee when rates will normalise.  So the question is whether WACC rates are indeed too high given where risk free rates are at.

There was also discussion around differences between WACC rates in the US vs Australia.  It seems that it is more generally accepted in the US to simply use the observable risk free rate (say 20 year US Govt bond yields), and that this has in fact been supported in a court of law.  In Australia however the view is that a long term historical average is more appropriate.  It is interesting to compare average WACC in the US vs Australia.  Whilst this is not necessarily that scientific, anecdotally, average WACC rates in Australia are around 9-10%.  Based on analysis performed by Damodaran, http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/wacc.htm the average WACC rate in the US is around 6.3%, with 80% of WACC rates by industry below 8.4%.  As at 30 June 2016, 10 year US bond yields were around 1.6%.  Australian govt bond yields were around 1.9%.

This is a topic that will be discussed in more detail at our annual FTA conference.

Steven Cunico FFTP
Partner
Deloitte Australia

Q&A with John Messent CFTP

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Q&A WITH JOHN MESSENT CFTP
Group Treasurer
Australian Gas Networks


Tell us a bit about yourself

I have been in my current role for 18 months and have previously worked with a number of organisations, including Ernst & Young, ANZ and Peoples’ Choice Credit Union.  Whilst my core background has been through treasury and finance related functions, I have also had responsibility for credit risk, business risk and operational delivery teams.  I have also spent a number of years as a Director of a NFP disability services provider which I found very rewarding.

Outside of work you will find me enjoying time with my family – we have 2 wonderful teenage girls who are growing up fast!  I enjoy cooking, tennis and British comedy.  I am also fortunate to own my late Grandfather’s 1955 Jaguar that has huge sentimental value for me and was our wedding car – I take it out as often as possible for a run or in historic car events.

Q1: What is the size of your team and what is the one thing you do well collectively?

AGN is quite a small team as our asset management and operational functions are delivered via APA.  There are two of us in Treasury and I think the key thing we do well is balancing key day to day tasks with longer-term projects – communication and teamwork are key.

Q2: In your career, what are the major changes that you have seen within Treasury in the past 5 years?

The continuing work-out of the GFC and QE have brought uncertainty and volatility.  In many ways, this is nothing new and for me, one thing the GFC did was reinforce and reward good risk management practices.  This includes the benefits of diversification, strong counterparty relationships and getting the basics right.  As always with events such as this is the regulatory response – the flow-on impact of this through many areas not least of which being bank balance sheet management that is permeating through in terms of pricing and a greater focus on risk-based product features.

Q3: What are the challenges and opportunities facing Treasurers both now and into the future?

I think the key piece (as always and this will never change) is building strong connections and mutual understanding within the business – this is the foundation of good treasury & risk management.  Around this is the increasing demands on business performance and responding to opportunities – increasing the need to be agile.

Q4: Roles are evolving and technology is challenging our way of working. Do you agree and how are you adapting to the change?

As with any tool, the key is how you use it.  Technology does not alter the fundamentals of what you are there to do.  I have never forgotten one of a number of sayings of a great Maths teacher many years back ….. “before you turn the calculator on make sure you have a good idea of the answer you are expecting”.  What technology has given us is the ability to interrogate vast amounts of information and provide broad access to this information – the challenge is to build the framework to filter and deliver the information effectively.

Q5: Why did you get into Treasury?

I always had an interest in finance and banking.  I recall being recruited across into a Treasury role whilst being on a graduate programme at State Bank of SA and went from there – I have been fortunate to have worked with some great people at formative stages in my career.  I think that Treasury gives you a great perspective on the organisation and also some very transportable skills.

Q6: What are the three major skills that make a successful Treasurer?

A strong desire to understand the business – Treasury can never be successful if it is not connected with the business.

An ability to translate and communicate – to demystify and to some extent be a storyteller to explain key concepts and engage with others.

To be a good steward – be clear on the fundamentals that need to be protected to ensure that the business has a robust and flexible operating base.

Q7: On both a personal and professional level, what are you really passionate about?

I am a strong believer in how you conduct yourself in all dealings (personal and professional) – your brand and values are your most important asset.  I value and respect people who are authentic and consistent in their dealings and look to do the right thing.

Q&A with Geoff Rooney CFTP

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Q&A WITH GEOFF ROONEY CFTP
Senior Manager Financial Services,
EY

Tell us a bit about yourself

I am a Senior Manager in EY’s Financial Services Office based in Sydney. My role focuses on advising and providing assurance to financial institutions and corporate treasury departments. I love treasury, finance, capital markets and the broader financial services and wealth management industry.

I am a Chartered Accountant, Member of the FTA, AMCT and Association of Corporate Treasurers, UK. I am a degree qualified RG146 compliant financial planner, so I would say I am not afraid of some additional study.

Q1: What is the size of your team and what is the one thing you do well collectively?

We have 15 in our team across Sydney and Melbourne. We are a fast paced group of people with many projects underway at any one time, so juggling multiple deadlines and constant stakeholder management is something that is a daily challenge.  Our team culture is strong, and has been forged by hiring the right people, regular team meetings and brain storming sessions as well as planned social activities.  These all help to make sure that the workload is shared, and the team communicates seamlessly.

Q2: As someone who works closely with Treasurers and Treasury teams, what do you see as the challenges and opportunities facing the profession now and into the future?

Treasurers are being asked now more than ever to do more with less.

For many organisations it is difficult get the right people, with the right skills and then, once you have them, to retain them is a constant battle. With the increasing number of Millennials in the work force, and the ongoing trend for finance transformation this is only set to continue.

Treasury reporting is also a common challenge. Is less more, or is the devil in the detail? Do you have standard reports, or constant monthly customisation for current issues and themes? This struggle is increased by an often continual need to reconcile multiple data sources, combined with some board and audit committee members with varying levels of treasury knowledge.

While these are but two examples of challenges that treasury professional face, they are not going to go away any time soon. They do however present some opportunities for treasury professionals. I see these opportunities as;

  1. We as treasury professionals have the opportunity to redefine what the treasury career path of the next generation will be. What will attract, retain and enrich the next group of treasury professionals and how will they help us all to have stronger influence as a collective is open for us to define.
  2. With treasurers being asked to take on broader roles within organisations, and review historic treasury reporting, we as treasury professionals are well placed to be effective change agents across organisations. With the core skill set of financial risk management, the ability to help empower the broader business, and those charged with governance to better understand the risk and rewards of business activities more fully, ultimately add to the bottom line.

Q3: Roles are evolving and technology is challenging our way of working. Do you agree and how are you adapting to the change?

There is no escape from technology, it will only continue to increase in its prevalence in all our workplaces and lives. Rather than trying to ignore technology or work around it, working to embrace the change will put people that do, in the driver’s seat. Cloud computing, cyber security risks, big data, Robotic Process Automation are all items that need to be on the mind of treasury professionals.  As I mentioned above, we have a chance to redefine what the treasury profession is known for, and being able to use technology to quickly analyse and interrogate data to provide insight can only be a good thing. I would not want the profession to stand still and have our own Kodak moment

Q4: As a member of ACT how if any will the role of the Corporate Treasurer in Europe change as a result of Brexit?

Given the high level of uncertainty about what the economic environment looks like post the Brexit referendum there are few straightforward answers but there are questions that need to be considered for all treasurers. Not just those that are headquartered in the UK, but those that have subsidiaries in the UK, business units, banking counterparties or even contracts/customers within the UK.

Locally, to date most people have just been getting on with the usual reporting season impacts and considering, how the treat Brexit in CVA/DVA and basis risk impacts for 30 June valuations and your hedge effectiveness testing.

Over the longer term as the impacts become more clear, treasurers should work with their leadership team to consider the impacts across the treasury operating model including, governance, funding, cash management, risk management and working capital management.

Q5: What in your opinion the three major skills that makes a successful Treasurer?

1. Intelligence
2.Perserverience
3. Agility

Q6: On both a personal and professional level, what are you really passionate about?

I like getting out of my comfort zone. You learn so much more about who you are and what you can achieve when you are pushing yourself to do and try new things.

At work, I enjoy projects that are forward looking and where I can work with teams of enthusiastic people to find solutions to problems that have caused organisational pain or stress for some time.

Personally, I like adventure holidays, for example recently I have been tracking in Nepal, and Peru and also have travelled across India, and Papua New Guinea.  I have also just finished my sailing skippers ticket/licence and so I am looking forward to planning some overseas sailing expeditions, potentially in Tonga, Cuba or New Zealand.