Treasury Verdict Australia and New Zealand

Sponsored by Treasury Verdict Australia and New Zealand The viewpoint of corporate treasurers on up-to-the-minute issues Date: 16 May 2012 Topic: Where: Current Issues Facing Treasury and Finance Professionals in Australia and New Zealand The EuroFinance conference on International Cash, Treasury and Risk Management, held in Sydney, Australia. Respondents: Senior treasury and finance professionals of domestic and foreign-owned multinational companies operating in Australia and New Zealand. INTRODUCTION Treasury Verdict is the electronic voting and panel discussion held at EuroFinance events worldwide. This report is based on the votes of corporate treasury professionals, bankers and other vendors and advisers who attended the 2nd annual EuroFinance conference on International Cash, Treasury and Risk Management, held in Sydney, Australia on 15 16 May 2012. Commentary was provided by these panelists: Damian Glendinning, Treasurer, Lenovo, Singapore Dr Savvas Savouri, Chief Economist, ToscaFund, United Kingdom David Goode, Product Manager Liquidity and Escrow Services, J.P. Morgan Treasury Services, Australia David Blair, Independent Treasury Consultant, Singapore (conference chair) Key findings The overall level of optimism in Australia and New Zealand is good, with 63% saying they were upbeat about their company s performance in the next 12 months. [Question 1] However, in comparison with the same Treasury Verdict poll taken last week, this region trails behind the Americas (81%) and Asia (67%) [see Global Context, below]. There is concern over the rising price of the Australian dollar, with 50% of delegates expecting it to appreciate in the next 12 months. A further 34% think the currencies will track at a similar rate to today. [Question 2]. The vast majority of treasury and finance professionals in Australia and New Zealand (91%) expect to see a fully convertible RMB at some point in the future. However, more than half (5) are not and do not expect to receive invoices from Chinese suppliers in RMB [Question 3]. The nearest markets are the most important areas for global growth plans of Australian and New Zealand businesses, with 61% seeing China as an important area and 71% selecting the rest of Asia as their area of choice. [Question 9]. RESULTS 01 future outlook Thinking about your company s performance over the next 12 months, are you: Optimistic Pessimistic Uncertain 28% 63% A majority of companies in Australia and New Zealand are positive about their company s performance in the next 12 months, with 63% saying they are optimistic. Some 28% are uncertain, while are pessimistic. Treasurers as a whole are optimistic, in the Americas even more. Americans are inherently optimistic. The uncertainty here has been increased by events both in Australia and globally. Treasurers are more rational than economists. Page 1 of 5

02 CURRENCY PERFORMANCE How will the A$ perform against the US$ over the next 12 months? Appreciate >15% Appreciate 5%-15% Remain about the same (±5%) Depreciate 5%-15% Depreciate >15% 41% 34% 16% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% A full 84% of finance professionals in Australia and New Zealand believe that the Australian dollar will appreciate or remain at about the same level to the US dollar over the next 12 months. Half of all delegates say it will appreciate. Timing is everything. If the question asked about 36 months or 24 months, the appreciate by more than 15% answer should have been hit 99.9 Maybe Australian corporates also do not want to think about those levels of appreciation, they would be far too painful. If the Australian dollar depreciates, you make Aussie assets that much cheaper to foreigners, which would drive inward capital. This, in turn, would push the currency up, so there s a contradiction here. There should be another option: all of the above. The real problem we face is volatility. 03 CHINA, ASIA AND THE RMB How worried are you that a relative slowdown in China will affect the rest of Asia? Very Not very There won t be a significant slowdown 48% 17% 35% Treasury and finance professionals in Australia and New Zealand are not worried about a relative slowdown in China. Nearly half (48%) do not believe there will be a significant slowdown. Only 17% say that they are very worried. I m not surprised by this result. Slowing down from 12% to 6 8% is quite significant on a relative basis, but it still displays very good growth. Do you expect to see a fully convertible RMB? Within the next 5 years In 5 10 years > 10 years It won t ever be fully convertible 20% 3 32% A fully convertible RMB will happen, according to an overwhelming 91% of the delegates. Nearly four in ten (3) believe that this will happen in five to 10 years time, while 32% think that it will happen in the next five years. China can t be such an important part of world trade and not have the instruments that are required to enable full trading and activity. China can t get the outside funding through trade that it once did. There s a huge global appetite to invest in China through sovereign debt, but this can t be satisfied until the RMB is fully convertible. Are you receiving invoices from Chinese suppliers in RMB? Yes No We are expecting to 23% 18% A majority of the delegates (5) are not receiving invoices in RMB from their Chinese suppliers. Nearly a quarter (23%) do expect to in the future, while 18% are already seeing this. We re expecting the amount to increase but, like the previous question, you need to see a freeing up of the capital inflows and outflows for that to happen. 5 Page 2 of 5

04 IMPACT OF THE EURO CRISIS Is the euro crisis having a negative impact on your business? Yes, considerable impact 10% Yes, some impact 44% Not yet, but I expect it to 24% No sign of any impact 22% 0 10 20 30 40 50 60 70 80 Over three quarters of the delegates are either experiencing or expecting a negative impact on their business from the euro crisis, with 44% experiencing some negative impact today. Some 22% report no sign of any impact. If anything, the crisis in Europe is emphasising the attractions of this region. There is an issue with getting funding with the European banks less likely to fund in US dollars. Lack of funding would be a negative impact. 05 REFINANCING RISK Are you facing refinancing risk? No Yes Not yet, but we expect to 8% 7 A large majority of finance professionals in Australia and New Zealand (7) are not experiencing refinancing risk. At the EuroFinance conference in Singapore last week, 74% said no, which already surprised me. What is interesting was that in the Miami conference this number was 58%. It is a majority saying no, but many more in the Americas are finding it to be an issue. Funding is available, but the pricing is going up. 06 CASH FLOW FORECASTING What is your biggest barrier to more effective forecasting? (pick up to two) Technology tools Senior management sees no value in it Treasury s needs not understood 43% 25% Rest of business doesn t communicate Volatility (sales, financial markets, etc) 4 We are satisfied with our forecasting 11% 0% 10% 20% 30% 40% 50% 60% 70% 38% The biggest barrier to effective forecasting in Australia and New Zealand is volatility (4). Technology tools (43%) and lack of communication from the rest of the business (38%) are also key factors. The response for volatility points to some of those conversations around currency rates and markets that we ve had earlier. While volatility makes things difficult, before you can even get there information is the key. Treasurers need accurate and timely information. Page 3 of 5

07 PROTECTING THE SUPPLY CHAIN What are you doing to protect your supply chain? (Pick all that apply) Offering better payment terms Direct financial support to suppliers Working with banks to provide finance Providing solutions for the unbanked We are squeezing our supply chain None of the above 11% 43% 11% 2 37% 0% 10% 20% 30% 40% 50% 60% 70% The most popular way to protect the supply chain for treasurers in Australia and New Zealand is to work with banks to provide finance 43% of those polled selected this option. The next most popular tactic is to squeeze the supply chain, with 2 of delegates choosing this option. This is very dependent on the industry you are in. Our two biggest suppliers are Microsoft and Intel my ambition is to squeeze them but I m not doing very well! 08 SPARE CASH What are you doing with your spare cash? We don t have any spare cash Building cash buffers Paying down debt Distribute to shareholders/buy-backs Making diversified investments Expansion / M&A 18% 30% 14% 14% 15% 0% 5% 10% 15% 20% 25% 40% 35% 40% Many companies in Australia and New Zealand prefer to use their spare cash to pay down debt (30%). Only of delegates say they do not have any spare cash. This level of paying down debt may explain why you have little problem getting refinancing. Looking forward, Basel III will have a huge impact on where spare cash is deployed. The cost of holding cash will go up. Perversely, in the law of unintended consequences, the increased cost of holding cash buffers will make people more reluctant to do it, which will increase risk in the system. 09 GLOBAL GROWTH PLANS Which are the most important areas for your company s growth plans globally? (choose up to two) North America Latin America 16% China 61% Rest of Asia 71% Europe 10% Middle East/Africa 7% 0% 10% 20% 30% 40% 50% 60% 70% 80% Global growth plans for Australian and New Zealand companies are largely focussed on the Asian market, with China (61%) and the rest of Asia (71%) proving far more popular than regions further afield. The 10% who selected Europe points to the fact that an opportunity exists to take market share by being very competitive in a time of austerity. There is a level of parochialism that tends to come out in answer to this question - in Turkey the most important region was Middle East/Africa, while in Miami this was Latin America. Page 4 of 5

Global Context EuroFinance has recently run Treasury Verdict sessions at our flagship International Event in Rome on 12-14 October 2011, India (Mumbai) on 15-16 November 2011, South Africa (Johannesburg) on 22-23 November 2011, China (Shanghai) on 23-24 November 2011, Brazil (Sao Paolo) on 5 December 2011, Canada (Toronto) on 14 February 2012, Mexico (Mexico City) on 28 February 2012, the Middle East (Dubai) on 13 March 2012, Turkey on 16-17 April 2012, Asia (Singapore) on 9-11 May 2012 and the Americas (Miami) on 9-11 May 2012. Optimism levels a comparison Results show the percentage of delegates who selected optimistic in response to the following question: Thinking about your company s performance over the next 12 months, are you optimistic, pessimistic or uncertain? Brazil Mexico Americas India Middle East Asia Turkey South Africa Australia Canada China Europe 85% (December 2012) 82% (February 2012) 81% (May 2012) 77% (November 2011) 73% (March 2012) 67% (May 2012) 66% (April 2011) 64% (November 2011) 63% (May 2012) 61% (February 2012) 52% (November 2011) 50% (October 2011) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% About EuroFinance EuroFinance is the leading global provider of conferences, training and research on cash management, treasury and risk. Running more than 50 events worldwide, EuroFinance enables treasurers and CFOs to exchange innovative strategies, best practice and expert opinion. EuroFinance has a unique insight into the trends and developments in cash management and treasury, and an unrivalled global viewpoint. EuroFinance is an Economist Group business. COMMENTS OR FEEDBACK? Have your say on the EuroFinance LinkedIn page or email our editorial team at editor@eurofinance.com Disclaimer: While every effort has been taken to verify the accuracy of this information, EuroFinance Conferences Limited does not accept any responsibility or liability for reliance by any person on this information. Copyright 2012 EuroFinance Conferences Limited Page 5 of 5