treasury best practices webinar slides - cash flow forecasting

Cash Flow Forecasting

June 9th, 2016

© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 2

Introductions

Cash Forecasting Environment

Case Studies

– Rockefeller Group International

– Treasury Strategies

“Top 10 List” Cash Forecasting Best Practices

Agenda


Today’s Presenters

Sam PallottaVP, TreasurerRockefeller Group International

Jacob Nygren CTPPrincipalTreasury Strategies

Brad TeaverNorth America Presales ExecutiveKyriba

Cash Forecasting Environment


Cash Forecasting Vocabulary

Sorting the vocabulary …

Cash positioning - cash visibility today and often for the next few business days.

Cash forecasting - involves determining expected cash visibility, but for longer timeframes anywhere from one week to one year.

(Cash) budgeting is performed by finance teams such as FP&A and is more focused beyond one year.


Kyriba / Association of Corporate Treasurers 2016 Treasury Survey

Treasury’s responsibilities for Reporting and Forecasting have increased from 70% in 2015 to 84% in 2016

Over 50% of treasurers’ time is spent on Cash Forecasting


Why is so much time spent on Cash Forecasting?

Cash forecasting is a key component of corporate cash management. When performed accurately, forecasting enables:

Greater certainty of projected cash balances

Longer term investing

Reduced borrowing costs

More effective hedging programs

Better access to trapped global cash


Why forecast?Ineffective cash forecasting costs the company money and impacts shareholder value

Reduced earnings due to poorly executed hedging programs

Difficulty in maintaining, let alone increasing, return on cash in a post-Basel III environment

Challenges in securing adequate and/or cost-effective borrowing

Increasing operating costs Frequent need for expensive emergency borrowing

(e.g. via bank overdraft) to cover unexpected cash shortfall – also increasing operating costs

Inability to efficiently fund strategic projects and programs

Difficulty to provide accurate earnings and free cash flow guidance, affecting credibility with investment community

ObjectiveCritical for treasury?

Critical for Sr. management?

Capital / long term investment Yes Yes

Company valuation / credit rating Yes Yes

Debt covenant compliance Yes Yes

FX exposure management Yes Yes

Management performance reporting Yes Yes

Shareholder dividend planning Yes Yes

Short-term investment yield Yes

Short-term liquidity management Yes

Strategic investments planning Yes Yes

Subsidiary dividend repatriation Yes

Cash Forecasting Case Studies


Case StudyThe Rockefeller Group is a leading real estate developer, owner and investor, known since the development of Rockefeller Center for pioneering large-scale urban mixed-use development. For nearly nine decades the company has been trusted for its financial strength, stability and vision, and today remains committed to the selective acquisition, management and development of innovative, high-quality office, industrial, residential and mixed-use properties in urban centers and strategic distribution markets.

By improving our cash forecasting we identified a need to raise a $500M revolver and closed the facility in August 2008. Just a few weeks later, Lehman declared bankruptcy. If not for the advance knowledge our cash forecast provided, our company’s financial strength could have been compromised.

- Sam Pallotta, VP & Treasurer

GOALS SOLUTION▪ Forecasting tool to project

future cash flow to support investment activity

▪ Ensure sufficient near-term liquidity was in place to fund urgent cash needs

▪ As needed, raise company’s borrowing capacity to support investment goals

▪ Change corporate culture so that liquidity was not taken for granted

▪ Create a robust cash forecast that would educate the company to its upcoming cash requirements

▪ Identify key variables driving cash movements

▪ Solicit direct input from business lines spending and receiving cash

▪ Analysis of historic business trends and statistical smoothing

▪ Wide communication of forecast

“"

RESULT▪ Short-term cash forecasting allowed us to

avoid “urgent” cash needs and have funds readily available

▪ Long-term borrowing requirements identified in advance of Planning cycle

▪ Allowed us to access capital markets and raise long-term revolver before Great Recession took hold

▪ Improved communication between senior leadership driving investments and Treasury department


Case Study- Rockefeller Group International

Our company was able to leverage prior success with cash forecasting to attack pools of unproductive trapped cash under an accelerated timeline. The effort generated positive operating cash flow, reduced borrowing cost and improved investment yields.

- Sam Pallotta, VP & Treasurer

GOALS SOLUTION▪ Identify pools of trapped cash

and if they can be liquidated

▪ If not, improve cash forecasting of each cash “silo” to understand liquidity requirements

▪ Improve cash investment policy to minimize the negative carrying cost of trapped cash

▪ Worked across company to understand rationale for pools of cash

▪ Identified cash silo that could be unwound, freeing $10M of trapped cash

▪ Created a separate cash forecast forlargest pool of trapped cash

▪ Realized that funding needs were not immediate and created a cash investment portfolio to maximize returns

“"

RESULT▪ Reduced trapped cash by approximately

30-40%

▪ Reduced borrowing costs by improving liquidity and paying down unneeded debt

▪ Improved return on investment through an improved cash investment strategy by 0.15% - 0.20%

▪ Better understanding of cash needs allowed us to go out the curve and pick up additional yield

The Rockefeller Group is a leading real estate developer, owner and investor, known since the development of Rockefeller Center for pioneering large-scale urban mixed-use development. For nearly nine decades the company has been trusted for its financial strength, stability and vision, and today remains committed to the selective acquisition, management and development of innovative, high-quality office, industrial, residential and mixed-use properties in urban centers and strategic distribution markets.


Case Study- Treasury StrategiesA major U.S. healthcare player faced heavy volatility in cash flows, resulting from business activity within a complicated holding structure. The client was unable to forecast cash flow and as a result was being forced to seek liquidity from other parts of the organization and from lines of credit.

GOALS SOLUTION• Accurate, relevant cash

flow information to support liquidity planning

• Automated forecasting; eliminate manual data gathering

• Pivot to Strategy: Get the treasury team thinking about value and strategy

1. Development of 13 Week rolling forecast

▪ Budget Code Identification

▪ Appropriate Methodology by Budget Code

2. Implementation in Kyriba

3. Change Management

RESULT▪ Accuracy: Client team gained greater

understanding of cash flow volatility drivers

▪ Automation: Client team saved significant time on data collection and execution of a daily budget-to-actual cash calendaring exercise

▪ Pivot to Strategy: Client team moving from tactical to strategic

Top 10 List


Top 10 List- Cash Forecasting Best Practices

#10 - Define your forecasting strategy

• What decisions do you want to make when you go back to analyzing the forecast?

#9 - Executive support

• Sometimes you need help getting resources aligned.

#8 - Map out the data points needed

• Top-down forecasting methods can work, but don’t be afraid to build a bottom-up forecast as it tends to provide better results.

#7 - Automate the process

• Build the forecast in a way that’s easy to replicate and automate. When people start asking questions, if you can’t tell them how you got to the forecasted number, they will not have confidence in your forecast.

#6 - Measure the forecast and report on the accuracy

• Variance Analysis reporting on your forecast is a must.


Top 10 List- Cash Forecasting Best Practices

#5 - Challenge your regions or entities to provide better data

• You could attach bonuses based on the accuracy of the forecast provided.

#4 - Document the process

• When the forecasting guru leaves, know how the model was built and how to keep it updated.

#3 - Be careful when using Excel

• Many companies have had losses due to a formula being off or due to the re-keying errors.

#2 - Regularly refine your forecasting program

• Reviewing, refining, and analyzing the effectiveness of your cash forecasting program on a regular basis will ensure that it stays relevant.

#1 - Collaborate and draw on knowledge centers

• Forecasting can become very complex quickly. Leverage your contacts to help you avoid costly mistakes.


Additional Resources

eBook: Perfecting the Cash Forecast: Adding Business Value to the Organization

Get PDF at: http://kyri.ba/PerfectCashForecast

eBook: Six questions every treasurer should ask about their cash forecasting process

Get PDF at: http://kyri.ba/6CashForecastingQuestions

http://kyri.ba/PerfectCashForecast

http://kyri.ba/6CashForecastingQuestions


Thank You For Attending

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treasury best practices webinar slides - cash flow forecasting

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