Achieving Excellence in Cash Flow Forecasting...Achieving Excellence in Cash Flow Forecasting Jeff...
Transcript of Achieving Excellence in Cash Flow Forecasting...Achieving Excellence in Cash Flow Forecasting Jeff...
Achieving Excellence in Cash
Flow Forecasting
Jeff Schaible
Baxter
Assistant Treasurer
Cindy Gerhard
Citi
Liquidity Management Services
Product Management Head
Agenda
• Citi Industry Research on Cash
Flow Forecasting
• Baxter Experience & Lessons
Learned
– Short Term US Cash Forecasting
– Long Term Quarterly Forecasting
– Long Term Global Strategic Forecasting
Market Practices for Cash Flow
Forecasting
Citi® Treasury Diagnostics (CTD)
• Proprietary benchmarking tool used by
more than 350 clients of Citi
– Benchmarks treasury practices in six areas,
including cash flow forecasting, for insights into
client’s current practices
– Highlights strengths and weaknesses of treasury
operations and risk management
• Following slides are a summary of
CTD results for cash flow forecasting
Profile of CTD Benchmarks*
45%
19%
26%
Annual Revenue
< $5bn
$5bn - $15bn
> $15bn
25% 23%
19% 19%
8% 7%
Industry
19%
17%
32%
32%
% Revenue Outside Home Country
0-24%
25-49%
50-74%
75-100%
73%
21%
6%
Developed Developing Advanced Developing
Country Type
n = 373
* Citi® Treasury Diagnostics, 2013.
Treasury Function Profile*
72%
74%
87%
89%
95%
95%
Risk Management
Treasury Controls & Accounting
Shot Term Borrowing
Cash Forecasting & Planning
Bank Relationship Management
Cash Operations
Scope of Treasury Responsibilities
49%
31%
20%
Number of Staff
≦10
11-30
>30
65%
28%
Yes No
Does Treasury Have KPI’s?
* Citi® Treasury Diagnostics, 2013.
Cash Flow Forecasting Tools*
60% 31% 2%
Excel Spreadsheet complied from
multiple sources
Cash Flow Forecasting Process
n=374
Automated TWS/
ERP Input + Manual
Completely
Automated
Companies that rely on Excel are more likely to be:
• Headquartered in a developing market (esp. LATAM & APAC)
• Local or regional footprint
• Use a decentralized treasury model (89%)
• Have not put in place an In-House-Bank
• Do not run shared service centers
* Citi® Treasury Diagnostics, 2013.
Constructing the Forecast*
84%
49% 43%
38% 38%
Manual Input Collections Forecast Based
on Past
Payables Forecast Based
on Past
Statistical Analysis of Past
Patterns
Automated Inputs from TWS/ERP
Low rate of utilization for historical trends
indicates an opportunity for many
companies to improve forecast quality
* Citi Treasury Diagnostics, 2013.
Managing the Forecast Process*
24% 21% 35% 11% 7% Forecast Period
Daily Weekly Monthly Quarterly Annually
23% 27% 34% 9% 2% Forecast
Frequency
Daily Weekly Monthly Quarterly < Quarterly
n=350
15% 19% 25% 38% Forecast Horizon
Next Week Next Month Next Quarter Next Year
* Citi Treasury Diagnostics, 2013.
Evaluating Forecast Quality*
9%
13%
14%
6%
19%
22%
17%
Daily Weekly Monthly Quarterly < Quarterly Never Don't Know
How Often Do You Need to Reverse Positioning?
Best in
Class
Room for
Improvement
* Citi® Treasury Diagnostics, 2013.
Cash Forecasting at Baxter
Baxter Profile
• Global health care company with $14B
in sales
• About 60% of sales generated offshore
• Complex legal structure, operating in
more than 100 countries
• Cash forecast is critical in the US as a
result of shareholder obligations
Baxter Background and History
• By late 2005, legal structure
changed
– Cash flow into US was reduced
– But, HIA offset the impact and
allowed for repatriation
2004 2005
• Current management team was installed
• Cash forecasting not overly necessary
– Legal structure allowed for cash flow into US
– Dividend was small and paid annually
– Share repurchases did not exist
• Share repurchasing activity restarted
• Dividend increased & changed to quarterly payout
• US cash flows were lower
• Debt financing and commercial paper became treasury tools
Cash Flow Forecasting at Baxter
Day 1 - 45
Short Term Forecast
45 day look ahead
Quarter 1 - 4
Long Term Forecast
By quarter for rolling
12 month period
Year 1 - 5
Long Term Global
Forecast
Strategic Financing
Plans
2005 2006 onward
True cash flow forecasts became essential for Treasury to
perform optimally
Short Term Forecast
• History helps predict the future
• Highly detailed sources/uses model
• Excel based – Draws collections/ spending patterns by day from systems
– Utilizes dividend/ repurchase forecasts by day
– Evaluates capital spending and adjusts current year from previous
– Evaluates year to year adjustments to business models
• Control in place so that those who use it do not develop it
• Look to be within 10% of the actual cash on any given day
ST Forecast
ST Forecasting Model
Operating Cash Flows
Excel Model Resulting
Forecast
• CP Position
• Cash
Repatriation
• Intercompany
Loans
• 3rd Party
Borrowings
ST Forecast
• Prior Year Inflows
• Prior year Outflows
Investing & Financing
Cash Flows
• Capital Spending
• Share Repurchase
• Dividend Forecast
Business Model
Changes
Forecast Output
• Adaptable to other time periods – However, going significantly beyond 45 days
increases the volume of data and complexity to manage
DateBeginning
Balance
(1) US Op.
Inflow
(2) US Other -
Op. Inflow
(3) Option
Inflow
(4) CP
Issuance
(5) Debt
Issuance
(6)
Repatriation
Net Cash
Inflow
(7) US
Operating
Outflow
US Outflow
CAPEX
Adjustment
(8) US Other-
Operating
Outflow
(9) Share
Repurchase
(10) CP
Maturity
(11) Debt
Repayments
(12)
Dividends
Net Cash
Outflow
(13) Netting
Flows
(14) I/C
Notes
(15) I/C
Op Cash(16) M & A
Net Daily
Cash
Intra- Day
Adjustment
Ending
BalanceComments
7/1/13 $3,041,000 $70,038 $182 $70,221 -$25,993 -$2,996 -$266,072 -$295,061 -$224,840 -$160 $2,816,000 (12) Dividend Payment
7/2/13 $2,816,000 $24,631 $470 $25,101 -$11,543 -$2,977 -$14,520 $10,581 $419 $2,827,000
7/3/13 $2,827,000 $25,462 $166 $25,628 -$15,197 -$6,355 -$2,508 -$24,059 $1,569 $431 $2,829,000 (8) Outgoing w ire
7/5/13 $2,829,000 $24,594 $1,349 $25,943 -$57,842 -$2,296 -$60,138 -$34,195 $195 $2,795,000 (7) Payroll
7/8/13 $2,795,000 $48,874 $113 $48,987 -$27,339 -$2,503 -$29,842 $19,145 -$1,145 $2,813,000
7/9/13 $2,813,000 $19,462 $1,619 $21,081 -$8,673 -$1,680 -$3,467 -$2,679 -$16,499 $4,583 $0 $2,817,583 (8) Outgoing wire
7/10/13 $2,817,583 $24,560 $1,619 $26,179 -$8,604 -$1,680 -$1,113 -$2,435 -$13,831 $12,348 $0 $2,829,931 (8) Outgoing w ire
7/11/13 $2,829,931 $16,966 $1,619 $18,585 -$14,539 -$1,680 -$1,288 -$1,987 -$19,494 -$909 $0 $2,829,022 (8) Outgoing w ire 401k
7/12/13 $2,829,022 $18,952 $1,619 $20,571 -$19,389 -$1,680 -$2,679 -$23,747 -$3,176 $0 $2,825,847
7/15/13 $2,825,847 $42,740 $1,619 $44,359 -$26,327 -$1,680 -$2,679 -$30,685 $13,675 $0 $2,839,521
7/16/13 $2,839,521 $24,713 $1,619 $26,332 -$10,761 -$1,680 -$2,679 -$15,119 $11,213 $0 $2,850,735
7/17/13 $2,850,735 $16,221 $1,619 $17,840 -$11,428 -$1,680 -$4,500 -$2,679 -$20,286 -$2,446 $0 $2,848,289 (8) Draw dow n on Loan
7/18/13 $2,848,289 $33,523 $4,765 $1,619 $39,907 -$28,659 -$1,680 -$2,679 -$33,017 $6,890 $0 $2,855,179 (2) FX Options
ST Forecast
Beginning
Balances
Net Cash
Inflows
Net Cash
Outflows
Netting, I/C,
M&A
Ending
Balance
Next Steps
• Continue to use the process for
forecasting USD flows into Europe
from subsidiaries
• Roll out the same process to
Europe
– Integrate multiple currency, increasing
complexity of forecasting and
positioning
ST Forecast
US Longer Term Cash
Forecasts
• Key objective of long term forecasting is to evaluate
needs and generate detailed discussions with Senior
Management on capital structure
– Debt financing, commercial paper balances and cash
repatriation actions
• Baxter longer term cash forecasting process utilizes a
sources/uses model but less detailed than the short term
process
– Generate a rolling 4 quarter timeline, prepared quarterly
– Based on historical patterns of cash flows
– Excel based
– Target 20% accuracy for quarterly US flows
LT Quarterly
Forecast
Global Cash Forecast
• Global cash forecast provides a longer term outlook of
strategic financing and investing requirements.
• Key objectives include:
– Determining excess cash balances and repatriation planning
– Implications of strategic plans on longer term lending and
borrowing needs
– Determining best long term use of cash
– Developing strategies to invest cash most efficiently
LT Global
Forecast
Global Cash Forecast
• Less specific detail and generally only see ending bank
account details
– Intercompany and 3rd party cash flows are the focus
– Specific inflows or outflows are not forecast
• Uses a system called TreasuryVision to capture global
flows on a daily basis and excel to analyze the data
– System has been in place for about 1 year and the forecasting
process is now being finalized
• Target 30% accuracy
– Expect this target to be lowered as more data is complied
LT Global
Forecast
Global Cash Forecast LT Global
Forecast
• Baxter’s Treasury Vision model uses
historical daily cash balances and an
algorithm based on historical patterns
to predict the cash in each country
– Incorporates a longer view P&L forecast
to predict future cash balances by country
Targeting 30% accuracy vs. actual
LT Forecasting Model
Historical Cash
Balances
Excel Model Resulting
Forecast
• Position for
Cash investing
• Cash
Repatriation
• Longer term
plan for
company
capital
structure
planning
LT Forecast
• Input from Treasury
Vision System
• P&L Driven Models
Baxter Long Range
Plan
Conclusion
• It is a long path, but the results have been valuable
– Better use of commercial paper in the US
– Less need to utilize 3rd party lines of credit
– Smaller unwanted currency impacts on the P&L
– Resulting in lower costs and more control
There is still more work to do, but we see this as an on-going
journey, not a final end point.
Q&A
• Jeff Schaible, Baxter
• Cindy Gerhard, Citi
IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or
relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby ("Transaction").
Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor.
In any instance where distribution of this communication is subject to the rules of the US Commodity Futures Trading Commission (“CFTC”), this communication constitutes an invitation to consider entering
into a derivatives transaction under U.S. CFTC Regulations §§ 1.71 and 23.605, where applicable, but is not a binding offer to buy/sell any financial instrument.
Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a
financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or
regulation, you agree to keep confidential the information contained herein and the existence of and proposed terms for any Transaction.
Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal,
tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us
for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you
should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials,
you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction
shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction.
We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number.
We may also request corporate formation documents, or other forms of identification, to verify information provided.
Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time
without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which
represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof
and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at
any time.
Although this material may contain publicly available information about Citi corporate bond research, fixed income strategy or economic and market analysis, Citi policy (i) prohibits employees from offering, directly or indirectly,
a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated for specific
recommendations or views contained in research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citi has enacted policies and procedures designed to
limit communications between its investment banking and research personnel to specifically prescribed circumstances.
Citi believes that sustainability is good business practice. We work closely with our clients, peer financial institutions, NGOs and other partners to finance solutions to climate change, develop industry standards,
reduce our own environmental footprint, and engage with stakeholders to advance shared learning and solutions. Highlights of Citi’s unique role in promoting sustainability include: (a) releasing in 2007 a Climate
Change Position Statement, the first US financial institution to do so; (b) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of renewable
energy, clean technology, and other carbon-emission reduction activities; (c) committing to an absolute reduction in GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (d)
purchasing more than 234,000 MWh of carbon neutral power for our operations over the last three years; (e) establishing in 2008 the Carbon Principles; a framework for banks and their U.S. power clients to
evaluate and address carbon risks in the financing of electric power projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue;
and (g) engaging with a broad range of stakeholders on the issue of climate change to help advance understanding and solutions.
Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.
efficiency, renewable energy and mitigation
TRADEMARK SIGNOFF: add the appropriate signoff for the relevant legal vehicle
© 2013 Citibank, N.A. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the