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

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