© 2015 Treasury Strategies, Inc. All rights reserved.

Presented By

Optimizing Your Cash Forecast: Improving the Crystal Ball

December 9, 2015

Jeff DiorioTreasury StrategiesManaging Director

Elaine FilusTreasury StrategiesPrincipal

Bob StarkKyribaVice President, Strategy

Welcome!

Jeff DiorioTreasury Strategies, Inc.Managing DirectorJeff_Diorio@TreasuryStrategies.com

2

Elaine FilusTreasury Strategies, Inc.PrincipalElaine_Filus@TreasuryStrategies.com

Bob StarkKyribaVice President, Strategybstark@kyriba.com

@treasurybob

Agenda

• Why is Cash Forecasting So Difficult?

• Forecasting Fundamentals

• Liquidity Forecasting: Overview

• Liquidity Forecasting: The Details

3

Why is it so difficult?

65%59%

47%

35% 34%31% 30%

What are your top 3 strategic challenges?

Source: TSI/Reval Treasury Benchmarking survey, 2015.

4

Polling Question 1

Ø How would you rate your current forecasting process?• 5 = Excellent

• 1 = Poor

• 0 = What forecasting process?

5

Challenges

• A majority of organizations have ineffective cash forecasting processes.

• Many organizations face the same kinds of forecasting challenges:- Insufficient resources

- Poor information access/exchange

- GIGO (accurate data sources)

- Organizational complexity

- Ineffective forecast methodology, tools

- Poor internal knowledge of cash flows

- Inconsistency between short-term cash forecast and budget

6

Polling Question 2

Ø Which 2 of the following are your toughest challenges? (select 2)

• Insufficient resources

• Poor information access/exchange

• GIGO (inaccurate data from sources)

• Organizational complexity

• Ineffective forecast methodology, tools

• Poor internal knowledge of cash flows

• Inconsistency between short-term cash forecast and budget

• Other

7

Benefits

• Avoid liquidity and capital issues

• Maximize the value of cash assets- Minimize the cost of borrowing à Lower cost of capital

- Maximize return on investments

• Enhance control (anomalies quickly recognized)

• Improve the effectiveness of risk management activities

• Improve the comfort level of key stakeholders

• Improve the financial performance of the company

• Support Treasurer’s contribution to business planning

8

Forecasting Fundamentals

High-level blueprint of the company’s financial future

Forecasting Objectives

• Ensure access to adequate capital – cash and credit- Short-term à Liquidity planning [Treasury]- Long-term à Capital planning [FP&A]

• Ensure effective working capital management: Is cash effectively deployed?

• Effectively manage risk: where are we exposed (FX, interest rate)?

• Design a capital structure that supports business plan

• Anticipate impact on earnings, profits, EPS

10

Capital Budget vs. Liquidity Forecast

Business Strategy

Capital Structure

11

Capital Budget vs. Liquidity Forecast

Business Strategy

Capital Structure

Liquidity Forecast

Budget

Budget

Top-down (FP&A) vs. bottom-up (Treasury) approach to liquidity

12

Reconciling: Budget vs. Liquidity

• Reconciling budget cash with liquidity cash is difficult – there are differences

Budget

Pro Forma Financials

GAAP Accounting

Ledger Balances

Long-Term (1–5 yrs)

Periodic Updates

Liquidity

Manage Liquidity

Actual Cash

Available Balances

Less than 1 year

Frequent Updates

13

Reconciling: Budget vs. Liquidity

• Reconciling budget cash with liquidity cash is difficult – there are differences

Budget

Pro Forma Financials

GAAP Accounting

Ledger Balances

Long-Term (1–5 yrs)

Periodic Updates

Liquidity

Manage Liquidity

Actual Cash

Available Balances

Less than 1 year

Frequent Updates

• Different goals

• Different perspective

• Different measure of cash

• Different time horizon

• Different schedule

14

Liquidity Forecasting: Overview

Purpose of Liquidity Forecast

• Guide funding operations: Do we have adequate cash?- Mobilize cash- Drawdown/repay credit, purchase/redeem invested funds

• Manage intercompany balances: Is cash effectively deployed?

• Ensure cash optimization: Maximize return? Minimize funding expense?- Define investment maturity to maximize return- Decisions about borrowing – which funding source, for how long?

• Inform risk management: Measure and effectively hedge foreign exchange and interest rate exposures

• Plan non-discretionary payments: Can we meet the requirements of our creditors and support the strategic business plan?- P&I repayments- Taxes, Payroll- Acquisitions

Support key treasury activities

16

Treasury Forecasts

17

They should be linked but all have different objectives and uses

Near-Term Medium-Term Long-Term

Objectives Daily cash positioningInvest/borrow decisions

Liquidity planning, borrowing decisions

Long-term capital management and earnings protection

Horizon 1–4 weeks 13–18 weeks 12–18 months

Detail Most granular, account level details

Medium Summary level detail; focus on balance sheet, business categories

Frequency Daily Weekly Monthly or Quarterly

Update Intraday, as needed Weekly Monthly

Treasury can have multiple forecasts – different time horizons

Liquidity Forecasting: The Details

Liquidity Forecasting Cycle

19

CentralizedCollection Tool Forecasting

ModelVariance Analysis

Output Reports to

Users

Forecast Refinement Process

Data Sources

Business Units

Financial Units

Internal Systems

Bank Data

1. Data Gathering

2. Execution

3. Variance Analysis

& Analytics

4. Reporting

5. Refinement

What you need...

• Comprehensive mapping of all cash flows and strong understanding of cash flow volatility drivers

• Strong communication with providers of information- Communicate the importance of accurate cash flow information- Train business units in cash forecasting best practices- Provide feedback on accuracy- Enforcement

• Tools that support data gathering and consolidation

• Dynamic trending and variance analysis tools linked to the TMS- Information from the TMS is used to generate forecasts, then forecasts are, in

turn, fed back in to the TMS

- Or, tools are resident in the application

• Accurate assessment of the level of aggressiveness/conservativeness - Evaluate the consequences of inaccuracy

- Review actions taken based on forecast

20

Sources of Data: Liquidity Forecasts

Bank Transactionsand Balances

(Bank Portals)

LiquidityForecast

Business Unit Forecasts

(Subsidiaries/Affiliates)

Sales Forecast(Sales Department)

A/R & A/P(ERP & A/R, A/P

Systems)

Investment & Debt Maturities

(Treasury)

Interest Flows(ERP & Treasury)

Capital Expenditures

(Business Planning)

FX & Derivative Settlements

(ERP & Treasury)

Repetitive Payments(Various Sources: Tax,

Payroll, Insurance, Accounting, Finance)

21

Approaches to Forecasting

• Receipts and Disbursements

- Specific known upcoming cash flows - Generated by TMS- Reported by sources

- Recurring items

- Apply trending, seasonality to historical data

• Statistical Modeling

- Time series, regression, other complex techniques

- Determine business variables that correlate with cash

- Identify sources of business variable data

- Select statistical methodology/tools and develop forecast

- Test model for significance

22

Defining Methodologies

Type of Cash Flow Forecasting MethodologyReceipts Accounts Receivable short-term; Sales estimates longer-term

AP Disbursements Accounts Payable short-term; Expense estimates longer-term

Payroll and Benefits Bi-weekly estimates based on history + info from HR

Debt-Related Expense Based on principal, interest, and fee information in the TMS

Taxes Planned payments and estimates from Tax department

Capital Expenditures Schedule of CapEx-related payments from Finance

23

• One size does not fit all

• Consider forecasting methodology at a granular level – individual cash flows

End Result

24

7/14/14 7/15/14 7/16/14 7/17/14 7/18/14 7/21/14 7/22/14Mon Tue Wed Thu Fri Mon Tue

582.00 598.49 1037.44 1283.22 554.96 515.13 536.16

46.49 104.95 0.78 2.74 0.17 51.03 165.33(30.00) (30.00) (30.00) (30.00) (30.00) (30.00) (30.00)

(50.00) (10.00)(651.00)

(11.00) (100.00)

(125.00) (125.00)500.00 500.00

598.49 1037.44 1283.22 554.96 515.13 536.16 671.49

(250.00) (625.00) (1000.00) (1000.00) (1000.00) (1000.00) (1000.00)

Ending1Balance

CP=Outstanding

All#balances#are#in#MM

Netting=Payments/ReceiptsTreasury=WiresIC=Payments/Receipts=

Borrowing1ActivityCP=MaturingCP=Issuance

Expected=Payroll

Domestic1Cash1Forecast

Beginning1Balance1(MMF)

Cash1ActivityExpected=ReceivablesExpected=Payables

Variance Analysis: What was different?

1. Variance Analysis• Forecast to Actual• Forecast to Forecast• Multiple frequencies

2. Analyze Forecast Effectiveness• By line item• By time period

3. Report back to data sources4. Update the forecast5. Rinse and repeat

25

Reporting: Meet Stakeholder’s Needs

• Highlight material variances and provide explanation

• Reporting uses indicate required views of the data

- Manage deployment of cash excesses à view by bank account

- Plan for intercompany lending à view by entity

- Manage FX hedging à view by currency

- Manage quarter-end financials à view by specific time buckets

26

Other Analytics

• What-if/scenario analysis

- Changes in market conditions à impact on sales, supplies, inventory

- Changes in interest rates à impact on cost of debt

- Changes in FX rates à impact on exposures

27

To Summarize...

• Strong liquidity forecasting is a key component of financial success

• Treasurer’s role...

- Facilitate effective communication

- Ensure sound forecasting processes

- Provide supporting resources and tools

• Liquidity and capital budgeting forecasts may have different objectives, but can benefit from common practices

• Variance analysis should foster continuous improvement

28

Success Factors

• Endorsement by senior management

• Clearly define objectives and goals – relevant to all stakeholders

• Develop communication channels between Treasury and data “owners”

- Efficient, systematic data flows

- Clear roles and responsibilities

• Create efficient, consistent methodologies

• Keep it simple – balance precision with effectiveness

• Regular variance analysis for continuous improvement

• Collaborate with FP&A

29

Thank You!

Jeff DiorioTreasury Strategies, Inc.Managing DirectorJeff_Diorio@TreasuryStrategies.com

30

Elaine FilusTreasury Strategies, Inc.PrincipalElaine_Filus@TreasuryStrategies.com

Bob StarkKyribaVice President, Strategybstark@kyriba.com

@treasurybob

Find this presentation and others atOur website www.treasurystrategies.comOur YouTube Channel https://www.youtube.com/c/treasurystrategiesincconsulting

Treasury Strategies Treasury Technology Practice

Solutions for Treasury Departments Solutions for Technology Vendors• Pre-implementation Best Practices Review• Process Review & Re-engineering• Gap Analysis with Current Technology• Corporate SWIFT Connectivity• Technology Selection• Technology Implementation & Optimization• Strategic Roadmap

• Implementation Resource Partnering• Functionality Enhancement • Business Strategy

Our expertise in treasury best practices, knowledge of technology solutions and unbiased viewpoint provide our clients with an experienced team to guide them through the technology maze.

Clients• Corporations• Not-for-Profit Organizations• Public Sector Organizations• Technology Vendors

31

About Treasury Strategies, Inc.

Who We AreTreasury Strategies, Inc. is the leading treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions.

What We DoCorporationsWe help you maximize worldwide treasury performance and navigate regulatory and payment system changes through a focus on best practices, technology, liquidity and controls.

Treasury TechnologyWe provide guidance through every step of the technology process – which includes creating a roadmap, selection, implementation and optimization. Our expert approach will uncover opportunities to optimize the value of your treasury through fully integrated technology solutions.

Financial ServicesOur experience, analytic approach and benchmarks provide unique consulting solutions to help you strengthen and grow your business.

www.TreasuryStrategies.com/content/networking-communities

@TreasuryStrat

Accreditations

Connect with Us

LocationsChicago • London • New York

www.youtube.com/c/treasurystrategiesincconsulting

32

About Kyriba

Who We AreKyriba is the global leader in cloud Proactive Treasury Management. CFOs, treasurers and finance leaders rely on Kyriba to optimize their cash, manage their risk, and work their capital. Our award-winning, secure, and scalable SaaS treasury, bank connectivity, risk management and supply chain finance solutions enable some of the world’s largest and most respected organizations to drive corporate growth, obtain critical financial insights, minimize fraud, and ensure compliance.

Key stats• Founded in 2000, based in San Diego

• 1,000+ clients, 45,000+ users, 100+ countries

• 400+ staff in 10 corporate offices

• 150+ new clients in 2015: 98% loyalty rate

• Fastest-growing treasury management systems vendor

• Clients include BBC, Qualcomm, Yokohama, Symantec

LocationsSan Diego • New York • London

Paris • Amsterdam • TokyoSingapore • Hong Kong • Dubai

Rio de Janeiro

twitter.com/kyribacorp

linkedin.com/company/kyriba-corporation

Connect with Us

33