Romain Talbot spent three years as Market Transaction Manager for the Accor Group, followed by a spell as International Treasurer for Accor Services (now Edenred). Today, as International Treasurer of Aptargroup Inc, he gives us his advice on how to manage cash flow in the current refinancing context. But he also alerts us to cash issues within a company.
Growing WCR or cash surplus: you need to know how to optimize your cash flow, whatever happens.
“Traditionally, cash management is critical when working capital is growing. In the same way, you need to know how to manage excess cash and optimize its investments.
In a service environment such as the one I've experienced (i.e. Accor / Accor services), the treasurer is faced with the need to optimize the cash surplus entrusted to him (i.e. negative WCR). For which, moreover, it was necessary to obtain returns and remuneration. This implies visibility on short- and medium-term cash outflows. As a result, we focused on a rolling one-year forecast, with a specific focus on key moments (e.g. end-of-month and end-of-quarter). We had to activate upstream either syndicated credit facilities or bilateral lines, which were either confirmed or not. These were either confirmed or not.
Cash investments
“In terms of cash investments, we wanted to be able to place a maximum amount of cash on long maturities (2 to 5 years). At the same time, we made it clear to our banking partners that if we were to invest for 2 years or more, we would need to be liquid on a daily basis. The latter being demanded by the meal voucher business, we undertook not to mobilize outstanding amounts in advance. Hence the critical importance of forecast quality. Given the ever-changing nature of a company's business (i.e. acquisitions / disposals / unforeseen events...), the treasurer needs to be flexible and build in safety margins. The management team must therefore agree on the level of security to be maintained.
This echoes the current context, with interest rates falling sharply and negative yields making their appearance. Keeping cash on hand to deal with these imponderables comes at a cost, so we need to think about the desired level of risk.”
Keep the right amount of cash on hand
“One of the main issues for an international Group is financing its subsidiaries. Whether through current accounts, interco loans or capital increases
You need to know how to keep cash that can be easily mobilized to finance business development. Or to meet dividend or share buyback payment deadlines. In short, you need to be able to integrate a medium-term approach without penalizing your return on capital.”
What steps or processes have you put in place to optimize your cash flow?
"For example:
- Agree on the decision-making elements.
E.g.: as standard, we consider that business is cyclical, and that last year's sales figures should be taken into account. However, it must be updated according to different criteria. Whether in relation to the fact that business tends to be positive or negative by around 5 to 10% from one year to the next. We have elements that are far from neutral on an international scale, with the notion of exchange rate parity, for example, having an impact on our financing requirements.The real challenge is to produce quality forecasts for 6 months and beyond. Having the broad outlines of a one-year plan is one thing, but the challenge is to be able to refine these forecasts over time.”
How was information passed on between operational staff?
“This requires good organization and teamwork. Working with Excel, we had to develop a binding, standardized matrix common to all. This tool was a key element in the creation of the Treasury dashboard.
- Post-evaluate the accuracy of the forecast to improve the process,
- Reassess the forecast during the year and on a recurring basis.
The forecasts produced by the various departments are not synthesized regularly enough. The dissemination of a common forecast and input from the various departments will significantly improve its quality”.
Over the years, have you noticed any changes in the role?
“There's more involvement from all employees towards the treasury department. In particular, we are increasingly in contact with the tax teams and the reporting department. IFRS has played a major role in this change.
Cash has become a priority issue for companies, even in a context of surplus cash. The ALM approach is now preferred.”
If you had three recipes to give, given the current refinancing context?
“That would be :
- Validate with management the degree of risk and desired return. In a world of falling interest rates, should we stick to a conservative investment policy? Or do we think we can adjust it, even moderately, to generate a return?
- Keep in mind that having cash on hand comes at a cost.
- Maintain exchanges between the various departments on cash issues to achieve higher quality forecasts. Optimizing cash management requires vigilance with regard to upfront payments and observed discount rates.
We need to involve and interest the Purchasing and Sales Departments in the subject of cash.”
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