According to several AFP surveys, almost 50% of Treasures have no metrics; yet, 2017 may prove to be one of the most challenging times when it comes to understanding how much liquidity is “enough” or how much risk is “too much”. If your organization is using “too many” spreadsheets, inundated by frequent reconciliations and consumption of scarce staff resources - this webinar will offer you timely ideas.

1. Planning for 2017:
What Gets Measured Gets
Managed
By
Bruce C. Lynn, CTP, The FECG LLC
Gregory Person, CTP, Kyriba
October 11, 2016

2. 10/11/16
Agenda
 Where are we today?
 Outlook Next 12 months
 What gets measured gets managed
 Too much processing, not enough
planning?
 Building a business case for change
in 2017
 A metrics “starter set”

3. 10/11/16
Current Economic Trends

4. 10/11/16
Current Economic Trends (2)
Source: BEA, Factset, JP Morgan Asset Management
Slow is the new normal ?

5. 10/11/16
Current Economic Trends (3)
Source: BEA, Factset, JP Morgan Asset Management
best uses of cash?

6. 10/11/16
S & P Non Financial Companies (428 companies)
Quarterly Trends as of 6/30/16
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Q8 Q7 Q6 Q5 Q4 Q3 Q2 6/30/2016
$inBillions
0
20
40
60
80
100
120
140
FreeCashFlow($inBillions)
Cash & S/T Equiv. Total Debt Free Cash Flow
How much cash is “enough”?
Cash trend flat; free cash flow trend
volatile. How much cash is enough?
Debt
Cash
Current Economic Trends (4)

7. 10/11/16
Snapshot - S& P 500 Non Financial Companies (428 co.)
(Selected Results - 12 months ending 6/30/16)
41 61
1
64
153
71
222
142
592
34 15
193 211
4
284
437
331
502
1,050
506
134
532
11 19 0 2
41
-49
76
101
144
13
-31
-100
100
300
500
700
900
1,100
1,300
01
-
B
asic
M
aterials
02
-
C
apitalG
o
o
ds
03
-
C
o
ng
lom
erates
04
-
C
o
nsu
m
er
C
yclical
05
-
C
o
nsu
m
er
N
o
n-C
yclical
06
-
E
n
erg
y08
-
H
ealth
C
are
09
-
S
ervices10
-
T
ech
no
log
y
11
-
T
ransp
ortation
12
-
U
tilities
$inMillions
Cash + S/T Inv Q1 Total Debt S/T + L/T Q1 Free Cash Flow 12Months
Current Economic Trends (5)
How much risk (debt / free cash flow) is “too much”?
“enough” varies by Industry:
Tech = OK. Services? Utilities?

8. 10/11/16
Outlook – Next 12 Months
Top Concerns for U.S. Businesses – Jun 2016
1 Economic uncertainty (Investments)
2 Attracting and retaining qualified employees (Staffing)
3 Regulatory requirements (Compliance)
4 Cost of benefits (Costs)
5 Weak demand for product/services (Volume)
6 Government policy (Compliance)
7 Data security (Operations - Risk)
8 Employee productivity (Costs)
9 Access to capital (Financing)
10 Rising wages and salaries (Costs)
Source: Duke's Fuqua School of Business / CFO Magazine Business Outlook, Jun 2016; 626 firms

9. 10/11/16
Outlook – Next 12 Months
Duke Fuqua / CFO Magazine Survey June 2016
Expected Growth - Next 12 months
(626 companies)
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Jun 2016Mar 2016Dec 2015Sept 2015Jun 2015
Dividends* Share Repurchases* Cash on balance sheet*
Duke Fuqua / CFO Magazine Survey June 2016
Expected Growth - Next 12 months
(626 companies)
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Jun 2016Mar 2016Dec 2015Sept 2015Jun 2015
Dividends* Share Repurchases* Cash on balance sheet*
Cash Balances
to decline

10. 10/11/16 © The Financial Executives Consulting Group LLC 10
A Framework for the Future
If You Do Not Know Where You
are Going…
Any Road Will Take You There
Mr. Cheshire Cat
What Gets Measured Gets
Managed…
Mr. Peter Drucker
Who To Trust?

11. 10/11/16 © The Financial Executives Consulting Group LLC 11
Risk
Mgt
(Mkt, Credit, Ops)
Cash Accounting
(focus on creating, posting,
reconciling transactions)
DebtInvestment
Cash Management
(focus on balances)
DebtInvestment
Cash Management
(focus on balances)
Treasury Performance - Today
• Current focus on internal processing
• Resources devoted to repetitive tasks
Cash
Tomorrow
Today

12. 10/11/16 © The Financial Executives Consulting Group LLC 12
Treasury Performance – Few Metrics
Measurement & Communication of Results to
Executive Management & Board:
Treasury Contribution to Company Performance
All
Revenues
< 1BN
Revenues
> 1Bn
No Measures / No Communication 51% 43%
Has Measures & Communicates 55% 49% 57%
Totals 100% 100% 100%
Source: AFP 2014 Strategic Role of Treasury Survey (243 responses)
45%

13. 10/11/16
Treasury Performance – Daily Work
Source: Kyriba / ACT June 2016 Survey (332 responses), Figure 3, Daily Responsibilities
2016 survey results
consistent with 2014
AFP results

14. 10/11/16
What Gets Measured Gets Managed
 Measuring success
• External – depends on industry and competition
• Internal - assumptions need, but how to capture?
• Must integrate multiple perspectives
 Profitability: Unit volume, prices, costs; fixed vs.
variable drivers (e.g. time vs. volume)
 Liquidity: Investments (uses) & Financing (sources) -
must match sources and uses over time (balance sheet &
future cash flow)
 Risk: exposure to factors with little ability to control
them (FX rates, Interest rates, Counterparty risk).
Example: Stronger USD / Weaker GBP means GPB sales
are worth less
 Rewarding success (Hint: it is not all
about the P & L)

15. 10/11/16
What are we solving for?
Entity Act Plan F (U)
Acme CA 0.9 0.5 (0.40)
Acme UK 1.6 1.0 (0.60)
Acme JP 0.8 1.0 0.20
Acme DE 0.5 0.5 -
Acme AU 1.1 1.0 (0.10)
Mar 15 USD Equiv
Liquidity Scorecard
Set
Objectives
Measure
Manage
 Clear reporting expectations for global regions
 Senior management buy-in and incentives
 Set metrics and KPIs: e.g. target bank balances,
forecast accuracy, hedge ratios, benchmark rates
 Transparent and proactive reporting
 Treasury scorecards, incentives, multibank
technology communication channels
 Take action – working capital strategies
(e.g. SCF) to improve cash flow
 Proactive restructuring of liquidity and
KPIs as business evolves
 Adjust hedge layers
 Actively compete trades

16. 10/11/16
 Complete position;
current day actuals and
forecast items
 Zero-balance and target
balance account cash
consolidation
 Transparency into
variances
 Reduce interest expense
 Achieve and manage
‘goldilocks’ balance
Daily Target Balancing

17. 10/11/16
 Monitor intercompany
loans balances and credit
ratings
 Apply arm’s length
interest treatment
 Loan position hygiene
 Credit worthiness?
 Balances repaid?
 Credit spreads applied?
 Manage compliance (reg
385) and tax regulations
Intercompany Management

18. 10/11/16
 Exposure variance
analysis
 Budget rate vs.
hedge rate
 FX hedge coverage
ratios
 Hedge effectiveness
 Reduce P&L volatility
Currency Management

19. 10/11/16
 Ability to quickly solve
for working capital
needs
 Benchmark to peers
 Actively manage to
compete trades /
issuances
 Real P&L benefit
 Reduce interest expense
 Improve interest income
Benchmark Interest Income / Expense

20. 10/11/16
 Real-time insight
forecast upside / risk
 Transparency into
variances
 Align FP&A cash flow
targets with Treasury
direct forecast
 Execute capital
allocation strategies
with confidence
 Manage cash flow
expectations
Cash Flow Forecasting

21. 10/11/16 © The Financial Executives Consulting Group LLC 21
The Year Ahead – One Scenario
 A near term scenario
• Uncertain actions by competitors. Impact on growth?
• Higher interest rates in 2017
• Stronger USD: Exports more expensive; Fgn income
worth less; lower Fgn investment costs
• Investors want cash payout “now”
• Enough liquidity?
 If more payouts = less cash remains for operations, debt
repay, future investments
 Banks remain reluctant lenders (Basel LCR? RAROC)
 Reg 385 – restrict intercompany cash movement
• Debt capacity maxed out?
• Rely on organic growth or use cash for M&A?
 Is treasury equipped for this scenario?
 If so, what is a “successful” outcome?

22. 10/11/16 © The Financial Executives Consulting Group LLC 22
The Business Case for Change
 Striking the “right” balance?
• Requires integrating P, L, R goals for the future
• Need to measure actual results vs. tactical and strategic goals
 Focus on liquidity & leverage metrics
• 9AM: Where in the world is my cash?
• 11AM: Do I invest or do I borrow?
• End of day: forecasting the “right” decision for tomorrow?
 Balance sources with uses
• Internal: Cash on hand + Cash flows forecasted
 If long cash: repay & borrow less / lower mkt exposure?
 If short: “Buy” in the market. Fixed or variable rate?
• External sources:
 Invest sooner to become more competitive?
 Investors dividends = better stock price?
 Problem: need resources now (e.g. systems,
staff, etc) to forecast future benefits

23. 10/11/16 © The Financial Executives Consulting Group LLC 23
The Business Case for Change (2)
 To start:
• Treasury should own the cash flow statement
• Market prizes operational cash flows
 Comply or die – Do NOT become MF Global
 Pay for performance and use two perspectives:
• Top down – link uses with sources by SBU
• Bottom up – link sources and uses at transactional level
 Think outside the silo - involve your “friends”:
• Operating units – they control operating cash flow
• Financial units – FP&A, Tax, Audit helps fin. cash flows
• Even your banks ….
 Forecast the future with measurable metrics
• Interest Expense - less borrowing or lower cost?
• Bank fees – services are not free
• Staff costs - in & out of treasury?
• Lower exposures – to FX losses, overdraft, fraud
• Increases in debt capacity and / or decrease in utilization
• Access to more 3rd parties for debt or equity

24. 10/11/16 © The Financial Executives Consulting Group LLC 24
1. Cash on hand (by curr., entity, bank, etc)
2. Free Cash Flow ($FCF) = op cash flow –
CAPEX – Dvds (compared to uses?)
3. Cash Conversion Cycle (days) = DSO + DIO –
AP Days to pay
4. Burn rate ($ / day) = Avg. current liabilities /
cash on hand.
5. Debt headroom (% or $) = debt used vs
credit limits
6. Leverage = debt / FCF; debt / equity
7. Ops cost = Treasury + bank + back office + FX
losses
Which of these do you measure?
Treasury Metrics – “Starter Set”

25. Q & A
 Bruce C. Lynn, CTP
• FECG LLC, Managing Partner
• 203-655-4806
• blynn@thefecg.com
 Greg Person, CTP
• Kyriba, VP Presales
• 508-359-4968
• gperson@kyriba.com
10/11/16