The presentation by Mark Foster-Moore, Treasury Operations Manager, Kingfisher - Europe’s largest home improvement retail group and the third biggest in the world, with over 1,080 stores in nine countries in Europe and Asia and sales of nearly £11 billion - at the Association of Corporate Treasurers Cash Management Conference last month, provided a fascinating insight into the issues and problems in bringing together the business and cash flow forecasting of a large group.

Kingfisher treasury overview
Kingfisher treasury’s general approach is to centralise cash where possible, which is challenging in some regions, e.g. China, and there is some physical cash at stores and in transit. The head office treasury team is made up of eight people centrally. One of the team’s focuses is the centralization of cash, primarily involving high value, low volume transactions. In the business units there 20 treasury people dealing with the operational cash management. Over the last five years, they have managed through refinancing and other techniques to achieve zero net financial debt in 2013.

There is considerable seasonality and cyclicality in Kingfisher’s cash flows which emphasises the need for sound cash flow forecasting. Kingfisher’s solution has been to use three different forecasts and horizons: a three year -Strategic Financing forecast, a ‘to year end’ -Budgeting forecast, and a 13 weeks rolling cash forecast for treasury’s Liquidity Management. These forecasts use two types of data: indirect (P/L+/- BS = Cash Flow) and direct (payments and receipts).

Using these forecasts, Kingfisher’s overall cash management objective is ‘not to run out of cash’.

Strategic financing forecast
The Excel based Strategic Financing forecast:

• uses indirect data to forecast the annual cash flows
• has three year horizon
• is prepared by the FP&A team taking 1000+ man hours to prepare each forecast/
• treasury involvement is low.

The Strategic Financing forecast is used as an input for treasury forecasts.

The role of the Strategic Financing forecast is to provide: 1) the Strategic Financing framework for - management of long-term facilities and debt, stress testing, and review of M&A opportunities; 2) a liquidity policy check; and 3) as input for ‘going concern’ reviews.

Budgeting forecast
The Budgeting Forecast is carried out by the FP&A team and is an Oracle system based exercise, which takes 1000+ hours per forecast exercise. It uses indirect data combined with the forecast monthly cash flows. The horizon is to current year and is updated quarterly. Treasury involvement is low and use the forecast as input for their forecasts.

The role of the budgeting forecast is to provide: 1) guidance for external stakeholders, 2) monthly management information and variance analysis, and 3) inter-company funding control

13-week rolling forecast
The Excel based 13-week rolling forecast is prepared by the business unit treasury people using direct data on receipts and payments broken down daily/weekly. The forecast is updated monthly and typically takes some 75 hours to put together. The business unit forecasts are discussed with central treasury, and then Group Treasury consolidates.

The role of the 13 week rolling forecast as a vital input for short-term liquidity management, efficient cash management and the weekly update of quarter end net cash/debt position.

Daily cash position report
The other cash flow report used by Kingfisher treasury in their cash flow management is the Daily Cash Position Report produced by the central treasury which contains:

• business units net cashflow
• treasury dealing cash flow - deposits, FX, and  FX swaps for the next year.

This Excel based report is updated daily with the day’s actual cash flows, FX rates and treasury dealings.

The role of the Daily Cash Position Report is to provide: 1) efficient cash management of money market deposits, FX swaps, and facility drawdowns, 2) counter-party limit monitoring, and 3) treasury and board reporting.

Kingfisher conclusions on cash flow forecasting
Kingfisher’s main conclusions from their cash flow forecasting journey are:

• 1-3 monthly daily cash flow forecast is sufficient to cope with the impact of high values of working capital movements, rental flows, dividends that can make a large difference to the cash-balance
• engage the business units in the cash flow forecasting by lots of education, frequent communication, and senior stakeholder involvement, “incentivization”
• don’t try and reconcile the direct vs. indirect data based forecasts which are very different with two teams forecasting in very different ways
• use forecasting accuracy scorecards and focus on payment timing as well as on the amount PLUS give regular constructive feedback and discuss the variances to actual
• push back forecasting to the commercial teams responsible, don’t sit behind your spreadsheet model
• create cash flow forecasting teamwork by having regular discussions and review meetings with all involved.

---

CTMfile take: Kingfisher cash flow forecasting solution is impressive in how it deals with the inevitable conflict between the different types of forecast and the differing needs of a range of stakeholders in a heavily seasonal and cyclical business.