Money Market Services in person……With Patrick Kunz, Treasury Management, Booking.com______

Ed Lopez, Chief Revenue Officer

Patrick Kunz is an independent treasury consultant and currently treasury manager for, the Netherlands-based online travel portal with around $15 billion in annual revenues. At the start of the pandemic, Patrick was working for Just Eat, the UK online food delivery company, so he has experienced the extreme shocks of the past two years in two very different online businesses. He joined us for one of Calastone’s regular treasurer Q&A sessions to talk about what he has learnt.

For anyone that doesn’t know, what is the business?

We are a travel booking company that operates as an agent offering clients an outsourced solution where everything related to travel can be booked on one site. So, if you want to book a hotel in rural Thailand, or indeed anywhere else in the world, we make it is easier to use than to chase around trying to get in touch with the hotel and all the other providers directly.

The travel business has been severely shaken by the past two years. What lessons should treasury learn from the experience?

Everything comes down to the fact that we are in hyper-uncertain times, and that is continuing. Covid has really shaken things up for everyone. We used to have simple models to predict the future – something like a 13-week rolling forecast to predict our cash position, that was really simple to do. It was easy to see whether you would have excess cash to dispose of, or whether you would have financing needs. And, the expectation of volatility built into those forecasts was maybe plus or minus 10 per cent at maximum. Now that seems rather ridiculous, when you have big companies that have faced cashflow volatility of maybe minus 80 per cent in the space of one day.

So is the need to conserve cash still critical in business generally?

As it happened, things actually went the other way. At first the models stopped working, everyone was in panic mode – and then we woke up a few weeks later and realised [at Just Eat] that business was still possible and might even be growing. And suddenly you go from “where am I going to find cash?” to “what am I going to do with all my excess cash?” For the treasurer you suddenly have a nice big shiny pot of cash and you get to decide what to do with it! And today we are left with a situation where many companies are too cash rich – and that means they have to start rethinking things like risk appetite, because bank deposits or short-term money market funds are effectively costing you.

Have you changed fundamental processes and policies as a result of recent experience?

It is treasury that sees the cash position first, so then the question is how does that inform the long-term financial strategy of the company. What I have learnt is that you really need good-quality information from everywhere in the company, so you are dependent on different departments that all do things differently. For example, someone may have a budget to work to, but that budget may be half a year old and meanwhile everything has changed. How often do they update the budget? It depends on the department. And even the information that treasury generates is limited – in SAP the readout on payables and receivables is only going to let you see 30 or maybe 60 days into the future.

How does that data challenge affect forecasting and executing your cash management?

Well of course I don’t need a forecast to tell me that we will have ongoing multi-currency cash pooling needs. A hotel in Fiji doesn’t want to be paid in US dollars, and a US visitor to that hotel doesn’t want to pay in Fijian dollars. So we have either daily or twice-weekly reads on our global currency position, and that requires a lot of different systems to be linked. Now the goal of every treasury should be to have a waterfall of global bank accounts that would let everything be pooled centrally in a single currency, and you can pretty well do that if you are just looking at the EU, the UK and the US. But with plenty of other countries it is going to be difficult. You know a lot of people want to visit Brazil for a vacation, so Brazil generates a lot of cash, but getting that cash out is another matter.

How about changes in the way you dispose of excess cash?

The view on excess cash has also changed due to covid. It has become (even more) prudent where risk comes first and return comes second. Given the low interest environment we are in, especially in Europe, cash has become more costly. You also have to look at where the cash lies, both countries and bank counterparty. Both come at a risk. These risks should also be spread out as much as possible; all these elements lead to a more complex excess cash puzzle to fill. The ultimate goal being spreading the cash to reduce risk while at the same time trying to maximise return without increasing the risk. High investment grade counterparty ratings and ultra-safe money market funds are the go to product in this case.

Do you feel that treasurers have good enough tools to track rapidly evolving cash positions?

I think the tech tools for cash visibility are good, and APIs that give real-time connectivity with banks are good, but where it gets complicated is where I also want to see the impact of present and future tax, payroll, AP and AR data and other cash flows. I have to get that information from a lot of different sources and while there are good tools for collecting disparate data, they are also dumb tools – they only do what you tell them to do. They don’t show the quality of the data; you still need human beings to assess that. This is always going to be challenging unless we get to a world that doesn’t change every day.

And have you changed your forecasting processes?

I believe Covid will not be the last case of acute stress, so we need to use the forecasting lessons we have learnt. Our forecasting was always based on past patterns, seasonal changes, normal cycles with normal variations. Before Covid we had been through a long period when you wouldn’t even consider putting forward a forecast that included a serious negative element. But now we need to think more about building liquidity buffers for crises and increasing the security of financial instruments. And I think we are at the beginning of a period where companies will be more financially conservative.

If you were granted just one thing on your treasury wish list, what would it be?

I think that would be something around forecasting. Could we perhaps use AI to predict markets better than we can at the moment? Because the old models based entirely on past patterns, you can throw those away now. I believe the data is there, it is a question of getting to it and interpreting it correctly into usable data.

Ed Lopez, President, Global Money Market Services

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