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Where Treasury & FP&A Converge

  • By Andrew Deichler
  • Published: 3/30/2016
gallo2AFP recently spoke with Tom Gallo, treasurer for ABM Industries, on how his treasury department works alongside financial planning and analysis (FP&A). Recent changes at the facility management provider has resulted in closer collaboration between both functions.

AFP: I understand that both treasury and FP&A are going through transitional periods. What is changing for each group and what are they working on?

Tom Gallo:
I think we have an interesting story to tell at ABM from a couple of different perspectives. Right now, we’re going through a company-wide reorganization called 2020 Vision. As part of this plan, we’re creating a more integrated and robust FP&A function. Typically, in the past, it was only at the corporate level that FP&A existed. Now we’re transitioning and pushing FP&A all the way down to the field, where all our field operations will have an FP&A resource who becomes the resident expert that will translate business results to the enterprise. So there will be a seamless, more organized effort to have FP&A throughout the organization understanding the factors that drive growth and profitability for ABM.

Whereas in our treasury group, we’re more focused on the cash needs of the business and minimizing risk throughout the enterprise. Whether it is upcoming M&A activity, funding 2020 Vision initiatives, minimizing bank fees, interest rate risk, exchange rate risk, etc.—we have been focused on understanding how each of these impacts the organization and how to communicate that information to various internal groups, including FP&A. Our treasury team is being relocated to New York from Houston, which will allow us to really collaborate more with FP&A. We have our own needs from them, and they have their own needs from us.

AFP: We’ve been hearing quite a bit lately that treasury and FP&A functions are working closer together. In what ways are these two groups collaborating at ABM?

Gallo:
We work together quite a bit. Treasury is communicating often on anything that will impact our earnings and future forecasts. Due to the current interest rate environment and the uncertainty around it, we’re constantly updating our projections on where interest rates are going and where we’ve positioned ourselves from a hedging perspective.  

In terms of shareholder distributions, along with a dividend program that has been in place for over 50 years, ABM announced a $200 million share repurchase program last year. Our deployment strategy for share buybacks is dependent on M&A activity and general cash needs. As part of our reporting practice, we send out a weekly share repurchase update to FP&A so they can be sure we’re in line with the projections we provided to them at the beginning of the quarter.

Lastly, we communicate on M&A. Treasury plays an important support role for our M&A team and we’re very involved in the due diligence process. To the extent that we’re able to share information—the timing of a prospective deal, EBITDA contribution and funding needed to execute; we pass all details to the FP&A team.

AFP: So it sounds like treasury is frequently sharing information with FP&A. What about the other way around? What does treasury get from FP&A?

Gallo:
The information flowing back from FP&A to treasury is more on forecasting—things we don’t have our hands on every day. EBITDA is a very important metric for our covenant calculations and considering the amount of M&A we’ve done over the last few years, treasury needs fresh projections on the newly acquired businesses so we can update our calculations each quarter and give accurate scenario-based assumptions on leverage.

In addition, we have increased our business in the U.K. quite a bit through recent M&A activity. Given the size of the business there now, we need to make sure we understand all of the foreign exchange risk that comes along with it. If market dynamics are going to have a material effect on EBITDA, then we need FP&A to help us bridge the gaps on where we could be. FP&A and treasury discuss areas such as: Are we projecting to build cash positions in the U.K. when those rates are rapidly changing due to the potential of Brexit? Do we need a hedge in place? We rely on those projections to make decisions.

Also, we have a five-year model that we both share. The model projects earnings, margin, leverage, etc.  So we’re constantly sharing inputs on all that.

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