You are on page 1of 24

Review of short-term

cash flow forecasting

7 November 2018

1
Contents

Background 3

Cash controls 4

Balance sheet review 7

Short term cash flow forecast review 12

Conclusions and recommendations 19

Appendices 22

2
Background

• The original budget for NUS Group for FY19 showed a £1m surplus, including £4 million profit
share from the OneVoice joint venture.
• Sales of the Totum card have been below expectations, and it is now considered unlikely that
any profit share will be received this financial year.
• The updated cash flow forecast removes this profit share, and as of 28 October first projects a
negative cash balance from w/e 24 February 2019, rising to £(2.9) million by June 2019.
• NUS has two main options to fill this gap – asset disposal or additional borrowing. We
understand these are being considered as part of the ‘reform’ workstream of the Turnaround
Board.
• In response to identifying this funding gap, a weekly cash flow forecast is now produced. This is
a new process which has been underway for approximately 6 weeks.
• This purpose of this document is to review the short term cash position and forecasting process,
and make recommendations for ‘quick win’ improvements.

3
Cash controls

4
Basis of preparation

• NUS produces a group-level cash flow forecast (‘NUS


Cost centre Cost centre Cost centre
plan 1 plan 2 plan x… provisional cashflow’) which shows a weekly cash flow
forecast for the period to October 2021. It is produced
weekly by Clare Fairbrother and Paul Ashton.

• The opening cash position is taken from the bank


statements from the previous Friday. All transactions
Consolidated from the previous week are downloaded from the
Totum forecast
plans statements, these are analysed to split out any non-
NUS cash (e.g. relating to balances which are due to
be repaid to unions).

• The basis of the cashflow forecast is primarily the


Some income and expenditure (‘I&E’) forecast. The I&E
Manual phasing Prior week
adjustment to
assumptions actuals values are taken from a consolidated set of plans,
rest of month
which are produced monthly for each cost centre by
heads of departments and management accountants.
There are only limited balance sheet movements as
ledgers are not rolled out into the cash flow.
Weekly cash Commentary on
• The cashflow takes the total monthly values and
report produced debtor receipts
phases these by week on a percentage basis.

• Each week, a variance analysis is produced for the


prior week’s actual to forecast. Adjustments are made
to the balance of the current month’s forecast, based
Distributed to on the actuals if appropriate.
Director of Finance
• A short report is produced, and sent with the
spreadsheet to Vicii Kirkpatrick (Director of Finance).
Key: Monthly Weekly

5
Spending and payment authorities

We have reviewed the spending authorities at a high level only, falling to three categories: personnel; purchases;
expenses.
• Personnel: All recruitment decisions (new roles and gapped posts) and L&D expenditure is referred to the
Resourcing Committee which meets on a monthly basis. This is in line with good practice and particularly relevant
control during a financial turnaround. There is evidence from the meeting tracker of challenge and ultimately
rejection of requests in some instances, which gives some assurance that the process is robust. The MI could be
adapted so that outcomes could be shared with other committees if this was considered beneficial.
• Purchases: NUS has a set Delegation of Authority which gives Heads of Department and above specific financial
limits. The purchase order system is linked to the Delegation of Authority and does not allow limits to be breached.
There are occasions when purchase orders are not approved in advance, and these are subsequently approved via
email correspondence with budget holders. NUS could consider a temporary reduction in delegated authorities, to
centralise expenditure decisions and reduce or delay discretionary expenditure.
• Expenses: Company credit cards are given out to certain individuals, with the majority having a spending limit of
£500. Expense forms are required to be submitted on a monthly basis (one month in arrears), however the total bill
is settled directly by NUS by direct debit irrespective of whether expense returns have been received. Expenditure is
then reviewed retrospectively to check for compliance with policy. We requested an analysis of the top 3 expense
users and the compliance to policy shown below. NUS could consider moving to a model where expenses must be
approved before they are settled, with individual cardholders becoming liable for late payment charges.

6
Balance sheet review

7
Group Balance Sheet as at Sept 2018

Group Balance Sheet (Sept 2018) £,000 Assets & investments


• Fixed assets includes £7.1m which is predominantly
Fixed Assets 7,729
two properties, London and Edinburgh. The London
Investments 13,408 property is valued at £11-£12m and Edinburgh valued
Total fixed and long term assets 21,137 at £3m. The Edinburgh building is unencumbered,
however London has an outstanding mortgage (see
Bank 3,388 below). The remainder is IT and fixtures.
Trade and Other Debtors 6,603 • £13.2m is the book value of Endsleigh preference
shares. These provide annual dividend income of
Prepayments & accrued income 3,560
£0.8m.
CTA 942 Debtors
Long term deposits 1 • Debtors stand at £6.6m. Of this, £6.0m is trade
debtors (see following page for further commentary).
Total Current Assets 14,494
• Loans made to One Voice stand at £1.5m at the end of
Total Assets 35,632 September. This will rise to £2m by December 2018,
Trade and Other Creditors (3,771)
which is the full value of the loan. Interest accrues on
this loan, but there are no fixed repayments.
CT/VAT Payable (451)
Key Liabilities
Accruals and Deferred Income (10,125) • Of the total Social Security balance of £11.7m, the
Social security (11,664)
SUSS Pension liability is approx. £10m of the balance.
Annual contributions of £0.8m are made towards this
Mortgage (1,739) deficit. The remainder of the balance being PAYE, NI,
Loan to OneVoice 1,501 other pension costs and staff loans.
• The mortgage over the London property £1.7m. The
Total Liabilities (26,249) key terms are described on page 8.
Net Assets 9,383 • Accruals and deferred income of £10.1m is
predominantly made up of Deferred Income of £8.0m,
relating to discount cards which have been bought over
a 3 year period.

8
Debtor Ledger Review (September 18)

30 Days 60 Days 90 Days + % of Debtors


Entity Not Due Yet Overdue Overdue Overdue Total Debt over 90 days
National Union of Students UK 339,604 8,225 1,605 18,104 367,539 4.9%
NUS Services 1,021,727 108,403 (33,628) 591,975 1,688,477 35.1%
NUS SU Charitable Services 167,899 7,821 64,517 (1,463) 238,774 (0.6%)
NUS Holdings Ltd 38,255 1,200 264 (3,570) 36,149 (9.9%)
Grand Total 1,567,486 125,649 32,758 605,047 2,330,939 26.0%
Collected through CB/DD 3,690,874 0 0 0 3,690,874 0.0%
NUS Services (Co-op) 172,222 (9,819) 4 (5,700) 156,706 (3.6%)
NUS Services (Extra) 837,564 (820,892) (185,672) (541) (169,542) 0.3%
Grand Total inc non chaseable debt 6,268,145 (705,062) (152,911) 598,805 6,008,978 10.0%

5 largest debtors Collectability

Frontline Image Ltd (£167k) A payment plan is already agreed @12k per month

Coca Cola European Partners GB Ltd (£102k) Under dispute but in communication with debtor

Walkers Snacks Ltd (£100k) A confirmed payment date has been received – 31st October

Alcon Eye Care Ltd (£73k) A confirmed payment date has been received – 5th November.

AB-Inbev UK Ltd (£50k) A confirmed payment date has been received – 5th November.

Trade debtors
• Trade debtors stand at £6.0 million. Of this, £0.6m is over 90 days overdue. The top 5 debtors in this overdue
category account for £0.5m of the 90+ day bucket.
• Of the top 5 debtors 90+ days overdue, all but one has a confirmed payment date or in on a payment plan. Coca
Cola are disputing invoices, which is being investigated.
• Management say that generally the collectability of debtors is high and there are few write offs.
• Due to the fact the oldest debtors seem to have agreed payments or plans, there is limited risk of the debtor
ledger.

9
Creditor Ledger Review (September
18)
Unallocated
Entity Balance Current 30-60 Days 60- 90 Days 90 Days +
credits
National Union of
Students UK 42,123.38 64,440.86 - 64.70 3,175.67 (25,557.85)

NUS Services 806,616.46 804,200.00 19,365.00 62.02 - (17,011.03)


NUS SU Charitable
Services 11,164.70 26,347.41 2,771.92 970.83 39,093.90 (58,019.36)

NUS Holdings Ltd 141,258.22 211,363.46 170,166.73 85,671.33 211,721.14 (537,664.44)

Grand Total 1,001,162.76 1,106,351.73 192,303.65 86,768.88 253,990.71 (638,252.68)

Trade creditors

Trade Creditors stands at £1.0m overall. The gross value of the debt is £1.6m less the £0.6m in unallocated credits.
The majority (£1.1m) of the gross balance sits within the current ageing bucket, showing that creditors are kept up
to date.

Unallocated credits of £0.6m are stated to relate to items where a balance has been paid but there is no invoice to
credit against within the system, for example, Visa card payments whereby the payment has gone out to pay off the
charge card before an individual’s expenses have been reconciled. However, there is a large amount of unallocated
credits within NUS Holdings (£537k) but it has no Visa related creditor.

The value of creditors within the +90 days bucket is not a true reflection of actual outstanding payments to suppliers
due to these unallocated credits and as such the value of this bucket is likely to be much lower.

From the above analysis and discussion with management we can see there is no creditor stretch, and no payment
pressure from any overdue creditors. However as a control point the unallocated credits, particularly in Holdings,
should be addressed.

10
Opening cash as at 28th October

These funds are currently being held


5,000.0 back by NUS although they are due
4,014.0
to have been paid to TOTUM. This
4,000.0 excludes the VAT to be passed onto
2,983.0 them.
(265.0)
3,000.0 2,466.0 2,201.0
£’000

2,701.0
2,000.0
(1,031.0)
(517.0)
1,000.0

(500.0)
(1,000.0)
Total Cash Non-NUS Net Group 31 day notice Cash available TOTUM funds Current Co-Op Total
Cash * Cash account immediately Liquidity Overdraft Headroom
to NUS Facility
Opening cash
Total cash on hand stands at £4.0 million. Management reporting highlights two deduction from this balance:
• £1.0m of ‘Non-NUS cash’ comprises Union cloud, Co-operative and Promotions funds which are due to be paid out to
unions, partners and brands.
• £0.5m is held in a 31 day notice account, and not immediately available. This is held in an account in the name of
NUS Holdings Ltd, but is referred to as NUS Charity money. Care needs to be taken to ensure that any charitable
funds are only spent on permitted activities, and that any intra-group funding arrangement is properly documented.
This leaves cash immediately available of £2.5m. However we have made two further adjustments:
• £0.3m of Group cash is owed to OneVoice (‘TOTUM funds’). There is an informal arrangement in place whereby NUS
only transfer sufficient funds to OneVoice to meet their forthcoming needs. It is currently forecast to be settled in
December 2018.
• £0.5m is currently available through an overdraft facility with Coop, although this expired on the 5th November. We
understand this is not being renewed, although it may still be possible to extend the agreement.

11
Short term cash flow forecast review

12
Forecast cash to 31 January 2018

Affiliate fees from unions are received at the end of October, November and December.

4,500
4,000
3,500
£’000

3,000
2,500
2,000
1,500
1,000
500
0
-500
-1,000
01/10/2018 01/11/2018 01/12/2018 01/01/2019

Provisional Cashflow Reforecasted cashflow Overdraft

Payroll costs are paid out within the 3rd week of the month and create the low points.

Short term cash forecast


• Over the 13 weeks to 31 January 2019, the low point in the forecast is £1.5m of cash (£2.0m of headroom) in
week ending 23 December 2018.
• This forecast does not currently include any allowance for redundancy payments. Depending on the results of the
current consultation process, management estimate a cash requirement of £0.3m to £0.8m to fund redundancy
payments.

13
Summary of cash forecast from 28
October 2018 to 31 January 2019
£’000s
Oct Nov Dec Jan Total
Totum Income 0 629 420 433 1,481
Income (excl Affiliation Fee & Lloyds) 0 497 520 461 1,478
NUS - Endsleigh Income Received 42 42 42 438 563
Affiliation Fee Income 1,787 1,191 993 0 3,971
Rent Income 0 0 44 0 44
Totum Commission 0 (253) (116) (63) (432)

Supplier Payments Activity Cost (314) (561) (443) (584) (1,902)


Payroll & PAYE 0 (664) (658) (669) (1,991)
SUSS & Pension 0 (58) (58) (58) (173)
Subtotal payroll (2,163)

Totum Salary 0 (56) (60) (57) (172)


Totum Direct Costs 0 (179) (107) (83) (370)
Totum Contribution Surrender (580) (809) (239) (168) (1,796)
Totum VAT 0 90 63 70 222
Subtotal totum costs (2,116)
VAT Payment 0 0 (604) 0 (604)
Extra Investment Payment 0 (175) (150) 0 (325)
Mortgage 0 (17) (17) (17) (52)
Total cash flow 935 (325) (370) (297) (57)
Opening cash @ 28 October 2,983
Closing cash @ 31 January 2019 2,926
• Description of the assumptions underpinning the cash forecast are given on the following pages.
• Note that October is a two day period in this forecast.

14
Principal forecast assumptions

Category NUS assumption Review comment


Totum income Assumed to be received equally As money earned in previous week is paid in the following
£1,481k over the month on a weekly week (e.g for students who purchase cards and pay
basis. Driven from I&E plans. through PayPal income earned up to Friday is drawn down
the following Tuesday), there is a short time in which
accurate forecasting is possible.
Income (excl Affiliation Assumed to occur in line with Income line not specific or split down to analyse receipts
fee and Lloyds) prior year sales. of different streams. Phasing assumed based on prior year
£1,478k which does not necessarily match or relate to the future
expectations.
Endsleigh income Share income received on a Share income is received on the final working day
£563k monthly basis in the final week. of the month.
£400k received twice per year
with £41.7k received on a
monthly basis.
Affiliation fee income 50% to occur at the end of This is the contracted payments from student unions and
£3,971k September, with the remaining the standard payment dates are contractual.
50% split between the end of
October and November.
Rental Income Rental income to be paid There are currently three tenants Hanover, 3aaa rental
£44k quarterly by tenants within the and CO-OP. 3aaa have recently gone into administration
London office. and so this will not be received. The forecast correctly
does not include £7k per month attributable to 3aaa.
Totum Commission To occur on the 4th week of the The value of this payment is driven by sales of Totum
£(432)k month following sales. cards and can’t be easily forecasted beyond one month.
The phasing used appears appropriate.

15
Principal forecast assumptions

Category NUS assumption Review comment


Supplier payments Split 10%/90% phasing across the Actuals show costs across all weeks of the month
£(1,902)k second and fourth weeks of the month. with a higher proportion in the fourth week but not
as high as 90%. In addition the current phasing
doesn’t map expected direct debit payments. NUS
could consider moving to a single supplier payment
run on final day of the month to improve cash flow.
Payroll, PAYE and PAYE and Payroll is paid in the 3rd week Payroll paid out on the 21st which ties in with the
Pension of the month. Pension costs are week of payment. Pension contributions are paid in
£(2,163)k distributed in the first week. the first week.
Totum expenses Contribution surrender assumed in 3rd Commission is forecast based on prior month
£(2,116)k week of month, other costs (salary, actuals. Contribution surrender is agreed during
commission and direct costs) assumed the month.
in final week.
VAT Payment Expected VAT payment for quarter 2 The last VAT payment was paid in the second week
£(604)k August – October to be paid within the of September for Q1. Quarterly payments should be
3rd week of December. made one calendar month and seven days after the
end of the VAT period.
Extra Investment Payments to leave the second week of Previous actual payments have all occurred within
Payment the month, the payments are due to be the second week of the month and have all been for
£(325)k £175k a month however this balance is £175k per month.
made up of £175k and £150k.
Mortgage Payment forecast to be made in the the Prior actuals show the payment does go out first
£(52)k first week of the month. week of the month.

16
Recent forecast accuracy

October Variance to Actuals £’000s


3,500.0
2,983
3,000.0 2,735
2,376 2,394
2,500.0 2,133 2,088
1,870
2,000.0
£’000

1,352
1,500.0
1,000.0
500.0
0.0
05-Oct 12-Oct 19-Oct 26-Oct
Oct Wk 1 Oct Wk 2 Oct Wk 3 Oct Wk 4

Forecast Balance Actual Balance

Week Variance % Timing difference items Underlying assumption difference


to actual
1 (28)% n/a Debtors were forecast evenly over the month but
were not received when expected (£486k). Creditor
payments were £176k higher than expected.

2 1% Very minimal difference to actual, total value of £17k.

3 35% An overdue debt of 220k was received. Totum PAYE was a split payment so NUS didn’t pay £106k
had a £250k payment delayed and further expected.
£300k deferred into November.

4 37% A charity investment was paid into NUS which n/a


was not expected (£500k). £482k of Totum
commission relating to multiple-year cards has
been deferred for future years

17
Variance between provisional and
reforecast cash flow
Provisional Reforecast
(21st October) (26th October) Variance Narrative

Opening Cash @ 28th October 2,335 2,983 647 Result of prior weeks’ over-
performance to forecast which
Relates to Income excl. affiliation fees
and Lloyds, offset by timing change of
affiliation income receipt.

Income 4,437 6,056 1,619 Driven by a timing difference in


affiliation fees of £1.7m which has
been corrected within the reforecast

TOTUM (824) (1,392) (568) Driven by increase in contribution


surrender of £0.7m, partially offset by
reduced direct costs of £(0.2)m

General Costs (2,389) (2,557) (169) Driven by increased supplier


payments in reforecast

People Costs (2,133) (2,163) (30) Small variation in payroll

Calculated closing Cash @ 1,426 2,926 1,499


27th January

Note: Closing Cash @ 1,672 2,076 403 Difference is due to an error in


27th January per cash flow October month-end cash, which is
forecast artificially depressing closing cash.
Now corrected in latest version.

18
Conclusions and recommendations

19
Conclusions and recommendations in
relation to cash forecasting
Conclusions

• Management have rightly identified the need for weekly cash flow forecasting, and action has been taken quickly to
put one in place. However the basis of preparation of the current weekly cash flow forecast is not appropriate for
reliable short term forecasting.

• In the current 13 week forecast period, the cash low point is £1.5m in week-ending 23 December 2018. This version
of the forecast does not take in to account likely redundancy payments.

• Outside of the 13 week period presented in this report, cash is forecast to fall to £(39,000) in w/e 21 April 2019, and
then to £(2.9) million by June 2019. However we have seen variances from £(0.6)m to £1.1m in forecast accuracy in
recent weeks.

• Therefore alongside taking appropriate action to reform the organisation, it is critical to accurately forecast short
term cash requirements.

Recommendations

• We recommend that management implement a 13 week receipts and payments forecast. This needs to be driven
initially from the balance sheet, with income and expenditure information overlaid in later weeks.

• The reporting in relation to the weekly forecast is currently only distributed to the Director of Finance. We
recommend that the Group extends the circulation of this report to appropriate committees, and statutory directors,
on a weekly basis.

• The Board and Executive need to consider the options available to fund the cash shortfall currently forecast in April
2019. Any options which involve borrowing will need to be underpinned by a robust turnaround plan which shows
that such borrowing can be repaid.

• We would recommend that the Group seek to put in place a short term liquidity facility such as an overdraft.
However, the Directors’ will need to assess the situation at the time before drawing down on this facility, in the
context of their fiduciary duties.

20
Other observations and
recommendations
Cash forecast reporting

• The report and analysis needs to clearly identify funds held belonging to OneVoice.

• If the overdraft facility is replaced, this can be added to closing cash to present total headroom. The reporting should
show analysis and commentary on current to prior week variation in the 13 week forecast period (as well as prior
week actuals).

• We have passed on some technical comments (i.e. excel formula feedback) to the manager responsible for producing
the spreadsheet.

Other recommendations

• The Group could consider temporarily reducing delegated authorities, and putting restrictions on travel and
subsistence, to minimise discretionary expenditure.

• We understand that NUS is entitled to invoice OneVoice for indirect costs (e.g. management time and overheads),
but has not yet done so. We recommend this amount is calculated, and so long as it does not exceed current
OneVoice cash held by NUS, invoiced immediately.

• The shareholding in OneVoice needs dealing with before dissolution NUS Media Limited. If this transfer creates
surplus funds in NUS Media, consideration should be given to the method of dissolution – strike off or members’
voluntary liquidation.

• More broadly, tax advice should be sought before undertaking a streamlining of the Group structure, to understand
any potential consequences.

• It appears that inter-group governance is informal, particularly in relation to financial management. Given the
financial challenges, we recommend that additional steps are taken to consider each entity's position, and that any
decisions around funding and restructuring arrangements are properly taken and documented.

21
Appendices

22
Appendix 1: Group structure – cash
flows
Charitable donation (£2.5m p.a.)

Overdraft facility
£0.5m (undrawn)
NUS UK Charity

Term loan
Floating charge +
cross guarantees
Coop bank Holdings
£0.5m on deposit?
Informal loan?

~95%

Services Media

Annual dividends of up to
£4m through B shares
Loan repayment (once loans repaid).
20%
Transfer of Totum receipts, net of (in priority to dividend)
commission and costs.
£2m loan, of which £0.35m still One Voice
to be paid.

Note:
1. All shareholdings 100% unless states otherwise.
2. NUS Holdings is the principal employer and landlord for the Group. There is a system of internal recharges which is not shown here.

23
Appendix 2: Bank facilities

Bank facilities
• The group has 14 bank accounts. One of the accounts has a £0.5m overdraft facility, which is currently undrawn. The
facility expires on 5th November 2018, and the Group does not intend to renew it.
• There is also a mortgage outstanding with Coop. As at the 26th October 2018 has an outstanding balance of £1.7m,
with monthly payments of £17,265. By the end of the term in [month] 2020 there will remain a balance of £1.5m
which will require refinancing.

Entity Account (All with Coop unless stated otherwise)

NUS Ltd • NUS Main


• NUS Affiliations

NUS Services Ltd • NUS No 1 Account (with overdraft facility)


• NUS Extra Account

NUS Charitable Services • NUS Student Union Charitable Services account

NUS Holdings • NUS Holdings ltd


• 4 x Corporate Current accounts with Santander

NUS Media (soon to be closed) • 1 open account with nil balance

Epona (soon to be closed) • 3 x HSBC accounts with nil balances - £/$/€ accounts

24