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distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents.

The New Normal in Working Capital

Management

#DBSSMEWebinar

December 19, 2013

Topics for today’s webinar

2

Evolving trends in supply chain and working

capital management

Agenda

Working Capital: Tapping the multi-billion

opportunity in trapped cash

What DBS can do for you: Working Capital

Diagnostics and product solutions

3

Based on survey of 1600 companies by Atradius on B2B businesses

Source: DBS; Atradius Payments Practices Barometer, Nov 2013

Cash remains King, especially in India

Account Payables

Inventory

Account Receivables “What will be the greatest challenge to your profitability in 2013?”

34

32

32

31

37

36

31

35

28

26

24

25

18

17

21

14

56

50

53

55

52

Singapore

China

Japan

Hong Kong

India

Australia

Indonesia

Taiwan

62

58

57

Collection of

Outstanding invoices

Maintaining Adequate

CashFlow Percent of respondents

4

However, India has the highest proportion of uncollectable B2B receivables...

China 4.3

Australia 3.9

Japan 2.1

Hong Kong 6.1

Indonesia 5.6

Taiwan 4.4

Avg. = 5.0

India 7.7

Singapore 6.2

7.2

6.5

4.4

4.4

4.4

3.6

5.5

3.4

Avg. = 4.9

“Over the last 6 months, what percentage of the total value of

your B2B receivables were uncollectable?” Percentage

Domestic Foreign

India uncollectable

rate (7.7%

domestic/7.2% foreign)

highest among all

countries surveyed

Also higher than

Americas (5.8%/6.4%)

and Europe rate

(4.6%/4.2%)

Driven by customers

being bankrupt or out

of business and/or

failure of collection

attempts

Source: Atradius Payments Survey (Nov 2013) of 1,670 companies on B2B payments (n=214 in India); DBS

5

...as well as the largest Days Sales Outstanding

51

51

45

81

58

55

54

53

Indonesia

Japan

Taiwan

China

Singapore

Hong Kong

Australia

India

“What is your company annual

average Days Sales

Outstanding?” Days

Source: Atradius Payments Survey (Nov 2013) of 1,670 companies on B2B payments (n=214 in India); DBS

Marked increase in

average DSO across Asia

Pacific from 48 days to 56

days (Nov ’12 to ’13)

India average DSO (81

days) largest in survey;

40% more than next

largest country (81d vs.

58d for Indonesia)

Lack of focus on early

warning system in India

may have led to increased

DSO

- Only 26% of India

respondents got

concerned when

payments are 1-30 days

late

26%

50%

40%

19%

20%

27%

26%

38%

“According to your company's credit

policy, when does your DSO level

become a concern?” Percentage of respondents who answered "1-30

days longer than payment term“ 1

1 Other responses were “31-60 days longer”, “61-90 days longer” and “90+ days longer”

6

0 20 40 60 80 100 120 140 160 180

Infra-Construction

Hospital

Machine Tools

Pharma

Industrial paper

Steel Reroller

Steel: Pig/Sponge iron

Electrical Equipments

Heavy Engineering

Leather

Plastic Pipe and Fittings

Wheat Milling

Wood

Textile

Irrigation

Dyes and Pigments

Hotel/ Resorts

Packaging / Printing

Plastic products

Transport

Auto

127

65

75

95

85

90

75

95

143

105

123

80

75

105

175

85

85

75

95

80

90

Working Capital Trends Across SME

7

We estimate up to $2.7 trillion in “trapped cash” in key Asian

Markets

Hong Kong Singapore South East

Asia1

China Total

Listed Firms

($,Bn) 21 18 333 247 619

Non Listed

Firms ($,Bn) 34 36 1541 447 2058

USD 55 Bn USD 54 Bn

USD 1,874 Bn

USD 694 Bn USD 2,677 Bn

Source: DBS Research, IHS, Mckinsey

Majority of the

“trapped” working

capital improvement

opportunities are

developing

countries

USD billions

1 South East Asia includes Taiwan, Indonesia and India

8

SMEs require intense focus on Cash conversion cycle, due to

many competing products and limited cash / credit available

Limited working capital stock …

Selection process by leading operator for

distributors

Number of distributors

31

205

Approved

distributors

Unable to

meet other

criteria

67

Insufficient

working

capital

107

Total

applicants

Days of inventory stock carried by SME for

leading operator

% of outlets

67

1 day 16

<1 day

Total 100

>2 days 17

Most retailers need

to be restocked on

a daily basis

SME OPERATOR

EXAMPLES

… and many products competing for it

Stores in low-end micromarkets typically sell a

broad range of goods

Competing telecom products

Other products, e.g., fast-moving consumer goods

In addition, credit systems are risky as many

small shops will disappear very fast

To ensure

that their products are

adequately stocked,

operators must offer:

▪Attractive ROI

▪Quick stock turnover

9

Unlocking this trapped capital requires intimate

understanding of business model and supply chain…

High Tech Short life cycles, Seasonality, long supply lead times

FMCG Promotions, SKU complexity and last mile

distribution

Retail Multichannel, large product range, supplier

management

SME Tight resources, Cash constraints, industry diversity

AP Inventory AR

How to optimize Working

Capital to grow revenue and

profitability?

10

The “classic” supply chain trends will remain important …

globalization

supply management

commodity scarcity

efficiency

offshoring

automation

inventory

1

2

3

4

5

6

7

… but a “New Normal” must be mastered to win

…and how step-changes in supply chain are evolving and

driving changes in working capital management

green supply chains

channel innovation

last mile

talent scarcity

consumer differentiation

near shoring

volatility

…and how step-changes in supply chain are evolving and

driving changes in working capital management

11

Channel innovation 1

12

B2C market size in major Asian countries

e-commerce sales is booming across Asia

+45% p.a.

15

73

14

58

13

45

12

34

11

22

10

11

+7% p.a.

15

25

14

23

13

22

12

20

11

19

10

17

+7% p.a.

15

51

14

48

13

45

12

42

11

39

10

36

+26% p.a.

15

2

14

2

13

1

12

1

11

1

10

1

Source: Euromonitor

1

(USD Billions )

Key insight /

question:

• Lean out

operations,

prior to

capitalizing

on rapid

growth

• Is your

business

prepared for

the shift to

e-

commerce?

13

Average number of SKUs to be sold

e-commerce adds complexity to the supply chain

30,000

700,000

Source: McKinsey

Key insight /

question:

• Significant

challenge of

managing

inventory level

and % of

product

returns

• How robust

are your

inventory

management

systems?

1

14

… putting pressure on distribution and logistics

networks …

Complex multi layered distribution

networks …

Distributor(s)

Wholesaler(s)

60-70%

20-30%

20-30%

Use 3PL

30-40% 40-50%

Top retailers

with fair trade

terms and low

credit risks

Retailers

outside

tier 1 cities

Modern

trade

retailers

Medium scale

manufacturer

s

Truckers all overload. They cannot

make money even with 2 times

overloading, so everyone overloads at

least 2.5 to 3 times

–Operations manager, 3PL provider

… and overloaded local logistics

providers

Key insight:

• Complexity in operations

driven and differs

increases in lower tier

cities

Source: McKinsey

1

15

It will be a service to

the population of the

Amazon, who has

streets and avenues in

the form of rivers. It is

a project aligned with

our concept of

Regionalization, based

on the different profiles

of consumers, where

we deal with each

region as a different

area.

- Ivan Zurita,

Nestle Brazil President

Nestlé's supermarket boat sits docked at the Port of Belem

Clerks work inside Nestle SA's supermarket boat

… and creating innovative ways to reach last mile

Source: Press

1

16

FMCG Case example: How 1 company runs 5 supply

chains

Digital retailer Hypermarket,

Retail & depart-

mental stores

Distributor Drugstores,

beauty

specialist Digital shopper

90 % On Time Product availability

Speed (Replenishment order lead time)

Choice (Range/Complexity)

Demand Volatility/Predictability

STD

21 days

Low

Low

Promotional intensity

99 %

24hrs

High

High

Cus-

tomized

Key insight:

• Use segmentation to

beat supply chain

complexity

1

17

consumer

differenti-

ation

3

18

Data has gone from being highly macro …

We burn 1,800 calories per day

19

He burns 1,438 calories

per day

… to very customised

108 Cal 319 Cal 531 Cal 742 Cal 954 Cal 1165 Cal 1377 Cal 1588 Cal 1800 Cal 2011 Cal

Typical You

Weekly Overview

You burned an average of

1438 cal/day from activity this week

Your activity level is rated

Lightly active You are in the

84th percentile of all men 25-35 years who are overweight

20

Jingjinji is most concerned about product safety

Shandong prefers Chinese brands and has high

brand loyalty

Shanghai prefers well-known brands, especially

foreign brands

Shenzhen is least concerned about product safety

Granularity is key to growth - customer needs differ

by region and city

Shenzhen

cluster

Shandong

cluster

Shanghai

cluster

Jingjinji

cluster

Source: McKinsey Insights China

CHINA EXAMPLE

21

LG is building products from the ground

up to meet local Indian needs

Indian need LG’s response

Source: Press search; McKinsey analysis

INDIA EXAMPLE

• Low literacy in rural areas;

English not understood

• People use television to

listen to music

• Menu in local languages

• 2,000-watt speakers and

powerful bass

• Most Indians prefer large

vegetable compartments

• Indian spices discolor

refrigerators

• Small freezers, since frozen

food is not as common in India

• Bright colors

• Scarcity of water in India

means automatic machines

not as effective

• Large-capacity semiautomatic

washing machines to suit

Indian families

• One-touch “Indian Menu”

• Recipes for cooking Indian

food in microwaves

• Traditional cooking; new to

cook in microwave ovens

22

Volatility 6

23

Increased risk post 2008 increased importance of

working capital focus

May 2010 – Gulf of Mexico

Major oil spill affected the

ocean traffic and seafood

industry

Jun 2009 –

Honduras

Major political crisis

affected most

businesses

April 2010 – Greece

Major economic crisis

dramatically reduced the

value of Euro

April 2010 – Iceland

Volcanic eruption

stopped air traffic

Jan 2009 – Russia

Shuts off all gas

supplies to Europe

Mar 2011 – Japan

Major earthquake

and tsunami hurt all

major supply chains

Jan 2010 – China

FTA between Asian

nations removes tariffs

on 90% of goods

2009 – S.E. Asia

Ocean transportation

capacity shortage

leads to price spikes

Nov 2009 – Dubai

Economic crisis hit

the world economies and

major currencies

Jan 2009 – Iceland

Government and

banking system

collapsed

Sep 2008 – USA

Lehman Brothers

filed Ch.11 starting the

global economic crisis

Feb 2010 – Haiti

Earthquake shutdown

all commercial activity

Mar 2010 – Chile

Supply disruptions in

pulp cause prices to

reach near all-time high

6

24

In addition, unforeseeable risks have increased in

frequency and intensity

Source: McKinsey Agile Operations

Value stream

Probability of steel price change

> -20 -10 -5 -2 0 2 5 10 20

2000

Before 2000

After 2005

Monthly price change (percent)

6

25

Best practice: Design to volatility- Standardization and spec

optimization enable players to lower DIO and A/R

Common architectures across product lines …

Arrangement of engine components

Cable harness structure

Joint components across the family models

… reduces working capital and risk across the value chain

Reduces working capital:

• Less product lines to manage result in less

buffer stock and inventory

• Reduction in the number of suppliers allows

better management of A/P, resulting risk is to

be managed

Reduces risk across the value chain:

• Reduced risk exposure (less raw materials to

take care of)

• Volume bundling

• Improved sourcing and supplier management

• Define packaging zones

• Determine arrangement of components

• Define requirements on component

strategies

• Systematically optimize number of variants

• Optimize system across package space

26

DP

O

CC

C

DSO

• [Client]2 better than

industry median in DIO,

despite inherited stock

• [Client] lags behind

industry benchmark in

terms of receivable days

• Opportunity for [Client] to

aggressively target

receivables while

managing transition to

new supplier and reduce

CCC

Observations2

Footwear Industry Benchmark1 Working Capital Ratio

Source: Bloomberg; Client data; DBS Working Capital team

1 Footwear industry benchmarks based on FY12 financials of 54 companies from Bloomberg database

2 Client ratios based on 5 months data (1 cycle)

Note: DSO: Days Sales Outstanding; DIO Days Inventory Outstanding; DPO Days Payables Outstanding; CCC Cash Conversion Cycle

DIO

9 days 35 days

Lowest Median

0 days

Highest

129 days

Top Quartile

55 days

Lowest Median

106 days 90days -12 days

Highest

809 days

Top Quartile

41 days

Lowest Median

46 days 47 days 4 days

Highest

246 days

Top Quartile

31 days

Lowest Median

78 days 0 days

Highest

769 days 77 days 38 days

Top Quartile

$5m

$1m

$1m

$7m

Benefit

Client

Client

Client

Client

Best practice: Working Capital benchmarking and

data analytics to improve cash-conversion cycle SME EXAMPLE

27

… adding value to our clients

… in-depth understanding of what keeps the CFO awake at night

… being trusted advisers of our clients

… deep industry expertise …Understanding clients Working Capital levers and providing value

adding advise

DBS has embarked on a transformation journey to

add more value to our clients

How a CFO thinks …

We provide working

capital benchmarking

and diagnostics

28

Analysis

A/P

A/R

Inventory

1

Supplier segment

analysis

2

Early “payments

pocket” analysis

Time to payment -

clusters

3

Purchase order

analysis

Time to payment

4 5 6

DSO analysis by BU

7

Inventory to

revenue analysis

8

Lead time analysis

We developed a suite of working capital tools to help you

unlock trapped cash...

29

WC

ana

lyse

s

Imp

act

WC

360

Opera

tional

Leve

rs

39

81

49

48

81

3770

918690 -21d

Target

achieve

d

201

2

11 201

0

337

793

3,447

2,317

Cash

available

at target

position

Inv

0

A

P

A

R

Cash at

current

position

DSO down by 24% and DPO up by 23% 21 days reducing in Cash Conversion Cycle

2012 ROCE: 26.2%

Decrease in Receivables USD 793 Mn

Increase in Payable USD 337 Mn

2012 Improved ROCE : 27.27%

107 bpp increase in ROCE 1.1B SGD Cash Flow freed up

WC

Levers

Current

Value After DBS

Solution

Increase/

Decrease

DSO

DIO

DPO

24%

0%

23%

Cash Conversion Cycle, (days)

Potential freed up working capital, $ 1,130 million

Change Capital Employed USD 1,130 Mn

…underpinned by comprehensive review across working

capital drivers…

30

WC

an

aly

ses

Imp

act

WC

360

Op

era

tion

al

Leve

rs

… and in-depth analytics

By customer analysis shows average DSO for company to be higher than industry benchmark

0

50

100

150

200

250

300

350

400

280 270 100 0 10 20 30 40 50 60 70 80 90

Days of Sales Outstanding Days

Size of account USD ‘000

300 290

Average

DSO 42 193 201 58

Industry benchmark

DSO 29

Total

Impact on WC,

USD ‘000 137

Retail SME client example

Av DSO: 58 days

31

DBS Working Capital Diagnostics: Working to be your Asian bank of

choice

What is DBS

Working Capital

Diagnostics?

DBS proprietary suite of tools and recommendations to help

you free up cash by optimising your working capital!

Compare cash conversion cycle time against

industry benchmarks

Review detailed analysis of Receivables, Payables, and

Inventory days performance

Bespoke analytics and actionable report

How does

this work?

DBS will partner with you to develop actionable analytics

Simple: Fill up a template with working capital data (e.g.,

invoices) and participate in initial kick-off session

Actionable: DBS will data-mine receivables, payables and

inventory data to distill specific recommendations

Confidential: All data shared kept in strict confidence

32

What we need from you

What we need from you Required support

▪ Data extraction/ collection to fill in the

templates to conduct working capital

analyses (e.g. AR/AP/Inventory/overall

company profile)

▪ Resource/s allocated to the diagnostics

(e.g. person in charge during working

sessions to discuss preliminary analyses

and findings, answering queries)

Description of tasks

▪ Treasurer/ CFO time to conduct survey

for Maturity Assessment along the 3

dimensions (AR/AP/Inventory)

▪ 1 financial

analyst

Resources

▪ 1 person (can

be the same as

previous)

▪ Treasurer/ CFO

▪ 1-2 days

Est. time spend

▪ 1 hour

session, once

a week

▪ 1-2 hours

What next? Contact your DBS representative for more information

THANK YOU!

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