Do not put content in the brand signature area Optimizing working capital while maintaining a healthy supply chain with Supply Chain Finance

Optimizing working capital while maintaining a healthy supply chain with Supply Chain Finance

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Focus of this workshop

• The renewed focus on working capital optimization for companies and its suppliers over the last few years

• Supply Chain Finance (“SCF”), optimizing the working capital position of both a company and its suppliers

• Why has Liberty Global opted for a SCF solution?

• How the implementation of a SCF program works in practice

• Lessons learned

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About the speakers

Fabrice LegouxDirector, Operational Finance

Boeing Avenue 531119 PE Schiphol-RijkE [email protected]

ING Commercial Banking

Oliver PetersenHead Supply Chain Finance

Bijlmerplein 888, 1102 MG, AmsterdamT 020 576 8177E [email protected]

About Liberty Global

LG is the leading international cable company, with operations in 14 countries. LG’s market-leading triple-play services are provided through next-generation networks and innovative technology platforms that connect 24.5 million customers subscribing to 47.5 million television, broadband internet and telephony services as of June 30, 2013. LG’s consumer brands include Virgin Media, UPC, Unitymedia KabelBW, Telenet and VTR. The group actively manages c.US$41 billion of long term financing. Focus on working capital management has also become a high priority within the group who is actively establishing meaningful quick wins in this field.

About ING Group N.V.

ING is a global financial institution of Dutch origin, currently offering banking, investments, life insurance and retirement services to meet the needs of a broad customer base.

ING Bank N.V. has a strong position in the Netherlands and Belgium in commercial as well as retail banking where it operates as a universal bank. ING Bank has significant presence through direct banking in Australia, France, Germany, Italy, Spain and Austria.

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Setting the scene

Scarcity of liquidity Stricter regulations Economic downturn

• Economic environment pressures profitability

• Basel III and regulation of FI’s are constraining capital and lending

• Liquidity is scarce and banks are deleveraging

• Working capital management has moved to the top of the agenda• Treasurers seeking ways to unlock funds trapped in O2C and P2P• EU Late Payment Directive • Banks focusing more on flow and trade products

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WCS’ role in companies’ financial supply chain

Customers(debtors)

Cash

Work-in-progress

Suppliers(creditors)

Account Payables

Raw materials

Purchase-to-pay

process

Supply Chain Finance

Trade Receivables

Finished products

Order-to-cash

process

Receivable based Finance

• Trade Receivables Purchase Programs

• International Corporate Receivables Financing

Physical Supply Chain:

Financial Supply Chain:

Free cash flow gain via Account

Payables

Accelerated cash release in Account

Receivables

CorporateCompanies

• ING Working Capital Solutions (WCS) was originally established in early 2012 to combine working capital based solutions to corporate clients

• WCS aims to provide our clients with best-in-class solutions for working capital improvement from both sides of your balance sheet

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What is Supply Chain Finance?

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What is Supply Chain Finance?

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Key benefits for a Buyer in a nutshell

• Improve cash flow position by pushing out payment terms (DPO)

• Improve liquidity within the supply chain

• Neutral accounting treatment and generally not classified as debt

• Standardization of terms and invoicing process

• Transparency on what is paid and when

• Fully electronic, secured and convenient

• Competitive all-in rate

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Creation of Value for suppliers:

• Cash flow certainty Elimination of opportunity cost

• Transparency Efficiency gains in reconciliation

• Liquidity Value of additional Free Cash Flow

• Financial Cost Reduced financial cost, 100% funded on a non-recourse basis

Quantification of the SCF value:

• Supplier benefits are generally only based on the “hard factor”, the Financial Cost

• Experience shows that the “soft factors” represent a large part of the total value!

Key value drivers for suppliers in SCF

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The SCF market

• There are now an estimated 150 to 200 SCF programs globally

• Major international banks surveyed across the world are reporting 30~40% annual growth rates in SCF programs

• SCF growth rates are expected to continue to grow by 20~30% by 2015

• Strongest sectors for SCF take-up are retail, manufacturing, consumer products, automotive, agriculture, chemicals and pharmaceuticals

• Banks and corporates are largely in agreement about the level to which SCF programs are currently a ‘must have’ business banking product

Food and Beverage Industry

Russia

Food and Beverage IndustryEUR 15m

Sole Arranger and Liquidity Provider

Supply Chain Financeprogram

In Progress

Food Retail Industry

Romania

Food Retail IndustryEUR 25m



In Progress

Telecom Industry

Belgium

Telecom IndustryEUR 25m



In Progress

Steel and mining industry

Russia

Steel and Mining IndustryEUR 20m



In Progress

Manufacturing Industry

Germany

Manufacturing IndustryEUR 25m



In Progress2004

Construction Material Industry

Belgium Since 2013

Construction Material IndustryEUR 50mSupply Chain Financeprogram


2004

Construction Material Industry

Construction Material IndustryEUR 25mSupply Chain Financeprogram


Belgium Since 20132004


Pan-European Since 2013

Food and Beverage IndustryEUR 50mSupply Chain Financeprogram


Pharmaceutical Industry

Belgium

Pharmaceutical IndustryEUR 25m



Since 2013


The Netherlands

Food and Beverage IndustryEUR 50m



Since 2013

Source : Demica, Global Business Intelligence

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Why has Liberty Global opted for a SCF solution?

• Massively improve trade working capital

• Strengthen supplier relationships

• One-time implementation

• Easily scalable

• Standardization and broad reach

• Various investor can fund

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How the implementation of a SCF program works in practice

• Preparation

• Feasibility

• Implementation

• Go Live

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Buyer

Preparation

SCF platform

Suppliers2

2. Supplier send goods and invoice (business as usual)

3

3. Buyer approves invoice on platform (This is new)

“I need cash”

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4. Suppliers requests early payment

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5. ING pays invoice amount minus a small fee

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6. Buyer pays ING invoice amount at due date

SuppliersInvoiceInvoice

1

1. Buyer send purchase order (business as usual)

PO

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FeasibilitySCF business case methodology

• Segment suppliers into tiers based on annual spend and outstanding

• Identification of key suppliers

• Set up days payable outstanding (DPO) goals through various benchmark prisms

• Analysis to prepare business case and set ambition for DPO

• Rate arbitrage potential to calculate cost neutral term extension

• Recommendation on terms

• Segmentation/clusters

Key supplier identification DPO goals Feasibility check

Note: sample charts for illustration purpose

1 2 3

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Implementation

• Establish a project manager responsible for internally managing this program for both Liberty Global and ING

• Liberty Global establishs a project team consisting of: (i) Finance; (ii) Procurement; (iii) OPS & IT; and (iv) Legal

• Schedule periodical update calls / meetings to ensure deliverables are being actively managed

• If required, establish a workshop for the procurement team given that they will introduce the suppliers to the SCF program

Phase 3.

Implementation

Phase 4.

Live

Perfection Legal Docs

Supplier Activation and Sales

Accounting and Legal review

Supplier Negotiation

Customer SupportIT connectivity

Ops setup

Phase 1.

Concept

Phase 2.

Feasibility

Introduce SCF concept

Involve key functions

P2P processand Ops IT analysis

Go /

No-Go

Business case based on spend file analysis

Agree on supplierstrategy

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Go Live

Note: sample charts for illustration purpose

• Establish strategy with Liberty Global on how to approach its key suppliers

• Engage in discussions with Phase 1 suppliers

• Give SCF demonstrations to parties requiring it

• Potentially put sessions in place for suppliers to help them understand the operational and legal aspects of the SCF program

• Process required administration

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• Senior management needs to be aligned and involved. Hard targets need to be set

• Establish a project team early in the process

• Misconception that a SCF solution only will work on weaker rated suppliers

– All companies have a push for cash

– Credit risk management

– Balance sheet optimization

• Ultimately all SCF programs have some form of tailoring requirement

Lessons learned

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Disclaimer

The information contained in this document is issued by ING Bank N.V. (“ING”) prior to any engagement by you in respect of any potential transaction to which it may refer (the “Transaction”). The information contained in this document is indicative only and does not constitute an offer to advise or act in any particular capacity in relation to the Transaction. ING’s involvement in the Transaction would be subject to due diligence, internal approvals and the terms and conditions of an engagement letter and related satisfactory documentation. The information contained in this document is given without any liability whatsoever to ING, and is not intended, where applicable, to constitute legal, accounting or tax advice. No representation or warranty, express or implied, is made by ING as to the accuracy, completeness or thoroughness of the content of this document. You should consult with your own legal, accounting and tax advisers, where applicable, as to the information contained herein.

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Do not put content in the brand signature area Optimizing working capital while maintaining a healthy supply chain with Supply Chain Finance