SUPPLY CHAIN FINANCE Promoting Sales Growth through Innovative Financing

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Branden Lawrence
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1 SUPPLY CHAIN FINANCE Promoting Sales Growth through Innovative Financing Zurich 19 October 2015

2 Agenda Presentation 30 min Panel Discussion 30 min Q&A with the Audience 30 min - 2 -

Chain Americas Deutsche Bank New York David Bonsall Director, AIG Trade Finance - London AIG

3 Introduction of Panelists Stuart Roberts Managing Director, Global Head Trade Sales Citibank New York Kevin McBrien Director, Head of Receivables Finance North America Financial Supply Chain Americas Deutsche Bank New York David Bonsall Director, AIG Trade Finance - London AIG Europe Limited Moderator: Kendall Stevens CEO, Global Supply Chain Finance Ltd Zug Switzerland - 3 -

4 What is Supply Chain Finance? Finance sales to Buyers Accounts Receivable based solutions Sponsored by Vendors Solutions to finance the enhancement of companies supply chain Ideally suited for Vendors selling via open-account Finance purchases from Suppliers Accounts Payable based solutions Sponsored by Buyers Ideally suited for Retailers and Distributors - 4 -

decreasing DSO or by increasing DPO Accounts Payable based solutions Working Capital Cycle (WCC)* = DSO + DIO - DPO Accounts

5 What is Supply Chain Finance? (cont) SCF is linked to companies working capital and has the objective of reducing the working capital cycle either by decreasing DSO or by increasing DPO Accounts Payable based solutions Working Capital Cycle (WCC)* = DSO + DIO - DPO Accounts Receivable based solutions SCF resolves the problem posed by my DSO is your DPO win-win situation * DSO = Days Sales Outstanding (or receivable days); DIO = Days Inventory Outstanding; DPO = Days Payables Outstanding - 5 -

6 SCF Products Accounts Receivable A/R 1. A/R Servicing (on balance sheet A/R) Accounts Payable A/P 2. Factoring (A/R discounting) 1. Supplier Finance 3. Extension of Payment Terms to buyers 4. Distribution Financing (Products 2 and 3 together) 2. Trade Payables Financing (individual Buyer- Supplier programs) - 6 -

7 Find the right product for your Company Are you the Seller or Buyer in the relationship that needs liquidity? YES Do you need to improve liquidity in your supply chain? NO BUYER SELLER Will the Seller (Supplier) accept being legally involved? DSO Seeking to shorten DSO or extend Buyers DPO? BOTH YES NO DPO Supplier Finance Buyer extends payment terms and offers Suppliers access to financing, based on its higher credit rating. Trade Payables Financing Buyer looking to extend the payment terms to key Suppliers which do not offer such extensions. Factoring Improve your cash flow by accelerating your cash collections and reducing your credit risk. Extension of Customer Terms Increase payment terms to your buyers and drive sales without impacting your working capital. Distribution Financing Maximises benefits for all stakeholders by combining reduced DSO for Suppliers and longer DPO for Buyers. Receivables Servicing Outsourcing of open account A/R credit & collections function and tasks. Automate processes and reduce costs. Accounts Payable Solutions Accounts Receivable Solutions FUNDED UNFUNDED - 7 -

Demystifying Supplier Finance Simple structure Low tech requirements Single credit risk to monitor Extended payment terms granted to well-rated

complex, lengthy process involving substantial legal costs Tight competition amongst funders: low pricing => need to keep costs down Sponsoring

8 Demystifying Supplier Finance Simple structure Low tech requirements Single credit risk to monitor Extended payment terms granted to well-rated Buyers Suppliers benefit from lower cost of financing Large number of suppliers with considerable volume are needed On-boarding of suppliers: complex, lengthy process involving substantial legal costs Tight competition amongst funders: low pricing => need to keep costs down Sponsoring company (Buyer) needs to be well-rated to enable credit arbitrage and attract suppliers Lower financing costs can be achieved by large, well-rated suppliers - 8 -

9 Market Participants Buyers Funders Servicers (Technology Platforms) Credit Insurers Sellers - 9 -

10 Market Participants Buyers Funders Servicers (Technology Platforms) Credit Insurers Sellers Funders of SCF programs are usually commercial banks with increasing participation of non-banking investors

11 Market Participants Buyers Funders Servicers (Technology Platforms) Credit Insurers Sellers Credit Insurance is widely used in SCF programs to enhance Funders credit capacity, hence deal appetite

12 Market Participants Buyers Funders Servicers (Technology Platforms) Credit Insurers Sellers Companies either sponsoring SCF programs or benefiting from them. They are usually large or middle sized, credit-assessable corporates with strong and stable trading relationships, operating in a short term and recurrent manner

13 Market Participants Buyers Funders Servicers (Technology Platforms) Credit Insurers Sellers Servicers are at the heart of SCF programs, enabling their smooth functioning and ultimately ensuring their success

14 Market trends

15 Market trends: United States Situation of 1000 largest US public companies from : Companies have significantly increased their cash available => a big contributor has been debt (driven by low borrowing rates) Cash often spent in rewarding shareholders (dividends pay-outs and share buy-back programs), M&A and investments (CAPEX) Improving WCC, the main internal generator of cash, has been largely ignored by companies (only 1 day of improvement in 7 years) Taking on debt is a more risky strategy in the long-term

16 Market trends: Europe Situation of 1000 largest European public companies from : Companies in Europe have also significantly increased their cash available However European companies have achieved this partially though operational efficiencies (i.e. by reducing WCC by 20% in the last 7 years) Debt (driven by low interest rates) has also contributed to the growth but to a lesser extent than in the US European companies have been investing in themselves and in acquisitions, but they are funding it through both debt and cash from improved operations

Market opportunities Reducing WCC shortens the amount of time each US Dollar/Euro is tied up in the buying, production and sales process before being converted back into cash again If these companies

17 Market opportunities Reducing WCC shortens the amount of time each US Dollar/Euro is tied up in the buying, production and sales process before being converted back into cash again If these companies in the US and Europe where to improve their WCC to the level of the average top 5 performers in each industry, substantial amounts of cash would be released*: USD 1 trillion in the United States EUR 1.1 trillion in Europe Receivables and Payables based SCF programs are especially designed to achieve this * Source: REL Working Capital Survey

18 Panel Discussion Q&A with the audience

19 Q&A with the Audience Any Questions?

20 Thank you Global Supply Chain Finance Ltd Headquarters Switzerland Global Supply Chain Finance Ltd. Gotthardstrasse Zug Switzerland GSCF Americas GSCF Americas Zonamerica Montevideo Uruguay

Trade Payables Solutions

Trade Payables Solutions With GSCF, you can improve your working capital without compromising relationships in your supply chain. Our Trade Payable Solutions allow you to extend your DPO with your Suppliers;