Optimizing working capital while maintaining a
healthy supply chain with Supply Chain Finance
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
ING Commercial Banking
Fabrice Legoux
Oliver Petersen
Director, Operational Finance
Head Supply Chain Finance
Boeing Avenue 53
1119 PE Schiphol-Rijk
E flegoux@lgi.com
Bijlmerplein 888, 1102 MG, Amsterdam
T 020 576 8177
E oliver.petersen@ingbank.com
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
• Liquidity is scarce and
banks are deleveraging
Stricter regulations
• Basel III and regulation of
FI’s are constraining
capital and lending
Economic downturn
• Economic environment
pressures profitability
• 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
3
WCS’ role in companies’ financial supply
chain
• 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
Suppliers
(creditors)
Physical Supply
Chain:
Financial Supply
Chain:
process
Corporate
Companies
Raw materials
Work-in-progress
Finished
products
Account
Payables
Cash
Trade
Receivables
Purchase-to-pay
Supply Chain
Finance
Free cash flow gain
via Account
Payables
Order-to-cash
Customers
(debtors)
process
Receivable
based Finance
•
Trade Receivables
Purchase Programs
•
International Corporate
Receivables Financing
Accelerated cash
release in Account
Receivables
4
What is Supply Chain Finance?
5
What is Supply Chain Finance?
6
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
7
Key value drivers for suppliers in SCF
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!
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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
Source : Demica, Global Business Intelligence
Romania
In Progress
Russia
In Progress
Food Retail Industry
EUR 25m
Supply Chain Finance
program
Food and Beverage Industry
EUR 15m
Supply Chain Finance
program
Belgium
Russia
In Progress
Telecom Industry
EUR 25m
Sole
Arranger
and Liquidity
Provider
Supply
Chain
Finance
Food
Retail Industry
program
Belgium
Since
2013
2004
Construction Material Industry
EUR 50m
Sole
Arranger
and Liquidity
Provider
Supply
Chain
Finance
Telecom Industry
program
Pan-European
Since
2013
2004
Food and Beverage Industry
EUR 50m
Sole Arranger and Liquidity Provider
Supply Chain Finance
Construction Material Industry
program
The Netherlands
Since 2013
In Progress
Steel and Mining Industry
EUR 20m
Sole
Arranger
and Liquidity
Provider
Supply
Chain
Finance
Food
and Beverage Industry
program
Germany
In Progress
Manufacturing Industry
EUR 25m
Sole
Arranger
and Liquidity
Provider
Supply
Chain
Finance
Steel and mining industry
program
Belgium
Since 2013
2004
Construction Material Industry
EUR 25m
Sole Arranger and Liquidity Provider
Supply Chain Finance
Manufacturing Industry
program
Belgium
Since 2013
Food and Beverage Industry
EUR 50m
Sole Arranger and Liquidity Provider
Supply Chain Finance
Food and Beverage Industry
program
Pharmaceutical Industry
EUR 25m
Sole Arranger and Liquidity Provider
Supply Chain Finance
Construction Material Industry
program
Sole Arranger and Liquidity Provider
Food and Beverage Industry
Sole Arranger and Liquidity Provider
Pharmaceutical Industry
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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
10
How the implementation of a SCF program
works in practice
• Preparation
• Feasibility
• Implementation
• Go Live
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Preparation
PO
“I need cash”
1
Invoice
Invoice
2
Suppliers
Buyer
3
4
6
5
SCF platform
1. Buyer send purchase order (business as usual)
4. Suppliers requests early payment
2. Supplier send goods and invoice (business as usual)
5. ING pays invoice amount minus a small fee
3. Buyer approves invoice on platform (This is new)
6. Buyer pays ING invoice amount at due date
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Feasibility
SCF business case methodology
1
2
3
Key supplier identification
DPO goals
Feasibility check
• 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
Note: sample charts for illustration purpose
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Implementation
Phase 1.
Phase 2.
Go /
Phase 3.
Phase 4.
Concept
Feasibility
No-Go
Implementation
Live
Introduce SCF concept
Business case based
on spend file analysis
Agree on supplier
strategy
Supplier Activation
and Sales
Involve
key functions
P2P process
and Ops IT analysis
Perfection Legal Docs
Supplier Negotiation
IT connectivity
Ops setup
Customer Support
Accounting and
Legal review
• 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
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Go Live
• 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
Note: sample charts for illustration purpose
• Process required administration
15
Lessons learned
• 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
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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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