welcome to this act webinar · 2015-07-30 · terms profile (3 month to june ’11) 1 1 1 2 & 2...

Welcome to this ACT webinarMaking working capital work for you in today’s economic landscape

• Sponsored by 30 June 2015 | 12.30-13.15 BST

Sponsored by

Introduction

Stephen Baseby Associate Policy and Technical DirectorACT

Interactive widgets

Please take a minute to familiarise yourself with the widgets on your screen. They can be moved around the screen and maximised/minimised to suit you.

Click on the help widget if you experience any technical difficulties during the webinar.

Download speaker presentations during the webinar by clicking on the resource widget.

Submit your questions to our speakers throughout the webinar by using the Q&A widget.

Please take a few minutes at the end of the webinar to provide your feedback.

Follow us on twitter at @actupdate and tweet live during the webinar using #ACTwebinar.

Agenda

IntroductionStephen Baseby Associate Policy and Technical Director, ACT

Presentation from EYLloyd Gold, Assistant Director, EY

Presentation from AmexGregg Morris, Senior Manager – Working Capital, Amex

Panel discussion and Q&A

Presentation

Lloyd Gold

Assistant Director

EY

Making working capital work for you in today’s economic landscape

30th June 2015

ACT Webinar

Agenda

Confidential – All Rights Reserved – EY 2015

Section 1 Building a cash culture 2

Section 2 The evolving financial product marketplace 6

ACT Webinar – Working Capital


Section 1

Building a cash culture

8ACT Webinar – Working Capital


Change in quarterly cash-to-cash (C2C) performance, Q2,02 – Q2,12, US SEC Filings

Source: Ernst & Young analysis, based on publicly available financial statements – top 500 US companies by sales

Why is sustaining working capital improvement such a challenge?


Long term, sustainable change requires embedding a cash culture

within an organisation

Background

Many companies still apply some common ingrained practices to drive down working capital levels at half year and

year end (see chart below)

For a company, such working capital behaviour at period end might help to achieve some short term benefit, but

not long term sustainable change

This also has implications for cash management and cash flow forecasting


The organisation understands

the importance of cash. The

individual has received role

specific training. Knowledge

sharing is effective.

Common tools are

replicated across the

organisation

Performance is

consistently measured

and reported across the

organisation

Incentives reflect the

importance of cash to

the organisation

Appropriate SMART targets

are in place, supported by

consistent KPIs

There is clear ownership

of working capital and the

underlying process steps

There is a governance

structure in place specific

to working capital

The organisation clearly

understands the drivers

of performance

Tools

Learning &

Development

Reporting

Incentivisation

Targets

& KPIs

Ownership, Roles

&

Responsibilities

Policies &

Controls

Working

Capital

Cycles

Sustainability

Tools

Learning & Development

Reporting

IncentivesTargets

& KPIs

Ownership, Roles &

Responsibilities

Policies & Controls

Working Capital Cycles

Cash Culture

Embedding a cash culture within an organisation is not a simple task – it touches all aspects of an organisation


Confidential – All Rights Reserved – EY 2015 ACT Webinar – Working Capital

MONITORING (EXECUTIVE DASHBOARD)

► High level working capital operational and financial

metrics

► Progress tracking against key targets and history

► Highlighting of key areas that help identify potential

actions and areas of opportunity

Dashboard structure Description/audience

Net working capital trend Jul ’10 – Jun ’11

252

Feb ’11

-100

232

Jan ’11 Jun ’11

194

Dec ’10

220

192

Nov ’10 May ’11

230

Oct ’10

243232

Sep ’10 Apr ’11

243

Aug ’10

242

Mar ’11

-50

221

Jul ’10

209

100

150

200

50

250

0

300

350

£m

Trade Creditors & accrualsNWC Prepayments WIP Trade Debtors

Cumulative cash inflow/(outflow) resulting from changes in working capital balances

-60

Dec ’11

20

-10

0

10

-30

-20

-70

-40

-50

£m

Nov ’11Oct ’11Sep ’11Aug ’11Jul ’11Jun ’11

-28

May ’11

-51

Apr ’11

-50

Mar ’11

-60

Feb ’11

-40

Jan ’11

-2

Cumulative change in creditors & accurals (Decrease)/Incr

Cumulative change in Debtors (Increase)/Decrease

Cumulative change in WIP (Increase)/Decrease

Cumulative change in Prepayments (Increase)/Decrease

Cumulative change in Wcap

£’000s Jun ‘11 May ‘11 vs May ‘11 Dec ’10 vs Dec ‘10 Comments/ explanation

Trade debtors 92,154 96,949 q -4,794 72,969 p +19,185

Prepayments 38,980 35,698 p +3,282 24,785 p +14,195

Total Debtors 131,134 132,647 q -1,513 97,755 p +33,380

WIP 174,331 182,954 q -8,622 169,290 p +5,041

Trade creditors 39,768 15,614 p +24,155 16,309 p +23,459

Accruals 45,334 57,034 q -11,700 58,621 q -13,286

Total Creditors 85,102 72,648 p +12,455 74,930 p +10,172

Total WCAP 220,363 242,953 q -22,950 192,144 p +28,249

Accounts Receivable – June ‘11June DSO = 37.6 days

Standard Terms

30 days

Collection performance, 1.1 day

Early payments

(1.7) days

Effect of Extended Terms

6.1 days

Disputes

2.1 days

35.1

32.6

31.4

32.9

31.0

26.6

29.2

27.1

25.8

36.836.1

36.635.836.0

35.0

33.634.3

33.234.2

20

22

24

26

28

30

32

34

36

38

Days

Jun ’11May ’11Apr ’11Jul ’10 Mar ’11Feb ’11Jan ’11

30.2

Dec ’10Nov ’10Oct ’10Sep ’10Aug ’10

Weighted average terms

Weighted average days to collect

Rolling 3 month WA terms vs WA days to collect

Master file

terms

WA System

terms

% of

turnover

30 29.5 79.4%

90 90.0 8.5%

45 44.9 6.2%

60 60.0 3.1%

40 40.0 2.5%

7 7.0 0.2%

28 22.6 <0.1%

75 75.0 <0.1%

14 9.6 <0.1%

Total 36.8 100%

Terms profile (3 month to June ’11)

1

1

1

2

2& 1 2&

Month on month movement of Accounts receivable Jul ’10 – Jun ’11 actual and Dec ’11 forecast

20

25

30

35

40

45

50

Days

Oct ’10Sep ’10Aug ’10Jul ’10

£m

110

100

90

80

70

60

50

40

30

20

10

0

Jun ’11May ’11Apr ’11Mar ’11Feb ’11Jan ’11Dec ’10Nov ’10

Accounts receivable trend and DSO

DSOCurrentOverdue

£m

22

20

18

16

14

12

10

8

6

4

2

0

JunJunMayMayAprAprMarMarFebFebJanJan

Aged profile of overdue receivables and disputes (6 months to June ’11)

Overdue

Disputes

3 3

3

1 - 30 days31 - 60 days61 - 90 days91+ days overdue

110

100

90

80

70

60

50

40

30

20

10

0

Dec ’11F

84

Nov ’11FOct ’11FSep ’11FAug ’11FJul ’11FJun ’11

£m

Apr ’11Mar ’11Feb ’11Jan ’11Dec ’10 May ’11Oct ’10Sep ’10Aug ’10Jul ’10

75

Nov ’10

72

90

DSO = 33.0

DSO = 37.6DSO = 32.8

Forecast movement/ balanceActual movement/ balance

DSO = 32.5

= Monthly movement

= Month end balance

UNDERSTANDING (MANAGEMENT)

► A breakdown of the composite metrics (e.g. DSO)

into the key component parts to provide a rapid

understanding of performance on a lever basis (e.g.

terms / extended terms).

Overall Performance

Key Balances

Sample of operational metricsINFLUENCING “Value Creation” (PROCESS

OWNERS)

► Detailed operational metrics and analysis that help

identify root causes of movements and potential

pockets of opportunity

MO

NIT

OR

UN

DE

RS

TA

ND

INF

LU

EN

CE

“V

alu

e C

rea

tio

n”

KPIs – getting the balance right


Section 2

The evolving financial product marketplace

12ACT Webinar – Working Capital


Market growth is accruing to new entrants who are actively taking share from traditional lenders in the US

Note: * Marketplace Lenders include P2P lending (e.g., LendingClub, Propser) and online SME lending (e.g., Kabbage, OnDeck);

** Mega/Large Banks = Total Asset > $10bn, Regional/Community Banks = Total Asset <$10bn

Sources: 1.EY analysis, Federal Research, National Credit Union Association, Call Reports, PWC MoneyTree Report, Foundation Capital; 2.Foundation Capital, EY analysis

3.1%

CAGR

’10-’14US – Alternative/marketplace

lending, $bn2

133%

10%

0.3%

3.6%

Regional/Community**

Mega/Large Banks**

115

2014e

32

Marketplace lenders*

Credit union

2010

287

330

0

9

158140

117

47

US – SME non-mortgage-backed

lending by lender type, $bn1*

8.8

3.4

1.2

0.50.3

0.1

2013 2014e2011 201220102009

Non-bank lenders are taking the

opportunity to gain market share in

SME lending

• New entrants have collectively

increased their market share from

c.0% in 2010 to c.3% in 2014

• Their growing success is supported

by their focus on personal approach

and fast, easy-to-use and flexible

solutions

New entrants and challengers are

driving growth in this sector

• While banks across the ranks have

seen their total lending stagnant (c.

2% CAGR 2010-2014), lending

from alternative/marketplace

lenders for instance, albeit small,

has grown exponentially (~150%

CAGR 2009-2014)

• Continued positive outlook: Non-

bank lenders are likely to continue

to gain share and displace

incumbents with their proactive

approach to distribution, focus on

service and technology and

increasing market awareness of

their products

CAGR:

145%



Sources: 1.EY analysis, BoE, BBA, FLA, ABFA, Annual reports, University of Cambridge – ‘Alternative Finance Market Set to Double in 2015; 2. Reflects 2012-2014 CAGR;

3. Breedon Report (2012); EY Analysis

112

13

2

2011

118

114

40

High street banks

Challenger banks

Alternative finance providers

2014

126

CAGR

2.2%

149.1%

42.7%

-0.6%

Change in

market share

+1.3%

+6.3%

-7.7%

UK SME lending by competitor

group (2014, £bn)1UK alternative finance provider

lending, £bn

4.4

1.7

0.7

0.3

201420132012 2015F

+148%

Expected

market

share: 3-4%

+154%

+159%

CAGR:

154%

Challenger banks and

alternative finance providers

are gaining market share…

• With their focus on fast,

easy-to-use and flexible

solutions, new entrants have

collectively increased their

market share from c.4% in

2011 to c.12% in 2014

…and driving overall growth

in the sector

• New entrants are not only

gaining share, but also

driving growth: while

traditional banks have seen

total lending decrease,

lending from alternative

finance providers, while

small, is growing

exponentially (+150%)

• Continued positive outlook:

Challenger banks and

alternative finance providers

are likely to continue to gain

share with their proactive

approach to distribution and

their differentiating service

and technology


In the UK, alternative finance providers are also gaining market share and driving growth


These new players have been entering the US market post-crisis to fill the gap created by traditional players re-trenching their SME lending activity

Mega Banks (>$100bn)

Market landscape in 2007 New entrants targeting SMEs

| Non-exhaustive |

P2P online lending platform

A/R financing, Asset-based loans, and purchase order financing

Small business loans and cash advances

Merchant Cash

Advance program

Purchasing Cards

Early Payment

Monetisation

Trade Finance

Dynamic Discounting

Factoring

Supply Chain Finance

Merchant Cash Advance

Liquidity Exchanges

Credit Lines /

Revolving Facilities

Regional / Community

Banks ($<100bn)

Non-Bank Financial

Institutions

Technology Providers

Dynamic discounting; one of the two prominent liquidity exchange platforms

Pioneered use of instantly available non-traditional data for credit

assessment

Cloud-based invoice, payment and dynamic discounting

Specializes in the factoring of invoice receivables

Small business loans using data aggregation and electronic payment technology

Traditional and non-traditional working capital financing including A/R financing

Small business loans

online market place

Invoice-based financing

Working Capital financing

Invoice-based financing

Invoice factoring marketplace

Source: Desk Research, Online News Articles, Company Websites

Invoice Discounting

Deferred Payment Plan

Overdraft

Receiv

ab

les

-based

Payab

les-b

ased

Dir

ect

len

din

g

Term loan

Peer-to-peer Lending

3rd party payment system

Corporate Cards

Distributor Finance

Invoice Trading

Commercial Paper

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.nhbr.com/July-11-2014/NH-based-Direct-Capital-acquired-by-CIT/&ei=og3_VIj-BcbAgwT-p4DQBg&bvm=bv.87611401,d.eXY&psig=AFQjCNFRZHJ_SsIo21ozB-rvTTFJaPJbwA&ust=1426087664383921

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.nhbr.com/July-11-2014/NH-based-Direct-Capital-acquired-by-CIT/&ei=og3_VIj-BcbAgwT-p4DQBg&bvm=bv.87611401,d.eXY&psig=AFQjCNFRZHJ_SsIo21ozB-rvTTFJaPJbwA&ust=1426087664383921


The UK market has experienced the same trend, with notable success among its new challenger banks

Market landscape in 2007 New entrants targeting SMEs

| Non-exhaustive |

Challenger bank, floated in March 2015; valuation c.$1bn

Establishing as FinTech player (recently demoed at Finovate Europe)

Pioneered use of instantly available non-traditional data for

credit assessment

Challenger bank, floated in April 2015; valuation c.$1bn

Acquired SME Invoice Finance in 2013

P2P platform for auction-based invoice finance

P2P platform for auction-based invoice finance

Aiming to float before UK general election

Increased loan limit to £500k to match demand

Acquired in 2015 by Ezbob

Launched new broker platform in 2015

Online lending platform for SMEs

Revenue

advancement

Purchasing Cards

Early Payment

Monetisation

Trade Finance

Dynamic Discounting

Factoring

Supply Chain Finance

Merchant Cash Advance

Liquidity Exchanges

Credit Lines /

Revolving Facilities

Invoice Discounting

Deferred Payment Plan

Overdraft

Receiv

ab

les-b

ased

Payab

les-b

ased

Dir

ect

len

din

g

Term loan

Peer-to-peer Lending

3rd party payment system

Corporate Cards

Distributor Finance

Invoice Trading

Commercial Paper

Banks

Specialists

Technology providers


EY | Assurance | Tax | Transactions | Advisory

Ernst & Young LLP

© Ernst & Young LLP. Published in the UK.

All Rights Reserved.

The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales

with registered number OC300001 and is a member firm of Ernst & Young Global Limited.

Ernst & Young LLP, 1 More London Place, London, SE1 2AF.

ey.com

Lloyd Gold

Assistant Director

Tel +44 (0) 207 951 0251

Mobile +44 (0) 7876 877 435

Email [email protected]

Presentation

Gregg MorrisSenior Manager – Working Capital

Amex

American Express – Working Capital & Trade Payments

Westcoast Ltd – Case Study & Testimonial

Internal Use Only

Gregg Morris – Senior Manager Working Capital.

American Express Global Corporate Payments

Confidential

American Express Solutions

Inventory

Accounts Receivables

(DSO)

Accounts Payable

(DPO)

‘Days Sales Outstanding’ - DSO

Working in partnership with companies to

have their customers pay them on American

Express solutions.

Accepting American Express at a

competitive commercial rate

Reducing DSO, credit collection, late

payments, increase Working Capital.

Supporting growth of customer spend

through incremental credit lines

‘Days Payable Outstanding’ - DPO

Providing vPayment & BIP solutions at a

competitive commercial rate to increase DPO

on supplier payments

Assets Liabilities

A. Non Current Assets

B. Current Assets

i) Inventory

ii) Accounts Receivable

A. Shareholder Equity

B. Current Liabilities

(i) Accounts Payable DPODSO

http://www.google.co.uk/imgres?imgurl=https://www.pc-streaming.com/store/images/uk_flag.gif&imgrefurl=https://www.pc-streaming.com/store/index.php?main_page=index&cPath=6&usg=__WNjZUrF7SW1szJdJrWkelR6ybk8=&h=354&w=635&sz=7&hl=en&start=67&um=1&itbs=1&tbnid=69C5oYvo3NgEQM:&tbnh=76&tbnw=137&prev=/images?q=uk+flag&start=60&um=1&hl=en&sa=N&ndsp=20&tbs=isch:1


Confidential

• Guarantee an extension further to your existing terms for a set one off transaction fee.

• Volumes, Risk profile & length of terms required, will impact potential cost.

• Term arrangements for either 45, 60 or 90 days extension.

• Supplemental credit facility.

• Flexible usage, no ongoing or management fees, no set up fees.

• Bespoke solutions built to customer requirements.

• Suppliers paid on the same day as American Express facility charged by customer (if

payment is made before 2pm).

• Depending on product chosen, potentially no requirement to set up suppliers – they will just

receive a CHAPS payment.

• Multiple case study customers to review (Westcoast case study to review later).

DPO Focus – Benefits of using American Express to pay your suppliers



Confidential

Customer proposition – DPO Improvement (Example)

Current

WithAmerican Express

30 days

120 days

6030Month

Invoice sent

Payment made via Amex Payment recieved by Supplier

Summary Costs

Days Improvement 90 Days

Cost to Customer xx%

WACC Equivalent xx%

12090

Summary

− Standard term extension of 60 days

− Payment terms can be extended by up to 90 days in

certain examples and dependant on applying entity risk

profile

− WACC equivalent rate competitive to marketplace

− Actual commercials reviewed on confidential basis

Payment made by Customer



Confidential

• Guarantees payment on either 3 or 5 days after American Express product charged.

• Credit facility from American Express can either supplement existing arrangements, or

support risk mitigation by replacing existing credit insured (or uninsured) lines.

• Supports your customers by potentially offering extended terms compared to your major

competitors (Westcoast case study), to help support winning new business & growing existing

business.

• Commercial rate agreed based on potential opportunity size & expected annual volumes.

• Can replace early payment discount (EPD) structure to offer your customers a better working

capital model instead of EPD.

• Flexible to support differing arrangements for different customers (can be bespoke for

specific customers).

• Set up process for on boarding your customers is very straight forward (two application

forms), and transition very simple.

• Means of differentiating your company from competitors in specific industry segments.

DSO – Your customers paying you with American Express



Confidential

Westcoast Ltd – UK Case Study



Confidential

Westcoast Ltd – UK Case Study

Westcoast Objectives

-To develop a significant working capital

benefit for their customers, providing an

unique customer proposition in the IT

distribution/re-selling arena.

- To reduce average DSO metrics

across their 4,000 strong customer

base.

- To support their customers by offering

additional credit facilities (in addition to

Attradius insured lines).

- To use our products & services

themselves with major IT suppliers

(Samsung, Microsoft, Lexmark), at

peak periods where their existing lines

from Lloyds / Macquarie are

maximised.

DSO DPO

Key points in summary

Improves Westcoast working capital

model by 25 days DSO Improvement.

American Express credit line offered

to Westcoast customers in addition to

existing arrangements

vPayment product used

Live with Samsung , Microsoft, HP,

(Euro / GBP)

Typical terms of 60 – 90 days utilized.

Programs started Dec 2013 (DSO / DPO)

60 DSO Clients live as at June 2015.

Specific Contact strategy created with Westcoast Management team. Joint

meetings conducted.

Jointly prepared marketing materials associating both brands & explaining

proposition to Westcoast customers.

Unique proposition in the IT Distribution arena.

WCO (Summary)

DPO provides on average 85-90 day term gain on their existing term

arrangement with suppliers.

Payments can be made in GBP, EURO, USD

Founded in 1984, Westcoast has expanded rapidly

becoming the number one UK distributor for many

vendors including HP, Toshiba, Samsung and many

more



Confidential

Gregg Morris

Senior Manager, UK Working Capital

Global Corporate Payments

American Express

Office: 01273 217010

Mobile: 07703 025733

Email: [email protected]



mailto:[email protected]

The panel

ChairStephen Baseby

Associate Policy and Technical Director, ACT

SpeakersLloyd GoldAssistant Director, EY

Gregg MorrisSenior Manager – Working Capital, Amex

Chair’s closing remarks

Stephen Baseby Associate Policy and Technical DirectorACT

FORTHCOMING EVENTS

treasurers.org/events

ACT webinar: the impact of tax and regulatory changes on the treasury function07 July 2015 | 12.30-13.15 BST

ACT webinar: case studies on FX risk management16 July2015 | 12.30-13.15 BST

ACT Asia Conference 02 September 2015 | Hong Kong

ACT Working Capital Conference15 September 2015 | London

ACT Funding Conference28 October 2015 | London

ACT Annual Dinner 11 November 2015 | London

ACT Middle East Annual Conference 23-24 November 2015 | Dubai

Thank you for listening.

Please take a few moments to provide your feedback by selecting the icon.

Sponsored by

welcome to this act webinar · 2015-07-30 · terms profile (3 month to june ’11) 1 1 1 2 & 2...

Documents