The What, Why, How and WOW Behind Dynamic Discounting and Supply Chain Financing

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1 The What, Why, How and WOW Behind Dynamic Discounting and Supply Chain Financing Presented by Tom Glassanos of The Bavelos Group October 2016

2 Bavelos Group Profile ADVISORY SERVICES FOR WORKING CAPITAL OPTIMIZATION Best practice leader in payables-related working capital 10 + years deploying Early Pay Programs & Supply Chain Finance Inventors of Dynamic Discounting and BIP cards Supply Chain Executive Magazine Pro to Know recognition 2

Representative Client Experience Over 100

$750M - $110B Broad industry experience with

targeting over 3k suppliers Financing APR

3 Representative Client Experience Over 100 global organizations helped Client spend from $750M - $110B Broad industry experience with both direct & indirect spend Over 75 early payment programs Supplier outreach & on-boarding in over 50 countries Campaigns targeting over 3k suppliers Financing APR yields in excess of 30% across 35% of spend Both client & bank financed programs 3

4 Topics for Discussion Genesis Opportunity Strategic tools Evidence of success Getting started 4

5 In the beginning Procure-to-Pay Was About Eliminating Paper 5

8 The Idea Pay Early! Suppliers will PAY to get PAID SOONER! Early Pay Dynamic Discounting - launched by Xign Corporation in 2002 New Method of Savings for Supply Chain Management 8

9 Bavelos Working Capital Rules of Thumb* For every $1 billion of targetable spend Annual INCOME of $3-$5 million CASH in excess of $250 million *Based on over 100 client implementations and more than $1 trillion in spend 9

10 There is GOLD in them Terms The B2B Cash Gap (Supplier payment delay) 0 Days Invoice 15 Days Approval 60 Days Payment The Business-to-Business Pay Cycle B2B payment terms starve suppliers of cash Over $9 trillion is waiting to be paid on any given day Cash delays limit investment, slow supplier growth 10

11 How to Enable Working Capital Opportunity Faster invoice approval Longer Net Terms Day 10 Day 30 Day 45 Day 60 Longer net terms more need for cash Faster approval more early payments 11

A Few Guiding Principles All suppliers will

financing capital Value is interchangeable

12 A Few Guiding Principles All suppliers will pay to accelerate cash it s a question of price Value is the spread between what suppliers will pay and the cost of the financing capital Value is interchangeable between cash and income Maximum income Interchangeable Maximum cash 12

13 Landscape of the Opportunity Spend $M Spend Spend Spend Value APR APR $40 APR 70.0% $35 $30 $ % 50.0% 40.0% $20 $15 $ % 20.0% $5 10.0% $ ,000 1,250 1,500 1,750 2,000 Opportunity Typical Supplier spend cost distribution of capital by by ranked supplier size size 0.0% Value = Spend x APR (what suppliers will pay) 13

❶Supply Chain Financing Increases CASH by using bank financing to help extend terms Suppliers get cash at the BUYERS COST OF CAPITAL Banks pay suppliers upon notice of approved invoices from buyer

15 ❶Supply Chain Financing Increases CASH by using bank financing to help extend terms Suppliers get cash at the BUYERS COST OF CAPITAL Banks pay suppliers upon notice of approved invoices from buyer This Payment Intent notice limits bank s risk to default of buyer Creates a WIN/WIN that is good for suppliers Buyer gets FREE CASH from DPO extension Supplier gets PAID SOONER at low rate enabled by the BUYER NO IMPACT to buyer s credit rating or debt Over 2,000 ADOPTERS FASB trade payables accounting 15

❶Supply Chain Finance - How it Works Buyer s Notice of

Suppliers ❸ Day 90 Buyer Pays Bank Net Invoice Amount

Payment Intent Notice SCF Bank ❷ Day 10 Bank Pays

16 ❶Supply Chain Finance - How it Works Buyer s Notice of Payment Intent to Bank Enables Low Cost Financing for Suppliers ❸ Day 90 Buyer Pays Bank Net Invoice Amount Buyer ❷ Day 10 Invoice Approved - Buyer Sends Bank Payment Intent Notice SCF Bank ❷ Day 10 Bank Pays Supplier net of Fee Supplier ❶ Day 1 Supplier Sends Buyer Invoice 16

Why Suppliers Like Supply Chain Finance They can get PAID SOONER at LESS COST EXAMPLE Annual spend $10,000,000 Supplier cost of capital 8% Bank SCF APR 1.

18 Why Suppliers Like Supply Chain Finance They can get PAID SOONER at LESS COST EXAMPLE Annual spend $10,000,000 Supplier cost of capital 8% Bank SCF APR 1.2% Approval Current Net New Net Financing Cost Current cost to supplier $111,111 Cost with SCF $16,667 Additional cost for longer terms $10,000 AVAILABLE SAVINGS TO SUPPLIER $84,444 Even with longer net terms Suppler SAVES $84,444 and gets paid early! 18

19 ❷ Early Pay Programs Dynamic Discounting Use of ASAP (sliding slope) Terms How it works APR rate is fixed Discount varies Benefits Discounts on any approval up to net date Picks up large savings for earlier payment 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0% Day 10 Invoice approval time Expanded Opportunity Day 30 Day 45 Day 60 2% 10 ASAP 45 ALL INVOICES qualify for a discount 19

supplier end of month & quarter cash needs No pre-existing terms needed Pay Me Now Offer $3,200

20 ❷Early Pay Programs Dynamic Offers Use of ad hoc early payment terms How it works Ad hoc early pay terms Methods: POs, , web site Benefits Skims savings at key times Offers based on supplier end of month & quarter cash needs No pre-existing terms needed Pay Me Now Offer $3,200 approved to pay Pay today for 1% discount Press here to approve Skims out discounts at optimal times 20

21 BIP Card Programs Buyer Initiated Payment Cards Payment initiated directly from buyer s ERP Suppliers get paid 30 days sooner via card Buyer earns a rebate on all spend Offered by AMEX, Visa, & MasterCard Low administration Provides 30 days of credit to the supply chain 21

22 Putting it all together Spend $M Spend Value APR $40 APR 70.0% $ % $30 $ % 40.0% $20 $ % $ % $5 10.0% $ ,000 1,250 1,500 1,750 2, SCF 2. Early Pay Programs 3. BIP Cards 0.0% Capturing Both Income and Cash Value 22

24 2nd Generation Supply Chain Financing Discount Financing Value Priced SCF Extends DPO same as Supply Chain Financing Captures discounts using 3rd party financing Can plug into Dynamic Discounting programs Yields Cash via DPO Extension AND delivers INCOME via discounts 24

25 Supplier Originated Dynamic Offers Dynamic Term Marketplace Unique Rate Unique Rate Unique Rate Unique Target Unique Target Unique Target Suppliers Set Their Unique Payment Rate Buyers Set Their Cash Target Bidding Model Establishes the Pricing 25

26 Who are the Players?

BILLIONS Exploding Adoption Global Financing of Receivables $400 $350 $300 $250 $200 $150 $100 $50 $0 $372 $361 $350 $340 $110 $113 $117 $132 $75 $15 $4 $26 $7 $44$10 $23 2011 2012 2013 2014 Emerging

28 BILLIONS Exploding Adoption Global Financing of Receivables $400 $350 $300 $250 $200 $150 $100 $50 $0 $372 $361 $350 $340 $110 $113 $117 $132 $75 $15 $4 $26 $7 $44$10 $ Emerging as Mainstream SCF & Dynamic Discounting 70% CAGR $800B spend $1.4B in 2014 revenues Card growth accelerating Factoring Commercial Card Supply Chain Financing Dynamic Discounting Use of Supply Chain Financing has quadrupled since 2011 Source: Bavelos Group Dynamic Discount penetration has quintupled 28

Discount Examples on the Web Over $45 million/year in discount savings - Ben Shaffer: Pacific Gas & Electric AP Manager 20% of suppliers discount, half of these are at 3% - Vic Nation:

29 Discount Examples on the Web Over $45 million/year in discount savings - Ben Shaffer: Pacific Gas & Electric AP Manager 20% of suppliers discount, half of these are at 3% - Vic Nation: Payless Shoesource 30% of suppliers discount; 50% of all invoices - Barbara Cassera: Memorial Sloan Kettering 30% of corporate suppliers are on discount terms - United Parcel Service 29

30 Supply Chain Financing in the Press Proctor & Gamble Extended Terms from 45 days to 75+ days The Wall Street Journal, April 16, 2013 Mondelez Extended Terms from 45 days to 120 days Financial Times, May 30, 2013 Unilever extended terms from 30 days to 90 days Daily Mail, July 5, 2010 AB InBev extended terms from days to 120 days The Wall Street Journal, April 17,

Showcasing Supply Chain Finance for Analysts We are now executing a supplier financing initiative which allows us to extend payment days with suppliers by providing suppliers third party cash at a

We believe and know this will provide great benefits to our working capital of about $200 to $300 million and should reduce our debt levels slightly versus what we previously expected.

31 Showcasing Supply Chain Finance for Analysts We are now executing a supplier financing initiative which allows us to extend payment days with suppliers by providing suppliers third party cash at a nominal cost of money, so they can get their cash sooner. We believe and know this will provide great benefits to our working capital of about $200 to $300 million and should reduce our debt levels slightly versus what we previously expected. i Ron Dissinger, CFO CAGNY Conference Feb. 19, 2014 There has been some press recently about a new program that we've introduced with suppliers called Supply Chain Finance, where we're partnering with some of i our world-class banking partners to present a win-win solution to suppliers. As part of that, we'll be extending our payment terms which obviously frees up cash for us. So this is something that we think, will free up a tremendous amount of cash starting next year and then over the next two to three years. Teri List-Stoll, Former Treasurer (Current CFO of Kraft) 3Q 2013 Earnings Call Our cash from operations in the third quarter was $912 million, up 7% compared to $844 million last year. We continue to manage primary working capital well. Our yearto-date cash conversion cycle is down four days compared to full-year Mark A. Buthman, CFO 3Q 2013 Earnings Call, Oct. 22, 2013 Working capital is an area that we've just done a really a terrific job. We've done it through extending payables terms and being pretty innovative in how we engage suppliers with our banks to provide supplier financing. So we expect continuous improvement in working capital going forward. Mark A. Buthman, CFO Barclays Back-to-School Conference September 4, 2013 We expect to show another year of growth in 2014, reflecting anticipated earnings growth and the continued strong working capital management. We ll stay disciplined about how we use our cash flow. Simply put, we will balance the need to make well-considered investments designed to full General Mills growth Donal Lee Mulligan, CFO CAGNY Conference Feb. 18, 2014 In a year where net sales increased 7%, our core working capital declined 5%, reflecting our focus on extending payable terms. The strong cash flow funded $614 million in capital spending. Donal Lee Mulligan, CFO 4Q13 Earnings Call July 26,

32 The Big Picture - Bristol-Myers Squibb Source How BMS is Making Money, DailyFinance

33 How to Get Started Working Capital Optimization Plan Size your working capital opportunity Assess your current policy s & practices Build organization awareness & understanding Facilitate an informed assessment of options Prepare implementation steps & timelines One day workshop for AP, Treasury & Sourcing 33

34 Thank You Bavelos Group, Inc.

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