ING s e-commerce event:

Transcription

1 ING s e-commerce event: Enhance working capital performance in a brick & click scenario Transaction Services Solutions Group Brussels November 15, 2016 Wholesale Banking

2 1. Working Capital - concept Wholesale Banking

3 The current market scenery places working capital in the fore front Supplier Balance Sheet Assets Liabilities Cash Drain Cash Source Buyer Inventory Net W/C Funding gap opportunities Working capital (W/C) management has moved to the top of the agenda Treasurers seek ways to unlock funds trapped in their supply chains W/C initiatives release cash and increase liquidity that can be used for strategic investments or debt reduction Accounts receivable Accounts payable Enhance working capital performance in a brick & click scenario November

4 Net cash tied up in W/C impacts short term liquidity and operational efficiency Forecast to Fulfil (Inventory) Order to Cash (Receivables) Order Receive d Cash Receive d Stocks Timeline Order Placed Purchase to Pay (Payables) Net Cash Tied up in W/C Cash Paid Out Working capital performance metrics W/C % of sales = (Trades receivables + inventories Trade payables) Sales Cash Conversion Cycle (CCC) Days Sales Outstanding (Trade receivables Sales) x 365 Days Inventories Outstanding (Inventories COGS) x 365 Days Payables Outstanding (Trade payables COGS) x 365 Enhance working capital performance in a brick & click scenario November

5 Order to cash process Purchase to pay process Internal optimisations and external solutions lead to improvement opportunities Internal optimisations Value Chain External solutions Rationalise purchasing Suppliers Supply Chain Finance A/P process improvement Platform Payables Cards solutions Letters of credit & guarantees Inventory management Work in progress Cash Payments & cash Management Incentives alignment Goods delivery Receivables Risk management A/R process improvement Customers Liquidity management $ Centralise treasury Physical supply chain Financial supply chain Receivable-based finance Enhance working capital performance in a brick & click scenario November

6 2. Outside-in view on working capital Wholesale Banking

7 Retail W/C days by region (2015) Days Retail W/C days by subsector (2015) Food Retail Internet Retail Drug Retail Department Stores Food Distributors General Merchandise Automotive Retail Computer & Electronics Home Furnishing Apparel Retail Distributors Catalog Retail Home Improvement Specialty Stores Luxury Goods Days Travel & Leisure Hypermarkets Telecommunication Retail Oil & Gas Utilities Media Automobiles & Parts Food & Beverages Basic Resources Construction & Materials Industrial Goods & Services Technology Chemicals Personal & Household Goods Health Care W/C days Days Opportunities to release cash from W/C exist globally and across industries by industry (2015) DSO DIO DPO CCC 100 (8) (7) DSO DIO DPO CCC W/C improvement remains a focus point in many sectors In 2016, REL has identified a W/C improvement potential of 1.0tr assuming all companies become top performers Overall improved W/C performance due to enhanced demand forecasting and more agile supply chains as e- commerce requires more accurate availability Driven by short receivables, Retail s W/C intensity seems to differ among subsectors with payables and inventories setting the business mixes DSO DIO DPO CCC Asia & Pacific Europe US & Canada South America 39 DPO appears to be the shortest in the US & Canada whereas they seem to be best-in-class for the DSO Inventory is the largest area for improvement PwC has identified around 84bn of cash opportunity across the sector 1. DSO, DIO, DPO and CCC are medians, calculated based on sales and end of year balances for comparability. (panel of 11,300 companies) Sources: Capital IQ, ING adjustments, PwC s 201 Annual Global Working Capital Survey of the Retail Sector Enhance working capital performance in a brick & click scenario November

8 Apparel Retail Abercrombie & Fitch H & M Industria de Diseno Textil Apparel, Accessories & Luxury Goods Kering Ralph Lauren Internet Retail Amazon.com Coolblue Zalando Hypermarkets & Super Centers METRO Carrefour Otto Food Retail Tesco Ahold Delhaize (2%) (2%) (1%) (4%) (3%) (3%) (6%) (7%) (5%) (6%) (6%) (2%) (2%) (2%) (2%) (2%) (2%) (1%) (1%) (0%) (3%) (10%) (11%) (0%) (0%) (2%) (2%) (2%) N/A 1% 4% 5% 5% 9% 11% 10% 14% 14% 14% 12% 12% 13% 21% 23% 21% 17% 19% 20% 17% 17% 16% 27% 27% 27% The W/C performance of selected retail companies active in e-commerce Peer comparison: W/C as % sales 30% 25% 20% 15% 10% 5% 0% (5%) (10%) (15%) (20%) Subsectors within the Retail industry Companies identified in each subsectors Comments Overall the selected companies show a better w/c performance than the respective sector The selected companies have different degrees of adoption of the online channel in their sales strategies (Amazon 100%, Otto 65%, Tesco 6.5%, Zalando 100%, Metro 2.4%, Carrefour 1.8%, etc.) Differences in business profile, geographic presence, financial reporting might influence comparability Sources: Capital IQ, company publications, ING estimates Enhance working capital performance in a brick & click scenario November

9 Apparel Retail Abercrombie & Fitch H & M Industria de Diseno Textil Apparel, Accessories & Luxury Goods Kering Ralph Lauren Internet Retail Amazon.com Coolblue Zalando Hypermarkets & Super Centers METRO Carrefour Otto Food Retail Tesco Ahold Delhaize 8 N/A N/A N/A W/C metric analysis for the selected group of companies and respective subsectors DSO DIO DPO Sources: Capital IQ, company publications, ING estimates Subsectors within the Retail industry Companies identified in each subsectors Enhance working capital performance in a brick & click scenario November

10 3. Ideas to optimise working capital performance Wholesale Banking

11 a. Internal corporate initiatives Wholesale Banking

12 The level of W/C is the result of three main processes Closely related and overlapping, they determine the amount of cash reuired to finance operational activities Purchase-to-Pay Planning and Strategy Sourcing and supplier management Requisition and ordering Receipting and Evaluation Invoice Processing Dispute Management Payment Initiation / Cash Management Forecast-to-Fulfill Product Range Management Forecast and Demand Planning Sales Order Processing Materials Planning, Purchasing and Replenishment Manufacturing Scheduling and Execution Inventory Management Warehousing, Distribution and Reverse Logistics Order-to-Cash Sales and Quote Management Credit and Risk Management Order Processing Invoicing Collections Management Dispute and Discount Management Collection Initiation / Cash Management Enhance working capital performance in a brick & click scenario November

13 KPI alignment Setup of W/C related KPI s Strategic level (CEO, CFO) Working capital DSO, DIO, DPO Cash Conversion Cycle Return on Capital Employed W/C as % of sales Benchmark (historical, peers, budget) Tactical level (Division management) Supply chain management DSO, DIO, DPO Best possible DSO Delinquent DSO Aging Balance Operational level (Department management) Payables Early/Late Payment Spend per Term Supplier pareto Blocked payments Electronic Data Interchange % Optimal use of capacity Production KPIs Internal focus Receivables Cycle Time Cash Target Dispute reason Procurement KPIs Sales KPIs Setting right KPI s at each level and cross functional teamwork will stimulate effective W/C control and management Enhance working capital performance in a brick & click scenario November

14 e-commerce s impacts on W/C performance DSO Operational aspects to be considered (payments security, fraud protection), Cash at the counter vs. Online payment methods (purchasing behaviours) More efficient payment and settlement solutions (through a new generation of payment service providers PSPs) Digital data: track-record of payment behavior, anticipate disputes, easier collection process DIO Digital data allows better inventory control Reduce physical presence: reduce inventory level Improved distribution capabilities and / or Outsource logistics / fulfillment Build efficient return infrastructure Cross channel inventory is critical to retailer success; flexible fulfillment DPO Digital data: control supplier relationship, better administration of account payables More transparent win-win communication along the value-chain, performance gap identification Extended ERP platforms, which standardize and integrate trade information from trading partners, banks and logistics providers A balanced combination of physical and virtual operational setups serving the overall business strategy will lead to enhanced commercial and financial benefits, incl. working capital performance Enhance working capital performance in a brick & click scenario November

15 b. External solutions Wholesale Banking

16 b1. Online payments considerations Wholesale Banking

17 Within Europe still many differences in preferred payment methods 15% 16% 6% ideal Credit Cards Direct Debit Paypal 38% 25% ELV Visa / Mastercard Paypal Sofort Bank Giropay 15% 23% 7% 55% 15% 35% 5% 45% Credit Cards Online Banking Cash Paypal Some countries show dominant payment methods Italy: 83% cards as preferred payment method Spain: 91% cards as preferred payment method The Netherlands: 55% ideal as preferred payment method 6% 3% 13% 4% And other countries show many different preferred payment methods 91% Visa / Mastercard Paypal American Express 83% Visa / Mastercard Paypal American Express Germany: ELV with 38% most dominant Poland: Cards with 45%, Online banking 35% Enhance working capital performance in a brick & click scenario November

18 A closer look at consumer payment behaviour in Belgium Use of different payment types for E and M-com in Belgium Consumer Spending Payment Mix Belgium 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 5% 13% 9% 64% 6% Value 3% 37% 5% 9% 5% 43% Volume 1% Other Debit card Credit Card Direct Debit Credit transfer Cash 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 16% 56% 24% E/M Com payments in Belgium 1% 3% Other Cards Credit transfer Direct Debit E-Wallets/Mobile Enhance working capital performance in a brick & click scenario November

19 Ecommerce process Collecting PSP Account Customers Webpage Distributing PSP Account Choice of set up has impact on your cash flow: Collecting PSP: PSP pays out all funds at once or in split payments. Settlement determined by PSP. Timelines can differ from T+1 up to once per month Distributing PSP: payment methods / acquirer pays out directly to merchant. Different timelines applicable Enhance working capital performance in a brick & click scenario November

20 Closer look to different Payment methods Payment method Impact on your working capital compared to POS cards Impact on working capital compared to cash on POS remark Cash on delivery -/- -/- payment on delivery. Settlement at T+A after delivery of goods Cards payments + / neutral + T+1 after ordering of goods Paypal - - / neutral Cash flow always directly from Paypal ideal + / neutral + Guaranteed and committed payment Klarna - - Option to also hand over the debtor risk Enhance working capital performance in a brick & click scenario November

21 Considerations when offering payment methods Client segment Consumers vs. Business Consumer: local differences Business: mainly credit cards Conversion The more payment methods, the higher the conversion rate. Costs Cost structures differ among different payment methods: Consumer cards v.s Paypal Klarna vs consumer cards Cash on delivery vs SEPA credit transfer Settlement timelines Among PSP s Enhance working capital performance in a brick & click scenario November

22 b2. Receivable-based solutions Wholesale Banking

23 Receivable-based finance Receivable-based finance facilitates reducing W/C through the financing of trade receivables What is receivable -based finance? Depending on the number of debtors, size of the receivables and granularity of the portfolio, various solutions can be offered Schematic overview Receivable-based finance benefits A/R A/R A/R A/R A/R A/R A/R A/R A/R A/R A/R A/R Receivables Pool Each solution can be tailored to the company s specific needs Diversification of funding sources; scalable to finance trading growth Tailor made and highly flexible (multi-originator, -jurisdiction, -currency) Off-balance sheet treatment possible Approach: Granularity: ING Solutions: Single debtor Single invoice / multiple invoices ICRF/ Factoring Multiple debtors Non- Granular Portfolio Portfolio approach Granular Portfolio TRPP / Securitisation International Corporate Receivables Finance Line-by-line approach suited for smaller and multi-country portfolio Flexible structure from single receivable financing to a facility for multiple receivables Quick execution process Trade Receivables Purchasing Program Strong balance sheet management tool Portfolio approach provides flexibility Multiple jurisdictions, originators and currencies can be brought together under one program Enhance working capital performance in a brick & click scenario November

24 b3. Payables solutions Wholesale Banking

25 Supply Chain Finance for the upper end of the spend base Supply Chain Finance ( SCF ) is a W/C optimisation tool which offers payment certainty, transparency and liquidity to suppliers What is Supply Chain Finance? In exchange for these benefits, Buyers are able to improve and modify commercial terms with its suppliers while increasing W/C performance Benefits for Buyer Benefits for Supplier Schematic overview W/C reduction and free cash flow increase Improve supplier relationship combined with better trade terms and conditions Reduced operational and payment costs Reconciliation tool and early dispute warning Automation of payments to key suppliers Unlocking W/C and free cash flow improvement For worse rated suppliers, attractive source of funding based on Buyer s credit quality For stronger rated suppliers, SCF can still create value, due to improved liquidity, optimised balance sheet and reduction in credit risk Transparency regarding status of invoices and timing of payment Possible savings in credit insurance Invoice Buyer 1. Buyer sends purchase order 6 Invoice 2. Supplier sends goods/services and invoice 3. Buyer approves invoice and presents on platform 4. Supplier requests early payment 5. ING pays invoice amount less discount 6. Buyer pays invoice amount to ING on due date SCF portal 7 Funding parties 7. Third parties provide additional liquidity to the program PO Supplier Enhance working capital performance in a brick & click scenario November

26 % PC use in various spend categories ING Purchase Control: optimise low-value non-strategic spend Purchase Control mechanism What is Purchase Control? Purchase Control enables purchasing using virtual credit card numbers. It is based on proven technology/infrastructure Purchase Control enables an increase in Straight Through Processing of purchasing, reducing handling cost and enabling extension of payment terms for buyers while improving liquidity for suppliers Buyer/ Importer 10 9 Issuing Bank Buyer Issuing Bank 2 Extend DPO PO Decrease DSO 7 Purchase 7 Control Suppliers Seller/ Exporter 5 6 Acquiring bank Issuing Bank 8 Data flow Benefits for Buyer Cost reduction through less administration, reduced fraud risk, improved supplier negotiation position Improve payment terms for buyers, extention up to 90 days Control over corporate expenses and compliance Convenient and easy to implement International solution Virtual Card benefits Benefits for Supplier Faster payments, improve liquidity Guaranteed funds Reduced collection activity Preferred supplier status Purchase Control utilization Comp hardw, softw & peripherals Courier, shipping Lease & rental Travel expenses Office supply & equipment Printing, copying Media, marketing & advertising Maintenance, repair & operations Catering ,5 0,5 0,5 1 0 Followers (80%) Leaders (top 20%) Other possible categories include payments for: subscriptions, seminars, janitorial supplies, telephone/mobile, temporary staff, advertising and promotional items 1.Purchasing cards: Redefining identity in the evolving payments landscape. Aberdeen Group July 2013 Enhance working capital performance in a brick & click scenario November

27 Annex I. Selected players description Wholesale Banking

28 Selected listed players description Enhance working capital performance in a brick & click scenario November

29 Selected listed players description Enhance working capital performance in a brick & click scenario November

30 Disclaimer This presentation prepared by ING Bank N.V. ( ING ) is intended to provide information and to serve as a basis for discussion purposes only. While reasonable care has been taken to ensure that the information contained in this herein is fair and reasonable as at the date hereof, ING has not independently verified the information herein and accordingly makes no representation or warranty, express or implied, that the information contained herein is accurate, current, complete or correct. Any estimates in this presentation are provisional only and for indicative, preliminary and illustrative purposes only. This presentation does not constitute any valuation, appraisal or advice and there can be no guarantee that any projected results will be achieved. ING reserves the right, but does not have any obligation, to amend or change such projections or assumptions if ING deems it appropriate to do so. This presentation does not constitute an agreement or a commitment or an offer to commit to or a recommendation to enter into any transaction, or creates any obligations on the part of ING. This presentation and the information contained herein are confidential and may not be disclosed to any third party without the prior written consent of ING. ING does not accept any liability whatsoever for any loss however arising from any use of this document or its contents arising in connection herewith Enhance working capital performance in a brick & click scenario November