1. Working Capital Management Supply Chain Financing and Dynamic Discounting

2. Foundation Concepts

3. Procure-to-Pay Process
Invoice Matching
Purchase Order Created
(Procurement)
Good or Services Received
Invoice Received
Invoice Approved
Payment Terms
(i.e. 2/10 Net 30)
Many sales people will need to understand the procure-to-pay process and where SCF fits in
Invoice Paid
Purchase Order Sent to Vendor

4. The Cash Flow Statement
Free Cash Flow
Operating cash flow less capital expenditures (investments in the business)
Cash that can be returned to investors

5. - - Free Cash Flow Drivers - - - + Free Cash Flow Free Cash Flow
Seen as most important driver of shareholder value
81% of the F500 focus on working capital mgmt**
Debt reduction
Acquisitions
Share re-purchases
Dividends
Free Cash Flow
Net Income -
CapEx & Other -
Working Capital
Revenue -
COGS -
SG&A Other AR
Inventory + - AP
* Depreciation addition not included since it’s not influenceable
** PWC survey

6. Working Capital Ratios – Cash Conversion Cycle
Day 0
Receive Material & Invoice
Day 70
Deliver Product
Days Inventory Held Until Product Sold
DIO = 70 Days
Day 20 Approve Invoice
Payment Terms With Suppliers
Day 45
Pay Suppliers
DPO = 45 Days
Day 120
Paid By Client
DSO = 50 Days
Payment Terms With Customers
Gap Between Cash To Paid Supplier & Cash Received From Customer
Cash Conversion Cycle = 75 Days
PO To Supplier

7. How Supply Chain Finance Creates Value

8. Guiding Principles of Reverse Factoring
Companies want to increase Free Cash Flow
Increasing AP is best option for some companies to increase FCF
Companies have many levers they can pull to increase FCF
However, some (e.g. increasing revenue) may not be an option in the short term
Negative effects of increasing AP (supplier terms) offset by Reverse Factoring
Increasing AP negatively impacts supplier cash flow & costs
This is where Reverse Factoring can help
Reverse Factoring completely offsets the cash flow impact and offsets some, or all, of the cost impact
SCF rate vs
Sources of funds (i.e. various forms of debt)
Uses of funds (What could I do with the funds and what is that return).

9. Guiding Principles of Dynamic Discounting
Companies want to improve Gross Margin
Buyer’s earn low interest rates on short-term cash
Interest rates are still low by historical standards
Some Suppliers will pay Buyer more for FCF than Buyer’s current returns
SCF rate vs
Sources of funds (i.e. various forms of debt)
Uses of funds (What could I do with the funds and what is that return).

10. How Supply Chain Finance Creates Value
Debt reduction
Acquisitions
Share re-purchases
Dividends
Free Cash Flow
$1M impact per $1 Billion of spend
Net Income -
CapEx & Other -
Working Capital
$50M impact per $1 Billion of spend
Revenue -
COGS -
SG&A Other AR +
Inventory - AP
Dynamic Discounting
has a negative impact on AP, working capital and cash flow
Dynamic Discounting
Reduces COGS, increases gross margin and net income
Reverse Factoring
helps extend supplier payment terms which positively impacts AP, working capital and cash flow
$1B COGS/365 X 19 days extended is $52M
RF and DD
Reduce AR for suppliers -increases free cash flow
* Depreciation addition not included since it’s not influenceable

11. Supply Chain Finance Prospect Prioritization

12. The Ideal Reverse Factoring Scenario - Business Characteristics
How Do We Identify Them?
Metric
Companies With Poor Options To Grow FCF
Low revenue growth
Low FCF / revenue
High impact 15 day term ex vs FCF
< 5%
< 10%
> 25%
High % Spend With Suppliers
Low gross margin
< 50%
High Cash Flow Needs
High Cap Ex / Sales, WC/Sales
Shareholder returns
Turnarounds, M&A
Upstream SCF
> 10%
Leverage Over Suppliers
Industry concentration
Suppliers Value SCF Highly
High % spend with SIG suppliers
Common characteristics
Low revenue growth (5% or below)
Low free cash flow to revenue ($1 of revenue to generate $.05 of free cash flow vs. $1 of revenue to generate $.30 of free cash flow). The latter would focus on generating revenue (less than 10%)
High level of spend with suppliers – Supplier spend is a high % of revenue (Gross margin < 50%)
Companies with a high need of cash flows – They have a high level of commitments
High capital expenses relative to sales
Dividend commitments
Buyers have leverage over suppliers (i.e. automotive, applied mfg, diy retail) – Bob has an industry slide
Suppliers have worse credit ratings
COGS/365 * 15 (extended payment terms in days) > 30% of their free cash flows – demonstrates where extending payment terms have a big impact
SIG = Sourcing Industry Group

13. Business Characteristics Example - Welbilt
Preliminary SCF Measurements
2017
2016
2015
Revenue Growth
-1%
-7%
Free Cash as a % of Revenue 8% 7%
Gross Margin
37%
32%
Impact of 15-day DPO Increase
$37M
2017
2016
2015
From Financials
Net Sales
$ 1,445.40
$ 1,456.60
$ 1,570.40
Cost of Sales $ $
$ 1,068.40
SG&A $ $ $
Cash from Ops $ $ $
Capital Expenses $ $ $
Ending AP $ $ $
Ending Cash $ $
Calculated
Free Cash Flow $ $ $
Average AP $ $
DPO
42.59
45.46
Benchmark Verification
Benchmark
Revenue Growth
<5%
Free Cash as a % of Revenue
<10%
Gross Margin
<50%
Impact of 15-day DPO Increase
>25%
Common characteristics
Low revenue growth (5% or below)
Low free cash flow to revenue ($1 of revenue to generate $.05 of free cash flow vs. $1 of revenue to generate $.30 of free cash flow). The latter would focus on generating revenue (less than 10%)
High level of spend with suppliers – Supplier spend is a high % of revenue (Gross margin < 50%)
Companies with a high need of cash flows – They have a high level of commitments
High capital expenses relative to sales
Dividend commitments
Buyers have leverage over suppliers (i.e. automotive, applied mfg, diy retail) – Bob has an industry slide
Suppliers have worse credit ratings
COGS/365 * 15 (extended payment terms in days) > 30% of their free cash flows – demonstrates where extending payment terms have a big impact

14. Limited Levers – WelBilt Example
Debt reduction
Acquisitions
Shareholder returns
Free Cash Flow
Significant headwinds for these levers
Net Income -
CapEx & Other -
Working Capital
Revenue -
COGS -
SG&A Other
Margin goals require CapEx AR +
Inventory - AP
Low payment terms relative to peers +
Nat’l Restaurant Association current situation index is weak
Already improved 450 bps including 940 bps from cost reductions
Interest expense rising
19% effective tax rate ( ) will rise to 29% - 32% per 2017 Q4 earnings call
Reverse Factoring
helps extend payment terms

15. Reverse Factoring Solution

16. Reverse Factory Workflow
Buyer
Supplier 1 2
Buyer uploads approved payables data to Kyriba’s Platform.
Supplier views payables online, chooses to sell some or all invoices
At invoice maturity date, the Buyer pays either:
Funder if supplier chose to receive early payment or
Supplier if supplier did not choose early payment 4 3
Funder receives and processes early payment requests , provides funding to supplier
Funder

17. Reverse Factoring Solution Elements
Whole Product
All products/services required by client to meet objective
Each “feature” can be provided by us, partners or client
Term Ex Success
Free Cash Flow 3 4 1 2 5
Payables Portal
Payments

18. Reverse Factoring Solution Elements
Funder(s) 3 4
Term Ex Success
Free Cash Flow 1 2
Payables Portal
Payments 5

19. Reverse Factoring Solution Elements
Funder(s)
Legal 3 4
Term Ex Success
Free Cash Flow 1 2
Payables Portal
Payments 5

20. Reverse Factoring Solution Elements
Funder(s)
Legal 3 4
Term Ex Success
Free Cash Flow 1 2
Payables Portal
Payments 5
Supplier Onboarding

21. Working Capital Analysis
Reverse Factoring Solution Elements
Funder(s)
Legal 3 4
Term Ex Success
Free Cash Flow 1 2 5
Payables Portal
Payments
Program Design
Working Capital Analysis
Procurement Services
Supplier Onboarding
Procurement Training
Program Management
Solution design
Payment terms benchmarking
Buyer/Supplier impact
Stakeholder alignment
Supplier prioritization
Supplier messaging
Program Mgmt – monitor results through dashboards, KPIs

22. Reverse Factoring Business Value
Buyer
Extend DPO to increase free cash flow
Enhance productivity with fewer AP inquiries
Reward Banks
Secure business critical supplier relationships
Supplier
Reduce DSO to increase Free Cash Flow
Reduce interest expense
Predictable cash flow
Address offsets / credit memo issues much sooner which improves Free Cash Flow
Automated collections
Full remittance information at no cost

23. Dynamic Discounting Solution

24. Dynamic Discounting Workflow
Buyer
Supplier 1 2
Buyer uploads approved payables data to Kyriba’s SCF Platform.
Supplier views payables online, chooses to sell some or all invoices
At invoice maturity date, the Buyer pays the Supplier if supplier did not choose early payment 4 3
Buyer receives and processes early payment requests , provides funding to supplier
Buyer

25. Working Capital Analysis
Dynamic Discounting Solution Elements
Funder(s)
Legal 3 4
Term Ex Success
Free Cash Flow 1 2 5
Payables Portal
Payments
Program Design
Working Capital Analysis
Procurement Services
Supplier Onboarding
Procurement Training
Solution design
Payment terms benchmarking & optimized terms
Buyer/Supplier impact
Stakeholder alignment through analytics
Supplier prioritization
Supplier messaging
Much easier than Reverse Factoring
No KYC or Lien filings

26. Dynamic Discounting Business Value
Buyer
Improve return on excess cash
Enhance productivity with fewer AP inquiries
Improve supplier relationships
Secure business critical supplier relationships
Supplier
Transparency to AR invoices
Predictable cash flow
Reduce DSO, Improve working capital & reduce interest expense
Payment on demand

27. Overall Reverse Factoring Value Proposition
Increase Free Cash Flows by extending days payable outstanding (DPO) and optimizing working capital in a single portal that is integrated with your liquidity management, banks and suppliers

28. Overall Dynamic Discounting Value Proposition
Through a single portal, integrated with your overall liquidity management and suppliers, reduce Cost of Goods Sold and earn better return on excess cash by paying your suppliers early in exchange for a discount on the goods and services you purchase

29. Competitive Landscape
Many providers
Primarily focused on large company (>$5B), investment grade market
Funders
Tier 1 – own SCF technology
Tier 2 – private label SCF technology
Tier 3 – co-sell with fintech SCF provider
Tier 4 – purchase assets from others
Fintechs
SCF only
Purchase to Pay
B2B Marketplaces
Treasury Management

30. Payables Finance Portal Payments / Treasury Mgmt
Competitive Landscape
Funders
FinTech
Payables Finance Portal
Banks
Funder(s)
Payments / Treasury Mgmt
P2P / Marketplaces
Non-Banks
Own Platform
Re-sell
Co-sell
Buy Assets

31. Q&A
Thank You!