Credit availability and the importance of optimizing working capital

SIMON ROCKCLIFFE, Senior Manager, Working Capital Advisory Services, Ernst &Young (Moderator) JOHN FORESTER, CFO, DBG Canada RON MURPHY, CFO, Aux Sable JIM McKILLOP, CFO, ATB Financial

► Short term: 89% suggest short term financing very/somewhat readily available and forecast to improve

► Long term: 81% suggest long term financing very/somewhat readily available and forecast to improve

► Difficulty: Small companies rated a challenge to obtain credit (>20% very difficult). Top issue – unattractive covenants and conditions (46%)

► Satisfaction: 69% of companies satisfied with their current bankers

Credit availability and working capital optimization Survey highlights – Credit Availability:

► Performance: Only 39% of companies recorded an improvement

► Focus: 48% undertook a specific program; others incorporated in other initiatives

► Success: Of those that applied focus, 69% recorded positive results

► Why: internal FCF targets, pay down debt, investment (system, M&A)

► Conflict: cost reduction, systems, M&A, re-organization, growth

► Size matters: Small companies have more focus but worse results

► Visibility: Remains a monthly exercise – 76% review monthly or worse

► Incentivization: 31% with FCF component and growing

Credit availability and working capital optimization Survey highlights – Working Capital:

Collections entitlement

Dispute management

Supplier payment terms

Demand forecasting

► Visibility and calculation of entitlement gap ► Segmented / differentiated portfolio approach ► Cross functional alignment

► Many slow payments due to internal issues ► Identify, escalate, eradicate ► Clearly define roles and responsibility

► Understand spend leverage / consolidation to achieve category leading practice

► Utilize tenders with defined standard terms ► Move non-contract vendors to standard terms

► Differentiated approach based on SKU characteristics ► Collaborate with customers ► Ensure rigour in S&OP processes

Major drivers

Invoice timeliness

System configuration & compliance

P-Cards / V-cards

Inventory rebalance

► Cut-offs; ship/service to invoice date/dispatch ► Details recorded on invoice (set expectations) ► Accuracy supplants timeliness

► Master file compliance with contracts ► Batching protocols ► Trigger (goods, invoice, invoice receipt, promise)

► Maximize credit availability; pay on due date ► Identify all suppliers accepting credit card ► Multiple cards = multiple billing cycles

► Quick win – identify imbalances ► Prioritization of excess ► Establish dynamic process to change with demand

Tactical opportunities

► Leadership: Tone set from the top; not just a finance initiative

► Bottom up approach: Structured approach to validating and prioritizing portfolio of initiatives

► Embed: Ensure cash flow and working capital impacts are a component of all internal initiatives and business decisions

► Measure: Focused set of metrics to track performance and benefits accrued

► Sustain: Embed change agents into organization for continuous improvement

► Motivate: Consider incentivization and bonuses (does not need to be large)

Critical success factors

Majority of companies can release 10-20% from WC while still retaining cost and service goals

Panel

► John Forester - CFO, DBG Canada Ltd

► Jim McKillop - CFO, ATB Financial

►Ron Murphy - CFO, Aux Sable

Polling

► Six questions

► Voting devices at your seat

► First valid entry will be accepted

► Start with a demographics question...

Q1: Which option below best describes your company?

0%

0%

0%

0%

0% 1. SME Private

2. SME Public

3. Large Private

4. Large Public

5. Other

Q2. In your opinion, how would you rate the current level of credit availability?

1 2 3 4

0% 0%0%0%

1. Very available

2. Remained about the same

3. Declining

4. Do not know

Q3. What is the primary way excess cash is being utilized within the business?

1 2 3 4 5 6

17% 17% 17%17%17%17%1. Invest in organic growth

2. M&A

3. Return to shareholders/ pay debt

4. Improving systems / infrastructure

5. Multiple of the above

6. Other

Q4. Has working capital and cash management become more or less of a priority in the last 12 months?

0%0%0%

1 2 3

1. Higher priority

2. Stayed the same

3. Lower priority

Q5. What degree do you feel you have visibility into your organization's working capital and cash flow performance?

0%0%0%0%

High Med Low None

1. High

2. Medium

3. Low

4. None

Q6. How would you say your organization's functional areas are aligned with finance in the importance of cash flow?

0%

0%

0%

0%

1. Highly aligned

2. Somewhat aligned

3. Minimally aligned

4. Not aligned

Q&A