FINANCE (FEI)

EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL

Transforming Financial Back-office Transforming Financial Back-office Processes to Optimize Working CapitalProcesses to Optimize Working Capital

Veena GundavelliVeena GundavelliPresident & CEOPresident & CEO

Emagia CorporationEmagia Corporation

Transforming Financial Back-office Transforming Financial Back-office Processes to Optimize Working CapitalProcesses to Optimize Working Capital

Veena GundavelliVeena GundavelliPresident & CEOPresident & CEO

Emagia CorporationEmagia Corporation


Emagia – Introduction

Leading Provider of Working Capital Management Software Solutions to Global 2000 companies


Leadership in Working Capital Management Solutions

Emagia Customers Include: • In Business Over 8 years

• Unlocked over $10.3 Billion in Working Capital

• Have Delivered Over $150 Million in Bottom Line Savings

• Have Managed Over $30 Billion in Receivables

• Are Used By Over 2000 Global Users

• Process Over 100 Million Transactions Per Month

• Have Been Deployed Across Over 53 Countries

• Have Been Implemented in Over 35 Different Languages and in Over 30 Different Currencies


Agenda

• Top Priorities for Today’s CFO

• Working Capital – A Key Competitive Advantage

• Transformation of Financial Back Office: 3 Step Approach

• Case Studies: Highly Effective Finance Organizations


Transformation of Role of Finance


1. Performance – Managing enterprise-wide performance to maximize share holder value

2. Growth – Partnering with the enterprise to support new growth strategies

3. Risk – Strengthening process controls and streamlining processes to reduce risk and meet fiduciary/regulatory compliance standards

Top 3 Areas of Finance Focus


1. Structural Complexity – Multiple Disconnected Operations, Lack of Standardized Processes, Lack of Collaboration within and outside of Finance Departments

2. Fragmented Information – Disconnected Systems, Lack of Information Insight, Lack of Consolidated Information in Timely Order, Lack of Integrated or Global View of Processes, Lack of “Single version of truth”

Top 2 Challenges in Finance Departments


Roadmap to an Agile Finance Organization


AccountsPayable

AccountsReceivable Inventory

Procure-to-Pay

Customer-to-Cash

RevenueRevenueManagementManagement

Forecast-to-Fulfillment

Supply ChainSupply ChainManagementManagement

ExpenditureExpenditureManagementManagement

CustomerStrategy

SalesManagement

RiskManagement

ContractManagement

Sales OrderProcessingCredit

CheckOrder

Fulfillment

Billing

CustomerService

CashCollection

CashReceipts

DisputeManagement

SupplyChain

StrategyProductManagement

Forecasting

Sales OrderForecasting

ProductionScheduling

RawMaterialPlanning

Production

Ware-housing

Distribution

Transportation

Replenishment

ProductionPlanning

PurchasingStrategy

Budgeting &Forecasting

OriginatingRequirements

Selection& Negotiation

Ordering& Contracting

ReceivingDiscrepancyManagement

InvoiceProcessing

DisbursementManagement

PaymentProcessing

CashManagement

Components of the Working Capital Cycle


• Cash is the life blood of any business

• Cash-to-Cash Cycle is the largest consumer/source of cash

• Cash Flow from Operations – “Free” measurement of health of any business

• Receivables – One of the top 3 largest assets of any business

• “Free Cash Flow” has stronger influence on share price compared to “Earnings”

Unlock Working Capital From Your Financial Operations


• Situation– Hi-tech Company with over $500M in revenues

– Serious failures in receivables management

– High DSO (> 110 days), Bad debt write-offs increasing

– Depressed Stock Price

– Speculations that either the new products are not working or sales reported were not true

• Solution– Streamlined entire order-to-cash processes, staff, management focus and

adopted specialized technology

– Working Capital Management focus right from Board and C-level executives

Impact of Better Working Capital Management: Case Study


• Result– Reduced DSO to high 50s

– Increased cash by equivalent of four month of sales

– Reduced bad debt expense by millions of dollars

– Increased stock price dramatically

Impact of Better Working Capital Management: Case Study

Source: Parson Consulting


Cash Tied in Financial Operations

“Working capital remains top of mind for many CFOs. Indeed, continued working capital improvement — or even a controlled, temporary reduction — can ultimately drive growth.”

Magazine

2005 Working Capital Survey

Working Capital Improvements In Receivables, Payables and Cash FlowForecasting Can Be A “Hidden Reservoir” To Drive Financial Excellence

Source: McKinsey & Co. Studyof Top 24 U.S. Corporations

Potential Cash Flow FromUnlocking Working Capital

$71 Bn

$49 Bn

$91 Bn

Receivables

Payables

Inventory $162 Bn Opportunity toDrive Cash Flow Improvements


Close the Short-term Liquidity Gap

Accelerate Cash InflowsImprove Cash Receipts Forecasting

Regulate Cash OutflowsImprove Disbursements Forecasting

Cash Inflows

Short-termLiquidity Gap

• Greater Need to Borrow

• Higher Interest Expense

• Higher Debt-to Equity Ratio

• Lower Return on Invested Capital

Cash Outflows

Time

Cash Flow Visibility, Control and Predictability Ensures Better WorkingCapital Management and Cash Conversion Cycles

Payables

Receivables


Barriers to Working Capital Excellence

Working Capital Process

Typical Challenges Impact on Financial Performance

Accounts

Receivable

• Disconnected A/R Systems and Processes• Ineffective Credit Risk Extension• Slow Customer-to-Cash Cycle• Manual Processes• Unattended Disputes

• Higher DSO• Increased Bad Debt Expense• Slower Quote-to-Cash Cycle• Higher Operational Expenses• Higher Revenue Risk

Accounts

Payable

• Disconnected A/P Systems and Processes• Inefficient Payment Decisions• Inefficient Procure-to-Pay Cycle• Manual Processes

• Sub-optimal DPO• Increased Administrative Expenses• Lost Discount Savings

Cash Flow Forecasting

• Limited Consolidated Visibility• Lack of Structured Real-time Data• Discrepancies in Forecast Models• Lack of Structured Forecasting Process

• Inaccurate Short-term Forecasts• Sub-optimal Investment Strategies• Reduced Efficiencies• Lowered Returns from Cash Management


Transforming the Enterprise to Drive Sustainable Value

Cash Flow Transactions Management

Cash FlowProcess Management

WorkingCapital

Optimization

From Working Capital Vision

DecisionSupport

BestPractices

BasedStandardization

TransactionManagement


Transforming the Enterprise to Drive Sustainable Value

Time

To Working CapitalActualization

Value

StandardizationSimplification

Controls & Efficiencies

& RiskManagement

Strategic FocusSustainableGrowth &

ShareholderValue

Cash FlowTransactionsManagement

Cash FlowTransactionsManagement

Cash FlowProcess

Management

Cash FlowProcess

Management

WorkingCapital

Optimization

WorkingCapital

Optimization

Managing Complexity

Balancing Risk And Performance

Effectively DrivingProfitable Growth


Level 1 Transformation : Transactions Management

Simplification and Integration of Enterprise-Wide Information Management

• Reduce structural and data complexity

• Reduce number of disparate Finance Platforms

• Reduce number of ERP instances

• Reduce number of point transaction solutions

• Rationalize common platforms for consolidation and reporting across receivables, payables, treasury

• Deploy solutions that address multi-currency, multi-language, multi-level organizational and customer hierarchies



WorkingCapital

Optimization



Transactions Management: Reality Out There


Level 1 Transformation : Transactions Management

Advantages• Single version of truth

• Reduces number of reconciliations

• Reduces time and effort needed to gather information

• Faster access to information for decision making

JD Edwards LegacySystems

BaaN

Working Capital Platform


Level 2 Transformation : Process Management

Standardize Process Management Management with Technology

• Streamline and document internal processes for local and globally operations – order-to-cash, procure-to-pay, treasury

• Implement enterprise-wide standard policies and rules on credit, collections, deductions, payables, billing, dispute handling

• Formulate workflow and collaboration processes across finance, sales, order-entry, customer support, purchasing and other departments

• Automate business processes with common technology, platforms

• Adopt functional best practices in the industry



WorkingCapital

Optimization



Level 2 Transformation : Process Management

Advantages

• Improves productivity and efficiency • Reduces operational costs and increases scalability• Enhances compliance and reduces process control risks• Mitigates and manages corporate risk• Improves Free Cash Flow



WorkingCapital

Optimization



Level 2 Transformation : Quote-To-Cash Process Example

Standardize Credit Scoring Decision Management with Technology

• Credit Policies - Formulate and establish credit extension policies across multiple customers and operating units

• Credit Scoring - Implement a standardized and flexible credit scoring approach which takes into account historical payment patterns, external credit data and input from field sales and credit analysts

• Credit Information - Integrate with third party credit data bureaus like D&B, Experian, etc to leverage the latest credit information

• Credit Reviews - Establish a credit review process using workflow technology to focus credit analysts on high risk accounts

• Portfolio Analysis - Measure and monitor credit exposures across global customer base



Standardize Collections Management with Technology

• Strategy Driven - Enable global collections to be carried out in a proactive manner based on customer segments, regions, etc…

• Intelligent Collections - Direct the collections team to focus on high impact accounts

• Automation - Focus the team on high value added activities such as customer management by automating repetitive and manual tasks

• Collaboration - Align closely with sales and leverage relationships for faster collections. Connect to enterprise systems within the company and outside with trading partners

• Portfolio Management - Embed best practices for collections management across multiple divisions and business units



Standardize Billing and Accounts Receivable with Technology

• Accuracy - Enable accuracy and timeliness of invoice documentation sent to customers

• Timeliness - Ensure that invoicing is properly carried out after order fulfillment processes

• Consolidation - Consolidate invoice information sent to customers to reduce redundant business processes

• Collaboration - Offer customers the ability to view all supporting documents and transactions for the invoice

• Self-Service - Offer customer self service functions to strengthen customer relationships and facilitate speedier dispute resolution and payment



Standardize Dispute Resolution and DeductionsManagement with Technology

• Predict - Proactively manage customer disputes by identifying at-risk accounts and short payments from customers

• Reason Codes - Tailor specific resolution approaches across the enterprise based on the type of dispute or deduction

• Resolution Workflows - Leverage a collaborative approach to dispute resolution and deductions management using workflow technology

• Escalations - Establish a sense of urgency with clear resolution processes and escalation technology

• Root Cause Analysis - Drive business process improvements across the quote-to-cash cycle using root cause analysis and process monitoring



Standardize Cash Application with Technology• Consistency - Establish a consistent approach to processing

remittances and applying cash

• Automation - Facilitate faster processing of high volume payments with reduced need for research and reconciliation

• Reconciliation - Reconcile payments with erroneous reference information – invoice numbers, purchase order numbers, etc..

• Corrective - Enable cash application personnel to identify and process deductions earlier in the quote-to-cash process


Level 3 Transformation : Optimization

Optimization using Insight and Analysis• Performance Dash Boards, KPIs, Scorecards that are deployed

enterprise-wide

• Executive attention from CFO, VP Finance, Controller, AR/AP managers, Director/VP of credit collections, credit managers, sales executive managements teams and field sales

• Strategic goal setting and proactive management of performance across the board

• Analysis of historical performance and changing business practices to eliminate bottlenecks

• What-if analysis for predicting future states and setting strategies for growth



WorkingCapital

Optimization



Advantages

• Enable fact-based decision making with better integration of information

• Better insight into overall operations• Strategic planning and risk management• Executive attention on timely basis• Improved cash forecasting and free cash flow

management• Drives optimal levels of performance across the entire

enterprise

Level 3 Transformation : Optimization

The ideal solution for optimizing global Finance and treasury functions is one thatcombines business intelligence with collaborativeprocess automation to increase world-wide efficiencies - John Van Decker, Senior VP and Principal Research Fellow


Technologies commonly used

ERP systems (Oracle, SAP, PeopleSoft, JDEdwards, Geac) do not cover working capital process management – 67 percent of respondents of survey were not satisfied

Home grown systems are expensive and time consuming Adoption of specialized working capital management solutions

increasing in trend -56 percent of survey respondents indicated plans to implement specialized solutions

Performance management dash boards rank in top 3 projects from IT


SpecializedTechnologyPlatform

Cash FlowProcessAutomation

Cash FlowPerformanceManagement

+

+

Working CapitalOptimization

Cash FlowPerformance Dashboard

Enterprise Application Integration Layer

Cash Flow Forecasting Engine

ERP 1 ERP 2Legacy

SystemsSpread-sheets

CorporateCorporateFinanceFinance

CFOCFO CorporateCorporateTreasuryTreasury

AccountsAccountsReceivableReceivable

SharedSharedServicesServices

AccountsAccountsPayablePayable

OutsourcingOutsourcingProvidersProviders

Emagia Cash Flow Performance Management SolutionEmagia Cash Flow Performance Management Solution

Cash InflowManager

Cash OutflowManager

Emagia Cash Flow Management Platform

Cash Flow Management Data Server

Emagia Application Engines

CreditCredit& Collections& Collections

Example of Specialized Working Capital Solution


Case In Point: Solectron Corporation

• $12 Billion Global Electronics Contract Manufacturer

• A/R Shared Services spans across 3 continents and across multiple disparate systems

CHALLENGES

• No single system for global A/R and cash flow visibility

• No automation of country-specific A/R processes

• No decision support tools for cash flow management and cash forecasting


Baan Baan LegacySAP

North America Asian/PacificEuropean

Emagia Working Capital

Management Solution

MFGPro

Legacy

Global A/R & Cash Flow DataGlobal A/R & Cash Flow DataConsolidation PlatformConsolidation Platform

Global A/R Process AutomationGlobal A/R Process Automation

Shared Services Performance ManagementShared Services Performance Management

Corporate OversightCorporate Oversight& Governance& Governance

ERP 1ERP 1 ERP 2ERP 2 LeqacyLeqacyOtherOther

SystemsSystems

Solectron: Mastering Global Cash Flow


ROI ComponentROI Component BenefitsBenefits ROI ValueROI Value

Interest Expense Savings from Improved Cash Flow

Acceleration of collections Reduction of DSO by 15 days and compressed Cash-to-Cash cycle Improved cash forecasting accuracy

$14 Million

Direct Cost Reductions Consolidation of direct costs Wider support with fewer resources Reduce SG&A and overhead costs

$1 Million

Common Business Processes & Shared Services Enabler

Streamline invoice-to-cash System used by collectors at over 45 sites on three continents

Estimated $20 Million

Solectron: Sustainable Value


“We now have a powerful working capital platform that allows us to make better cash flow decisions, empower our Shared Services teams and maintain focus on maximizing profitability.”

- Perry Hayes, Solectron VP & Treasurer



• Syngenta - $3 Billion leading global manufacturer of Agricultural

Chemicals spun off from Astra Zeneca and Novartis

• Over 15,000 U.S. customers including agents, distributors, retailers

and end users

• Agricultural cycle drives seasonality and unpredictability in

Syngenta’s cash forecast

• Manual customer-to-cash processes adversely impacted

Syngenta’s cash conversion efficiency

Case Study: Mastering Global Cash Flow


Key Success Factor: Cash Flow Visibility

• Syngenta deals with multiple types of customer roles who can all sell directly to end consumers

• Distributors can also beagents in some cases

• Collections may be done by Syngenta or agent or etc…

• Customers have multiple levels

• Global AR visibility requires aggregating portfolio and exposure across different customer roles at different levelsGoods Flow

Payment Flow

Dealer

Distributor

Agent

Point ofCollection

Point ofCollection

End Consumer


Trend of Cash Receipt Forecast vs. Actuals

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11

Forecasted

Actual

Improved Cash Forecasting Accuracy

Mean AbsolutePercentage Error

2%- 20% after Emagia

Mean AbsolutePercentage Error

5%- 55% before EmagiaEmagiaGo Live


Improved Cash Flow

ROI Component Benefits ROI Value

1 Interest Expense Savings from Improved Cash Flow

- Acceleration of collections- Reduction of DSO by 4.5 days- Average Deductions balance decreased from $2.9 mil to $1.1mil- Improved cash forecasting by up to 30% in some cases

$3 Mil

2 Direct Cost reductions - Redeployment of excess resources- Reduce overhead costs

$100K

Also attained ‘Well Controlled’ rating for internal SOX audit


“Working Capital Platform has given us the consistency and control needed in our cash flow processes. As a result, we have seen a decrease in DSO, and a dramatic improvement in cash forecasting accuracy.”

- Bert Cuiston, Head of Credit and Receivables Management, Syngenta



CustomerCustomer IndustryIndustry Business ChallengesBusiness Challenges ResultsResults

$12 Bn Electronics Contract Manufacturer

• Needed global A/R visibility across Shared Shared Services Centers• High financing costs

• $14 Mil Annual Interest Savings• $1 Mil Direct Expense Savings• Infrastructure for Shared Services

$3 Bn Agricultural Chemicals Manufacturer

• No A/R visibility into customer network and wide swings in cash forecasting accuracy

• $3 Mil Annual Savings• Reduced DSO by 5 days• Improved Cash Forecasting Accuracy by up to 35%

$2 Bn Staffing Services Company

• Six Sigma initiative focused on credit & collections• Little A/R automation

• $750K reduction in bad debt• $150K reduction in direct expenses• Six Sigma based automation

$500 Mil Enterprise Software Company

• High DSO with no collections or dispute resolution tools

• 25% reduction in DSO within 6 months

$800 Mil Consumer Packaged Goods Company

• Chargebacks & deductions negatively impacting revenue by over $17M

• Reduced deductions backlog by 75%• $12 Mil in bottom line savings

Selected Customer Success Stories


For more information, please contact Veena GundavelliPresident & CEOEmagia [email protected]

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