Working Capital Solutions powered by Demica

Working Capital SolutionsPowered by DEMICA

Some practical SCF observationsGothenburg, 2 March 2020Together with Senior lecturer Viktor Elliot, PhD

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Your external presenter

Niklas [email protected] | +44-203-958 5929

Working Capital Solutions: Origination & Coverage (Nordics)

• Niklas joined DEMICA in January 2019 with the primaryresponsibility for developing business opportunities in the Nordicregion with corporates, banks, owners and intermediaries.

• He also supports origination efforts in other markets focusingboth on SCF and Receivables products working closely withDEMICA’s product and technology experts.

• Niklas brings more than 20 years of international businessexperience much of which is in financial services with MerrillLynch, Citigroup and Allianz.

Any type of questions in follow-up,please do not hesitate to reach out!

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We are looking forward to providing a brief real-life perspective to SCF implementation!

Proposed agenda

A. Introduction of DEMICA: who are we?

B. SCF proposition: what do we offer and why?

C. SCF implementation: what have we learned?

A. Introduction of DEMICA

$3.4bn

$5.0bn

$7.3bn

$8.9bn

$11.7bn

$15.4bn

2014 2015 2016 2017 2018 2019

DEMICA simplifies the delivery of essential liquidity

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We lower costs and increase available funding by combining technology, product expertise and access to deep pools of capital

Platform

Funding

+150 banksAnd institutional investors interested in funding our programmes

+1 millionInvoices processed per day

Processing

500 corporatesProgrammes supported by our technology

Scale

+180 peopleFinancial services, technology and operations professionals

Team

+135 countriesReceivables from around the globe

Reach

MS AzureOur resilient and scalable cloud solution

DEMICA is the leading global platform provider for Trade Receivables Finance and Supply Chain Finance solutions. We arrange cross-border working capital finance transactions and manage them on our proprietary technology platform

Key Figures Assets under administration

DEMICA simplifies the delivery of essential liquidity

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DEMICA is a leading global arranger and platform provider for SCF and TRF solutions

Trade Receivables Finance (“TRF”)

• Our TRF platform is designed to simplify and enhance transaction reporting, able to integrate directly with multiple parties and bank systems.

• Its robust tracking and reporting features make it a good tool to track and mitigate transaction risks (e.g. dilution, comingling, credit).

• The platform provides banks with the flexibility to easily set-up complex trade receivables funding structures.

Supply Chain Finance (“SCF”)

• The platform has state-of-the-art user interfaces for funders, buyers and suppliers, making it user friendly.

• It currently supports six variations of SCF structures, with the ability to mix & match characteristics and create hybrid structures.

• Our platform has an embedded supplier onboarding tool that is designed to increase programme uptakes by the longer tail of suppliers.

Strong focus currently on SCF and Trade Receivables Finance. We are, however, continuously brining new Working Capital solutions to market. We enjoy working together with our banking partners and clients to design and deploy new, innovative solutions

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The platform is seen as transformative for the two products launched so far

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DEMICA is unique in the market having become successful in two materially different working capital finance products

Customer feedback from the latest platform demo at Global ABS 2019 to the 15 banks that lead the trade receivable securitisation market

“User friendly …. A powerful tool” “This is Lego for the big guys…. Definitely the evolution of the market”

“This is a quantum leap …. really exciting”

“A game changer – feels like we are in the stone age”

“Impressive …. I want it for my deals”

“Very impressive …. We are not satisfied with what we have today ….

99% of what we need”

2018 RFIx Award WinnerNon-Bank SCF Provider of the Year

2019 Trade Finance Global Award WinnerBest Supply Chain Financier

2019 Global Finance Award WinnerBest SCF Provider of the Year – Non Bank

2019 RFIx Award WinnerSCF Technology Solutions Provider of the Year

Recent awards for our supply chain finance offering

Supply Chain FinanceTrade Receivables Finance

Global network of 50 large banks and 500 multinationals already using our platform

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We have reached critical mass, having built a large network of corporates and funders transacting on our platform

Debtors

Corporates

(Buyers and Sellers)

Suppliers

500 Multinationals from 35

countries

7,000 Suppliers from 54 countries

4 millionDebtors in 135 countries,

tracked and financed through the platform

Selected funders using our platform

Multi-product offering delivered through a modern SaaS technology platform

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SCF Platform SaaS technology platform

Credit model

(adv. Rate)

Risk mitigation, reporting &

analytics

Payment gateways & syndication

Supplier onboarding

tool

Automated invoice

processing

Back-up servicing

Automated invoice

processing

Core Bank integration

Supplier dashboard

Supplier onboarding dashboard

TRF Platform

Portfolio monitoring

Transaction set-up

The platform has a rich modern feature set from 15+ years of operating experience with bank and non-bank funders

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Experienced professional services team sources funding and takes transactions live

Professional services

SaaS technology platform

Credit model

(adv. Rate)

Risk mitigation, reporting &

analytics

Payment gateways & syndication

Supplier onboarding

tool

Automated invoice

processing

Back-up servicing

Automated invoice

processing

Core Bank integration

Portfolio analysis

Deal structuring

Capital markets

Service desk

Supplier analysis

Programme design

Distribution

Service desk

SCF TRF

B. SCF proposition:what we do and why

Our SCF structures

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Our platform has the flexibility to offer, combine and automate a wide range of structures and functionalities

*The final decision on accounting treatment will be made by the buyer’s auditors

Standard SCFSCF + Payment

extensionBuyer funding Receivables finance

Product description

Accounting* Implications

Payment to the supplier

Payment to the funder

Typically, Buyer extends payment terms, while providing suppliers access to discounted early payments

Offering this programme the buyer’s payment obligation will remain as payable

Following the early payment request

At maturity, secured by irrevocable payment undertaking by the Buyer

A standard SCF structure where suppliers have access to early payment discount, whilst the Buyer artificially extends payment terms with funders

By artificially extending terms the buyer’s obligation may be reclassified as debt

Following the early payment request at a discount

At extended maturity date, secured by a payment clause with the Funder

Buyer provides funding for their programme with an expectation to improve their P&L margins

The payable is extinguished after the buyer pays the invoice

Following the early payment request

There is no third party Funder

Buyer takes advantage of commercial early payment discounts and leverages the savings to fund artificial payment extension with the funder

By artificially extending terms, auditors can request to review buyer’s account

Following the commercial early payment discount accepted by the Buyer, Funder pays supplier in advance

At extended maturity date, secured by a payment clause with the Funder

Bearer of cost

Supplier - Through a discount applied to early payments

Supplier – Through a discount applied to early paymentsBuyer - Through interest payments for the artificially extended term

Supplier – Through a discount applied to early payments, based on Buyer’s rates

Supplier - Through a discount applied to commercial early paymentsBuyer - Through interest payments for the artificial term extension

Cost allocation

The buyer bears the discounting cost of the programme, gaining working capital benefit at a small cost

Depending on the structure the obligation may remain as payable or can be reclassified as debt

Following the early payment request in full

At maturity, secured by irrevocable payment undertaking by the Buyer

Buyer – By grossing-up invoices to cover the discount cost applied at maturity for the supplier early payment

Buyer profile Investment grade corporatesNon-investment grade corporates

Investment grade corporates, with excess cash

Non-investment grade corporates or corporates in weaker bargaining position with their suppliers

Non-investment grade corporates or corporates in weaker bargaining position with their suppliers

N/A (multi debtor)

Depending on structure (e.g. insurance, true sale, recourse)

Funders generally take seller payment risk and receive maturity payments from seller

Following automatic or seller selection request

Supplier - Through a discount applied to portfolio

“Simple” single – seller, multi-debtor portfolio finance; based on advance rate/retention or 100% invoice value

Payment extension with discount capture

Supply Chain Finance is a working capital solution that enables corporates to optimise their cashflow and increase liquidity, usually, through the extension of payment terms with their suppliers, who may select to be paid early by enrollingto the SCF programme

Standard SCF structure and flow

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SCF programmes allow buyers to improve their working capital, whilst offering competitively priced liquidity for their suppliers

Structure:Benefits to the buyers:

Payment terms

Optimise working capital typically by increasing DPO

Risk MitigationDiversify risk and funder base

RelationshipImproved relationship with suppliers

Benefits to the suppliers:

Payment terms

Accelerate collection of receivables and reduce DSO

PlatformReal-time invoice level data with improved visibility

Competitive funding

Access to competitively priced alternative funding and improve liquidity

Invoices issued1

Approved invoice confirmation sent

2

Early payment is offered and accepted

3

Funding instruction sent4

Early payment discount applied and payment made

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Maturity payment received 6

Buyer

Funder(s)

Suppliers

1

5

4

2

3

6

●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●

DEMICA’s services – SCF

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Our SCF experts can assess the financial benefits of using our state-of-the-art platform for all parties

• Comparison of terms, such as days payable outstanding, with industry peers

• Analyse effect of an SCF solution on the buyer’s financial statements

• Set up a programme structure potentially involving early payment discount,

dynamic discounting or alternatives.

Collaborative approach to establish programme objectives

Buyer analysis

Supplier analysis

• Determine cost of funds per supplier using proprietary tools

• Analyse potential benefits for buyers, suppliers and funders

• Determine required facility size and maximum payment term extension

• Segment suppliers into tiers to encourage higher uptake

Analyse the financial benefits for suppliers and set programme pricing

Funding

• Shortlist prospective funding partners, prioritising current relationship banks

• Select existing relationships; DEMICA funding partners, or FCI members

• Take into account supplier jurisdictions/ KYC, currencies and pricing

Source funding and align strategic objectives

Execution

• Align buyer and funding partners with the detailed supplier onboarding plan

• Engage in procurement training to define supplier onboarding strategy

• Launch supplier onboarding process

Drive penetration of suppliers against objectives set out in the project plan

Financial Services

• Data can be uploaded to the platform using and SFTP server or manually

• The platform can be configured to require user approval before processing or

uploading files.

• A range of processing options without complex connectivity requirements

Fully configurable processes to fit specific client requirements

Integration, data

processing & reporting

Payments features &

syndication

• Rules engine determines to whom and how payments are made

• Payment messages are produced using ISO20022 format with a mapping

process to include local formats

• Encrypt and sign payment messages before sending to payment gateway

Our platform provides several payment options for buyers and funders

Supplier onboarding

tool

• Embedded online toolkit to manage end-to-end supplier onboarding journey

• CRM tool to maximise programme participation

• Customisable content and design of marketing materials

• Supplier KYC/ AML documents uploaded digitally into the portal

State-of-the-art interface designed to onboard large and small suppliers

Project management

• Business case document and project plan agreed prior to deploying resources

• Strong project management to co-ordinate financial and technical

workstreams.

• End-to-end systems integration to multiple OpCos and ERP systems

Align resources across funders and the company to meet project deadlines

Technology Platform

SCF success factors

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DEMICA can act as an advisor and guide through the roll-out process for a successful SCF programme

Key success factors

Team alignmentProcurement and finance teams need to have clear objectives and aligned incentives to coordinate and execute the programme.

Onboarding StrategyA detailed strategy that covers: supplier approach, marketing materials, onboarding plan and procurement training is necessary.

Spend ChannelledThe amount of liquidity released through the programme will depend on the number of suppliers enrolled and spend channelled.

On-site workshop to cover:

• Understanding of buyer’s payment terms per category, geography, etc.

• Identify negotiation power dynamics

• Encourage positive thinking about payment term extensions

• Aligning targets and objectives

Procurement training

Project management

• Requirement gathering and detailed project plan with key milestones

• Deployment of necessary resources to implement project within timeline

• Infrastructure setup followed by quality assurance testing and sign-off

Supplier Onboarding

Tool

• Embedded Supplier Onboarding Tool to facilitate the onboarding process

• Live information of the stage of each supplier to direct onboarding efforts

• Customisable content and design of marketing materials

• Automated KYC/ AML collection process

Increase supplier uptake

• Attractive all-in price assigned to suppliers based on their cost of funds

• Auto-sale feature to further increase early payments requests by suppliers

• Automatic production of all the reports to support the SCF transaction

DEMICA’s value proposition

Our dedicated supplier onboarding resources and proprietary tools

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Supplier onboarding tool with dedicated onboarding team allow us to drive utilisation far into the tail-end of suppliers

Our Supplier Onboarding Tool (SOT) automates processes and drives success:

Tracking and monitoring for funder and buyer

Marketing journey for suppliers

Our supplier onboarding services:

Before onboarding

During onboarding

• Supplier analysis & onboarding strategy.

• Procurement training

• SOT & marketing journey configuration.

• Contacting and training suppliers.

• Digital collection of KYC/ AML documents.

After onboarding

• Supplier relationship management.

• Support desk services via JIRA.

• Facilitate periodic renewal of KYC/AML.

Funder KYC requirements

Supplier’s access to the

platform

Complete KYC / AML and approval

Execute legal documentation

SupplierGo live

Initial approach to suppliers

Our objective is to leverage our financial analysis combined with state-of-the-art technology to drive adoption of Supply Chain Finance.

Buyers can incentivise suppliers to be more sustainable by offering relatively low financing rates to Suppliers that are more sustainable. DEMICA has partnered with the IFC to offer attractive funding rates to Suppliers that meet pre-defined sustainability criteria.

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SCF can help buyers enhance sustainability within its supply chain

DEMICA’s sustainability SCF key features

SCF platform with integrated supplier onboarding tool

Configurable onboarding journey, allowing to capture sustainability requirements

Configurable onboarding journey, allowing to capture sustainability requirements

Multi-funder platform that allows a global reach

Access to global network of over 90 bank and institutional investors

Partnership with IFC to offer attractive funding rates in challenging jurisdictions

DEMICA’s and IFC’s global reach

IFC’s sustainability metrics examples

Countries with DEMICA SCF presence(1)

Countries with IFC sustainable finance presence(1)

Benefit to the local economy

Adherence to pollution standards

Adherence to work environment policies

Comply with cultural heritage standards

(1) List is continuously expanded based on client demand

Ledger uploadFlexible manual fundingLimit utilisation dashboard

Buyers

Onboarding dashboard

Suppliers

Dashboard overview

Funders

Cashflow display

DEMICA’s SCF platform: state-of-the-art interface design and technology

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We use technology to reduce costs, improve risk management and drive penetration into the “long tail” of a company’s supply chain

W H Y?! >> Customer value proposition

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DEMICA sees corporate clients come from across geographies and across sectors. They are mainly looking for:

A. Improved cash flow

• Generate funding for growth

• Drive equity valuation

• Optimise commercial terms

• Enable cross-border solutions

• Improve KPIs

B. Diversified funding sources

• Optimise credit lines from relationship banks

• Access funding from new banking partners

• Access non-bank lenders

• Off balance sheet risk transfer

• Reduce cost of funds

Corporate clients benefit from a modern technology platform providing best possible transparency, scalability, automation, integration, and security. Our funding model helps clients source flexible and independent capital for projects across risks, sectors, borders and currencies.

Corporates generate significant benefits from working with DEMICA

W H Y?! >> Customer value proposition (cont’d)

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DEMICA currently offers its clients two primary product groups: (1) Payables Financing, and (2) Receivables Financing

Focus on Supply Chain Finance (Payables Financing incl. SCF)…DEMICA’s supply chain finance solution innovates a better working capital position for itsclients. It allows them to extend payment terms to their suppliers, releasing cash at both ends ofthe transaction. Powered by its market-leading technology platform and supported by anextensive network of financial institutions, the funding cost of the arrangement is much lowerthan its clients can achieve independently.

…but also, let’s consider Trade Receivables Finance (Receivables Financing):DEMICA’s trade receivables securitisation solution, as an example, provides debt-diverse clientswith committed, flexible financing of between $30m to $1bn+. Complex multi-jurisdictional,multi-currency receivables portfolios are sold in a single transaction. DEMICA’s advisoryservices and proprietary technology smooth and simplify all complexity. The result is a higheradvance rate and lower cost of funds. DEMICA also provides reporting and backup servicing overthe life of the transaction.

C. SCF implementation:Key success factors

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€2bn

Trade Receivables Financing

White label platform provider

German Bank

2014

£100mn

Trade Receivables Securitisation

Reporting Agent

UK Telco

2014

Supply Chain Financing

Advisor, placement agent & platform provider

Healthcare Provider

2018

US$200mn

€320mn


Reporting Agent

Metal Distributor

2016

-

Supplier onboarding tool

Advisor & platform provider

Global Bank

2018

€200mn


Advisor & platform provider

2017

€435mn


Reporting agent

2014

Selected credentials



European Bank

2019

US$1.0bn

€200mn


Advisor, structurer & reporting agent

German Automotive

2017

€360mn


Reporting Agent

Packaging Company

2015

€300mn

Multi-Funder SCF

Advisor, reporting agent & platform provider

2016

€350mn


Advisor, structurer and reporting agent

2017

US$1.0bn



2019

Trade Receivables Financing

Reporting and Cash Agent

2019

US$3bnTech Manufacturer

US$4bn



2009


Advisor and platform provider

Nordic Telco

2010

€240mn

US$2bn



2019

US$1.2bn



Middle Eastern Bank

2018

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• Company in the Nordics

• 16 Buying entities, 4 ERP systems (Europe & N. America)

• Two bank funders, multiple currencies

• Suppliers in multiple jurisdictions

Project/ Relationship

details

• Buyer onboarding, ERP integration and supplier analysis;

• Supplier onboarding in Europe & N. America

• Transaction structuring and integration into the payment gateways of each new funder selected by client

• Increased DPO by c.30 days

DEMICA’s role

€350mn SCF Programme

• Single European buyer undergoing rapid growth

• Three bank funders, multiple currencies

• Captures early payment discounts used to finance the extension of payment terms

• Automated the process of skonto discount capture and payments extension

• Rebalances automatically to strike the best balance between working capital improvement and cost

• Structured the transaction for the client -tripartite documents / integration into the payment gateways of each new funder

• Nordea relationship for over 15 years

• DNB relationship for over 5 years

• Regular contact with all Nordic Banks

• Supply Chain Finance assets across 3 programmes funded

• Receivables Finance assets across 3 programmes funded

• References available upon request

€200mn SCF Programme

Selected case studies (Nordics)

Corporates and funders across a variety of sectors selected our solution to support their working capital finance programmes

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Key success factors include a combination of both “soft” and “hard” factors! …and Finance + non-Finance related

SCF implementation: Key success factors

1. Clear and clearly communicated vision (what are we solving for with our SCFprogram?)

2. Clear and compelling business case (incl. financial and non-financial benefits. Whyare we doing this?)

3. Support of Senior Management (executive sponsorship; communication; focus;allocation of resources)

4. Effective communication (inform; align; celebrate; etc.)

5. Clear and robust Project Plan & Timeline (what should get done when by whom?Buy-in?)

6. Secure strong partnerships (both internal and external): right resource andcapability in the right place

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SCF implementation: Key success factors (cont’d)

7. Internal alignment (Finance/Treasury/Procurement/IT/Legal/etc.: all need to pull in theright direction)

8. Accounting treatment (structuring of program to secure off-balance sheet or on-balance sheet treatment)

9. Ability to analyse spend and working capital status (incl. robust and properbenchmarking; regulations) which will help structure SCF program for optimal success(e.g. payment terms, financing terms, etc.)

10. Support and training of Procurement and suppliers (to ensure effective and efficientsupplier onboarding)

11. Attractive pricing offering to suppliers (to make it compelling to participate)

12. Ease of onboarding suppliers (business case; technology; briefing; customer support;etc.)


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SCF implementation: Key success factors (cont’d)

13. Ability to access the most credit capacity (good understanding of the rightfunder for each program)

14. Ability to maintain existing banking relationship(s) (no problem to onboard alsoexisting banks)

15. Multiple funders (banks and non-banks) from across jurisdictions to ensure bestpossible support

16. Functionality and scalability of technology platform

17. Sustainability (especially in more “difficult” jurisdictions; “doing the right thing”;hot topic! But also about how Buyer treats smaller suppliers)


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Thank you for your attention!...

…and remember:

Any type of questions in follow-up,please do not hesitate to reach out!

[email protected]+44-203-958 5929

mailto:[email protected]

This is not a formal offer of services and is subject to contract, due diligence and all necessary internal approvals.

This document has been prepared by Demica Limited and Demica Finance Limited (collectively “Demica”) for information or discussion purposes only and shall not be construed as and does

not form part of an offer, nor an invitation to offer, nor a solicitation or recommendation to enter into any transaction, nor is it an official or unofficial confirmation of terms. To the extent that

this document constitutes a financial promotion for the purposes of the Financial Services and Markets Act 2000, it is issued by Demica Finance Limited which is authorised and regulated by

the UK Financial Conduct Authority (“FCA”) and is intended only for persons who are Professional Clients or Eligible Counterparties for the purposes of the FCA rules.

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Demica has presented you this document in its capacity as a potential counterparty acting at arm’s length. Demica is not, and no action of Demica shall be construed to be, acting as your

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after the date hereof to reflect the occurrence of unanticipated events. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive

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