Supply and Distribution Chain Solutions

Alternatives to Unlock Liquidity and Support your Financing and Working Capital Needs in Todays Environment

Relevance in Todays Market

Causes & Effects of Credit Crisis
The lack of confidence in the financial market undermined short-term lending. Corporate bond spreads in Europe have more then quadrupled over the last year. Credit Default Swaps at all time highs Significant re-pricing of credit across all customers from SME/MME sector through to major multi-nationals. Pricing in Central and Eastern Europe is also rising as the effects of the credit meltdown start to filter into the economies of the less stable emerging markets. Capital Markets have shut down with negligible to no securitization and commercial papers activities Credit Insurers have significantly cut limits and increased pricing as claims mount and re-insurers retrench
2

Market Reaction
Corporates Renewed Focus on Working Capital Corporates looking for ways improve Cash Conversion Cycle

Addressing the Need

Freeing up Working Capital Supplier Finance allows both suppliers and buyers to efficiently manage their working capital cycle and reduce costs

Sourcing Strategy - Low cost country sourcing- China, India, Central & Eastern Europe still relevant, but financing more critical

Extracting Liquidity From SalesIncreasing focus on receivables based solutions as a means to generate financing

Trading Partners Corporates looking for innovate solutions to inject liquidity and working capital into the supply and distribution chain

Improves Relationships Solutions allow corporates to leverage their comparatively stronger credit rating to make liquidity available in a credit constrained environment

Governments Various country-level and multi-lateral initiatives to support Banks, SMEs and specific Industries in an effort to reactivate domestic and cross-border trade.

Full Transparency - Through our webbased electronic platforms, all parties can view the status of their transactions and predict cash flow on a real-time basis

Citi Solutions across the Working Capital Chain

Transaction Processing and Settlement
1 2 3

Financing

Information

Risk Mitigation and Credit Enhancement

Supplier

Procurement

Delivery

Production

Sales

Transport

Distribution

Vending

End-User

Settlement Documentary Collections Import LCs Standby LCs Financing Open Account Supplier Finance Commodity Finance Information Electronic Delivery

Financing Inventory Finance Commodity Finance

Settlement Documentary Collections Export LCs Financing Receivables Finance Import Finance Export Finance/ Discounting Bills Commodity Finance Information Electronic Delivery

Settlement Documentary Collections Financing Receivables Finance Distributor Finance

Financing Distributor Finance Risk Mitigation Confirmations

PROCUREMENT
3

SALES

Procurement Cycle: Supplier Finance

Working Capital Solution for Supply Chain

Citi Supplier Finance (also known as Reverse Factoring or Confirming)

Working Capital as a Zero-Sum Game
In a commercial terms negotiation, Buyers and Suppliers have conflicting objectives

Working Capital as a win-win

De-linking the payment date from the collection date through a Supplier receivables purchase to create a win-win for both parties

Extend DPO

Reduce DSO

Reduce DSO

Extend DPO

Payment Date

Product Delivery Date

Collection Date

Product Delivery Date

Collection Date

Payment Date

Buyer

Supplier

Supplier

Buyer

Extension of terms hurts Suppliers Reduces liquidity and margins without any incremental benefits Acceleration of receivables is costly and limited by Suppliers credit Initiatives to renegotiate commercial terms often damage relationships Friction in the relationship ultimately increases costs to both parties
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Enables Buyers to improve their commercial terms with Suppliers Enables Suppliers to accelerate collection of their receivables Immediate non-recourse liquidity, eliminating credit and collection risk Low-cost balance-sheet-friendly form of financing

Win-Win Partnership
Support of Suppliers leads to Savings for Buyers Commercial Department and results in positive impact on Buyers Working Capital Targeted Spend: $ 1 bn Payment Terms: 60 - 180days Suppliers existing cost of Working Capital Finance: x % Citi offer of Supplier Finance Solution: Currency LIBOR + spread = y %

Working Capital Loan at x%

Delivery, Invoice

Supplier Finance at y%

60 - 120 days after delivery (Maturity Date)

Reduction In Cost Of Funding

Payment Terms

60 Days

90 Days

120 Days

x %- y%, where x>y

Every 50 bps p.a Every 100 bps p.a Every 200 bps p.a

$ 0.8 MM $ 1.7 MM $ 3.3 MM

$ 1.3 MM $ 2.5 MM $ 5.0 MM

$ 1.7 MM $ 3.3 MM $ 6.7 MM

Savings generated in the Supply Chain can be used by the Buyer to achieve: Cash Discounts Extended Payment Terms Rebates

Supplier Finance: Value Proposition

Why should Buyers be interested What is the benefit for Suppliers

Helps make revision of sales terms more acceptable

Improve commercial terms without increasing cost to the supply chain

Attractive liquidity tool through early payment option

Conversion of accounts receivable to cash through attractively priced, non-recourse sale Frees up credit lines to capture additional business with lenders
Positive working capital benefits

More control over your accounts payable

Improved cash flow by reducing working capital and related funding costs

Increased cash flow, reduced Receivables

Full payment transparency

Improve relationships with Suppliers

Introduce visibility into the payment process Support key suppliers through provision of sales-linked finance

Details on approved payments and their timing Possible flexibility to request discounting at any time during the life of the transaction

Where are we seeing more demand

Who are the Key Stakeholders

Industry Sectors
Retail, Autos, Industrials, Consumer & Healthcare, Telecom

Treasurer CFO

Countries (in EMEA)

Turkey, Russia, Poland, Kenya, Nigeria, Egypt, Germany, Italty, Spain

Purchasing / Procurement Manager Payables Manager IT

Product Structure & Client Experience

Major European Clothing Retailer
Client Need Supplier Finance Solution
1

Supplier Supplier Supplier Supplier Supplier Supplier Request For Discounting

Goods/Invoice
4 5

A solution covering multiple countries across Eastern Europe and Northern Africa

Buyer Buyer
Accepted Invoices
2

Providing suppliers with a competitive source of financing whilst extracting costs from the supply chain Client needed an internet-based solution for ease of access for suppliers to request discounting

Citi Solution
A Supplier Finance Solution covering Hungary, Romania and Tunisia
Steps
1. 2. 3. 4. 5. Supplier ships goods and invoices buyer. Buyer accepts and approves invoices and electronically instructs Citi to pay supplier on future due date Supplier is notified via Internet (email and website) of payment and can choose to discount invoice without recourse Citi makes payment to supplier (Auto Financing/ Optional Financing) Citi debits buyers disbursement account for full amount of payment on invoice due date.

Integrated STP solution linking with clients ERP (SAP) system, providing visibility and flexible financing options for their suppliers

Benefits
Over 200 suppliers actively discounting through the program. Our client has increased their payables by 15% and achieved working capital savings in excess of 10MM.

Client Testimonial

Many of our vendors are now approaching us proactively to join the SF program and take advantage of the competitive financing
9 8

Supply Chain Innovation: Citi Procure to Pay

Citi Procure to Pay is a global, integrated and modular solution for;
Invoice Automation Electronic Payment Solutions Working Capital Solutions Spend Analytics

Electronic Electronic Purchase Order Purchase Order and Invoice and Invoice Processing Processing P.O. and Invoice P.O. and Invoice Status Reports Status Reports Approval Routing Approval Routing and Workflow and Workflow Paper to Electronic Paper to Electronic Invoice Conversion Invoice Conversion Contract Contract Compliance Compliance

Settlement via Settlement via Purchasing Card or Purchasing Card or ACH ACH Integration with Integration with MasterCard Paylink MasterCard Paylink Gateway , ,which Gateway which provides: provides: Buyer Initiated PBuyer Initiated PCard Processing Card Processing Rich Remittance Rich Remittance Data Data Registry for Registry for managing P-Card managing P-Card and supplier bank and supplier bank account data account data

Supplier Finance Supplier Finance Discount Discount Management Management - - Dynamic Discount Dynamic Discount Management Management - - Standard Terms Standard Terms - - Purchasing Card Purchasing Card Supplier analysis Supplier analysis and payment and payment decisioning decisioning

Discount Discount Optimization Optimization Analysis Analysis Supplier Spend Supplier Spend Analysis Analysis P-Card P-Card Optimization Optimization Analysis Analysis Maverick Spend Maverick Spend Analysis Analysis Supplier Supplier Consolidation Consolidation Analysis Analysis Consolidated view Consolidated view of corporate spend of corporate spend

Comprehensive supplier enablement and supplier value added services across all modules
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Sales Cycle: Receivables Finance

Unlock the liquidity potential of your receivables

Squeeze out liquidity from your receivables

Credit crunch need not to Crunch your company

In the current market environment, where securitisation markets have tightened and unsecured bank lines are mostly unavailable, unlocking liquidity has become a significant demand from our clients. Citis global footprint and its presence in more than 100 countries allows the delivery of customised Accounts Receivable Finance solutions to our clients across the Globe.

Cash Conversion Cycle = DIO+DSO-DPO Where: DIO = days inventory outstanding ; DSO = days sales outstanding ; DPO = days payable outstanding
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Accounts Receivable Finance: Value Proposition

Seller Benefits
Sales Growth Enhance product distribution and grow revenue stream Build greater client partnerships with sales channels Inject liquidity into distribution channels Scaleable, quickly deployable program across various countries; Balance Sheet Management Improve working capital and reduce DSO Manage and improve Cash Flow precisely and efficiently Risk Mitigation and bank limit utilisation Limits overall commercial credit risk Leverage existing bank lines (buyer risk, insurance) Outsourcing of receivables management Operational efficiency in the management of Accounts Receivable Reduces overall administration and operating costs; On-line management and transparency including dilutions, payment activities and history Reduced Administration Paperless office via electronic communication channel On-line management and transparency including dilutions, payment activities and history Operational efficiency in the management of Accounts Payable Reduces their overall administration and operating costs; Facilitates downstream sales Supports sales to the end user (retailers or consumers) Improved information flow Low cost of capital Reduced cost of working capital funding

Buyer Benefits
Enhancement of Liquidity and Working Capital Increases DPO

Reduced Administration Paperless office via electronic communication channel

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Value Proposition

Accounts Receivable Finance Solutions

Concentrated Large Ticket AR Solutions

Single name Receivables Purchase Negotiable Instruments Purchase

Distribution Finance

Insured Portfolio Receivables Purchase

Portfolio Solutions

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Structured Promissory Note Discounting

Seller: Need: Commercial risk mitigation and derecognize A/Rs from the balance sheet Buyer: Need: Efficient WC management with DPO extension Gain additional liquidity from other than securitization or unsecured bank lines Allow the Buyer to utilise the provided commercial credit limit with the Supplier for further transactions Transaction Amount: $48MM, up to one year tenor Citi solution to address the customer need: A/R purchase A/R documentation: negotiable inst., P/N Deal timefame: 4 Weeks
3. Di scoun ting 2. Accepted PN presented for discounting 5. Payment at maturity 4. Promisso ry No te

Seller

1. Issuance of Promi ssory No te

Buyer

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Unlock Liquidity for Large Ticket Receivables

Client need Accounts Receivable Purchase Solution
Ongoing Relationships Supplier Supplier Supplier Supplier

Major telecom manufacturer selling to global and country telecom operators. Unlock liquidity and risk mitigation for each telecom operator

1 Services and Invoices

Notification

Buyer Buyer

Off Balance Sheet Financing

3 2
Accounts Receivable

Citi Solution: 4 6
$150 million Non Recourse Account Receivable Purchase Tenors up to 360 days

Irrevocable Payment Undertaking from Buyer Available on a non-committed basis to three selling entities in Asia and Africa, with scope for accession of additional entities

Steps
1. 2. 3. 4. 5. 6. Supplier ships goods and invoices buyer. Supplier offers receivables to Citi, Citi confirms purchase of receivables Supplier notifies buyer of assignment of receivables Buyer acknowledges assignment of receivables Citi advances discounted funds to Supplier Buyer pays Citi face value of invoices on maturity date

Benefits:
Consistent global solution to client covering all regions Cost efficient financing based Cash acceleration to enhance working capital position

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Grow Sales via Distribution Finance

Client need Distribution Finance Solution 1 Invoice Accepted Manufacturer Manufacturer 2 4

Accounts Receivabl e Distributor Distributor Distributor Distributor Distributor Distributor

Major multinational tech company needed to inject liquidity into distributor base Aim: to support distributors to increase level of purchases Programmatic approach required covering wide distributor network.

3
Assignment acknowledged

Citi Solution 5

$500 million Distribution Finance Solution First loss deficiency guarantee support from seller

Benefits
Steps
1. 2. 3. 4. 5. Manufacturer ships goods and invoices distributor. Distributor accepts invoices Invoices assigned to Citi by Manufacturer Assignment of invoices acknowledged by distributor Citi discounts invoices and advances funds to Manufacturer Distributor pays Citi at maturity ; optional extension of payment terms

Additional liquidity in the sales channel to allow stock accumulation increased sales Seller support enables buyers to enjoy an arbitrage margin, in addition to increased product margin (if earlier payment discount offered)

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Leveraging Insurance to Unlock Liquidity

Client Need Credit Insured Accounts Receivable Solution
Co-Insured on Insurance policy

Major manufacturer selling to distributors through multiple local European subsidiaries. Discount portfolio of domestic and export receivables with variable payment tenors. Client had an existing credit insurance policy.

Payment terms

4 2
Buyer Buyer
Accounts Receivable

5
Insurance Insurance Company Company
Credit Insurance policy

6 3

Citi Solution

$100 million Credit Insured Accounts Receivable Purchase Solution. Based on insured buyer risk (No credit lines required on buyer or seller). Available on a non-committed basis for two selling entities in Eastern Europe Structure has scope for accession of additional selling entities

1
Shipment and Invoice

Supplier Supplier

Steps
1. 2. 3. 4. 5. 6. Supplier ships goods and Invoices Buyer Accounts Receivable assigned to Citi by Supplier Citi pays discounted funds to Supplier Buyer Pays Citi on due date per original payment terms In the event payment not received, a claim is lodged with the Insurer and Insurer pays Citi for Insured amount In the event payment not received, Supplier pays Citi for the uninsured amount and any payment dilutions

Benefits

Cost efficient financing based on the insured risk of portfolio of buyers Cash acceleration to enhance working capital position Scope for Off Balance Sheet treatment under IFRS and US GAAP

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Weathering the financial storm

Supply Chain stability becoming imperative Balancing working capital optimization and the health of your main trading partners is critical Innovative Supply Chain Finance Solutions can help address these needs by improving operating efficiency and generating liquidity Experienced and reliable financing partners with a global presence are well positioned to deliver these solutions consistently across geographies

Thank You!!
Roque Damacela Bhavna Saraf Imre Gorzsas Preeya Shah EMEA Trade Finance Head Supplier Finance Receivables Finance Receivables Finance [email protected] [email protected] [email protected] [email protected] +44 (20) 7508-1205 +44 (20) 7500-6371 +44 (20) 7500-7237 +44 (20) 7500-9341

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Appendix

EMEA Supply Chain Finance Platform - CitiConnect

Capabilities:
Web-based user interface Multi-currency payment capability Visibility of accepted invoices to all transaction parties Flexibility for Sellers to opt for Financing or Collection services Facilitates online invoice upload, approval and reconciliation process for both Sellers and Buyers Ability to handle multiple formats (File Formats ISO XML, SAP-IDOC) directly from ERP (H2H) Report Designer & Scheduler CitiConnect is available in English, Spanish, Italian, Polish, Turkish. German and French being rolled out.
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Trade Finance Offering

Key
Countries where Citigroup is active Supplier Finance Capabilities Supplier Finance under Implementation

North America Canada Mexico USA Latin America Argentina Aruba Bahamas Barbados Bermuda Bolivia Brazil Cayman Islands Chile Colombia Costa Rica Dominican Republic El Salvador Ecuador Guatemala Haiti Honduras Jamaica Panama Paraguay Peru Puerto Rico Trinidad & Tobago Uruguay Venezuela
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Europe Austria Monaco Belgium The Netherlands Bulgaria Norway Channel Islands Poland Czech Republic Portugal Denmark Russia Finland Romania France Slovak Republic Germany Spain Greece Sweden Hungary Switzerland Italy Turkey Ireland Ukraine Luxembourg United Kingdom

Africa Algeria Cameroon Congo Egypt Ivory Coast Gabon Kenya Morocco Nigeria Senegal South Africa Tanzania Tunisia Uganda Zambia

Middle East Bahrain Israel Jordan Lebanon Oman Saudi Arabia United Arab Emirates

Asia Pacific Australia Bangladesh Brunei China Guam Hong Kong India Indonesia Japan Kazakhstan Korea Macau Malaysia Nepal New Zealand Pakistan Philippines Singapore Sri Lanka Taiwan Thailand Vietnam

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efficiency, renewable energy & mitigation

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