Citi has joined forces with fintech Stenn to cover the 'last mile' of supply chain finance provision to the very smallest firms in corporate supply chains. 

European discount store operator Pepco is looking to use supply chain finance to support its expansion plans, says Alan Chitty, director of group treasury, tax and risk at the company at the Working Capital Forum Europe on 1st December.

The company is opening at least 550 new stores next year, adding to the existing 3000 shops across Europe, according to an announcement in October.  ​

New regulations requiring greater disclosure of supply chain finance programmes are “unquestionably a good thing,” says Thomas Dunn, chairman at Orbian and panellist at the Working Capital Forum Europe in Amsterdam.

Both the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have put together new and much-anticipated regulations in the past few months to help investors and rating agencies better understand why companies are using SCF programmes.

Dunn said the rules reflect a wider trend towards greater corporate disclosure, such as corporates potentially being asked to provide more detailed data on compensation packages or scope 3 carbon emissions.

“It will be more level playing field for disclosure and this level of transparency is beneficial for the market,” added Frederic Gits, group credit officer, corporates at rating agency Fitch Ratings.

Sean Edwards, CEO of the industry body International Trade and Forfaiting Association (ITFA) reflected that “more competent providers of SCF will be at a premium with the amount of reporting and data that will be required by corporates.”

The industry has perhaps taken a collective sigh of relief that the disclosure regulations are so far not calling for the reclassification of debt – which would potentially make SCF programmes less appealing to set up.

However, what the regulations will do, Edwards says, is “put the ball in the ratings agencies’ court” in that they will now have much clearer information to make their own decisions on whether a SCF programme should be considered debt or not.

“Now agencies will be able to look at a programme’s characteristics. Are there any unusual factors? Are DPOs over industry norms,” he explained.

While increased regulation of the SCF market has been in the pipeline for a long time, panellists agreed that their introduction will only help improve transparency in a market that had been threatened by scandal in recent years.

The collapse of supply chain finance firm Greensill Capital last March did have the potential to upset the market. However, panellists agreed that SCF market had swiftly recovered.

“It was a ripple and the waters closed over it extremely quickly,” said Dunn, praising the efforts of some banks and tech firms to “minimise the chaos” around the collapse.

However, panellist Duncan Mavin - the author of The Pyramid of Lies – Lex Greensill and the Billion-Dollar Scandal – warned that future scandal is always a possibility.

“There are still ‘Greensill Capitals’ everywhere - cropping up”.

Mavin’s book was published this year and charts the rise and fall of the company’s founder Lex Greensill.

His investigations into Greensill revealed that while the company was involved in some straightforward legitimate trade or supply chain finance, it had other business that fell out of the scope of SCF.

“The sources I developed said we want you to write about this so supply chain finance isn’t tarred with same brush as Lex,” he explained.

“Some really smart sources on Greensill said they didn’t invest – it was just too complicated – 200 pages of documents for couple of basis points,” he said.
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He called on delegates and the wider investment community to remain alert to new and potentially questionable business propositions.
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To read more about regulation and Duncan Mavin’s investigations into Greensill Capital – click here. 

​Focusing on simplicity is key when setting up an in-house supply chain finance (SCF) programme, said Kenneth Kernen, principal business controller for sourcing at Swedish telecoms firm Telia, speaking at the Working Capital Forum Europe in Amsterdam on 1st December.

Kernen chose to create a SCF system entirely built in-house by using its ERP system and without turning to a fintech or bank to take charge.

“[We needed] a highly automated solution where simplicity is preferred,” he said, speaking at the Working Capital Forum Europe in Amsterdam on 1st December.

While Kernan says he may consider adding other tools to the programme, he sees too much choice as unproductive.  

“Adding too many options, nothing gets done. We believe less is more,” he adds.

The programme has all its functionality built into Telia’s existing SAP solution which is fully integrated into Telia’s "normal way of working", explains Kernen.

This contrasts with working with a third-party provider that needs to be integrated and create new ways of working, he adds. 

The programme has grown substantially since its launch. In 2015 the SCF share of the company’s total accounts payables stood at 1 percent. By 2021 it reached 63 percent of total accounts payables.

Kernan wrapped up his presentation with advice to companies looking to replicate his achievements, saying you don’t need to look for inspiration from the ‘best’ supply chain finance programmes but “think about the best fit for you”. 

Supply chain finance can be used as a tool to help optimise bids for windfarm concessions, says Michiel Deurwaarder, senior strategic buyer at European energy company Vattenfall speaking at the Working Capital Forum Europe on 1st December.

Ahead of putting together a bid, the Sweden-based company qualifies its suppliers and offers them opportunity to participate in a SCF programme. It signs memorandums of understanding (MoUs) with top suppliers to consider SCF for any project.

Supplier participation in the programme allows Vattenfall to better manage its cash flow and boost its return on capital employed (ROCE) helping the company put together a competitively priced bid for the concession.

“It delivers a competitive edge for Vattenfall to acquire the strategically important projects to shift energy generation from fossil to renewables,” Deurwaarder’s presentation stated.

Depending how long the windfarm takes to build, what payment terms are achieved with suppliers and the expected payback of a project, the expected ROCE is increased by 0.2 to 0.4 percent. This improvement could be key in winning a concession.

Under the terms of the SCF programme, payment terms could be extended to 120 days.

However, those suppliers on the platform benefit by accessing much earlier payments while Vattenfall enjoys extended payment terms.

Vattenfall first launched its SCF programme in 2017.  Since then, it has financed €4,377 million-worth of transactions. It has 95 suppliers live and trading on the platform.

It partnered with tech company CRX Markets to provide the platform and works with banks including ING, Helaba, BNP Paribas, RBS and SEB.  

The company is looking at how to add a “real and verifiable” ESG component to the programme.

However, Deurwaarder sees some challenges on horizon. SCF could be undermined by changes in IFRS rules and how SCF is treated on balance sheets. Rising interest rates could threaten the appeal for suppliers to participate in programmes.

​Furthermore, governments could decide to ban longer payment terms which would lessen the benefit for Vattenfall. 

Growing geopolitical tensions, particularly with China, are likely to encourage companies to diversify where they build their new factories in the coming years, says Menno Middeldorp, head of RaboResearch at Rabobank.

Speaking at The Working Capital Forum Europe in Amsterdam on 1st December, he forecast that China may lose its “lion’s share” of the total volume of new factories and foreign direct investment that it has become use to in recent years.

The lingering aftermath of the covid pandemic coupled with the heightened tensions between the US and China may push many global corporates to consider building factories in new locations or even in their home country.

The trend towards “reshoring” or “nearshoring” is being widely and increasingly discussed and is being reflected in the economic data, Middeldorp remarked.

Manufacturers are beginning to ask themselves where “can I build confidently where it won’t be part of a conflict between my country and another country”.

“As long as you think it is a risk – it makes sense to diversify their manufacturing base,” he said.

India is one country that Middeldorp sees “benefitting from the geopolitical change in direction” – given the country’s friendly relations with the US and its lack of reliance on China among other factors.

Latin America is another region that could benefit from this trend towards diversification, says Middleldorp.

The potential impact of this trend on supply chains could see companies look to have higher inventories to be “robust” in different scenarios, he added.

Middeldorp also outlined his forecasts for inflation and interest rates, painting a relatively gloomy picture of high – although stable – food prices over the next year.

While gas prices in Europe have slightly come down, he forecasts a potential hike in prices once again next year as the region approaches winter 2023.

Europe is currently using up high reserves built with Russian gas, he explained, noting how by next year these reserves would have dwindled, which will inevitably push up prices.

He forecasts that world trade growth will slow in 2023 with recessions expected.
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Reflecting on the actions of central banks to try and control inflation, he asks “the real question is how fast will inflation come down” – noting that although inflation is edging down, it is still nowhere near the 2 percent target held by most countries in Western Europe. 

A global supply chain finance programme with ESG at its heart won the Gold Award for Coca-Cola Europacific Partners at last night's Working Capital Awards ceremony in Amsterdam, sponsored by American Express. The Rabobank-run project does not include any payment terms extension for CCEP. Instead the aim is to work towards the group's target to reduce greenhouse-gas emissions across its value chain by 30 per cent by 2030.

Anthony Breach, head of procurement at Coca-Cola EuroPacific Partners, accepted the trophy in front of an audience of treasury and procurement leaders at the Amstel Hotel. 
 
Judges were impressed with the company’s use of supply chain finance (SCF) to help encourage sustainable behaviour among its suppliers. The SCF programme works by incentivising suppliers to reduce their carbon emissions in return for more favourable financing rates.
 
The judging panel also recognised Coca-Cola’s efforts to make the programme as accessible as possible, with suppliers of all sizes invited to join. They also praised the soft drink producer’s decision not to link any extension in payment terms to the SCF programme.
 
The winning programme reflects a wider industry trend among multinational corporates to look at how they can reduce the carbon footprint across their entire value chain.  
 
Many of this year’s award entries had a sustainability angle to them, with corporates looking at how SCF and other working capital solutions can be part of a broader strategy to reduce carbon emissions and encourage other sustainable practices among their suppliers.
 
Other winners and those awarded Highly Commended this year include global discount store brand Pepco who uses SCF to maintain its market position as a low-cost retailer; the Swiss chocolate producer Barry Callebaut who turned to SCF to meet certain ESG goals, and Arçelik, a Turkish household appliance manufacturer who is using SCF to help its suppliers tackle high inflation. The full list of awards is below.

Best Integrated Working Capital project
Winner: Teva Pharmacueticals
Highly Commended: Arcelik 

Best use of Supply Chain Finance
Winner: Pepco Group
Highly Commended: Pick n Pay

Best ESG Working Capital Initiative
Winner: Coca-Cola Europacific Partners
Highly Commended: ​Barry Callebaut, Pick n Pay

​Best use of Receivables Finance
Winner: HCL
Highly Commended: ​Krispy Kreme

Best use of Payables Finance
Winner: ​Arçelik
​Highly Commended: Coca-Cola Europacific Partners, Henkel

Best Cash Forecasting Initiative
Winner: Kellogg's

Best Working Capital Funding Solution
Winner: Pick n Pay
​Highly Commended: Arçelik,  Kellogg's

Best use of Technology for a Working Capital Project
Winner: Kellogg's
Highly Commended: Arçelik, Coca-Cola Europacific Partners

Working Capital Champion: Thomas Dunn, Orbian

Working Capital Startup of the year: WeFi

Working Capital Innovation Award: Calculum
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