Financial Supply Chain Survey

Results 2011

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Contents
Contents About
gtnews Introduction

2 4
4

About
SEB - Our sponsor

5
5

Executive Summary 2011 Survey Findings Respondent Profile

Geographical spread Company size Job Level

6 8 9
9 9 10

Question 1
Which industry sector does your organisation operate in?

11
11

Question 2
What is your role? (Please select one)

13
13

Question 3

15
Which are the most important risks that your organisation faces in managing its financial supply chain? 15

Question 4

18
Which of the following risk management activities has the most scope for improved support from your organisation's banking partners? (Please select one) 18

Question 5

21
Which of the following methods is your organisation using to mitigate risks? (Please tick all that apply) 21

Question 6

24
Which techniques does your organisation use to manage open accountassociated risks? (Please tick all that apply) 24

Question 7
Where in your organisation's financial supply chain do you see the best opportunities to enhance performance? (Please tick all that apply)

27
27

Question 8

30
In the past year, have you had a supply chain breakage event that has led to any of the following scenarios? Answers remain anonymous. (Please tick all that apply) 30

Question 9

33
What is the optimum amount of cash, as a percentage of total assets, which your organisation would want to hold on its balance sheet? 33

Question 10
What is the primary focus of your organisation's working capital management strategy? (Please select one)

36
36

Question 11
What is the main challenge to your organisation's working capital management strategy? (Please select one)

39
39

Question 12
What is the main challenge in the overall management of your organisation's liquidity? (Please select one)

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42

Question 13

45
How concerned is your organisation that new and tougher regulations in the banking sector could have a knock-on effect on the financing of your organisation's supply chain? (Please select one) 45

Question 14

48
Has the situation with scarcity of capital increased the focus on your organisation's own balance sheet and supply chain? (Please select one) 48

Question 15
How is your organisation planning to use the possibilities in its balance sheet in the future? (Please tick all that apply)

51
51

Question 16
How important is it to your organisation that your supply chain:

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54

Question 17
Where does your organisation see the main value of sustainability in its supply chain? (Please tick one)

57
57

Question 18
Which organisational level currently co-ordinates your supply chain management and how is it likely to be handled in the future?

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60

Appendix

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About
gtnews Introduction
The gtnews editors encourage industry experts to share their knowledge on key issues facing treasury and financial professionals, including best practice in cash and liquidity management, regulatory changes, trends in the financial supply chain, treasury technology and the pursuit of internal efficiencies. Our authors come from the treasury departments of leading corporations, from banks, from technology companies, from governments and from specialist consultancies. All our content is checked and edited by our London-based team of experienced financial writers, who commission, write and publish new material every week.

Together, gtnews and the AFP offer an unrivalled mix of information, education, training and member services to more than three quarters of the worlds largest 1000 corporations.
gtnews, an Association for Financial Professionals company headquartered in London, is the leading global knowledge resource for over 50,000 treasury, finance, payments and cash management professionals. Online, gtnews is updated weekly and provides subscribers access to an archive of almost 8,000 global treasury articles in addition to special reports, commentaries, surveys, polls, news, ratings updates and whitepapers. Access to gtnews.com is free of charge to those who register, and we never sell names or e-mail addresses, so our readers privacy is assured.

About
SEB - Our sponsor

With trade finance, you can achieve safer, more efficient and more profitable international trading and cash management. And, if your trade finance is integrated into the services that you offer to customers and suppliers, you will also be able to boost customer and supplier satisfaction, as well as achieving considerable process and liquidity savings. Effective trade finance can prove a key factor in releasing capital tied up in the trade process, providing your company with extra trading capacity. SEB provide effective overseas payment services and examination of all relevant commercial documentation, as well as qualified advice and lasting customer care in the form of continuous improvements, cost-cutting tools and methods, and process development. A partnership with SEB enables you to develop your overseas trading in four different areas - risk management, Process development, working capital and customer/supplier care. This is the trade route to free up your working capital.

Executive Summary
The results in this report are all based on corporate respondents only. > A total of 126 corporate respondents participated
in the gtnews 2011 Financial Supply Chain Survey between 18 November and 16 December 2011.

> Asia-Pacific (37%) and North American (27%)

respondents are the most likely to view banking partners as helping them to manage liquidity risk. Small and mid-sized companies (up to US$999.9m) expect their bank partners support in managing liquidity risk.

> Western Europe-based readers accounted for

37% of the total survey respondents. North American readers represented 26% of the responses. Respondents from Asia-Pacific made up 21% of the responses, while central and eastern European (CEE), Latin American and Middle Eastern/African respondents made up the remaining 16%.

> Guarantees have made an entry as risk mitigators,

taking the lead away from softer mitigants such as credit rating agency scoring.

> Letters of credit (L/Cs) are still alive and kicking

and steadily hold the number one position as a means to mitigate risk. They are the most used trade instruments in the Asia-Pacific region - 54% report using L/Cs.

> Thirty-two percent of respondents came from

companies with annual revenues between US$50m and US$249.9m; 25% came from corporates with revenue of US$1bn and US$9.9bn; companies with annual revenues greater than US$10bn made up 18% of the respondents. Only 10% of respondents were from companies with revenue under US$50m.

> Supply chain finance (SCF) techniques are

becoming prevalent in the portfolios of options among survey respondents - with 43% of buyers and 34% of sellers using this method to manage open accountassociated risks. Buying companies with revenues above US$1bn are more mature in the use of SCF instruments to reduce risk of open account transactions.

> The highest proportion of respondents came from

the manufacturing industry, which made up 29% of respondents, followed by transport (11%) and service and media (10%). Increased presence of respondents this year from transport (11% compared with 3% in 2010) and trade (5% up from 3% in 2010) industry sectors underpin the extreme relevance for these sectors to properly manage their financial supply chain (FSC) programmes.

> Opportunities in the FSC to enhance performance

of a company are once again identified within clientfocused processes - 59% of survey respondents chose negotiation of commercial and payment terms, while 37% selected customer collection handling. Improving internal operations took second place (38%) this year, whereas it had not been contemplated in 2010.

> Treasury and finance are still the most directly

involved roles in managing the company's FSC, with 32% and 20% of respondents respectively.

> Similar to 2010, the majority of respondents (58%)

have experienced a breakage in their supply chain. Beyond the impact of delay to projects/ strategy implementation (22%), the significant negative consequences of disruptive events in the supply chain are measured in terms of loss of customers (21%), higher cost of capital (16%) and compliance failure (13%).

> Counterparty risk - customer (46%), liquidity risk

(43%) and foreign exchange (FX) risk (41%) are at the top of the list in terms of the most important risks an organisation faces in managing its FSC.

> The risk management areas with the most scope

for improved support from a corporates banking partners is counterparty risk on both the buyer and supplier side; these were chosen by a quarter of the respondents. Interestingly, corporates are not turning to their banks to help mitigate liquidity or settlement risk.

> Asia-Pacific companies are far from being in

control of their supply chain, as only 19% declare not to have suffered from supply chain breakage events. Very large (>US$10bn) companies are a segment that apparently suffers from supply chain breakage events (61%).

> A maximum of 25% on total assets appears to be

the right ratio expressed by respondents. From 2010 there is a clear tendency to increase the cash levels above the 10% threshold, with peaks above 25% (in 14% of cases).

> Asia-Pacific respondents are the most optimistic in

expecting benefits from SCF programmes. The approach to improve internal operations of the supply chain as a prerequisite for effective SCF initiatives is adopted also in this region.

> Small to medium-sized corporates (under

US$250m) are more concerned with lack of credit from financial institutions and are therefore pushed to keep higher levels of cash on hand (10%-25% of total assets).

> Large and very large (>US$1b) organisations are

absolutely focused on socially sustainable (i.e. respect fair relationships and ethical business practices) supply chains that can be economically sustainable for all constituents. The role played by these companies in the global economy is considerable and it is very important to appreciate their sensitivity to social and economic sustainability.

> Liquidity is once again the key objective of any

company strategy - 37% of respondents chose this option as the primary focus of their working capital management strategy.

> The survey results show a steady shift away from

the steering wheel of supply chain management being in the hands of the chief financial officer (CFO) and treasury into the more capable hands of a dedicated supply chain manager. While in 2010 the concept of a dedicated resource was a sort of nice to have, in 2011 it has become an essential part of the corporate strategy.

> Forecasting and reporting (chosen by 42% of

respondents) are the main areas of concern in all disciplines controlled by corporate treasurers. This almost exactly mirrors the results from the 2010 FSC Survey. In Asia-Pacific, CEE and Middle East/Africa the importance of forecasting and reporting has a clear edge on any other challenge to the organisation's working capital management strategy.

> Forecasting and planning as challenges in the

overall management an organisation's liquidity hold a strong primary position among mid-sized to large companies (US$50m- US$9.9bn). Small (<US$50m) organisations balance the challenges from forecasting and planning with other categories, such as proper measurement systems and visibility and central ownership of cash positions.

> Just over half (55%) of respondents say that they

are somewhat concerned that new and tougher regulations in the banking sector could have a knockon effect on the financing of their organisation's supply chain. This is down from 66% in 2010.

> The overall focus on balance sheet and supply

chain has not undergone significant change from 2010 to 2011 - the focus on internal capabilities to free up sources of capital remains at the top. North American respondents are the only ones whose focus is more likely to be unchanged, with 52% choosing this option.

> The adoption of SCF programme instruments

outpaces practices to improve and streamline internal operational processes, for example leaner management of the supply chain. Forty-five percent of respondents said that they would review possible launch of a supply chain finance programme in order to use the possibilities in its balance sheet in the future.

2011 Survey Findings v d s

Respondent Profile
A total of 126 corporate respondents participated in the gtnews 2011 Financial Supply Chain Survey between 18 November and 16 December 2011.

Geographical spread
Western Europe-based readers accounted for 37% of the total survey respondents and North American readers represented 26% of the responses. Respondents from Asia-Pacific made up 21% of the responses, while central and eastern European (CEE), Latin American and Middle Eastern/African respondents made up the remaining 16%.

Company size
Corporations of all sizes (as determined by annual revenue in US dollars) participated in the survey, with 32% of respondents coming from companies with annual revenues between US$50m and US$249.9m. The next most represented segment is companies between US$1bn and US$9.9bn making up a quarter of respondents. The largest companies, with annual revenues greater than US$10bn, made up 18% of the respondents. Only 10% of respondents were from companies with revenue under US$50m.

Job Level
Respondents were predominately from the management and non-financial executive segment of the workforce - 26% and 27% respectively. Senior management and staff were relatively evenly spread across with 22% each.

10

Question 1
Which industry sector does your organisation operate in?
> > > > > > > > > >
Manufacturing Service and media Retail Transport Insurance Energy and mining Public sector Utilities, telcos, real estate Trade Other (please specify)

The highest proportion of respondents came from the manufacturing industry, which made up 29% of respondents, followed by transport (11%) and service and media (10%). The increased presence of respondents this year from transport (11% compared with 3% in 2010) and trade (5% up from 3% in 2010) industry sectors underpin the extreme relevance for these sectors to properly manage their financial supply chain (FSC) programmes. Their participation underlines the importance for them to know more about market trends and learn best practices from their peers, as well as from other industry sectors.

11

*CEE and Latin America omitted due to low response rate.

12

Question 2
What is your role? (Please select one)
> > > > > >
Treasurer Financial manager Accounts payables/receivables Controller Procurement Other

Treasury and finance are still the most directly involved roles in managing a company's FSC, with 32% and 20% of respondents respectively. Controllers and accounts payable/receivables are similarly represented at 7% and 6% respectively, while procurement makes up only 3% of respondents.

13

*CEE and Latin America omitted due to low response rate.

As expected, treasurers and financial managers are the most engaged in FSC in large and very large (>US$1b) organisations. In addition it is the financial manager position that tends to be the most interested in FSC when they belong to companies with smaller (<US$250m) revenue. The significantly high percentage of others in all revenue segments illustrates a situation where the industry at large has not yet appointed a precise department role to manage FSC-related matters.

14

Question 3
Which are the most important risks that your organisation faces in managing its financial supply chain?
> > > > > > > >
Counterparty risk - customer Counterparty risk - supplier Foreign exchange (FX) risk Operational risk: i.e. employee errors; system failures; fire, floods or other losses to physical assets; fraud or other criminal activity Political risk Sovereign risk Liquidity risk Other

Unsurprisingly counterparty risk - customer (46%), liquidity risk (43%) and foreign exchange (FX) risk (41%) are at the top of the list in terms of the most important risks an organisation faces in managing its FSC. The uncertainty reigning in the current economic environment makes companies very careful about any relationship with other parties. Customers are much riskier counterparties than suppliers (39%) because there is less contractual power against customers. Liquidity risk was added as a new option in 2011 and leapt to the top three risks given the recent - and still current - difficulties in getting cash from financial institutions (FIs). Sovereign risk is another new entry that just less than one in five treasurers chose as an important risk. FX risk confirms that international trade business is still relevant despite the financial and economic crisis.

15

Apart from North America and - to some extent - western Europe, liquidity risk does not top the list in other regions. North America and western Europe respondents make up 63% of the total population of respondents (see Figure 1), so the risk items they select outweigh others in the global rankings. When split by region, however, we see that other risk items keep treasurers awake at night. Indeed, the other option is the most popular among western Europe and Asia-Pacific respondents. The verbatim answers for this question include: commodity prices: fuel, plastic; unseasonably bad weather: excessive rain or cool days"; "counterparty risk - banks"; "fluctuating markets on a daily basis"; "regulatory compliance"; and "technology disruption; scale and size; advantages of competition". These are all external factors that involve risk levels that are difficult to control or influence, as opposed to, for example, operational risk issues expressed by ME&A respondents. This choice is indicative of their relative fledgling presence as market players and attempts to reduce any forms of waste and inefficiencies they might generate internally through badly controlled operations. External pressures are important, but not as much as the internal.

*CEE and Latin America omitted due to low response rate.

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17

Question 4
Which of the following risk management activities has the most scope for improved support from your organisation's banking partners? (Please select one)
> > > > > > > > >
Counterparty risk - customer Counterparty risk - supplier Foreign exchange (FX) risk Operational risk Political risk Sovereign risk Liquidity risk Settlement risk Other

Banks need to be more capable of assisting their corporate customers in handling risky commercial relationships, as counterparty risk - buyer and supplier were chosen by a quarter of the respondents as the risk management activities with the most scope for improved support from corporates banking partners. Corporate clients need instruments and services that provide visibility and anticipate problems. FX risk - chosen by 16% of respondents - should also be in the capable hands of banks wishing to assist their corporate clients. Once again, the availability of instruments that anticipate the impact of currency fluctuations on cash inflows and outflows should be considered as powerful means to increase customer retention and loyalty. Interestingly, corporates are not turning to their banks to help mitigate liquidity or settlement risk.

18

Asia-Pacific (37%) and North American (27%) respondents are the most likely to view banking partners as helping them to manage liquidity risk. Research experience shows that usually the majority of survey respondents from these regions are from companies relatively small in size (below US$250m). This coincides with the results already seen in Question 3, where this size of company fears the most from liquidity risk. Western European respondents are, instead, more favourable to partner with banks able to avoid FX and settlement risk. Western European survey participants usually work in companies large (>US$1bn) in revenue size and experience fragmented (i.e. geographically and in terms of organisational structure) sales channels. Assistance from local banks can turn into a long-lasting partnership.

*CEE, Middle East/Africa and Latin America omitted due to low response rate.

Small and mid-sized companies (up to US$999.9m) expect their bank partners support in managing liquidity risk. After all, banks are the main source of risk given their reluctance to lend money to these apparently riskier companies. Revenue size is most often associated with the ability to fulfil finance repayment obligations. As such, the reasoning is that the smaller the company is, the higher the risk the bank faces of not getting repaid.

19

Larger corporations (>US$1bn) are better able to handle any risks connected to scarcity of liquidity by themselves (as a matter of fact they face the opposite problem - i.e. where to allocate excess liquidity). Their disperse organisation makes it difficult to run common credit policies with all their customers, often times particularly due to local habits and regulations. Banks can provide a valuable service support if they are able to leverage their network of regional branches and of correspondent partners. This local presence goes hand in hand with the additional support expected by large organisations in having banking partners able to offset forms of FX risk potentially arising from any commercial relationship with foreign trade partners.

20

Question 5
Which of the following methods is your organisation using to mitigate risks? (Please tick all that apply)
> > > > > > >
Letters of credit (L/Cs) Guarantees Trade insurance Credit insurance Credit agency scoring None - working on an open account basis Other (free text box)

The striking effect of the international financial crisis brings companies to rely on financial instruments that alleviate risk. Guarantees have made an abrupt entry as risk mitigators, taking the lead away from softer mitigants like credit agency scoring. Indeed, the supplier side - i.e. when days sales outstanding (DSO) prevails over days payables outstanding (DPO) - still counts on the services of credit agencies as the primary method of risk mitigation, with guarantees following closely behind. It is of relevance to notice that operations following open account terms make up almost a third (30%); this option was not specifically available to the 2010 survey participants. As expected, although repeatedly given up for dead, L/Cs are still alive and kicking and steadily hold the number one position as a means to mitigate risk.

21

Asia-Pacific respondents are clearly on the supplier side of the fence given the traditional role of Asian companies as suppliers of North American and Western Europe trading partners. Indeed the theory that L/Cs are the most used trade instruments in the region is confirmed in this survey by a 54% rate of adoption. North American and western Europeans are more robust users of open account and credit agency scoring. The maturity of the trade business in such regions allows suppliers to rely on more flexible and efficient methods to mitigate risk. Data points from Asia-Pacific firms are too small to provide significant relevance for analysis. Buyers in both North America and western Europe are strong users of L/Cs to reduce their risk exposure. Western Europeans are also more acquainted to use credit-related instruments (e.g. agency scoring, insurance) than their North American counterparts. Guarantees seem to be much more in favour in western Europe, due to the larger size in revenue of respondents in this geography. Their relevance in the contractual relationship with smaller suppliers allows the large corporates to apply risk mitigation methods tied to guarantees.

*CEE, Middle East/Africa and Latin America omitted due to low response rate.

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*CEE, Middle East/Africa and Latin America omitted due to low response rate.

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Question 6
Which techniques does your organisation use to manage open account-associated risks? (Please tick all that apply)
> > > > >
Buyer insurance Factoring/selling receivables/supply chain financing (SCF) Political risk insurance None - the majority of my trade operations are inter-company Other

Supply chain finance (SCF) techniques are becoming prevalent in the portfolios of options among survey respondents, with 43% of buyers and 34% of sellers using this method to manage open account-associated risks. In 2011 suppliers are also very concerned with risk factors affecting the financial capability of their foreign buyers (political risk insurance ranked at 21%). Compared to 2010, attention of buyers and suppliers shifted away from buyer insurance into other forms, particularly into the option "None - the majority of my trade operations are inter-company". Most notably, the fact that trade statistics show that the majority of trade operations are inter-company may explain the shift. In 2010 inter-company trade was not one of the options and therefore respondents might have used the buyer insurance option as the closest proxy to illustrate a situation where the seller and the buyer belong to the same organisation. The risk mitigant used by the supplier (buyer insurance) is, in reality, the same instrument used by its buying companion entity.

24

*CEE, Middle East/Africa and Latin America omitted due to low response rate.

*CEE, Middle East/Africa and Latin America omitted due to low response rate.

25

DSO-aware (i.e. supplier-side) companies are apparently more accustomed to SCF instruments to manage open account-associated risks. The other factor is as significant as previously measured among buyer-side (i.e. DPOaware) companies.

*Under US$50m omitted due to low response rate.

Buying companies with revenues above US$1bn are more mature in the use of SCF instruments to reduce the risk of open account transactions. This comes as no surprise; neither do the results from smaller buying companies (below US$1bn) who still prefer more traditional insurance instruments. The other factor deserves major attention and investigation due to its significant percentage of results. Unfortunately respondents did not want to provide extended description.

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Question 7
Where in your organisation's financial supply chain do you see the best opportunities to enhance performance? (Please tick all that apply)
> > > > > > > > >
Sourcing Negotiation of commercial and payment terms Supplier invoice handling Customer invoicing Supplier payment handling Customer collection handling Improve internal operations by moving from manual to automatic Dunning Reconciliation

Opportunities in the FSC to enhance performance of a company are once again identified within client-focused processes: 59% of survey respondents chose negotiation of commercial and payment terms, while 37% selected customer collection handling. Improving internal operations takes a strong second place (38%) this year, whereas it had not been contemplated in 2010. This is additional evidence that companies are looking at all forms of opportunities to enhance operational performance as a means to find new sources of funding.

The percentage levels of other options do not differ significantly from last year to this, meaning that they remain the best opportunities endeavoured by respondent companies. The option that emerges from the plateau is sourcing, which highlights the importance of setting proper trade relationships with new suppliers. These new partners may help

27

enhance business in new markets, or can be substantial facilitators that will improve a buyer's efficiency and help reduce costs, allowing them to stay competitive.

*CEE, Middle East/Africa and Latin America omitted due to low response rate.

Across all company sizes there appears to be no move away from negotiation of commercial and payment terms as the most significant opportunity to enhance the performance of their financial supply chain (FSC). Small (<US$50m) company respondents rely on invoicing as a means to improve their FSC. This is a sign that communication and marketing efforts from invoicing products and services providers, predominantly in the space of electronic invoicing(e-invoicing), is beginning to be well received. The immediate operational benefits in e-invoicing of reducing manual activities and wasteful processes seems to have been immediately captured by the segment of smaller (<US$50m) companies. This analysis ties in nicely with the results in Question 4, where operational risk was highly ranked as a means of improved support from an

28

organisation's banking partners. It is a fact that invoicing practices require the support (particularly with regards to the infrastructure) of an external party to be fully implemented and functional. In Question 3, companies with revenue size between US$50m and US$249.9m were identified as the most flexible in growing their business. They therefore require the ability to source new suppliers that can help them expand the business in new markets. Supplier and customer payment practices fall in the domain of larger (>US$250m) companies given the increased complexity of their trading networks.

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Question 8
In the past year, have you had a supply chain breakage event that has led to any of the following scenarios? Answers remain anonymous. (Please tick all that apply)
> > > > > > > > >
My organisation has not had a supply chain breakage event Higher cost of capital Compliance failure Damage to brand/reputation Delay to projects/strategy implementation Loss of customers Loss of key suppliers Reduced share price Other

Similar to 2010, the majority of respondents (58%) have experienced a breakage in their supply chain. Beyond the impact of delay to projects/ strategy implementation (22%), the significant negative consequences of disruptive events in the supply chain are measured in terms of loss of customers (21%), higher cost of capital (16%) and compliance failure (13%). The first two items dovetail perfectly with the data analysed in Question 3, where 'counterparty risk - customer' was the highest ranked risk factor, immediately followed by 'liquidity risk' which is intertwined with the higher cost of capital to bear. Also, disruptions in the supply chain usually create high levels of unsold inventory that immediately hits the company's working capital and, hence, raise the cost of capital.

30

North America and western European companies are likely more mature in the management of their supply chains, although in the majority of cases they do experience unwanted negative events. Asia-Pacific companies are far from being in control of their supply chain, as only 19% declare not to have suffered from supply chain breakage events. They indeed suffer from higher cost of capital given that in the majority of circumstances they are small to mediumsized organisations subject to tight contractual rules with their larger clients. Typically these Asian suppliers are mandated to hold high levels of inventory and accept unfavourable payment terms. Often times they service their customers with low added-value products, which explains why these customers are very sensitive to any issues in the deliveries along the supply chain. Once any breakages occur their clients are able to quickly switch to new providers, making the scenario of loss of customers for their suppliers a major cause of concern (38% suffer from loss of customers due to breakage in the supply chain).

*CEE, Middle East/Africa and Latin America omitted due to low response rate.

Very large (>US$10bn) companies are a segment that apparently suffers from supply chain breakage events (61%). They are certainly subject to continuously changing dynamics in trade and logistics conditions, which affect the

31

performance of their distributed network of plants and subsidiaries. The more complex the supply network, the easier it is to suffer from supply chain glitches. Any negative performance in the delivery of the vast spectrum of products and services that these very large organisations have in their portfolio has immediate repercussions on the risk level perceived by customers (which in 23% of cases close the relationship) and investors, causing an increase in the expected rate of return that leads to a higher cost of capital. Unsold inventory generates trapped cash in these vast networks and all this increases the total cost of capital. Also small (US$50m-US$249.9m) and medium-sized (US$250m-US$999.9m) corporates present exposure to supply chain disruptive events, 65% and 60%, respectively. For both revenue segments the current economic climate promises opportunities to expand into new markets. The nimbleness and flexibility of these companies allows them to take decisions faster to stay competitive. Well-functioning supply chains are the prerequisite to expand in a competitive landscape. Of course, any issue in the supply chain brings delays in the execution of expansion strategies as an immediate consequence, which are considered as one of the most negative consequential effects (26% and 40% of responses, respectively).

*Under US$50m omitted due to low response rate.

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Question 9
What is the optimum amount of cash, as a percentage of total assets, which your organisation would want to hold on its balance sheet?
> > > > > >
0-9% 10-25% 26-50% 51-75% 76-90% 91% or higher

Liquidity risk is among the highest ranked risk in Question 3. The best way to counter this risk is by keeping sufficient cash on hand. A maximum of 25% on total assets appears to be the right ratio expressed by respondents. From 2010 there is a clear tendency to increase the cash levels above the 10% threshold, with peaks above 25% (in 14% of cases). The 10%-25% ratio must be the target for any initiative aimed at enhancing the performance of the financial supply chain as seen in Question 7.

33

Corporates based in the Middle East/Africa region are most likely to hold onto a higher level of cash on their balance sheet, with 50% saying that they hold between 26% and 50% of their total assets. Western European companies are most likely to hold the least - 41% say that they hold between 0%-9% of their total assets as cash.

*CEE and Latin America omitted due to low response rate.

Small to medium-sized corporates (under US$250m) are more concerned with lack of credit from financial institutions and are therefore pushed to keep higher levels of cash on hand (10%-25% of total assets). Very large corporates (>US$10bn) are less concerned about credit constraints but require higher levels of cash to offset high levels of cost of capital, as seen in Question 8.

34

35

Question 10
What is the primary focus of your organisation's working capital management strategy? (Please select one)
> > > > > > >
Release of tied-up working capital Preservation of capital Ensure financial flexibility Ensure liquidity Protect company credit rating Cost control Other

Liquidity is once again the key objective of any company strategy - 37% of respondents chose this option as the primary focus of their working capital management strategy. It is quite significant to appreciate that as recently as 2010 this was not included as an option for the focus of an organisations' working capital strategy. In just one year it bounced to the top position, garnering points from other strategic foci listed below.

36

North America and western Europe companies appear to be more advanced in implementing working capital practices. This is reflected in their option to work on strategies that release tied-up working capital, which is chosen as a primary focus for a quarter of companies based in these regions. The execution of such practices spans across cash collection, payment term renegotiations and inventory optimisation, each of which demands a disciplined and organised approach that only modern organisational structures can afford and implement.

*CEE and Latin America omitted due to low response rate.

Very large organisations (>US$10b) are more balanced in their strategies to improve working capital ratios. Smaller companies (<US$999.9m) mainly focus on two areas: releasing tied-up working capital and ensuring liquidity.

37

38

Question 11
What is the main challenge to your organisation's working capital management strategy? (Please select one)
> > > > > >
Relevant measurements for different parts of the organisation Appropriate incentives for different parts of the organisation Follow-up on performance Inter-departmental communication Forecasting and reporting Other

While the focus of working capital management strategies has changed in the near past (Question 10), the same has not happened to the concerns surrounding working capital management. Forecasting and reporting (42%) are the main areas of concern in all disciplines controlled by corporate treasurers. This almost exactly mirrors the results from the 2010 FSC Survey.

39

In Asia-Pacific, CEE and Middle East/Africa the importance of forecasting and reporting has a clear edge on any other challenge to the organisation's working capital management strategy. In North America the presence of multinational corporations demands additional attention to establishing measurements for different parts of the organisation. Also respondents from western Europe typically work for structurally complex organisations, with the additional complication that language and cultural barriers must be overcome even between departments based in countries within Europe.

*Latin America omitted due to low response rate.

The larger the company size the more concerning becomes the inability to properly measure the performance for different parts of the organisation. The dispersed reality of conglomerates, made up of subsidiaries and branches, in very large (>US$10b) companies demands the need to pay attention to establishing appropriate incentives for the different parts of the organisation. Very small (<US$50m) companies are focused on measuring follow-up performance because this strongly ties with their ability to better manage operational risk (see Question 3 and Question 4).

40

41

Question 12
What is the main challenge in the overall management of your organisation's liquidity? (Please select one)
> > > > > >
Forecasting and planning Proper measurement system Having adequate committed facilities in place Having adequate uncommitted facilities in place Visibility and central ownership of cash positions Other

As already seen in Questions 10 and 11, liquidity and forecasting management are paramount in any company's practices to improve financial performance. While these factors still keep the top ranking they would be useless without a proper measurement system, which has made its entrance in 2011 gaining 14% of the vote. As the treasury function gains more relevance and importance, it also becomes important to measure and assess the performance of the treasury office in terms of how it is bringing value to the company. Rather than being a cost centre, treasury should look to use key performance indicators (KPIs) in the creation of a value centre.

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North American companies are the most focused on forecasting and planning, with 63% of companies choosing this option. Interestingly, this does not seem to be an issue in the CEE, where companies are focused more on proper measurement systems. North American and western European companies do not seem concerned about having adequate uncommitted facilities in place, which is chosen by a quarter of companies based in the Middle East/Africa region.

*Latin America omitted due to low response rate.

The main challenge to liquidity management among mid-sized to large companies (US$50m-US$9.9bn) is forecasting and planning. Small (<US$50m) organisations balance the challenges from forecasting and planning with other categories, such as proper measurement systems and visibility and central ownership of cash positions. It is understandable that the tight competitive environment forces these small companies to gauge the results of any activity to ensure a clear understanding and direction as to where they are heading in turbulent market conditions. What is not immediately clear is why they are so focused on challenging visibility and central ownership of cash positions to improve their liquidity situation. The explanation can be found in the lack of proper cash management systems used by these very small companies. They usually work with manually updated spreadsheets or with basic

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treasury workstations that hardly allow a unified vision of the company's cash positions across its multiple bank accounts. The lack of automation is therefore a source of concern and a challenging obstacle to overcome.

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Question 13
How concerned is your organisation that new and tougher regulations in the banking sector could have a knock-on effect on the financing of your organisation's supply chain? (Please select one)
> Very concerned > Somewhat concerned > Not concerned at all (see no impact)

Just over half (55%) of respondents say that they are somewhat concerned that new and tougher regulations in the banking sector could have a knock-on effect on the financing of their organisation's supply chain. This is down from 66% in 2010. Regulatory constraints have pushed responses to the extremes: either respondents are very concerned (19% in 2011 compared with 13% in 2010) or not concerned at all (26% in 2011 versus 21% in 2010). Apparently respondents are more informed and aware of the consequences and impacts of regulatory limitations in financing their supply chains.

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Western European companies are used to dealing with regulations enforced by the EU: more than two-thirds (68%) are somewhat concerned, while only 12% are very concerned. North American organisations are becoming more familiar with regulatory impositions particularly since the financial crisis in 2008, which has expanded beyond the financial sector to impact all industry segments. In this region, those that are very concerned make up a slightly higher proportion (19%) than their western European peers. However, the crisis in the eurozone is showing already its negative repercussions on the overall sentiment of companies: the total percentage of very concerned and somewhat concerned in western Europe (80%) overtakes North America (75%). Asia-Pacific respondents appear to be the least concerned, while the Middle East/Africa respondents appear to be effectively polarised on the subject. The likely explanation is that companies in this region are fast growing and relatively young, which means they do not have to bear the burden of legacy organisational structures that cause the major pain in adapting to new externally imposed rules.

*Latin America omitted due to low response rate.

Companies under US$50m are flexible and nimble enough to overcome eventual limitations introduced with new regulations. The same does not apply to very large organisations (>US$10bn) whose complex governance structure (or lack thereof) demands a lot of attention in light of new binding regulations. Scenario planning must become a common practice for these corporates to anticipate regulatory issues and enable to react appropriately.

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Question 14
Has the situation with scarcity of capital increased the focus on your organisation's own balance sheet and supply chain? (Please select one)
> Yes, my organisation will focus more on using the possibilities in our own balance sheet before using bank > >
overdrafts/loans No, the organisation's focus remains unchanged No, the organisation will focus less on using our own balance sheet

The overall focus on the balance sheet and supply chain has not undergone significant change from 2010 to 2011 the focus on internal capabilities to free up sources of capital remains at the top. This result is tightly linked with the results in Question 3 and Question 11 regarding liquidity management. The same intention to focus on the possibilities in their own balance sheet is the likely interpretation of the answer given by those who have said that the organisation's focus remains unchanged (43%).

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North American respondents are the only ones whose focus is more likely to be unchanged, with 52% choosing this option. Respondents from CEE are the most likely to focus more on using the possibilities in their own balance sheets before using bank overdrafts/loans.

*Latin America omitted due to low response rate.

Focus on the balance sheet is the main strategy across all segments regardless of revenue size. Larger sized companies (>US$1bn) have already put in place initiatives that allow them to keep the focus unchanged, while striving to gain more from their balance sheets. Smaller (<US$249.9m) companies have still more ground to cover and have more space for improving their situation of scarcity of capital via finding sources of liquidity from within their balance sheets and supply chain operations as seen in Question 3.

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Question 15
How is your organisation planning to use the possibilities in its balance sheet in the future? (Please tick all that apply)
> > > > >
Review possible launch of a supply chain finance programme Leaner management of our supply chain in general Increased usage of discounted L/Cs Increased use of guarantees in emerging markets Other

The adoption of SCF programme instruments outpaces practices to improve and streamline internal operational processes, for example leaner management of the supply chain. Forty-five percent of respondents said that they would review possible launch of a supply chain finance programme in order to use the possibilities in its balance sheet in the future. Financial instruments tied to SCF programmes or to L/Cs have taken a solid lead versus more operations-centric improvements/leaner management of the supply chain in general dropped in popularity from 59% of respondents in 2010 to 35% in 2011. Time is very tight in current economic circumstances and reaction to likely turbulences is best supported with financial means. Of course, a streamlined supply chain is the prerequisite to reap the greatest benefits from the deployment of financial tools.

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Asia-Pacific respondents are the most optimistic in expecting benefits from SCF programmes. The approach to improve internal operations of the supply chain as a prerequisite for effective SCF initiatives is adopted also in this region. The use of L/Cs maintains strong presence as evidenced by various research sources and anecdotal facts. North American companies appear to be more balanced across the proposed options. Western European companies are more diligent in reviewing possible launches of SCF programmes, alongside managing leaner supply chain processes. L/Cs are used at a lesser extent in this region.

*CEE, Middle East/Africa and Latin America omitted due to low response rate.

Very small (<US$50m) and large (US$1bn-$9.9bn) companies look to first improve their internal supply chain processes before embarking on SCF programme initiatives.

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*US$250m-US$999.9m and US$>10bn omitted due to low response rate.

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Question 16
How important is it to your organisation that your supply chain:
> Is environmentally friendly > Is economically viable for all constituents > Respects fair relationships and ethical business practices

Counterparty risk on the customer and supplier side is among the greatest sources of risk as measured in Question 3, hence the relevance of building a supply chain that respects fair relationships and ethical business practices, chosen by 91% of respondents. A corporates economic viability follows suit. Supply chain management as a discipline is best defined as a blend of practices, organisation and technologies that support - in a profitable way - partners in the design, plan, source, make, deliver, and return of goods and information relative to products and services delivered in the global market. Social responsibility gauged by the environmental friendliness of their supply chain is also an element of value that must be underlined. It would be interesting to see whether respondents have found any indicator system that measures the economic benefits of implementing environmentally sustainable supply chains.

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More than two-thirds of companies based in the Middle East and Africa view the environmental friendliness of their organisation as equal in importance to the organisations economic viability or ethical business practices. Asia-Pacific companies, on the other hand, view fair relationships and ethical business practices as the paramount concern.

*Latin America omitted due to low response rate.

Large and very large (>US$1b) organisations are absolutely focused on socially sustainable (i.e. respect fair relationships and ethical business practices) supply chains that can be economically viable for all constituents. The role played by these companies in the global economy is considerable and it is very important to appreciate their sensitivity to social and economic sustainability. Environmental sustainability, the third pillar of a sustainable supply chain, is indeed present although to a lesser extent. The likely explanation is that environmental sustainability is hard to measure and quantify from a profit/loss perspective. Therefore, the return on investment (ROI) of any environmentally-related programmes is always hard to justify.

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Question 17
Where does your organisation see the main value of sustainability in its supply chain? (Please tick one)
> > > > >
Positive influence in the search of new business opportunities Enhances our corporate reputation Early adaptor advantage - sustainable supply chains will become the norm My organisation doesnt see the value in sustainable supply chains I don't know

Attention to avoiding the negative consequences of supply chain malfunctions on corporate brand and reputation was already evident in Question 8. The results suggest that companies are still in the quest for commonly accepted principles to properly measure the benefits from running a sustainable supply chain. Reputation can have a tangible beneficial repercussion but certainly the expected effects of sustainability on generating positive influence for new business opportunities seem quite reduced. The responses in the don't know and no value categories (together making up 18% of respondents) have increased since 2010, although are still limited in number. These results show a real need for a system that helps companies to quantify the benefits of a fully deployed sustainable supply chain.

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Regional segmentation of responses somehow carbon-copies the comments made in the previous section of revenue segmentation. Asia-Pacific and CEE are regions usually represented by respondents from smaller companies, while the western hemisphere, particularly western Europe, sees the majority of large and very large corporate respondents.

*Latin America omitted due to low response rate.

Companies up to US$249.9m still envision sustainable supply chains as gateways to improve brand reputation and, hence, open new channels for business growth. Companies with larger revenue (>US$250m) are more realistic, pragmatic and, to some extent, more disillusioned. They look at brand reputation and recognition as a means to keep a foot in the door of what most likely will become a common business practice in the not-so-distant future. It is our suspicion that this apparent attention on the value of sustainability conceals, in reality, a more opportunistic wait and see strategy, where very little is invested other than the bare minimum to keep the supply chain running at minimum speed in terms of investments for sustainability.

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Question 18
Which organisational level currently co-ordinates your supply chain management and how is it likely to be handled in the future?
> > > > > >
Treasury CFO Dedicated supply chain manager Procurement Scattered in the organisation Other

The importance of handling the supply chain in a professional way derives mainly from the understanding that disruptive supply chain events cause negative consequences on corporate value (see Question 8). These results show not only a steady shift away from the steering wheel of supply chain management being in the hands of the chief financial officer (CFO) and treasury into the more capable hands of a dedicated supply chain manager. While in 2010 the concept of a dedicated resource was a nice to have, in 2011 it has become an essential part of the corporate strategy. The relevance of supply chain practices on corporate financial results is underlined by the decision of respondents to keep financial experts (i.e. CFO and treasurer) close by.

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Smaller companies (<US$50m) still rely on the role of the CFO as the most capable resource to manage the supply chain. Companies with relative larger revenues (>US$50m) envision a future role for a dedicated supply chain manager. In larger organisations (US>$250m) treasury gains more relevance and power in managing the supply chain. Its expected role is to assist dedicated supply chain managers in handling very sensitive business processes and decisions that impact very significantly the corporate bottom line. The results confirm a steady trend that is seeing the physical and financial supply chains convergence under a common corporate strategy. The physical supply chain is managed by a dedicated supply chain manager and by procurement while the financial supply chain is in the hands of treasury.

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Appendix

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The results reflect the opinions of the participants of the survey and are presented for information purposes only.