working capital a source of financing for growth
Amsterdam, June3rd. 2014
Budapest, October 16 2014
Jan Schets
D.E. Master Blenders 1753
2
Company Snapshot
We are a leading, focused pure-play coffee and tea company with operations across Europe, Brazil, Australia and Thailand.
72% of our sales are generated from markets where we have a Number 1 or Number 2 position.
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Note: 72% is total company sales in countries where D.E MASTER BLENDERS has a number 1 or 2 position in retail coffee.
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We have strong local brands
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France Spain Australia Brazil
NL & BE Global Hungary
Denmark
Global Norway
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2013: € 2,5 bln
29%
Brazil 17%
France 13%
Belgium 7%
Germany 6%
Australia 6%
Spain 6%
Other 16%
Netherlands
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Other includes New Zealand, Norway, Denmark, Poland, Thailand, Greece, Hungary, Czech Rep, UK
Our sales split by geography
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Intended JV with Mondelez announced
Announced on May 7th
To become the world’s leading
pure-play coffee company
JV:
Mondelez #2 sales €2.9 bln 49%
DEMB #3 sales €2.5 bln 51%
JV #2 sales €5.4 bln 100%
Merger is complimentary in regions and in
coffee expertise.
Many 1st and 2nd positions in key markets
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Our History
1936 1940s 1978 2012 1753 2001
Pickwick established
Senseo coffee
system launched
March – June 2012:
The new company name
“D.E MASTER BLENDERS
1753” revealed and
Company is listed on the
NYSE Euronext Exchange
2010
Launched the L’OR EspressO
capsules compatible with the
Nespresso® single-serve system
OOH: Out of Home
Douwe Egberts
established
The business expands
into Western Europe
Douwe Egberts
acquired by Sara Lee
2013
Sept 2013
Oak Leaf B.V acquired
95% of the shares
In DEMB 1753
2014
May 2014
DEMB announced the
intended partnership
with Mondelez on
combining
Coffee activities
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• DEMB subsidiary of a US Company – Distributing dividends to the US result in US-tax
– Surplus cash left outside the US
• Spin-off from Sara Lee – Solid BBB rating
– Initiative to focus on Operating Working Capital
– Benchmark studies performed
– Project team formed - “Run For Cash”
– Review and educate Operating Companies
– Full support by top management
– Budget / Bonus objective
History of the project
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014
Investigate
Sara Lee
Spin-off
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Improving Working Capital
• Reduce Inventory
• Improve central coordination of green coffee inventory
• Inventory financing schemes
• Reduce Accounts Receivable
• Improve the A/R operational process
• More active credit management
• Managing discounts
• Extend Accounts Payables
• General extension of payment terms
• Active approach of procurement department
• Implement Supply Chain Financing
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Working Capital Management
Balance sheet
Assets
Accounts Receivable
Equity
Accounts Payable
Bank debt Financing
Inventory
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Balance sheet
Assets
Accounts Receivable
Equity
Accounts Payable
Bank debt Financing
Inventory
Working Capital Management
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Balance sheet
Accounts Receivable
Equity
Accounts Payable
Bank debt Financing
Assets
Inventory
Working Capital Management
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Balance sheet
Accounts Receivable
Equity
Accounts Payable
Bank debt Financing
Assets
Inventory
Working Capital Management
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Balance sheet
Accounts Receivable
Equity
Accounts Payable
Bank debt Financing
Payables
Assets
Inventory
Working Capital Management
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Overview on implementation SCF
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014
Investigate Banks Auditors Contract
Sara Lee
Spin-off
• Bank selection – Standard selection criteria
– Relationship / reputation / message / commitment
• Auditors discussions – Involved during SCF-contract discussions
– Classification of Accounts Payables
– Guidelines on A/P and SCF
• Contract discussions – Finalize legal issues and paperwork
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Overview on implementation SCF
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014
Investigate Banks Auditors Contract Suppliers Go Live
Sara Lee
Spin-off
JAB led
acquisition
• SCF made available to suppliers – Training of procurement team
– Mixed reception
• Going live – Start small
– Alignment operational and payment procedures
– IT-systems
• JAB led acquisition of DEMB – Acquisition debt push-down; credit rating BB- / B+
– Impact on SCF-program
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• Leverage = Debt / EBITDA
• Leverage DEMB = 3,000 / 500 = 6
7
6
5
4
3
2
1
2013 2014 2015 2016
Leverage post JAB acquisition (illustrative example)
AA
A BBB
BB
BB
B B
Plan DEMB
Max. allowed by banks
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Reducing the leverage
Current in two years time
Actual Bank-plan DEMB-plan
Leverage 6 4 3
Debt constant at 3,000
then the EBITDA to be: 500 750 1,000
EBITDA constant at 500
then Debt to be: 3,000 2,000 1,500
EBITDA increase to 600
then Debt to be: 3,000 2,400 1,800
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Reducing the leverage
Why:
• Requirement of the banks
• To become an Investment Grade (BBB) company – Optimal for DEMB Cost of Capital
– Better access to financing
– Lower cost of funding (debt & accounts payable)
– Lighter debt documentation
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Reducing the leverage
Conclusion:
reduction in the leverage can be achieved by:
• Create more income • To be achieved by higher sales / lower costs
• Results in higher EBITDA
• Lower bank debt • Which can be achieved by:
– Using the cash from the realized profits
– Working Capital Management
– Alternative financing of investments
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Overview on implementation SCF
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014
Investigate Banks Auditors Contract Suppliers Life Roll-out Co-funding
Sara Lee
Spin-off
JAB led
acquisition
• Roll-out of SCF program – Adding more group companies
– Including remote suppliers
• Co-funding – Include other bank in the SCF-program
– Access to growth
– Diversification
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• Use SCF wisely!
– Available to help key suppliers
– Diversify funding risk via co-funding by other banks
– Maintain financial headroom to absorb the ending of a SCF program
– SCF is one of the tools to improve OWC
Use of SCF
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Results of the OWC project
2012
2014)
Our OWC-project
• In two years time over EUR 500 cash released
• Twice as much as initially planned
• Brings us closer to the FMCG best performers
Plan
Actual
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• Commitment from the top
• Awareness within the organisation
• Focus focus focus
– Reporting and visibility
– monthly monitoring
– kpi´s
• Alignment and team effort
• Dedicated team and resources
Key success factors for OWC