Scute Consulting Case Study
• European goods manufacturer with head office in Portugal.
• Operations in multiple European, African, Latin American & Asian territories.
• 2010 Turnover > €500m, ROCE 5%, EBITDA < €50m
• Total Trade Receivables portfolio €150m.
• Working Capital needs €125m (2011) and €150m (2012).
• Concentration risk - 22 major buyers with sales > €7m p.a.
• Domestic and International sales.
• Increasing counterparty credit risks within EU
• Bond issuance, Revolving Credit Facility and Asset Backed Commercial Paper.
• €120m ABCP program funded by UK bank through Jersey-based SPV.
• Advance rate 79% on €150m driven by Rating Agency Criteria (unrated buyers,
country limits, loss history, stress)
• Daily feed from client sales ledger to Bank however:-
1. Absence of granular detail or “static pool data.”
2. Absence of detailed ageing profiles.
3. Concentrations/customer aggregation not well tracked.
4. Credit notes, dilution and disputes not easy to follow
5. Personnel requirements/costs
6. Confidence levels in data flows and consistency.
• €27m allowance for doubtful debt. No cash reserve.
• Purchase trade credit insurance in each country with no benefit to external funding
• Improved risk analytics (pts 1-6 above) and feedback loop with funder.
• Committed facility of €150m (based on growth)
• Increased advance rate on ABCP facility from 79% to 95%, increasing cash liquidity
by €15m p.a. Additional €45m over a 3 year term.
• Reduced Bank Funder Risk Weighted Assets for transaction by approx. 50%.
• Reduced all-in funding costs for trade receivables portfolio by 25Bps.
• Asset de-recognition achieved under IAS 39, improving corporate ROCE by 110Bps.
• Cell captive established to build cash allowance for doubtful debts.