Zero Working capital achievable or a holy grail

1
Zero Working capital - achievable or a holy
grail?
Doede Vierstra, CFO N.V. Nuon Energy
2
Nuon and Vattenfall in a nutshell

• Nuon was originated in 1998 from mergers between
  Dutch regional energy companies
• In 2009 Nuon was split in a network company
  (Alliander) and production service company
  (Nuon Energy)
• On July 1st, 2009 Vattenfall acquired a
  controlling 49 share in NV Nuon Energy
• The remainder of the shares will gradually be
  acquired by Vattenfall over a period of years

Provincie Gelderland 23
Vattenfall 49
Provincie Friesland 6
Provincie Noord Holland 5
Gemeente Amsterdam 5
Other 12
3
About Nuon Energy - Key figures

• Electricity production 15.9 Twh
• Number of clients 2.6 mln
• FTE 5,820

• Net turnover 4.7 bln
• Net profit 492 mln
• Total assets 9.6 bln
• Investments in PPE 572 mln

Source www.platts.com
4
Nuon Energy, together with Vattenfall, continues
to focus on North West Europe
5
This is also Nuon Energy
6
Current challenges to maintain Zero Working
Capital

• Nuon Energy is now part of the Vattenfall group
• Nuon Energys integration in Vattenfall impacts
  daily operations
• Nuon now has to compete for funds/capital with
  other group companies
• Increased focus on group wide cash generation
• Nuon and Vattenfall are faced with the negative
  effects of the credit crisis

7
Current crisis also impacted utility companies
Risks as perceived by rating agencies and
analysts increased
Credit availability becomes increasingly scarce
due to deleverage of banks
Finance related
Funding costs increase due to higher spreads and
interest rates
Increased focus on working capital to mitigate
the impact of the crisis
Demand in energy drops due to the crisis
(especially wholesale)
Regulatory changes due to different priorities of
regulators
Business related
Increased market risks due to lowered commodity
prices and high volatility
) Derived from analysis performed by McKinsey
Company, June 2009
8
Nuons focus on working capital management is
based on operational excellence
2005/6
2004
2007/8
Liberalization energy market

• Improve working capital focus
• Improve Credit management From solving to
  preventing.
• Improve request to pay process

• Lean methodology
• Implement rigid operational management
• Improve mindset management

9
Trend working capital continuous improvement
Improvements in operational excellence are
reflected in improved working capital!
10
Working capital fluctuation
Large fluctuations of working capital during the
year
11
2005-2006 Improve Operational Control
Rigorous effort to solve the issues by
implementing Operational management and Lean
Design implement Lean end to end
organization

• Centralise all activities in the end to end
  moving process
• Reduce size of teams to max 12 people
• Check data at the source and prevent issues
• Logical team set-up (segmentation)

Implement rigid operational management

• Implement Lean KPIs
• Daily team meetings
• Capacity management
• Intensive quality measurement

Improve mindset of Management

• Improve mindset and capabilities of line
  management
• Reward management based on working capital KPIs

12
Operational Excellence 2007-2008
Improve Working capital focus

• Performance measurement
• Include working capital in performance
  measurement and improve accountability (rewarding)

Improve Credit Management From Solving to
Preventing

• Smarten Credit procedures
• Continuous focus on increasing of automatic
  cash collections
• Differentiation in cash collection procedure
• Improve customer paying performance
• New payments channels (DigiNote, iDeal)
• Introduction of a cost charge on reminders
• Early detection preventing
• Improved communication to clients on credit
  policies
• Pro-actively arrange payment schedules

13
Facts Figures (1/2) - Improvement of financial
KPIs
Overdue debt amount per age bucket
Write off ( of sales)
DSO-overdue
14
Facts Figures (2/2) - Improvement of other KPIs
Client satisfaction
Number of complaints
Net financing position (2002-2008)
15
2009/ 2010 Further push towards Zero Working
Capital together with Vattenfall!
Innovation

• Changes in invoicing methods
• Invoicing on actual use
• No surprises for customers

Credit management synergies

• Integration with Vattenfall
• Strengthen and share state of the art credit
  risk management
• Identification of value creation opportunities
• Group wide tool for tracking of activities around
  value creation opportunities

Improve Request to Pay process

• Across the Supply Chain
• Strategic role for group wide procurement
• Scale benefits with Vattenfall create value
• Limited number of suppliers, focus on compliance
• Efficient and hands free ordering process

16
In conclusion

• The concept of Zero Working Capital should the
  mindset for any company!
• Focus on operational excellence across the supply
  chain
• Discipline, measurement and rewards
• Continues improvement
• Companies can generate internal funds, while at
  the same time reduce funding costs, increase
  operational performance, client satisfaction and
  profitability!

17
Discipline drives business performance!