‘Credit Management Roadmap to Improvement…’

1. European Conference Barcelona 11th – 13th May 2014 ‘Credit Management Roadmap to Improvement…’ The Credit Management Journey ‘Building Best In Class Credit’ One Team One Goal Nick King, MICM Group Credit Director

2. HEADS or TAILS HEADS or TAILS 2

3. Setting the Scene – Refresh from Amsterdam 2013 Conference 3

4. Strong group brands 4

5. Business Overview – 4 Divisions with shared support BUSINESS DIVISIONS SUPPORT FUNCTIONS General Merchants Contracts Div Plumbing & Heating Retail Marketing Commercial / National Sales Supply Chain Finance HR IT Property

6. Key Figures • £5.2 billion t/o = 2013 • Excluding retail = £4.1 Billion • Total Staff = 25,000 • Total Branches = 2,000+ (over 19 brands) • 137,000 to 140,000 credit account Customers • Receivables Ledger of > £300 million + • DSO y/e 2013 = 57 • 37,000 cheques per month total value of £85 million • 50,000 bacs payment per month value of £154 million 6

7. Organisation – Pre Reorg Bus Unit Managers Total Credit Services Staff = 253 7

8. Vision Leveraging Technology to Enhance Credit Decisions Review Processes, Create Good Quality Controls, and Align Policies and Procedures with Company’s Business Strategy

9. My Goals – What Drives Me • Create a credit process that incorporates: • Consistency (auditors love that) yet flexibility. • Leveraging technology to increase productivity (work smarter – not harder). • Reinvesting department’s time on more high return for investment activities. • More than the financial numbers (piecing it all together). • Forcing people out of their comfort zones (do not rest on our laurels). • Developing credit professionals across all of the company’s markets (no silos). • Challenging everyone to grow (no one stagnates and everyone is engaged). • More experienced helps less experienced (everyone is part teacher and part student). • Challenging established ways of thinking (no same old solutions). • A true “team” environment (we all win when we all win together). • Developing easier resource allocation, career path development, back-filling, and project management capabilities (make being a manager of people easier). • Transparency to drive understanding and alignment, and to demonstrate Credit adds value (gain respect for the credit profession). • Delivering on my promise to teach the next generation of credit managers.

10. TP Group 10

11. Perception • Complacent • Lack of Investment • Low Engagement • Low to Medium Skill set • Not engaged with peers “credit industry” • Loyal • Knowledgeable about Industry • Low to medium attrition • Willingness to do well • Made best of a bad job 11

12. Perception Stale/ Fragmented Minimum control/review “Make do” Worked Understood and Accepted (with region) Integrated into system Does the job 12

13. Perception Outdated Complicated Manual Not understood/communicated Not flexible Reward not seen as beneficial Accepted Delivered the results 13

14. Perception Lack control Old technology Fragmented Poor reporting capability Lack of investment Does the job Integrated into business Has good collection capability Opportunity to invest 14

15. The Credit Management Journey‘Credit Management Roadmap to Improvement…’ Professional & Customer Focussed Credit Management Differentiators Customer Focus Credit Strategies Operational Excellence Consistent MI Professionalism Process & System Standardisation Enablers One Set of Rules Organisational Alignment Fragmented Credit Management 15

16. The Credit Management Journey‘Credit Management Roadmap to Improvement…’ Professional & Customer Focussed Credit Management Differentiators Customer Focus Credit Strategies Operational Excellence Enablers Consistent MI Professionalism Process & System Standardisation One Set of Rules • Single Organisation for Credit Management • Group integration • One Team mentality • Single Organisation Archetype • New Risk Department Organisational Alignment Fragmented Credit Management 16

17. The Credit Management Journey‘Credit Management Roadmap to Improvement…’ Professional & Customer Focussed Credit Management Differentiators Customer Focus Credit Strategies Operational Excellence Enablers Consistent MI Professionalism Process & System Standardisation One Set of Rules • One-Credit Learning Programme • Group Credit Management Learning & Development Programme. • Competency frameworks • Professional membership (ICM Group membership) • Career Ladder • Reward Programmes Organisational Alignment Fragmented Credit Management 17

18. Perception 18

19. Review of the current state identified a number of opportunities for improvement Strategy Processes • One size fits all • Limited customer segmentation & insight • Reactive v proactive • ‘Collections’ focused • Effectiveness and Efficiency not optimised • Evolved organically or via acquisition • Inconsistencies in philosophy, design, execution and customer experience • High degree of waste & manual intervention e.g. new account opening process • Lack of historical investment in continuous improvement Culture Technology • Tired and outdated • Limited workflow and significant manual intervention • Inability to implement change • Reporting & MI capabilities very challenging • Data integrity challenges • Lack of customer focus • Long tenured team with little external perspective • ‘Steady’ culture largely accepting the status quo • Strong engagement with business lines • Blurred ownership of core processes

20. Reality Check IF YOU ALWAYS DO WHAT YOU ALWAYS DID Then you will ALWAYS get what you always got

21. The Credit Management Journey‘Credit Management Roadmap to Improvement…’ Achieving Quality in Credit Management ‘Building Credit Together’

22. The Credit Management Journey‘Credit Management Roadmap to Improvement…’ Professional & Customer Focussed Credit Management Differentiators Customer Focus Credit Strategies Operational Excellence Enablers Consistent MI Professionalism Process & System Standardisation Start Point One Set of Rules Organisational Alignment Fragmented Credit Management

23. Accreditation Requirements ‘Building Credit Together’ • Accreditation covers 6 areas: • Credit Policy • Compliance • Customer Service • Personal and Professional Development • Performance Measurement • Stakeholder Management and Roadmap

24. QICM - Achieved

25. Project Odyssey.

26. Project Odyssey. What are we doing? • To create a ‘best in class’ trade credit function that is effective and efficient, which helps enable growth across the TP group, whilst proactively managing risks and costs • The program that will consider strategy, technology, process, organisational design and culture • Undertaken a view of what ‘best in class’ looks like Why is this transformation important? • There is a compelling need to improve the effectiveness and efficiency of the Credit function to deal with future growth without significantly increasing the level of resource • Credit Management will become central to the corporate growth strategy • Effective Working Capital management is increasingly important • Opportunity to create a differentiator in terms of customer service and relations • Improve the skill, culture and engagement of the trade credit function

27. Achieving Best in Class How will we achieve this ‘best in class’ goal? • Maintain business credit management alignment but develop single customer ownership for strategic relationships • Centralise core transactional processes and services to standardise, secure synergies and improve customer service • Maximise the use of technology to automate low value transactional activity and enable self service • Deepen our customer and portfolio insight • Creating a great, engaged and high performing team where colleagues see opportunities to develop their career at TP in the TC function. • There is potential to enhance credit and collections management to drive c. £40m - £50m in sustainable improvements

28. Trade Credit vision One team, One goal, taking us from Good to Great: To develop a ‘best in class’ trade credit function that is effective and efficient, which helps enable growth across the TP group, whilst proactively managing risks and costs

29. Our approach involves gaining insight from a range of sources to inform our future state Define our ‘to be’ state Implementation Discovery phase Benchmarking Voice of TC leadership Voice of customer • Develop design principals • Business case • Program work streams • Approval to proceed Voice of business External best practice Technology solutions Business engagement is key to success to both inform the future state design and help improve the process and customer experience 29

30. In our ‘discovery’ phase we have engaged a number of stakeholders to assess our current state New accounts Credit Risk Credit Risk Management Invoicing Terms Collections Disputes Disputes Cash Allocation

31. The following design principals have been developed to shape our future design and drive us towards leading practice

32. Our future state: what are we looking to deliver? Organisational design: • Maintain business credit management alignment but develop single customer ownership for strategic relationship • Greater divisional focus and ownership • Centralise core transactional processes and services to improve effectiveness, customer experience and clearer accountabilities Technology • Maximise the use of technology to automate low value transactional activity • Enable self service for internal & external customer Data: • Rich single source of data that enables real time reporting & Management information plus insight Processes • Create robust, customer orientated processes e.g. account opening, credit limit reviews People: • Up skill the team, introduce new capabilities and evolve the culture

33. Single customer ownership: Our customers today can have many touch points with the TC Nationals • Managed by specialist teams in TP and PTS/BSS • Single National customer may deal with both teams Managed Services • Managed by a number of credit teams • No single accountability within TC Multi brand Customer x PTS TP North City Plumb CCF • Managed by brand where customer trades Single Brand In the current model many customers have multiple points of interaction with the group which drives inefficienes, sub optimal customer service and enhances risk

34. In our future state we propose developing much stronger ownership & clarity for Customer Relationships Increasing caliber of TC team Strength of relationship Number of accounts • We will develop deep strategic relationships with our most valuable customers rather that a ‘one size fits all’ approach. • Single point customer accountability will be defined and will own the relationship on behalf of the group. • Nationals, Manager Services will be managed by specialised teams whilst multi brand will be owned by one nominated business, who will own on behalf of the group

35. The Target Design Model P&H Division Merchanting Division Contract Division Business alignment PTS & F&P TP SW TP SE TP North Benchmx BSS CCF City Plumb’ Keyline Single customer ownership TC centralised shared services TC shared services Risk Cash Allocation Account opening Legal & Recoveries Disputes Insight, MI & Reporting Maximise technology Technology infrastructure Automated cash allocation Tailored Collections strategies Self Service Insight, MI & Reporting Proactive risk assessment & management Org Design Capabilities Structure People Culture Training & Development Governance

36. The following programs of work will be required to deliver this future state IT MI & Reporting IT Collections strategies IT Single Customer ownership P • Portfolio and business MI • Revised KPI’s to drive ‘intra month’ collections • Generate insight P • Strategic/multiband customers have a single group TC relationship • Short term effectiveness plans • Longer term optimisation post system implementation enabling tailored collections strategies • Optimise channel mix • Redesign statements, invoices and customer communications • ecommerce strategy: Electronic EDI’s, Remittance etc. • Eliminate cheques P Organisational structure P Centralisation of core processes & services • Restructure to create clearer accountability, progression and succession • Introduce new capabilities • Account opening, sales ledger, disputes, MI & reporting, Risk Management, Legal & recoveries IT Trade Credit Key Initiatives IT Enable Self Service Credit Management • Proactive credit management • Risk management at portfolio level • Redesign credit limit process • Business & customer self service including online viewing of accounts, invoice, POD retrieval & payments Right People, Right Culture IT Capability Enablers • Define TC culture and ways of working • Restructure to create clear accountability, progression and succession • Recruit top talent • Deliver improved infrastructure that is agile, scalable and enables proactive management of risk, customer segmentation and CRM

37. The Right People, Right Culture is also critical for our success The Right People The Right Culture • The future state structure has been designed with the following principals in mind: • Up skill • Enable progression • Clear accountability • Ensure succession • Up skilling the team to create a ‘best in class’ function and ensure emphasis shifts from just ‘debt collection’ to also ‘enabling business growth’ • New capabilities are required including business analysis, process management and improvement. Additional much greater on competencies and attitude • A number of the new roles will be filled externally • This structure will create clear successors to the Director role and enable the management team to work across a breath of disciplines and roles • Building recognised credit management qualifications aligned to QICM • Despite a strong relationship with the business the current culture of the management team will be a barrier to the success of any change program: • Lack of mutual respect • Assuming negative intent • Lack of collaboration • Lack of managing up • A culture and ways of working program is being commenced in Q1 2014 in conjunction with HR. The scope will include: • Defining TC culture and ways of working • Defining team interaction models and associated governance • 2014 Training and Development program • Develop an ongoing engagement strategy with business

38. Organisational Structure: The current management structure is too flat and inhibits progression and succession Challenges with current structure • Too many direct reports (12) • No successor to Director • Lack of progression opportunities within management structure • Core capabilities missing e.g. process improvement, business analysis and insight • Lack of clear accountability for divisional performance and core processes e.g. account opening • Blurred reporting lines with inhibits change • Lack of ownership of ‘change agenda’

39. The proposed leadership structure will up skill the function, introduce new capabilities and clearer accountabilties Key changes • Streamlined structure with reduction in number of directs from 12 to 7 • Clear accountability for divisional performance and stakeholder management whilst retaining dedicated business line credit teams • Structure enables progression and effective succession planning • The introduction of a number of new senior roles and new capabilities e.g. business analysis and process management/improvement. • Centralisation of core processes including sales ledger, account opening, disputes, reporting & insight • Long term aim is divisional credit teams to be co located Denotes up skilling existing role Denotes new role

40. Support and Selection Approach

41. Development Centre • The transformation program involves up-skilling the team to create a ‘best in class’ function. • A greater emphasis will be placed on capability and the development centre will provide an objective assessment of your suitability for the new roles. The development centre will include three parts: • Interview • Individual Presentation • Group Activity • Everyone will receive feedback from the development centre which will contribute towards development plan.

42. Centralisation of a number of core processes and service is recommended • Currently a number of core processes and services are split across multiple trade credit teams and locations resulting in: • variation in procedures, capability, customer outcomes and experiences • Lack of clear accountability resulting in little or no process improvement • Lack of portfolio view of performance • Distraction from core collections role • The ‘voice of the business’ committee was very supportive of centralising these services and a number of them were identified as ‘hot topics’ requiring significant improvement.

43. Scope of centralised services Account opening Disputes Cash allocation • Standardise, simplify and automate • Ownership & maintenance of customer master data • Data cleanse of master data • Ensure adequate segregation of duties • Continuous improvement • Account administration • Dispute process ownership • Reporting & SLA management • Identify key drivers of disputes and provide insight to enable elimination of root cause • Development of business level KPI’s • Clean up of legacy disputes • Sales ledger and cash allocation process • Drive automated cash allocation • Drive strategies to promote online payments, BACS and Direct debits as primary payment methods Legal & Recoveries Risk Insight & Governance • Recoveries strategy & overall performance • Legal cases • Group credit application • Personal guarantees • Security • Compliance • Design and develop MI and reporting for TC, business and branch • Develop insight that informs Collections strategies • Process improvement agenda • Strategy & governance re process ownership, controls, monitoring and guidelines • Ownership of TC risk strategy & appetite • Ownership of credit policy and adherence • Ownership of credit reference relationships and commercials • Controls and monitoring for all credit limit increase • Credit terms • Credit insurance

44. Management information, reporting, data and insight A key business requirement is a single source of data that enables automated, robust and real time reporting to measure past/current performance and inform and improve future performance Scope of work stream includes: • A wholesale review of all metrics & management information required by TCLT and business • Develop a dashboard covering key performance metrics with drill down capability providing portfolio, divisional, business, branch and customer view • New account, Utlisation, Outstanding's, DSO, weighted average days to collect, Disputes, Risk levels, cash allocation… • Develop internal KPI’s and metrics that focus on intra day collections management rather than the current month end focus • Educate the team on the impact of collections on working capital and the cost of capital and importance of proactive intra month management rather than reactive end of month focus

45. IT Capability: Investment is required in this key enabler • We aim to implement ‘best in class’ technology solutions spanning collections, risk management and cash allocation: • Increase sales on credit terms to existing/new customers • Increase overall effectiveness and efficiency • Significantly reduce operating costs • Improve working capital • Motivate and empower Credit teams with best tools and technology • Differentiate our customer experience and gain a competitive advantage in the marketplace Cash Allocation system Collections management system Risk management system

46. Collections system will enable segmentation and tailored collections strategies • Automation: • Set collections strategies for different customer segments based upon risk and behaviour • Workflow to automate low value transactional activity and manage by exception • Automatically determine most important next step for segment • Flexibility to evolve, test and change collections strategies within the TC function • Targets and Performance: • Target, measure and monitor performance at group, division, business, customer or team member • Forecast future collections performance to set stretch target • Management information & reporting • Real time robust MI, KPIs and reporting • Drill down capability • Flexible reporting managed within TC function • Improved customer communication: • Automatic customer communications through choice of channels, • Communication with links such as ‘click-to-pay’ ‘click-to-query’ • Self service ability enabling TP to be ‘easy to do business with’ • Tablet and mobile enabled communications and self service • Query and dispute management • Provide functionality to record, assign and manage queries and disputes including categorisation of root cause

47. Risk Management will proactively manage portfolio according to the agreed risk appetite • Automation: • Automation of a large % of lower value credit risk decisioning • Potentially provide instant in store approval for credit • Proactively identify accounts approaching credit limit and auto uplift, based upon defined scorecards or flag for manual review • Seasonal limits automatically available • Potential for in store payments resulting in real time credit uplift • High-level view of the risk portfolio • Visibility of individual risk, group aggregated risks, credit team, brand, branch, division, company. Visibility on screen and drill down capability • Risk categorised based upon agreed TP risk scoring model defined in line with risk appetite • Risk categories updated dynamically as data set and customer behaviour changes • Links to multiple credit reference agency data • Online connections to multiple credit reference agencies • Linking together internal purchasing and payment behaviour to external agencies to inform credit limits • Management information • Suite of management information and reporting • Full audit trail • Provision of credit approved prospects to sales team

48. Cash Allocation system will dramatically increase the level of auto allocation and thus reduce manual intervention • Maximize efficiency • Dramatically improve the level of auto cash allocation (c50% to >90%) and thus speed up the level of daily and month end allocations. This is achieved via a system that learns previous manual actions • Scanning and electronic storage and retrieval of remittance and cheque images. Thus eliminating paper records • Quick and efficient transaction search facilities and ability to see allocation history • Dramatically reduce unallocated cash position • Improve customer experience • More accurate customer statements and cleaner ledgers • Reduce the number of incoming calls to credit to release held orders for overdue invoices that have been paid but have not yet been allocated • Management information and control • Full electronic audit trail of all allocation undertaken • Immediate access to up to date accounts to facilitate effective collections • Automated reporting for bank reconciliation • Suite of management information and reports on receivables, payment methods used and cash allocation performance and staff effectiveness and performance

49. Collections strategies: The customer base will be segmented and collections strategies will be evolved on an ongoing basis • Segment customers • Develop strategies based upon customer risk and behavior • Manage by exception • Review • Evaluate results, learn and evolve strategies further • Test alternative channels & contact strategies • Adopt champion challenger strategy

50. Credit Risk Management needs to undertake a program of work to support our future state 50