"Flexibility and solution-driven work two of our distinguishing key strengths"

Transcription

1 Investor Relations Newsletter 1/2015 "Flexibility and solution-driven work two of our distinguishing key strengths" The international transport markets by sea, by land and in the air are distinctly heterogeneous, both in terms of the economic environment and regarding the transport assets used. Martin Metz, who has headed DVB's Land Transport Finance division since 1999, comments on current macro-economic trends, on the Bank's unique business model, and on future challenges and opportunities. The interview was conducted by Elisabeth Winter, Head of Group Corporate Communications, Frankfurt. Besides the already mentioned heterogeneity of the transport sector, what is common to all these segments is the cyclicality of markets. Martin, would you agree to this, and if so, how would you describe the current cyclical environment for rail and road transport? Cyclicality is a pattern of mature markets. Based on this, we can easily agree that our rail and land transport markets Europe, Australia, and North America are obviously mature markets. The North American market is characterised by pronounced economic cycles and additionally by sector-specific waves overlaying those cycles while Australia basically follows the up- and downswings of the mining or natural resources industry and ultimately those of the Chinese economy. In Europe, we are far beyond the time when political cycles dominated the movements of the market, and now the sector follows the more moderate flow of economic cycles. Due to the excellent input from our Land Transport Research team, to which we have meanwhile added an additional expert, we believe we know where we are in any of these cyclical trends, and we are well positioned to take our decisions accordingly. What key macro-economic trends do you see in rail transport at present, and to what extent is rail transport affected by technological progress? Our markets grow long-term, and overall annual investments are immense also in new rolling stock. Besides the economic cycles just described, we have identified some overarching trends which influence rail markets but again vary between the three regions: (i) regulation, (ii) political influence and governmental efforts to regain control over specific players and market segments, and (iii) dynamics between different transport modes, in particular the relationship between rail and road transport. These trends interconnect and overlap. Technological change is less a natural driving factor in our business and sometimes more driven by political influence than by economic needs.

2 2 Good examples are: the requirement to invest into low-noise braking systems for freight trains in Europe; significantly changed specifications for crude oil tank cars after the Lac Mégantique train disaster in Canada in 2013 and other incidents; or certain changes in prime movers of self-propelled equipment, such as the development of e.g. hybrid locomotives. The consequences of these changes are driving adjustment costs and technological changes much more than consistent research and development in our markets. This is different to other DVB industry segments, e.g. the aviation world. Talking about regulation or deregulation of land transport markets: do you expect further burdens to fall upon the sector, especially in Europe? What opportunities do you see in this context for private-sector operators, in freight and passenger transport? Martin Metz, Head of DVB's Land Transport Finance division This is a wonderful question with a fairly sober response: we would love seeing further technical and operational barriers falling, but it somehow seems to us that Europe currently has a couple of other, more stringent topics on the agenda so that the momentum in trying to even further deregulate our markets seems to have somewhat reduced. Undoubtedly, the rail sector has dramatically changed after liberalisation during the 1990s. While there are efficient and pragmatic solutions and trends now with which technical barriers can be largely reduced that have blocked international rail operations during 19th and most of the 20th century, the political barriers have not softened to levels expected. But we remain to be optimists, and continue working on deals that are driving forward asset finance in European rail and that are supporting an open and liberalised rail market. Despite this set-up, there are always good opportunities for private-sector players in our rail markets. We very much like those initiatives as they make the difference opportunities which need quick decisions, bring momentum, drive changes in technology and risk taking, and inspire. It pretty much relates to one of the slogans which the Bank printed once on the JP Morgan Chase Challenge shirts: It's Not the Big that Eat the Small... It's the Fast that Eat the Slow. And we are happy to be part of it. A nice example in this context is a new start-up locomotive operating lessor which started business last year, currently ramping up a fleet of 50 modern electric locomotives, in a market already well served by competitors. Equity sponsor is KKR, and the significant debt piece has been arranged and funded by DVB together with Siemens Bank. This is just one case, and there are many more examples where private initiatives are pursued and push the market dynamically forward, also on the operator or railroad side.

3 3 Martin, where do you see the specific strengths of your market presence and business model? Continuously, we discuss this topic amongst us, and very recently again at our last team meeting. Dominant drivers of our success are: the realisation that our clients and the market understand and appreciate our focus, our rail finance expertise, and the authenticity of our approach; our flexibility and solution-driven work; the communication of, and our acting in accordance with our clear strategy; our capacity to execute, to understand our customers, and to pursue a strategic dialogue with our core clients, along with our inspiration the entire Land Transport platform continuously tries to achieve better results and better business, which is very much rooted in the quality of our teams. That s it. The success of DVB s Land Transport Finance division over the last years which has led us to a peak year in basically all performance criteria by the end of 2014, including growing our loan book to 2.0 billion gives sufficient evidence of it, as we believe. From a regional perspective, you are currently active in North America and Europe and, since 2012, also in Australia. What exactly makes these markets attractive? Very early in our efforts to define our strategy, we have understood that financing rail and railrelated assets is different to funding assets flying in open skies or cruising in blue water. Most or all of the rolling stock which we are financing is much more subject to specific national interests and sovereign insolvency rules than ships and aircraft. Once this was clear, we decided that we should only work in regions with a largely reduced level of political risk; a quite firm regulatory framework; and an as sound and reliable as possible legal system. These parameters also ultimately imply that there is a secondary market for the equipment we finance a natural element and necessary aspect of our asset finance work in rail. This has led us to limit our business so far to the three regions that you mentioned. So far, we have been quite pleased with this set-up; volume-wise, our regions are dynamic and generate on average investment volumes of roughly 20 billion in rolling stock per annum, a sizeable number that gives ample space to do business. Numerous competitor banks withdrew from financing and advisory services during the global economic crisis. At the same time, DVB continued to support its land transport clients with financial advice and asset-based financings. What was that down to? DVB benefited from a couple of aspects which have helped us to support our clients even during the peak of the financial crisis. Obviously, with DZ BANK as our parent company, DVB has had a strong anchor partner which was willing to provide liquidity and funding to us when other banks faltered or failed to be available to clients needs and lending requests. This liquidity was vital for the market, and with no surprise we booked a record volume of new transactions at that time. Our clients appreciated our continuous availability during these crisis times. We can still feel today and value enormously the positive feedback that many of the market participants are mirroring back to us. We have firmly positioned us

4 4 in their mind as the expert asset finance lender which not only deeply understands the needs for adequate structures and lending based on the asset values of the underlying equipment, but which is also willing to partner with them even during tough times. This was only possible as DVB has never been a corporate lender, but a significant player in the international asset finance arena. On this basis, we have also successfully expanded our product range into the DVB Corporate Finance world, with an excellent co-operation with the teams in London and New York. The number of projects done with them is pleasantly high, and has delivered significant contributions to our income statement, across the board from advisory services and capital markets activities, both in Europe and North America. At the end, it is clear that we will not be crosssellers at large, but be able to capitalise on our client relationships to earn not insignificantly outside our asset-based lending area. How would you describe the development of the land transport finance sector? This question is one of the most valid ones to be raised at the moment. Obviously, the nature of banking is changing, and also the nature of debt markets in general. Biggest drivers for change are the glut of liquidity (no surprise of course), increased regulation of banks, new funding partners arriving and desperately seeking ways to deploy equity and debt capital into our sector (entities like insurance companies, funds, etc.), changing financing schemes in certain segments (like public finance arrangements), and pressure from and on management boards to do more safe rail business. All of which currently leads to patterns and attitudes which we believe we have seen already between 2006 and In more detail: increased liquidity allows and forces banks to offer cheap funding so that deals can be booked; banks and players which we consider to be sunshine or tourist banks a nickname with which people tagged those that were gone when the sky was cloudy during financial market crisis are back, actively seeking business in sectors they have not been working in for years. Investors are keen to deploy capital, leading to a situation where capital markets are open to absorb transactions which were typical bank debt deals in the past, at terms that many bank lenders can only dream of. Also, investors start taking out existing bank debt deals as single investor transactions. Private equity is more active than ever in our markets, allowing price tags for acquisitions to jump up; also, transactions are being churned more frequently than what a strategic player would do. Lastly, it is worth mentioning that export credit agency (ECA) structures only play a marginal role in our rail world. Money is so cheap that people shy away from undertaking the extra effort to structure such deals as a valuable alternative, which basically tells us in turn that ECA schemes have mostly been done historically rather for pricing than for risk reasons. Funny enough, the only ECA structures we have seen over the last years were for deals in OECD countries. Don t get me wrong: we so highly appreciate that rail gets much more attention in the finance world, which is well deserved. However, the main question is more into what direction the financing world with all the liquidity will take our deals. "Land transport financings are less prone to risk than transactions in other transport sectors" Martin, would you agree with this statement, and how do you deal with the risk? It would be naive to believe that rail markets are risk free. Our approach is driven by always reminding ourselves of the 3Rs principle during evaluation, which means risk-risk-risk.

5 5 No joking, though rail deals enjoy the lowest capital cost within DVB, deals require a lot of due diligence and internal discussion. Our Land Transport Research team plays a vital role, as much as our Early Warning System, the dialogue with our credit colleagues, general market intelligence, and our capability to early understand signals, e.g. as part of security and administrative agent roles, which we take more often than ever. Even in rail, there is no free lunch, and we understand the clear signal from the market to become even more careful when we see lenders and investors joining the sector who cannot be considered experts. What are the criteria you use to plan and manage your business at present? And in which lines of business do you see the biggest potential for successful cooperation between your clients and DVB, in 2015 and beyond? We firmly believe we understand the market dynamics in principle, the exchange with our clients is excellent, our platform benefits from great teams and an outstanding internal research database. We can therefore identify trends, spot orders and opportunities, and know about deals fairly early. As of 30 June 2015, the portfolio is well balanced with a loan book of 1.8 billion. Roughly 45% is euro-denominated, i.e. the majority of our loans is booked in other currencies. Generally, the plan is to further diversify the portfolio regionally, and in particular to grow the dynamic North American share towards 50%. We believe the portfolio is risk-wise well diversified and dynamic when you further analyse its profile. This means we are not stuck with our top 10 clients, the maturities, etc. but experience a good level of changes there. Planning works both on a portfolio basis, but also on deal level, and here the data is fed in from the New York and Frankfurt Land Transport Finance teams.

6 6 At the end, all that counts is reacting flexibly to market changes. We intensify our activities in those market segments where we see open windows for asset investments, see chances for markets to develop further, or when clients start being interested in procuring rolling stock, etc. Lots of information comes directly from our customers. Once an opportunity is identified, we go very early into our Deal Committee. Once a transaction idea crosses that committee line, we are going to strictly allocate resources to the deals we want to pursue. Currently, we see primarily good opportunities for DVB s Land Transport Finance Division in the freight sector, both for locomotive and railcar fleet deals. The passenger rail market is more a European market, and there we see a lot of political influence on the market. Otherwise, we are open for all types of business in our three regions, Europe, North America and Australia. The markets are sound and produce enough pipeline of investments into new rolling stock every year, or refurbishment of older assets. By far not all of our assets are brand new when we finance them. We enjoy the stability and lower cyclicality of our markets, appreciate the credit quality of our clients and transactions, and value the feedback from the markets from which we hear that we are still a reference bank for rail asset finance deals.! Martin, thank you very much for the interview.

7 7 Prezi A step towards the world of business entertainment by Elisabeth Winter, Head of Group Corporate Communications, and Simone Sacherer, Manager Corporate Design, Frankfurt In early May 2015 we presented our new baby : a Prezi presentation. Now we would like to zoom in on this new product, outline the challenges we have to take up and explain how users benefit. As Group Corporate Communications, it is our everyday challenge to tell DVB s success story to a wide variety of target groups (clients, business partners, investors, analysts, journalists, employees and many more) using different communication tools storytelling is the new buzzword in the communication markets. Prezi Target group Stakeholders information behaviour has changed as well. It is no longer about content and topics, but also about entertainment. Communication as a process should be fun. Business entertainment relies ever more heavily on visual stimuli like corporate videos, corporate photography, a captivating website, as well as social media. With our Prezi, we want to present hard banking topics such as DVB s vision, our colleagues expertise and the DVB s strengths profile in a fresh way. The presentation was designed with the growing number of younger decision makers in mind, those who primarily turn to social media platforms for private communication. That is why we want DVB content to be easily and quickly accessible from one place; presented visually in an entertaining way as the power of visuals attracts attention and helps people remember information; visually facilitated as it becomes easier for people to follow and concentrate.

8 8 Prezi A step towards the world of buisness entertainment The target groups we aim for with this approach include journalists working under deadline pressures, and potential job applicants, who are interested in DVB and would like to get to know us. Last but not least, we also hope to engage clients who would like to learn more about our business divisions and product range. Prezi Structure Our Prezi is well-structured: In the lower, blue part of the Prezi canvas, we present six icons, one for each of the Bank s pillars and core competences: Mission Statement, Unique Expertise, About Us, Competitive Strengths and Business Model. The presentation follows a pre-defined path, guiding the viewer from one topic area to the next. Then, the viewer dives through the heading It s all about expertise! into our four divisions, and is presented with information on Shipping, Aviation, Offshore and Land Transport. This part of the presentation is designed as a globe, symbolic of the Bank s global presence. Imprint Performance Investor Relations Newsletter DVB Bank SE Platz der Republik Frankfurt/Main, Germany Editing & layout: Elisabeth Winter Head of Group Corporate Communications Managing Director Elisabeth.Winter@dvbbank.com Simone Sacherer Manager Corporate Design Simone.Sacherer@dvbbank.com Photos: The next stop is Latest News, with up-to-date information on various topics. At this section is also the first opportunity for viewers to leave the presentation and access the website, should they wish to do so. Legal Information, Disclaimer and Contact are also linked with the website. Prezi Programme It was an architect who came up with the original idea for Prezi. This is reflected in its clear setup: an empty canvas. Just as with a mind map, you can add text, pictures, videos, etc. to the canvas and link them to each other. The most interesting feature, however, is the zooming interface. You move from one element to the next as if following a camera. The camera zooms in on an object, then out again, and on to the next. Adjusting the layout of each slide works similar to PowerPoint, and is thus easy to understand. The path adds dynamism. The path is the order in which Prezi moves from one element to the next, zooming in and out of content. This way of guiding people through a presentation and letting them go back and forth between content means that you need neither presenter nor voice-over to engage with your audience and ensure a quality presentation. Viewers find their way around on their own, navigating via mouse or arrow key. Prezi is a web-based software, i.e. it is available everywhere. All you need is internet access. Outlook We are currently working on another Prezi to use at client or sponsoring events. Stay tuned! Prezi logo (page 7) Prezi Inc., San Francisco, USA All other photos DVB Bank SE, Frankfurt/Main, Germany You can find Prezi on our website's homepage After scanning this QR code with your smartphone, you will have direct access to our website.