ANNUAL REPORT 2009
CONSOLIDATED KEY FIGURES in EUR million (unless otherwise noted) 2006 2007 2008 2009 Forfaiting volume 937.4 902.2 826.0 575.9 Gross result including financial results 14.2 15.1 16.1 14.0 Forfaiting margin including financial results 1.5% 1.7% 1.9% 2.4% Administrative costs 6.5 7.1 8.0 9.3 Earnings before income taxes 7.9 8.1 8.2 4.9 Consolidated profit 4.7 5.3 5.8 3.5 Average earnings per share in EUR 0.95 0.87 0.85 0.52 Forfaiting volume (in EUR million) Gross result incl. financial results (in EUR million) Consolidated profit (in EUR million) 1,000 800 937.4 902.2 826.0 18.0 16.0 14.0 14.2 15.1 16.1 14.0 6.0 5.0 4.7 5.3 5.8 600 400 575.9 12.0 10.0 8.0 6.0 4.0 3.0 2.0 3.5 200 4.0 2.0 1.0 0 0 2006 2007 2008 2009 2006 2007 2008 2009 2006 2007 2008 2009 0
CONTENTS COMPANY Letter by the Management Board 4 The attainments of DF Deutsche Forfait AG 6 10 years DF Deutsche Forfait AG 18 The DF share in 2009 20 GROUP MANAGEMENT REPORT Business and general conditions 22 Net assets, financial position and result of operations 25 Compensation report 27 Disclosures according to section 315 (4) of the German Commercial Code (HGB) 28 Risk management report 30 Supplementary report 33 Outlook 33 FINANCIAL FIGURES Consolidated Balance Sheet Assets 36 Consolidated Balance Sheet Equity and Liabilities 37 Consolidated Income Statement 38 Consolidated Statement of Recognized Income 39 Consolidated Cash Flow Statement 40 Consolidated Statement of Equity Changes 41 CORPORATE NOTES Notes to the Consolidated Financial Statements 43 Consolidated Fixed Assets 68 Auditors Report 70 Responsibility Statement by the Management Board 71 Supervisory Board Report 72 Corporate Governance Report 74
LETTER BY THE MANAGEMENT BOARD Dear Shareholders and Business Partners, Leading the way This is the motto of our Annual Report 2009. No we are no transport company, but our ambition is to enable companies in different countries and continents to trade with one another by offering financing solutions for exporters. There is great uncertainty among many companies about which countries are sufficiently stable to do business with, especially when it comes to delivering products to developing countries and emerging markets an area which is very much our specialty. Importers from emerging markets usually request long payment terms that exporters are barely able to provide at present due to the crisis. As a result, business transactions often never come about or are postponed indefinitely. This is where DF Group comes in leading the way for its customers, finding a quick route to successful business. 2009 has confirmed the validity of our business model. We have proven that we are capable of achieving profits even in a difficult market environment. Our risk management system has withstood the heavy turbulence in the global financial sector. We achieved a consolidated result of EUR 3.5 million in 2009, corresponding to a doubledigit return on equity of 12%. We were very selective in our business in 2009 in line with our risk avoidance policy. As a result, our risk position during the crisis-hit year 2009 remained below the previous year s levels. 4
COMPANY GROUP MANAGEMENT REPORT FINANCIAL FIGURES CORPORATE NOTES The crisis brought about many changes in the market, providing DF Group with great opportunities. Less competition in the purchasing of receivables in the near future will result in higher margins. We set a new record in 2009 by increasing our forfaiting margin from 1.9% to 2.4%. The placement side, in other words the sale of receivables, is recovering slowly but steadily. Banks, which had withdrawn from the market, are now returning. Trade receivables are once again en vogue thanks to their attractive risk/return ratio. Given the knowledge gained over the past year and the positive signs in the market, we are convinced that our company is going to grow again in the current year. We intend to significantly increase both forfaiting volume and earnings. In doing so, we want to mark our 10th anniversary in style in 2010. We would like to thank you for placing your trust and are looking forward to leading the way in future too together with you. Jochen Franke Marina Attawar Ulrich Wippermann 5
Cash is king. The old entrepreneurial proverb always sees a boom when capital is in demand and banks become stingy with their credit due to weak corporate forecasts. The current situation sees companies and their lenders both having to come to terms with the effects of the financial crisis. The slump in exports decreasing by 18% in Germany alone in 2009 had its greatest impact on the production industry. Those that appeared to make it through the worst of it need quick financial support to gradually build their spent reserves back up. But the banks are exercising restraint when it comes to financing exporters. There is just too much uncertainty to risk adding additional burden on an already weakened credit portfolio. At the same time, pressure is mounting for lenders to satisfy customers by offering suitable interest rates as the market continues to recover. DF Deutsche Forfait Group deals with receivables from the export business and therefore has solutions available for both parties. On the following pages, we provide answers to questions that we regularly receive and show why our services are exceptionally suited to the needs of our customers in this time of crisis. We are here to provide new and secure methods for financing exports, even if the current environment seems bleak at first glance.
Keeping exports from becoming a leap into the unknown...
The economic and financial crisis is having a time-delayed effect on the creditworthiness of affected nations. Numerous countries are experiencing severe economic slumps which are causing increased national debts. As a result, the credit rating of 34 countries was downgraded by the major rating agencies in 2009. This gives many exporters even greater uncertainty in determining which countries are still safe to do business with. Refusing potential business can often mean a possible loss of receivables against this backdrop. But this puts many companies at risk in a globally connected world. Such times require a professional partner. In the forfaiting business, DF Deutsche Forfait Group takes on the country risk without a deductible for the exporter. Our information advantage that we have developed over the years helps us in this as the DF Group has a strong international network with eleven sites around the globe. Due to our offices on location and the numerous years of experience that our employees have in handling business with emerging markets, we often have a better feel for the risk involved than the exporters. This provides greater peace of mind for all parties involved. Safety and security are the decisive factors in maintaining global trade. We know which countries can be exported to without taking on too great a risk.
Can I export to this country?
The credit crunch is on everyone's lips. According to a poll conducted by the European Central Bank in February 2010, 42% of the 5,320 SMBs surveyed believed that the conditions for receiving loans from banks deteriorated in the second half of 2009. The equity requirements of credit institutes were already raised due to Basel II regulations and these have been intensified thanks to the financial crisis. This results in exporters having increasing difficulty receiving financing for their deliveries with payment targets. The primary lenders of many exporters have not put a focus on trade with emerging markets, which actually has some of the greatest growth potentials in 2010. The DF Deutsche Forfait Group offers financing alternatives for exporters in countries that primary lenders can t or won t cover. Today, we finance commercial business transactions with the markets of tomorrow thanks to our many years in dealing with emerging markets. A strong equity situation and credit lines are available to us for refinancing. We guarantee our customers short paths of communication and a quick decision on whether or not a receivable will be purchased due to our lean structure. A secret of our success is nonbureaucratic cooperation with our customers. Exporters are looking for quick solutions and that s exactly what we offer.
Who would help me in finance my exports if my banks limit their lending?
Forfaiting belongs to the standard repertoire of banks participating in international business. Having started as a niche tool, forfaiting has developed into an important financing instrument over the last three decades especially in the growing trade business with emerging markets. Due to the financial and economic crisis, the spectrum of financing possibilities for exporters has diminished and liquidity requirements have increased. That s why small to medium sized exporters increasingly make use of forfaiting along with the larger market players. And for good reason: Without this opportunity to engage in forfaiting, they would see their business activities severely limited. The DF Deutsche Forfait Group offers forfaiting solutions for customers of all sizes. We provide exporters with short-term liquidity, strengthen their balance sheets and take on the risks associated with receivables. For this service, we receive a risk premium whose size is determined by various factors including duration, country and counterparty risk as well as documentation requirements. In doing so, we usually incur individual receivables, in contrast to factoring. This can start as low as 300,000 Euros for smaller volumes and can reach up to the double digit million region. In other words, forfaiting is just as suitable for mid-sized enterprises as it is for large companies and, in view of its advantages, is not more expensive than other financing options.
Isn t forfaiting expensive and only an option for major exporters?
The financial crisis has bluntly revealed the excesses of the risk-fraught, return-driven investment policies of numerous banks. The result was depreciation totaling in the billions on securities that were no longer worth the paper they were printed on. Even if a portion of the investment banks have returned to business as usual, the crisis did lead many credit institutions to rethink their policies. Taking the motto back to the roots, they are starting to look for investment opportunities not based on synthetic financial products, but real business with attractive returns and limited risk i.e. trade receivables. Such challenges have been the business of DF Group for over ten years now. The DF Deutsche Forfait Group deals with receivables from the emerging markets that show an attractive risk/return profile. Typical buyers are banks, forfaiting companies that act as investors or smaller regionally focused institutes around the world. Trade receivables generally offer a higher interest rate than fixed rate securities, since the documentation requirements are much higher. At the same time, the risk of loss is manageable since emerging market countries are dependent on imports and good business relationships. This is seen in the fact that global trade receivables were often paid even during times of national crisis when relevant country loans were cancelled. A further proof of the positive risk/opportunity profile of the trade receivable s asset class.
Why do trade receivables offer attractive returns in proportion to risk?
The emerging markets are becoming increasingly important in world trade. Thanks to support from their national governments, large economies such as China, India and Brazil have emerged from the global economic crisis relatively unscathed and continued on their strong growth tracks in 2009. Investing in emerging markets risks is an absolute must for international banks looking to round out their portfolios. At the same time, however, the documentation requirements for this type of business have increased due to the financial crisis. The risk aspects have recaptured attention and the credit committees of banks are requiring detailed documentation on the methods used to secure the transactions. Demands that are worth fulfilling. The DF Deutsche Forfait Group is a specialist for receivables with complex documentation requirements. Using our global network and our focus on emerging markets, we offer banks and other investors attractive investment opportunities that could not realize their potential on their own due to their limited market access and/or sales capabilities. We also are not put off by the increased documentation requirements that banks have for these transactions. We are well-positioned to handle such scrutiny. The structure and documentation of the purchased receivables have always been a major part of our core competencies. As experience has shown us the end of one crisis just signals the run-up to the next.
Who fulfils the increased documentation requirements when investing in emerging markets?
10 years DF Deutsche Forfait AG Foundation of DF Deutsche Forfait in January Subsidiary founded in Prague Office established in Paris Office established in Hamburg Cumulative forfaiting volume since foundation breaks the EUR 1 billion mark Subsidiary founded in Miami Start of the expansion into South America Expansion of the operations in the field of structured products Office established in Helsinki Closure coopera Dubai Closure coopera London 2000 2001 2002 2003 2004 20 9/11 Terror attacks on the World Trade Center and the Pentagon Start of the war in Iraque on 20 March Joseph R Benedi Paris: Concorde crash, as a result closure of the typ s flight operations Introduction of the European common currency Euro Tsunami in the Indian Ocean around 300,000 people killed 18
One decade in the mirror of time of a tion in of a tion in Forfaiting volume per year exceeds the EUR 900 million mark Successful Initial Public Offering Office established in London Office established in Zurich Office established in São Paulo DF achieves clearly positive results in spite of crisis January: 10 years DF Deutsche Forfait Office established in Lahore 05 2006 2007 2008 2009 2010 atzinger is elected as t der XVI. for Pope Lisbon treaty and therefore reform of the EU- and EG agreements Delegates from 190 countries meets for the climate summit in Kopenhagen Soccer World Cup in Germany Insolvency of the US bank Lehman Brothers 20th anniversary of the German reunification 19
THE DF SHARE IN 2009 The DF share: performance figures 2009 Issue price EUR 7.50 High XETRA (17 December 2009) EUR 5.80 Low XETRA (20 March 2009) EUR 3.80 Year-end closing price XETRA (2009) EUR 5.60 Performance to issue price -25% DF share in 2009 with outperformance DF Deutsche Forfait AG s share performed better than the market and considerably stronger than the industry. With a gain of 30% to EUR 5.60 for the year, it outperformed the small-cap index SDAX as well as the industry indicator DAXsector All Financial Services. The share s trading volume also increased considerably due in part to a higher volume of free-floating shares. Performance 2009 +30% Average price (XETRA) EUR 4.59 Average daily trading volume in shares (all exchanges) 7,725 Average daily trading volume in EUR (all exchanges) EUR 38,977.00 Market capitalization as of 30 December 2009 (XETRA) EUR 38,080,000.00 The most important global stock markets opened 2009 with substantial losses. Starting the year at 4,973 points, the German lead index DAX reached its low on 9 March with 3,589 points. From that point on, the DAX benefited from increasingly positive economic data. The major causes for the burgeoning recovery move were the stimulus packages implemented around the world and the historically low interest rates. By the end of the year, the DAX had reached 5,957 points marking a growth of 24% in the year. The European Stoxx 50 index achieved a 24% gain while the Dow Jones index posted a 20% plus for the year. On the German stock market, second-tier shares benefited more strongly from the economic recovery than the blue chips. While the MDAX posted gains of 34% in 2009, the SDAX was able to add 27% on the year. DF Deutsche Forfait AG's share, with its gain of 30% on the year, considerably outperformed the industry index DAXsector All Financial Services. The share started with a closing price of EUR 4.30 on the first trading day in 2009. The share hit its low for the year at EUR 3.80 on 20 March. It continued on a growth track up to the Annual General Meeting on 16 June 2009, posting a share price of EUR 5.67. Ex-dividend, the share once again fell below the EUR 5.00 mark, but managed to recover at the start of September and closed the year at EUR 5.60. The annual high was achieved on 17 December 2009 at EUR 5.80. The average share price for the year amounted to EUR 4.59. When it comes to the liquidity of the DF share, it benefited from increased free float since the end of 2008, which amounted to 66% as of 31 December 2009. With a market capitalization of EUR 38.1 million at the year's end, this translates to a free float market cap equivalent to EUR 25.0 million. Trading volume for the DF share totaled EUR 9.9 million for 2009. In the previous year, DF shares held a total value of about EUR 6.9 million on all the German exchanges where it was traded. The average order volume per day grew from 4,807 shares which represents a value of EUR 27,018 for 2008 to 7,725 shares equalling EUR 38,977 for 2009. DFAG share in 2009 compared to relevant indices 140 130 120 110 100 90 80 70 60 Jan Feb March April May June July August Sept Oct Nov Dez 02-01-2009 = Index 100 30-12-2009 DFAG SDAX DAXsector All Financial Services Source: Deutsche Börse The Management Board and multiple members of the Supervisory Board continue to be important shareholders in the DF Group. 18% of the 6.8 million total outstanding shares are imputed to the Management Board. 4% of this is to be assigned to the free float. A 11% stake is imputed to the Supervisory Board. The M.M.Warburg & CO KGaA bank continues to hold 21% of DF shares as a strategic investor. The DF Deutsche Forfait AG share will be followed by four research providers: Bankhaus Lampe, Equinet, SES Research as well as Silvia Quandt Research. 20
Business and general conditions Net assets, financial position and result of operations Compensation report Disclosures according to section 315 (4) of the German Commercial Code (HGB) Risk management report Supplementary report Outlook
GROUP MANAGEMENT REPORT DF Deutsche Forfait Group also referred to as DF Group below again achieved clear positive results, even during the crisis year 2009. In spite of difficult market conditions, consolidated net income amounted to EUR 3.5 million, corresponding to a return on equity of 12%. Although this result falls considerably short of the record EUR 5.8 million in 2008, it must be taken into account that economic conditions were entirely different then. Until the insolvency of Lehman Brothers at the end of the third quarter of 2008, operating conditions were very good and the economic situation excellent. The collapse of the US investment bank triggered the worst financial crisis in decades and led to a global recession. In view of these fundamental changes to the market environment, the Management of DF Group shifted the strategic focus in 2009 to the avoidance of risks. This is reflected in the financial key figures for 2009. These negative market conditions and increasing selectiveness in business transactions have reduced the gross result including financial results, a deciding success factor for operations in the forfaiting business, by 13% to EUR 14 million. At the same time, the forfaiting margin went up considerably from 1.9% to 2.4% due to less competition on the purchasing side in the wake of the crisis. This largely offset the steep drop in forfaiting volumes from EUR 826.0 million to EUR 575.9 million. Trade receivables at year-end 2009 were down 12% on the figures at the end of 2008, another outcome of the DF Group's risk avoidance policies. In addition, the average unsecured risk of the 2009 portfolio remained below 2008 levels throughout the year. The key event Lehman Brothers insolvency almost brought the sale of forfaiting transactions to investors, essential business for the DF Group, to a standstill at the end of 2008. In 2009, the situation recovered slowly but continuously, although demand was still considerably lower than prior to the crisis. Supported by the economic recovery since the third quarter in 2009, DF Group anticipates that this positive trend is going to continue. On the purchasing side, the company expected market conditions to remain better than before the crisis. Competition has decreased through the adjustments in the market, resulting in higher margins. DF Group is returning to its growth path in 2010 as a result of this sustained recovery and expects to significantly increase its result and forfaiting volume. BUSINESS AND GENERAL CONDITIONS Forfaiting is a standard trade financing instrument. In the past, forfaiting was mainly used in transactions with emerging markets and developing countries where exporters frequently have to extend payment terms to their customers. In the current economic crisis, extended payment terms have become even more important for exporters in order to receive any orders. With such transactions, the receivables and associated risks remain on the exporter s balance sheet and reduce their liquidity. Forfaiting means that the forfaiting company purchases these receivables without recourse. The sale of receivables allows the exporter to transfer country and counterparty risks to the buyer while improving liquidity. In addition, the exporter improves its balance sheet structure which represents an advantage when dealing with refinancing banks. In addition to forfaiting, DF Group offers its customers the assumption of risks via purchase commitments. Unlike forfaiting, purchase commitments only involve the assumption of country and counterparty risks without providing liquidity. In these times of rapid globalization and the increasing share of the emerging markets in world trade, forfaiting is becoming a more and more significant trade financing instrument. Due to the crisis, banks are also issuing less loans to companies ( credit crunch ), resulting in significantly increased demand for forfaiting. The outplacement of risks and reselling of receivables are key success factors for DF Group. Purchase commitments are secured by bank guarantees, third-party counter-guarantees or credit insurance for the benefit of DF Group, which means the risks are outplaced. Receivables that are not sold are added to the DF Group s portfolio. Just as it does on the acquisition side, DF Group also has a global network of investors for the sale of receivables which was developed gradually over the last few years and reinforced by numerous business deals. Typical buyers of receivables include forfaiting companies that unlike DF Group also act as investors, smaller regional banks, especially in Europe, large banks headquartered in industrial countries, and banks with shareholders from the emerging markets (socalled foreign banks). In recent months, an increasing number of large banks have started purchasing forfaiting transactions again. These banks had been very subdued with regard to purchasing forfaiting transactions since the crisis escalated in 22
COMPANY GROUP MANAGEMENT REPORT FINANCIAL FIGURES CORPORATE NOTES Classical Forfaiting Delivery at date of payment Bank Exporter Importer Receivable with bank as address risk Purchase of the receivable Payment at maturity Sale of the receivable DF Deutsche Forfait Investor the fourth quarter of 2008. In principle, receivables are acquired for the following reasons: Foreign trade receivables have an attractive margin compared to their risks. The yield is usually higher compared to an equivalent fixed-interest security and the risk is lower as they are purchased abroad. Numerous investors have very limited sales capacities and therefore restricted market access. These investors use the services of DF Group to expand their sales capacities. Investors purchase DF Group receivables to diversify their portfolios while benefiting from the company's international network and access to various local markets. In the forfaiting business, receivables are acquired at a discount from the nominal value. This market value reduction is calculated on the basis of the money and capital market interest rate for the equivalent term (e.g. 1-year LIBOR) plus a risk margin. The margin takes the individual risk of each transaction into account; this mainly depends on country and counterparty risks. In addition, the margin is affected by the complexity of the transaction including the documentation. For DF Group, the market value reduction represents the most important income component. The company also generates income from commitment fees and other commissions. Global economy has bottomed out After slumping due to the financial crisis, the global economy has been recovering since mid 2009. In the opinion of the Kiel Institute for the World Economy (IfW), global economic performance in 2009 dropped by a total of 1%. This is the first time since 1946 that the global economy has shrunk. However, the slump was less severe than anticipated at the beginning of the year. Thanks to the extensive support for the banking sector and expansive fiscal policies of many industrial countries, the global financial system was stabilized. Financial stimulus packages implemented throughout the world started to show their first effects, and particularly the Asian emerging countries continued their dynamic growth. China's economic performance is expected to have grown by 8.6% and India's by 5.7% in 2009. On the other hand, economic performance in industrial countries decreased by 2.4% in the USA and 4.1% in the Eurozone. According to calculations by the Federal Office of Statistics (Statistisches Bundesamt) the German GDP dropped by 5.0%. The main reason for the recession in Germany is the slump in export by 18.4%. Gross asset investments were also down 9% on the previous year. The slight increase in spending was not able to offset these negative developments. Hope of recovery after slump in world trade Due to the financial and economic crisis, world trade volumes in 2009 slumped with a rate never seen before. According to the International Monetary Fund (IMF), world trade dropped by 12.3% compared to growth of 2.8% in the previous year. This also affected exports of industrial countries (-12.1%) and imports of emerging and developing countries (-13.5%) equally. IMF experts forecast positive development for 2010 on the back of the recovery of the global economy as a whole and continued economic growth of some large emerging countries such as India, China and Brazil. World trade is expected to grow World Trade Annual Percentage Change 16 12 8 4 0-4 -8-12 -16 2006 2007 2008 2009 2010e 2011e Source: IMF Imports (developing and emerging nations) Volume of world trade Exports (industrialised nations) 23
GROUP MANAGEMENT REPORT by 5.8%, exports of industrial countries by 5.9% and imports of emerging and developing countries by 6.5%. According to the World Trade Organization, the global trading volume in 2008 amounted to around EUR 176 trillion. Irregardless of fluctuations during recent years, this volume, and particularly the increased share of emerging and developing countries, is offering enormous market potential for DF Group. The shortage of liquidity as a result of the banking crisis has also resulted in far less competition on the acquisition side while demand has increased because of the lack of alternatives. In the past, companies frequently held receivables in their portfolio to maturity since their own refinancing costs were much lower than the cost of forfaiting. In this situation, profitability came before liquidity and risk management; but now the priorities have changed. DF Group structure DF Deutsche Forfait Group is based in Cologne, where its forfaiting know-how is concentrated and transactions are structured. Sales are handled by own offices or intermediaries with direct access to various local markets. Headquarters coordinates the offices around the world and is furthermore in charge of risk management, contract management and the outplacement of transactions. In addition to the parent company in Cologne, the DF Group also includes four wholly owned subsidiaries in Brazil (São Paulo), Switzerland (Zurich), the Czech Republic (Prague), the USA (Miami) as well as a 60% interest in the company in Pakistan (Lahore). The international network is supplemented by representative offices in Finland (Helsinki), France (Paris) and Great Britain (London) as well as cooperation partners in Egypt (Cairo) and Dubai. With the exception of the subsidiaries in Prague and Zurich, which are occasionally involved in back office tasks for individual transactions, the foreign offices focus exclusively on marketing and sales activities. Due to its regional presence, DF Group has direct access to clients in the respective local markets. Since the offices concentrate on sales activities, markets can be developed comparatively quickly and in a cost effective manner. Overall, DF Group has an efficient and cost effective organizational structure. Good conditions for further growth DF Group's business model is clearly defined and has proven itself during the crisis. With its current structure, the company is well positioned to use the market environment successfully and to resume its growth strategy. The sophisticated risk management system is a fundamental part of the business model. It is based on the outsourcing of risks and reselling of receivables. Even during the crisis, DF Group did not suffer from serious delinquent payments. Thanks to the efficient organizational and cost structure with large headquarters in Cologne and streamlined local sales offices, DF Group is able to react quickly to changes in the market. New markets can be tapped quickly and at low cost. The company has sufficient resources with a comfortable capacity for growth. Equity more than tripled as a result of the company's IPO in May 2007 and profit retention. Equity Company structure DF Deutsche Forfait AG 100% 100% 100% 60% 100% DF Deutsche Forfait s.r.o. Prague, Czech Republic DF Deutsche Forfait Americas, Inc., Miami, USA DF Deutsche Forfait do Brasil, Sao Pãulo Brazil DF Deutsche Forfait AG Pakistan Exporteur Ltd., Lahore Pakistan DF Deutsche Forfait Swiss AG Zurich, Switzerland Subsidiaries Helsinki Finland London Great Britain Paris France 24