Supply Chain Finance solutions a win-win proposition for Corporate Clients and their suppliers Prague, 30.10.2014 Page
Agenda 1 2 Introduction Corporate Solutions approach Supply chain finance - an important and growing topic for corporates What is SCF, Reverse Factoring or Confirming? ErsteConfirming - The product How does it work? ErsteConfirming web-platform Win-Win for buyers & their suppliers Financial effects incl. illustrative example Documentation 3 Trade- and Export Finance CSAS 4 5 Factoring CSAS Practical Experiences & Discussion Page 2
Agenda 1 Introduction Corporate Solutions approach Supply chain finance - an important and growing topic for corporates What is SCF, Reverse Factoring or Confirming? Page 3
Large Corporates Division Corporate Solutions: Our approach to assess client needs Profound client analysis Corporate Profile Capital Structure Financial Risk Management Business potential evaluation Evaluation of client s markets & business model (macro & industry environment, production & distribution profile, import & export dependencies, supply chain analysis, competitive picture etc.) Detailed & pro-active analysis of current capital structure What is the most adequate capital structure? What is the client s debt capacity within its communicated strategy Modeling and scenario analysis Assess client exposure to refinancing and potential market risks Most appropriate debt instruments? Short-/long-term debt structure? Key liquidity considerations? Business driven FX/interest rate risk, assessment of pot. hedging needs? Identify tailor made product sales opportunities Define Erste Group product fit with client strategy & business model Foster PAM recognition with client as trusted advisor for strategic dialogue Identify KPIs important to the customer and his business model Supply Chain Finance and Corporate Solutions approach Supply Chain Finance as part of profound in-depth analysis of clients needs SCF as possible vehicle to match maturities in the balance sheet SCF in order to optimize liquidity and create leeway in regard to strategic new debt issuances Early involvement & expert advice along business acquisition cycle LCSolutions Deal Team Support Client Executive Product Units & Sales Mid/Back Office Strategic Dialogue Origination Structuring Execution Page 4
Supply Chain Finance Market Update on the current market situation European SCF market statistics Distribution of SCF instruments European invoice finance market worth over 1 trillion EUR ~ 8% of EU GDP and > 8% of total bank lending 3x leasing volume e.g. in Spain total market volume of Confirming/Reverse Factoring has reached already ~ 55 billion EUR p.a. 65% 25% 10% SCF market growth rates range from 10% to 25%. Trends imply further increase payables Finance Inventory and pre-shipment financing Receivables Finance Source: Aite Group; EBA SCF European Market Guide 2nd edition, CaixaBank Page 5
SCF is a growing topic Reasons behind the importance of SCF solutions 1 Optimization of working capital is on the top of the agenda for Buyers & suppliers 2 Safeguarding sufficient liquidity headroom and improving financial results is crucial 3 Securing stable supply chain is a central concern 4 Trend towards open account trading 5 Continued and increasing tension between trade partners around payment terms 6 Banks continue to enforce strict lending requirements (Basel III), hence borrowing is difficult for SME businesses. Page 6
Corporate clients position and plans on SCF Thoughts of European corporate Treasury professionals on SCF Which of the following best describes your company s current position relating to SCF? + SCF programme in place 27% + SCF programme being implemented + SCF programme being planned + SCF being investigated 8% 8% 12% SCF is established and set to grow 27% of participants have a SCF programme in place. Further 25% are investigating, planning or implementing. + Procurement processes are in place 2% + Interested but not investigated/ not a priority 25% - Investigated but declined 10% - Not interested 8% 0% 5% 10% 15% 20% 25% 30% Source: Eurofinance 5-click survey Supply Chain finance; 24th March 2014, respondents: 245 corporate treasury professionals Page 7
Corporate clients position and plans on SCF Thoughts of European corporate Treasury professionals on SCF cont d Which TWO of the following are the most important drivers of a SCF program in your company? DPO extension/ improved working capital 34% Better use of liquidity 31% Strenghten the supply chain 17% Supplier risk management 9% Enhanced visibility & control 9% 0% 5% 10% 15% 20% 25% 30% 35% 40% Source: Eurofinance 5-click survey Supply Chain finance; 24th March 2014, respondents: 245 corporate treasury professionals Page 8
SCF solutions solve a dilemma between buyers and suppliers and frees up liquidity bound in the supply chain! Supply Chain Finance PROCUREMENT SALES Accounts payable-centric Approved payables finance (also known as Reverse Factoring or Confirming) Dynamic Discounting Other SCF Pre-shipment or purchase based finance Inventory finance Source: EBA, SCF European Market Guide 2nd edition 2014 Accounts receivable-centric Receivables purchase Invoice discounting Factoring Forfaiting Related Documentary Trade Finance, Bank payment obligation, Asset-based lending, Payments and foreign exchange Page 9
SCF solutions solve a dilemma between buyers and suppliers and free up liquidity bound in the supply chain! Page 10
Agenda 2 ErsteConfirming - The product How does it work? ErsteConfirming web-platform Win-Win for buyers & their suppliers Financial effects incl. illustrative example Documentation Page 11
ErsteConfirming Automated reverse factoring solution of Erste Group ErsteConfirming offers a complete service package ErsteConfirming is an easy-to-use cash-management and financial service tool of Erste Group and it s local entities, created for our corporate clients and their suppliers to advance confirmed but still open invoices. We are able to discount the supplier s invoices at attractive rates automatically with Erste Group, once the buyer has checked, confirmed and transmitted their data to us. The suppliers do not need to have an account with Erste Group. ErsteConfirming is a web-based, automated, easy-to-use application, by the suppliers. We advance confirmed invoices either automatically or upon request. The payment of the confirmed invoice must be effected by the buyer to the bank on due date. Page 12
ErsteConfirming How does it work? Page 13
ErsteConfirming Process is simple and straightforward Fees Interest Pay-out Amount Invoice Amount Debit Amount Supplier Invoice File Offer Discounting Period Due Date Buyer Supplier: sends invoice to Buyer (Mail) Buyer: sends confirming file (confirmed invoices) to Erste Group (via electronic channel) Supplier: registers in web platform and accepts T&C Supplier: sends offer to redeem the receivable to Erste Group (via ErsteConfirming Platform) Erste Group: pays invoice amount less interest and fees to Supplier (SWIFT) Erste Group: debit Buyer at due date with Invoice amount Page 14
ErsteConfirming Beneficial to our corporate clients Benefits for the buyer Extended payment periods and lower interest expenses Negotiation position Payment management Secure liquidity for supplier base Financial Ratios & Rating Status reports Supplier relationship possibility to negotiate an extension of payment periods take advantage of trade credit reduction in net financial debt and financing costs access to additional liquidity and balance sheet contraction effect for suppliers lower financing costs for suppliers beneficial tool for procurement in order to negotiate favourable terms and conditions as well as improved service- and product quality facilitation of accounts payable management lower administrative costs (enquiring gets obsolete) lower risk of interruption in supply chain due to shortage in liquidity securing sufficient liquidity for suppliers extended payment periods reduce financial debt regular reports on status of all invoices as well as flexible monitoring opportunities Improvement of cooperative partnership with suppliers Page 15
ErsteConfirming and their suppliers around the world Benefits for suppliers Quick-easyflexible Cash flow management Liquidity Credit worthiness Information and support Invoice management No account needed quick, easy and flexible payment- and financing system decrease in current bank limits no need for conventional loan agreements for suppliers with Erste Group reliable payment of open invoices enhancement of liquidity in balance sheet decrease in outstanding accounts receivables higher credit worthiness of suppliers due to improved financial ratios relief of current banking limits opportunity to obtain favourable refinancing of accounts receivables get information and support via the ErsteConfirming web-platform at any time improvement of speed and efficiency in accounts receivables management suppliers do not need to open an account with Erste Group Page 16
ErsteConfirming We are analysing the supplier base 120% % of purchasing volume 100% 80% 60% 40% 20% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of suppliers --> Experience shows that 80% of purchasing is done with approximately 30% of all suppliers Page 17
ErsteConfirming Financial Statement effects Improvement of balance sheet and P&L Buyer s Balance Sheet Assets Liabilities Equity Supplier s Balance Sheet Assets Liabilities Equity Bank Debt Bank Debt Total assets unchanged Trade creditors + Trade receivables Reduction of total assets Other liabilities Improved financial ratios + Less bank debt, i.e. more liquidity, due to longer payment terms granted by supplier + Improvement of Gearing & Net-Debt:EBITDA Ratio Improved financial ratios + Offload trade receivables from balance sheet + Reduction of bank debt and total assets + Increase of equity ratio + Reduction of Gearing & Net-Debt:EBITDA Ratio Page 18
ErsteConfirming Financial Statement effects Illustrative example underlines win-win-situation Starting Situation / Assumptions Confirming purchasing volume Current payment terms Processing time EUR 500 Mio. 30 days 5 days Refinancing rate 3 Mon Euribor (0,08%bps as of 09-10-14) Potential for optimization - BUYER Potential for optimization - SUPPLIERS Working Capital Facility Buyer 1,0% p.a. (3 Mon. Euribor + 92bps) Assumption: Working Capital Facility (average) 3,3% p.a. (3 Mon. Euribor + 322bps) 1 Extension of payment period + 30 days 1 Earlier receipt of payment by 25 days leads to additional liquidity of EUR 34,3 Mio p.a. 2 Thus increase in Working Capital of EUR 41,1 Mio. p.a. 2 Discounting days amount to 55 days in return favourable Working Capital terms of BUYER applicable 3 Results in potential interest savings of TEUR 411 p.a. and higher Net Income by the same amount 3 Results in potential interest savings of TEUR 377 p.a. Page 19
ErsteConfirming Documentation allows quick implementation of ErsteConfirming Buyer 1. Framework agreement 2. Agreement on the electronic channel 3. Payment agreement 1. Acceptance of Terms & Conditions on the web-platform Supplier 2. Beneficial Owner Form No signed contract on redemption of receivables! No credit contract! No account opening with Erste needed! Page 20
ErsteConfirming key stakeholders For a quick and successful implementation Check with Auditor: bank debt vs. trade payables Secure balance sheet effects Legal / Accounting Finance / Treasury Decision making Project sponsoring Internal coordination and communication Contact persons of Erste Group Data per supplier: Country Purchasing Volume Payment Terms (Currency?) Baskets Evaluation of savings potential Supplier Onboarding Procurement IT Implement interface to your internal ERP software (e.g. SAP) Implement delivery channel of ErsteConfirming file We support you during the implementation process Definition of time schedule Page 21
Agenda 3 Trade- and Export Finance CSAS Page 22
Trade- and Export Finance Česká spořitelna Financing of the receivables Products Forfaiting purchase of account receivables without recourse Purchase of account receivables with recourse Supplier s credit refinancing of the account receivables Commercial contract financing Forms of the account receivables Invoice Bill of Exchange / Promissory Notes Letter of Credit Page 23
Trade- and Export Finance Česká spořitelna Financing of the receivables Main principles for the A/R financing A/R based on the respective commercial contract; A/R with the maturity allowed the utilization of this type of financing; A/R with one-shot repayment or with repayment schedule; Individual or several A/R arising from the respective commercial contract; Satisfactory financial standings of the debtor; Possibility to finance up to 100% of the A/R amount; Cost of financing: respective refinancing rate for the currency and maturity of the A/R, including the Grace Days plus margin; or respective IBOR + margin in case of interest-bearing purchase of receivables; Administration / Management fee; Commitment fee (if applicable); Commercial contract in satisfactory form and wording to the Bank. Page 24
Trade- and Export Finance Česká spořitelna Financing of the receivables Benefits for the Supplier Immediate A/R collection; Transfer of the payment risk to the Bank; Improvements balance sheet structure (cash plus / minus A/R); Improving cash-flow position / accelerated cash flow; Contractual documentation is concluded between Supplier and Bank; Utilization of the client s already approved limit for its sub-suppliers financing. Disadvantage for the Supplier The costs of financing are charged by the purchase of receivables; In case of recourse financing is required evidence of receivables in the Supplier s balance sheet / off-balance sheet; In case of non-payment of debts and recourse financing, pays the unpaid part supplier Page 25
Trade- and Export Finance Česká spořitelna Financing of the receivables Benefits for the Debtor Extension of A/R maturity; Bank is ready to purchase the A/R represented by payment schedule; Improving cash-flow position, prolongation payment obligations over a longer period; It does not utilized the Debtor s credit line; Providing medium / long-term financing without closing the facility documentation. Disadvantage for the Debtor The costs associated with this type financing increase the cost of deliveries. Page 26
Trade- and Export Finance Česká spořitelna Financing of the receivables Requirements for the financing / required documents Acceptable financial standings of the Debtor Acceptable financial standings of the Supplier in case of A/R financing with recourse and Contract financing; Advance payment must be fully paid (if applicable); Commercial contract duly and properly signed, including all attachments in form and wording satisfactory to the Bank; List of invoices submitted for payment; Respective invoices for the milestones deliveries in accordance with the commercial contract; Acceptance clause including the debtor's agreement with the range and quality of deliveries; Page 27
Trade- and Export Finance Česká spořitelna Financing of the receivables Requirements for the financing / required documents Take over protocol declares what part of the work has been implemented and is invoiced; Signatures specimen of the authorized persons to sign the documents mentioned above; Notification of the assignment with the identification of the number of the account at the Bank, as to which the debtor is obliged to pay; Trade Register Certificate of the Debtor and the Assignor not older than 3 months before the signing of the assignment. Page 28
Trade- and Export Finance Česká spořitelna Supplier s Credit Supplier s Credit refinancing of the account receivables Loan granted to the exporters / Bank client; Pledge of receivables in favor of Bank (client remains owner of the assets); Amount of financing 80% of the nominal value of the receivable; Facility utilization one-off or gradual; Cost of financing: Interest rate: respective IBOR + margin, interest payable usually monthly; Administration / Management fee; Commitment fee (if applicable); A/R insurance (commercial insurance, state insurance EGAP, etc.). Page 29
Trade- and Export Finance Česká spořitelna Commercial Contract Financing Commercial Contract Financing requirements Acceptable financial standing of the Supplier and Debtor; Advance payment must be fully paid (if applicable); Commercial contract duly and properly signed, including all attachments in form and wording satisfactory to the Bank; clearly defined payment and delivery terms, the emergence of receivables Amount of financing up to 80% of the Commercial Contract Value (excluding VAT, advance payment, etc.); Profit calculation o the respective orders / deliveries; Utilization of the facility in accordance with the schedule terms of the contract; Cost of financing: Interest rate: respective IBOR + margin, interest payable usually monthly; Administration / Management fee; Commitment fee (if applicable); Facility repayment for production usually by converting the loan to A/R financing; Page 30
Trade- and Export Finance Česká spořitelna Commercial Contract Financing Commercial Contract Financing - Usual Collateral Structure Pledge / assignment of the A/R arising from the respective commercial contract in favour of the Bank Pledge of the movable / intangible assets; A/R insurance provided by the commercial insurers and / or EGAP; Blanco P/N; Requirements for EGAP insurance in case of export contracts. Page 31
Agenda 4 Factoring CSAS Page 32
Factoring České spořitelny Highlights Erste Factoring market share in CEE Erste Factoring in Czech Republic Member of Financial Group of Česká spořitelna 24% 38% 38% 10% 23% 11% Long-term market leader in factoring with receivables turnover 53,5 billion CZK in 2013 with 38% market share Market share of non-recourse factoring almost 60% due to cooperation with all insurance companies on Czech market Member of Factors Chain International - the largest factoring network in the world Founder member of Association of factoring companies in CR Page 33
Factoring České spořitelny European Factoring market Factoring Volume per country in % of GDP (December 31, 2013) 18,00% 16,00% 16,14% 14,00% 12,00% 13,45% 12,50% 11,41% 11,39% 10,00% 9,73% 8,78% 8,13% 7,27% 7,26% 8,00% 6,00% 4,00% 2,00% 6,26% 4,51% 3,55% 2,71% 1,90% 1,48% 0,00% Page 34
Factoring České spořitelny Factoring development in Czech Republic Development of volumes of members of the Association of Factoring Companies of CR (bin. CZK) 160 140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Page 35
Factoring České spořitelny What is Factoring? Assignment of short-term unsecured receivables coming from domestic or export supplies of goods or services Factoring is a package of services including: receivables management (administration, accounting, collection) credit risk cover against non-payment and customer s financial inability (non-recourse factoring) financing of existing receivables Page 36
Factoring České spořitelny Factoring products Factoring of following two types is offered Domestic Factoring Import Factoring Export Factoring Recourse Non Recourse Non Recourse with no payment advances Collections Only Page 37
Factoring České spořitelny How it works? Page 38
Factoring České spořitelny Why use factoring? Client wants to offer to his suppliers or customers longer maturity and needs to speedup and stabilize his cash-flow Client expands in business, but is limited by lower credit limit of the bank Client prefers off-balance sheet financing because: debt ratios are near maximum capacity for the parent company the need to improve financial statements, reduce operating receivables and payables Non-recourse factoring improves working capital and KPIs Client prefers outsoucing of managemet of receivables to specialized company Client has no experience with customer payment history and wants to secure the supplies Page 39
Factoring České spořitelny Off-balance Factoring A one-time non-recourse sale of receivables by the end of fiscal year to Erste Factoring (can be also used on regular basis for creditworthy buyers) Widest range of options to insure domestic and foreign customers against insolvency of customers and unwillingness to pay from customer side Speeding and stabilization of cash-flow thanks to advance payments received immediately after the assignment of receivables Usage of advanced payments for payments to client s suppliers offering discounts for faster payment A comprehensive system of receivables management and financing every invoice is managed separately access to factoring system via the web interface possibility of data transfer and automated billing Page 40
Factoring České spořitelny Off-balance Factoring example scheme Without Factoring With Factoring Off-balance Factoring ASSETS 100 100 60 Fixed assets 30 30 30 Current assets 70 70 30 Money 5 45 5 Short-term receivables 50 10 10 Inventories 15 15 15 LIABILITIES 100 100 60 Equity 30 30 30 Profit 5 5 5 Other sources 70 70 30 Bank loans 50 50 10 Short-term payables 20 20 20 Without Factoring Off-balance Factoring Indebtedness 70% 50% Bank loans / Assets 50% 17% ROA 5,0% 8,3% Off-balance sheet form - improves balance and reduces debt ratios Page 41
Factoring České spořitelny Solutions Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Client Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Factoring offer to selected suppliers from client and Erste Factoring Non-recourse or recourse factoring to spread of domestic and abroad customers Extending maturity to client s customers and suppliers Page 42
ErsteConfirming Contact Persons Committed to a successful cooperation Robert Konrad Erste Group Bank AG Group Transaction Banking Sales Tel: +43 50100 16654 Mobile: +43 50100 616654 E-Mail: robert.konrad@erstegroup.com Eva Degenhart Erste Group Bank AG Group Transaction Banking Product Management Tel: +43 50100 18024 Mobile: +43 664 838 96 26 E-Mail: eva.degenhart@erstegroup.com Page 43
Trade- and Export Finance Česká spořitelna Contact persons: Lenka Tomanová Director Project & Export Finance Phone: +420 956 714 020 E-mail: ltomanova@csas.cz František Šindler Head of Structured & Export Finance Team Phone: +420 956 714 018 E-mail: fsindler@csas.cz Page 44
Contact Persons Martin Stepka Factoring České spořitelny,a.s. Commercial Director Tel: +420 956 770 711 Mobile: +420 602 217 315 E-Mail: martin.stepka@factoringcs.cz Andrej Šebeš Director, Large Corporates III Erste Group Bank Česká spořitelna, a.s. Erste Corporate Banking Evropská 2690/17, 160 00 Praha 6 Czech Republic tel.: + 420 224 995 934 fax: + 420 224 641 520 mob.: + 420 724 128 073 mailto:asebes@csas.cz www.erstecorporatebanking.cz Page 45
Disclaimer Important Notice This document is intended solely for the use of the recipient. This document was created by Erste Group. The information herein has been obtained from, and any opinions herein are based upon, sources believed to be reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. This document is for information purposes only. It is not intended to be an offer or the solicitation of an offer to buy or sell any securities referred to herein, nor does it constitute a recommendation or investment advice. All opinions, forecasts and estimates herein reflect our judgment or the judgment of our external advisors as of the date of this document and are subject to change without notice. While this document has been prepared in good faith, we cannot accept responsibility for the accuracy of the information contained herein and the recipient should not rely on it as a substitute for an independent review, and this specifically includes the balance sheet and P&L simulation results displayed in this presentation. The information prepared by external advisors incorporated into the document consists of general information on accounting matters. It has not been verified independently and does not purport to be complete, nor should it be relied upon solely of itself or in the context of the document. Erste Group makes no representation or warranty of any kind (express or implied) that the information provided to us by our external advisors is complete, true, accurate, upto-date or non-misleading, and Erste Bank assumes no liability whatsoever (in negligence or otherwise) as to the accuracy, reliability or completeness of such information. If the recipient has any specific questions about any legal or accounting matter, it should consult its attorney, accountant or other professional or legal services provider. Erste Group is not liable for any damage that arises in connection with the information contained herein. This document may not be reproduced, distributed or published without the prior consent of Erste Group. Page 46