Finance as a competitive advantage On the day when we meet the CEO and the CFO of the Liège-based Gauder Group, the Red Devils, the Belgian football team about to play their quarter-final match for the World Cup, are on everybody s lips. As a leading player in the sale of new and used cable machinery, Gauder is itself in contention for world leadership in the sector, particularly by offering its customers the flexibility of the finance they really want. If you had to describe the activities of the Gauder Group THIERRY COLLARD, CEO OF THE GAUDER GROUP (T.C.): I would first of all consider the design, manufacture and marketing of cable machinery. When Edgar Gauder established the company in 1976, it was essentially involved in the servicing and sale of used cable machinery. Ten years later, Gauder took over a French company, Setic, specialising in rotating cable machines. Then, in 2002, we acquired another French company, Pourtier, integrating its expertise in energy transmission cables. In that way we were able to diversify our range. So what is the difference between Gauder and its competitors? RENAUD ANDRIEN, CFO OF THE GAUDER GROUP (R.A.): By virtue of our specialisation in the used machinery sector as well as new equipment, our range is extremely diversified and we can provide practically every appropriate solution. In periods of recession, companies no longer want to invest in new machines, so the competition, which only offers such equipment, is on the back foot. In our group, on the other hand, we are able to maintain a balance. Our global presence and our comprehensive service are further strong points. We manage complete projects, from design to after-sales service. Our local presence, in the form of our companies, our representative offices and our agent network, is also a trump card. Exports represent 95% of your turnover. Where do you operate? T.C.: By definition, used equipment is reserved for small cable-makers starting up, frequently in developing countries like those in Africa for example. Information transmission cables provide considerable added value, and that explains why our customers for this type of product are in Europe and North America. As for energy cables, these are to be found throughout the industrialised world, including China, Russian-speaking countries, the Middle East and, increasingly, South America. In a country like China, we have both public and private customers. Elsewhere, they are above all private customers or large groups like Alcatel-Lucent Bell, Pirelli and ABB Motors and Generators. 1
Our direct contact with Belfius enables us to give a response in principle in less than a week, even for tailored solutions. RENAUD ANDRIEN, CFO GAUDER GROUP What significant events in Gauder s history make you particularly proud? R.A.: In 2000, we exceeded a billion Belgian francs (25 million euros) for the first time. In 2013, turnover had more than doubled, to 57 million euros. RENAUD ANDRIEN, CFO GAUDER GROUP T.C.: We should also mention that since 1998 our company Setic has held the patent for the manufacture of LAN cables. Any company wishing to manufacture this type of category 8 cable must purchase one of our machines. We should also mention our 2012 agreement with a Greek customer for the construction of a machine to manufacture underwater cable. That was a first. In these sorts of international agreements, has your collaboration with Belfius facilitated matters? R.A.: Certainly. Sometimes financial processes can be complex. Of course you have to be able to deliver the machines, but also and above all you have to be paid for the products you have delivered. Usually, the arrangement is fairly classic, using letters of credit. However, the market and modes of payment have changed. Customers increasingly ask us for solutions other than those involving letters of credit. T.C.: So we asked Belfius what could be done in this regard. The most important aspect for us is to guarantee payment. We work in distant countries with complicated procedures, and access is sometimes difficult, so a specific flow is therefore necessary. 2
What solution did Belfius offer? GAUDER GROUP Creation: Head office: Other establishments: 1976 Chênée, Liège France, China, United States R.A.: In addition to short-term support to finance production and to pay employee s wages as well as fixed charges during the period of manufacture, Belfius made a finance proposal to our customers. They can now pay in instalments, over a period of three to seven years, at interest rates lower than in their own country. The customer repays by bank draft. But one question always arises: what is the insurance situation and how is payment guaranteed? ERIC DEWINGAERDEN, CORPORATE BANKER WITH BELFIUS IN LIÈGE (E.D.): With Patrick Vossen-Jackmar, from our International Trade Finance department, and Daniel Feremans, specialist in Export Finance, we reviewed the finance requirements of Gauder and its customers. The key question was how to help the customer without taking too many risks. Using a system we put in place together, and the cover offered by the Belgian public credit insurer Ducroire, we were able to reduce the hedge risk to less than 5%. Representative offices: Number of staff: Turnover in 2013: Portfolio: www.gaudergroup.com in South America, Brazil and the Middle East 275 57 million euros, of which 95% exports presence in 140 countries, 10,000 customers around the world, and more than 5,000 new machines sold At present there are six instalment payment files ongoing and six others under discussion. RENAUD ANDRIEN, CFO GAUDER GROUP Gauder works with three banks in all. What do you gain from your collaboration with Belfius in your international dealings? R.A.: First of all, Belfius took the position of a partner and actively collaborated in the search for solutions. It was necessary for the bank to make concrete proposals, particularly regarding documents and guarantees. I would also like to emphasise the bank s considerable adaptability. Financial negotiation with the customer on the subject of payment conditions comes at the end of the process, after discussions about the machines themselves and their price. At that point you can see that the customer is ready to sign, but is awaiting a finance proposal. That is the time when we really need the services of a bank like Belfius, since in hardly a week it can give us an agreement in principle and specify the type of finance, the rate and the conditions we can offer. 3
Just now you mentioned a Greek customer wishing to have an underwater cable machine manufactured. Does finance play a major role in this type of agreement? T.C.: Indeed, you can say that finance was a key element in sealing the deal and setting to work. Remember, at that time simply to mention the word Greece would cause people to frown. Belfius went along with us in this seven million euro deal, when other banks showed no enthusiasm. In view of the risks, and the fact that the amount was less than ten million euros, they were not interested. E.D.: We gave a great deal of consideration to this operation, which was not completed in a matter of weeks. We made an in-depth analysis of the Ducroire policy to ensure that it would cover the solvency of the end customer and the risks of default. The bank could not take any risk on the Greek state. Numerous contacts, both with the customer and with Ducroire, enabled us to minimise the risk. In this deal we had a quality end customer and a project of great interest to Gauder. R.A.: The manufacture, delivery and commissioning of our machines take several months. Too frequently, bankers tell us that they do not wish to cover these aspects in view of the risks inherent to this type of operation. Naturally that response is not satisfactory to us, but fortunately the Ducroire policy was enough for Belfius. The bank not only assisted us in establishing the deal and in the overall structuring of the operation, but it also gave us real support when it came to finance. 4
You could say that finance was a key element in sealing the deal and setting to work. THIERRY COLLARD, CEO GAUDER GROUP THIERRY COLLARD, CEO GAUDER GROUP Many other agreements followed? R.A.: Indeed, several projects with comparable finance structures followed the Greek deal. At present there are six instalment payment files ongoing and six others under discussion, of which three will involve finance. The low interest rates are also encouraging a customer in India to sign an agreement worth 3.5 million euros. The fact that we can enhance our ability to sell our machines by offering attractive finance packages gives us a genuine competitive advantage. Does the combined offer of a product and finance slow things down? T.C.: Of course we do not object when a customer asks to use letters of credit. This facilitates things. As for a finance process, it takes places in in several stages: a balance sheet has to be requested and that information has to be passed on to Ducroire. If the customer s balance sheet is high enough to subscribe to an insurance, you then turn to the bank. We should explain that finance gives us an advantage over our competitors since it meets customer requirements. The finance process has been steadily integrated by our company. When our sales staff visit a customer, they can immediately say whether they require a balance sheet in order to establish any necessary finance agreement. R.A.: Although every case has its own specific features, the arrangement established over the years remains the same. Our direct contact with Belfius enables us to give a response in principle in less than a week, even for tailored solutions. Thanks to the bank s adaptability, we have an immediate idea of the rate and the cost of the policy, and that can make all the difference in negotiations. And I am certain that Belfius will be there to assist us if other requirements arise as we progress with our activities. This interview appeared in Contact, a publication of Belfius Bank SA/NV, 44 Boulevard Pachéco, 1000 Brussels - (RLE) Brussels VAT BE 0403.201.185 - FSMA insurance agent n 19649 A Editor-in-Chief: Olivier Onclin. The articles in this magazine are for information purposes only. Consequently, they must not be viewed as specific offers or recommendations to subscribe. Date drafted: 01-10-2014. 5
International Trade Belgium is one of the most open economies in the world. Foreign trade is essential for the growth of our companies. To avoid problems, you as an entrepreneur can always reach your banker for expert advice in how to find a way round possible pitfalls. POSSIBLE RISKS IN INTERNATIONAL TRADE Security Working Capital IMPORTER LATE DELIVERY OF GOODS QUALITY OF GOODS NOT CONFORM TO WHAT WAS AGREED SUPPLIER GOES BANKRUPT: WHAT HAPPENS TO MY DEPOSIT? FINANCIALLY HEALTHY SUPPLIER? SUPPLIER CREDIT INSURANCE TOO LIMITED DEPOSITS NO DEFERRED PAYMENT EXPORTER THEFT OF GOODS FINANCIALLY HEALTHY CUSTOMER? EXCHANGE RATE RISK COMMERCIAL DISPUTE LIQUIDITY POSITION UNDER PRESSURE DUE TO HIGH PRODUCTION COSTS CUSTOMER DEMANDS DEFERRED PAYMENT WHEN NEGOTIATING CONTRACT AND WHAT ABOUT GETTING ADVICE FROM YOUR BANK? I would not have to dip into my cash to pay deposits IMPORTER My supplier would consider me as a good customer I would be sure about the quantity and timing of my delivery I would get deferred payment EXPORTER My profit would be guaranteed despite the exchange rate difference I would be able to extend credit to my customer I would not have to worry about the payment I would be able to face my production costs thanks to the credit from my bank More details: www.belfius.be/commerce international