supply chain finance solutions -...

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Supply Chain Finance solutionsa win-win proposition for Corporate Clients and their suppliers

Prague, 30.10.2014

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Introduction� Corporate Solutions approach� Supply chain finance - an important and growing topic for corporates� What is SCF, Reverse Factoring or Confirming?

Agenda

2

11

22

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ErsteConfirming - The product� How does it work? � ErsteConfirming web-platform� Win-Win for buyers & their suppliers � Financial effects incl. illustrative example� Documentation

Factoring CSAS

Practical Experiences & Discussion55

33 Trade- and Export Finance CSAS

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Introduction� Corporate Solutions approach� Supply chain finance - an important and growing topic for corporates� What is SCF, Reverse Factoring or Confirming?

Agenda

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11

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Profound client analysisProfound client analysis

� Evaluation of client´smarkets & business model(macro & industry environment, production & distribution profile , import & export dependencies, supply chain analysis , competitive picture etc.)

Corporate Profile

� 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

Capital Structure

� 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?

Financial Risk Management

� Identify tailor made product sales opportunities

� Define Erste Group product fit withclient strategy & business model

� Foster PAM recognition with client as trusted advisor for strategic dialogue

� Identify KPIs important to the customer and his business model

Business potential evaluation

Supply Chain Finance and Corporate Solutions approachSupply 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

Strategic Dialogue ExecutionStructuring

LCSolutions

Client Executive

Product Units & Sales

Origination

Mid/Back Office

Deal Team Support

Early involvement & expert advice along business ac quisition cycleEarly involvement & expert advice along business ac quisition cycle

Large Corporates DivisionCorporate Solutions: Our approach to assess client needs

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European SCF market statisticsEuropean SCF market statistics

5

25%

10%65%

payables Finance

Inventory and pre-shipment financing

Receivables Finance

Source: Aite Group; EBA SCF European Market Guide 2nd edition, CaixaBank

Supply Chain Finance MarketUpdate on the current market situation

� European invoice finance market worth over 1 trillion EUR

~ 8% of EU GDP and > 8% of total bank lending3x leasing volume

� e.g. in Spain total market volume of Confirming/Reverse Factoring has reached already ~ 55 billion EUR p.a.

� SCF market growth rates range from 10% to 25%. Trends imply further increase

Distribution of SCF instrumentsDistribution of SCF instruments

SCF is a growing topicReasons behind the importance of SCF solutions

Optimization of working capital is on the top of the agenda for Buyers & suppliers

Safeguarding sufficient liquidity headroom and improving financial results is crucial

Securing stable supply chain is a central concern

Trend towards open account trading

Continued and increasing tension between trade partners around payment terms

Banks continue to enforce strict lending requirements (Basel III), hence borrowing isdifficult for SME businesses.

1

2

3

4

5

6

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Which of the following best describes your company ´s current position relating to SCF?Which of the following best describes your company ´s current position relating to SCF?

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Corporate clients’ position and plans on SCFThoughts of European corporate Treasury professionals on SCF

Source: Eurofinance 5-click survey Supply Chain finance; 24th March 2014, respondents: 245 corporate treasury professionals

8%

10%

25%

2%

12%

8%

8%

27%

0% 5% 10% 15% 20% 25% 30%

Not interested

Investigated but declined

Interested but not investigated/not a priority

Procurement processes are in place

SCF being investigated

SCF programme being planned

SCF programme being implemented

SCF programme in place+

+

+

+

+

+

-

-

� SCF is established and set to grow� 27% of participants have a SCF

programme in place.� Further 25% are investigating,

planning or implementing.

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Which TWO of the following are the most important d rivers of a SCF program in your company?Which TWO of the following are the most important d rivers of a SCF program in your company?

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Corporate clients’ position and plans on SCFThoughts of European corporate Treasury professionals on SCF cont‘d

Source: Eurofinance 5-click survey Supply Chain finance; 24th March 2014, respondents: 245 corporate treasury professionals

9%

9%

17%

31%

34%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Enhanced visibility & control

Supplier risk management

Strenghten the supply chain

Better use of liquidity

DPO extension/improved working capital

Source: EBA, SCF European Market Guide 2nd edition 2014

SCF solutions solve a dilemma between buyers and su ppliers……and frees up liquidity bound in the supply chain!

Approved payables finance (also known as Reverse Factoring or Confirming)Approved payables finance (also known as Reverse Factoring or Confirming)

PROCUREMENTPROCUREMENT

Supply Chain FinanceSupply Chain Finance

Accounts payable-centricAccounts payable-centric

Dynamic DiscountingDynamic Discounting

Other SCFOther SCF

Pre-shipment or purchase based financePre-shipment or purchase based finance

Inventory financeInventory finance

SALESSALES

Accounts receivable-centricAccounts receivable-centric

Receivables purchaseReceivables purchase

RelatedRelated

Documentary Trade Finance, Bank payment obligation, Asset-based lending, Payments and foreign exchange

Documentary Trade Finance, Bank payment obligation, Asset-based lending, Payments and foreign exchange

Invoice discountingInvoice discounting

FactoringFactoring

ForfaitingForfaiting

SCF solutions solve a dilemma between buyers and suppliers …

…and free up liquidity bound in the supply chain!

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Agenda

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22

ErsteConfirming - The product� How does it work? � ErsteConfirming web-platform� Win-Win for buyers & their suppliers � Financial effects incl. illustrative example� Documentation

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� ErsteConfirming is an easy-to-use cash-management and financialservice tool of Erste Group and it´s local entities, created for ourcorporate clients and their suppliers to advance confirmed but stillopen invoices .

� We are able to discount the supplier’s invoices at attractive ratesautomatically 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-useapplication, by the suppliers.

� We advance confirmed invoices either automatically or upon request .

� The payment of the confirmed invoice must be effected by the buyerto the bank on due date .

ErsteConfirming offers a complete service packageErsteConfirming offers a complete service package

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ErsteConfirmingAutomated reverse factoring solution of Erste Group

ErsteConfirmingHow does it work?

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� 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

Invoice

File

Offer

FeesInterest

DebitAmount

Due Date

Pay-outAmount

InvoiceAmount

Supplier

BuyerDiscounting

Period

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ErsteConfirmingProcess is simple and straightforward

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Benefits for the buyer

Extended payment periods and lower interest expenses

� possibility to negotiate an extension of payment periods� take advantage of trade credit� reduction in net financial debt and financing costs

Negotiationposition

� 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

Payment management

� facilitation of accounts payable management� lower administrative costs (enquiring gets obsolete)

Secure liquidityfor supplier base

� lower risk of interruption in supply chain due to shortage in liquidity� securing sufficient liquidity for suppliers

Financial Ratios & Rating � extended payment periods reduce financial debt

Status reports � regular reports on status of all invoices as well as flexible monitoring opportunities

Supplierrelationship � Improvement of cooperative partnership with suppliers

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ErsteConfirmingBeneficial to our corporate clients…

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Benefits for suppliers

Quick-easy-flexible

� quick , easy and flexible payment- and financing system� decrease in current bank limits� no need for conventional loan agreements for suppliers with Erste Group

Cash flowmanagement � reliable payment of open invoices

Liquidity� enhancement of liquidity in balance sheet� decrease in outstanding accounts receivables

Credit worthiness� higher credit worthiness of suppliers due to improved financial ratios� relief of current banking limits� opportunity to obtain favourable refinancing of accounts receivables

Information and support � get information and support via the ErsteConfirming web-platform at any time

Invoicemanagement � improvement of speed and efficiency in accounts receivables management

No account needed � suppliers do not need to open an account with Erste Group

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ErsteConfirmingand their suppliers around the world

0%

20%

40%

60%

80%

100%

120%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

% o

f pur

chas

ing

volu

me

% of suppliers

ErsteConfirmingWe are analysing the supplier base

--> Experience shows that 80% of purchasing is done with approximately 30% of all suppliers--> Experience shows that 80% of purchasing is done with approximately 30% of all suppliers

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+ Less bank debt , i.e. more liquidity, due to longer payment terms granted by supplier

+ Improvement of Gearing & Net-Debt:EBITDA Ratio

+ Offload trade receivables from balance sheet

+ Reduction of bank debt and total assets

+ Increase of equity ratio

+ Reduction of Gearing & Net-Debt:EBITDA Ratio

Buyer’s Balance Sheet Supplier’s Balance Sheet

Improved financial ratios Improved financial ratios

Equity

Trade receivables

Bank Debt

Reduction of total assets

Other liabilities

Assets Liabilities

Equity

Bank Debt

Total assets unchanged

Trade creditors

Assets Liabilities

+

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ErsteConfirming Financial Statement effectsImprovement of balance sheet and P&L

Potential for optimization - BUYERPotential for optimization - BUYER Potential for optimization - SUPPLIERSPotential for optimization - SUPPLIERS

(3 Mon. Euribor + 92bps)Working Capital Facility Buyer 1,0% p.a.

(3 Mon. Euribor + 92bps)

Results in potential interest savings of TEUR 411 p.a.and higher Net Income by the same amount

Extension of payment period + 30 days

Thus increase in Working Capital of EUR 41,1 Mio. p.a.

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33

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Assumption: Working Capital Facility (average) 3,3% p.a.(3 Mon. Euribor + 322bps)

Results in potential interest savings of TEUR 377 p.a.

Earlier receipt of payment by 25 days leads to additional liquidity of EUR 34,3 Mio p.a.

Discounting days amount to 55 days – in return favourable Working Capital terms of BUYER applicable

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Starting Situation / AssumptionsStarting Situation / Assumptions

� Confirming purchasing volume EUR 500 Mio.

� Current payment terms 30 days

� Processing time 5 days

� Refinancing rate 3 Mon Euribor (0,08%bps as of 09-10-14)

ErsteConfirming Financial Statement effectsIllustrative example underlines win-win-situation

1. Framework agreement

2. Agreement on the electronic channel

3. Payment agreement

Buyer

1. Acceptance of Terms & Conditions on the web-platform

2. Beneficial Owner FormSupplierNo signed contract on redemption of receivables!No credit contract!No account opening with Erste needed!

ErsteConfirmingDocumentation allows quick implementation of ErsteConfirming

ErsteConfirming key stakeholdersFor a quick and successful implementation

� Decision making

� Project sponsoring

� Internal coordination and communication

� Contact persons of Erste Group

� Check with Auditor: bank debt vs. trade payables

� Secure balance sheet effects

� 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

Data per supplier:� Country� Purchasing Volume� Payment Terms (Currency ?)� Baskets� Evaluation of savings potential� Supplier Onboarding

Procurement IT

Legal / Accounting

Finance /Treasury

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Agenda

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33 Trade- and Export Finance CSAS

Trade- and Export Finance Česká spo řitelnaFinancing of the receivables

� Forfaiting – purchase of account receivables without recourse� Purchase of account receivables with recourse� Supplier´s credit – refinancing of the account receivables� Commercial contract financing

� Invoice� Bill of Exchange / Promissory Notes� Letter of Credit

ProductsProducts

Forms of the account receivablesForms of the account receivables


� 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.

Main principles for the A/R financingMain principles for the A/R financing


� 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.

� 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

Benefits for the SupplierBenefits for the Supplier

Disadvantage for the SupplierDisadvantage for the Supplier


� 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.

� The costs associated with this type financing increase the cost of deliveries.

Benefits for the DebtorBenefits for the Debtor

Disadvantage for the DebtorDisadvantage for the Debtor


� 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;

Requirements for the financing / required documentsRequirements 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.

Requirements for the financing / required documentsRequirements for the financing / required documents

Trade- and Export Finance Česká spo řitelnaSupplier´s Credit

� 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.).

Supplier ´s Credit – refinancing of the account receivablesSupplier ´s Credit – refinancing of the account receivables

Trade- and Export Finance Česká spo řitelnaCommercial Contract Financing

� 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;

Commercial Contract Financing – requirementsCommercial Contract Financing – requirements

Trade- and Export Finance Česká spo řitelnaCommercial Contract Financing

� Pledge / assignment of the A/R arising from the respective commercial contract in favourof 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.

Commercial Contract Financing - Usual Collateral Str uctureCommercial Contract Financing - Usual Collateral Str ucture

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Agenda

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44 Factoring CSAS

Factoring České spo řiteln y

Erste Factoring market share in CEEErste Factoring market share in CEE Erste Factoring in Czech RepublicErste Factoring in Czech Republic

• Member of Financial Group of Českáspořitelna

• 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 offactoring companies in CR

Highlights

23%

38%

38%

11%

24%

10%

Factoring České spo řiteln yEuropean Factoring market

Factoring Volume per country in % of GDP (December 31, 2013)Factoring Volume per country in % of GDP (December 31, 2013)

16,14%

13,45%12,50%

11,41% 11,39%

9,73%8,78%

8,13%7,27% 7,26%

6,26%

4,51%3,55%

2,71%1,90% 1,48%

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

14,00%

16,00%

18,00%

Factoring České spo řiteln yFactoring development in Czech Republic

0

20

40

60

80

100

120

140

160

2005 2006 2007 2008 2009 2010 2011 2012 2013

Development of volumes of members of the Associatio n of Factoring Companies of CR (bin. CZK)Development of volumes of members of the Associatio n of Factoring Companies of CR (bin. CZK)

Factoring České spo řiteln yWhat is Factoring?

Assignment of short-term unsecured receivablescoming from domestic or export supplies of goods

or services

• receivables management (administration, accounting, collection)

• credit risk cover against non-payment and customer‘s financial inability (non-recourse factoring)

• financing of existing receivables

Factoring is a package of services including:Factoring is a package of services including:

Factoring České spo řiteln yFactoring products

� Domestic Factoring� Import Factoring� Export Factoring

� Recourse � Non Recourse� Non Recourse

with no payment advances

� Collections Only

Factoring of following two types is offeredFactoring of following two types is offered

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Factoring České spo řiteln yHow it works?

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Factoring České spo řiteln yWhy use factoring?

� Client wants to offer to his suppliers or customers longer maturity and needs to speed-up 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 thesupplies

Factoring České spo řiteln yOff-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 ofcustomers and unwillingness to pay from customer side

� Speeding and stabilization of cash-flow thanks to advance payments receivedimmediately after the assignment of receivables

� Usage of advanced payments for payments to client’s suppliers offering discounts forfaster 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

Factoring České spo řiteln yOff-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 d ebt ratios

Factoring České spo řiteln ySolutions

Customer 1

Customer 2

Customer 3

Customer 4

Customer 5

Non-recourse or recourse factoring to spread of domestic and abroad customers

Supplier 1

Supplier 2

Supplier 3

Supplier 4

Supplier 5

Client

Factoring offer to selected suppliers from client and Erste Factoring

Extending maturity to client’s customers and suppliers

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Eva DegenhartErste Group Bank AGGroup Transaction Banking Product ManagementTel: +43 50100 – 18024Mobile: +43 664 838 96 26E-Mail: [email protected]

Robert KonradErste Group Bank AGGroup Transaction Banking SalesTel: +43 50100 – 16654Mobile: +43 50100 – 616654E-Mail: [email protected]

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ErsteConfirming Contact PersonsCommitted to a successful cooperation

Trade- and Export Finance Česká spo řitelnaContact persons:

Lenka TomanováDirector Project & Export FinancePhone: +420 956 714 020E-mail: [email protected]

František ŠindlerHead of Structured & Export Finance TeamPhone: +420 956 714 018E-mail: [email protected]

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Martin StepkaFactoring České spořitelny,a.s.Commercial DirectorTel: +420 956 770 711Mobile: +420 602 217 315E-Mail: [email protected]

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Contact Persons

Andrej ŠebešDirector, Large Corporates IIIErste Group BankČeská spořitelna, a.s.Erste Corporate BankingEvropská 2690/17, 160 00 Praha 6 Czech Republictel.: + 420 224 995 934 fax: + 420 224 641 520 mob.: + 420 724 128 073 mailto:[email protected]

Disclaimer

This document was created by Erste Group. The information herein has been obtained from, and any opinions herein are basedupon, 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 anysecurities referred to herein, nor does it constitute a recommendation or investment advice. All opinions, forecasts and estimatesherein reflect our judgment or the judgment of our external advisors as of the date of this document and are subject to change withoutnotice. While this document has been prepared in good faith, we cannot accept responsibility for the accuracy of the informationcontained herein and the recipient should not rely on it as a substitute for an independent review, and this specifically includes thebalance sheet and P&L simulation results displayed in this presentation. The information prepared by external advisors incorporatedinto the document consists of general information on accounting matters. It has not been verified independently and does not purportto be complete, nor should it be relied upon solely of itself or in the context of the document. Erste Group makes no representation orwarranty of any kind (express or implied) that the information provided to us by our external advisors is complete, true, accurate, up-to-date or non-misleading, and Erste Bank assumes no liability whatsoever (in negligence or otherwise) as to the accuracy, reliabilityor completeness of such information.

If the recipient has any specific questions about any legal or accounting matter, it should consult its attorney, accountant or otherprofessional or legal services provider. Erste Group is not liable for any damage that arises in connection with the informationcontained herein. This document may not be reproduced, distributed or published without the prior consent of Erste Group.

Important Notice

This document is intended solely for the use of the recipient.

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