Business West - Finance Factor

The Finance Factor4th July 2012

Seven Deadly Sins of Raising Finance

Yvette ColesFinance Coach

Finance Workshop Agenda

• Introduction to Programme• The “Seven Deadly Sins” of Raising Finance• Working Capital Management, Budgeting & Tax

Planning• Funding Options for Growth• Invoice Finance• Asset Finance• Financial Planning for Business Owners• Trade Finance• Questions & Next Steps

The “Seven Deadly Sins” of Raising Finance

1) Asking for Too Little, Too Late

• Plan Ahead

• Working Capital Budgeting for Growth

• Capital Expenditure Requirements

• Invest in Relationships

2) Jumping In Without Considering All Your Options

• Banks

• Specialist Finance

• Government Backed Schemes

• Money for Nothing

• Investors

3) Failing to Provide enough Financial Data

• Quality Financial Information is Critical

• Market Research

• Credible Assumptions

• KPIs

• Serviceability - Capital & Repayment

4) Skipping Over non Financial matters

• Business Acumen• Track Record• Culture of Organisation• Management & People• Operations & Processes• Customers• Competition• Risk Management

5) Underestimating what`s involved in Investment

• Challenges

• Timeframes

• Personal Commitment

• Due Diligence

• Negotiations

• Valuation

6) Not being sufficiently Attractive to Investors

• Investors Options

• Reality of Success

• Growth Potential

• USP

• IP

• Exit Strategy

7) Not Delivering a Great Pitch

• Plan

• Prepare

• Practice

• Props

• Professional Support

Remuneration Planning, Capital Allowances & R&D Tax Credits

Martin AtkinsFrancis Clarke Accountants

Understanding Finance For Business

TAX, TAX, TAXMartin Atkins

Subjects to Cover

• A little about us

• Budgeting, Cashflow and Working Capital

• Remuneration Planning

• Capital Allowances

• Reliefs for Innovation (R&D and PatentBox)

A Little About Us…

• Established over 90 years

• 7 offices across region

• Over 350 staff and 48 partners

• Award winning

Budgeting, Cashflow and Working Capital

• Planning

• Monitoring

• Problems

• Solutions

Remuneration/Tax Planning

• Salary and Dividends

• Income sharing

• Home as office

• Vehicles

• Other sundry items (phone, staff party, goodwill)

Capital Allowances

• Annual allowances

• What qualifies?

• Vehicles

• Retrospective building claims

Reliefs for Innovation

• Research and Development

• PatentBox

Register for access to factsheets, updates and newsletters at

www.francisclark.co.uk

http://www.francisclark.co.uk/

Funding Options for Growth

Yvette ColesFinance Coach

Funding Options for Growth

• Bank

• Alternatives

• Debt

• Equity

• Grants

Business Challenges

• Economic recovery – do we or don’t we?• Business as usual or opportunity = RISK• Intention to expand – but have the tools in place to support?• Connected – Global Marketplace• Right people/skills? • Available resources/funding?• Network – who to ‘tap into’ and when?

Business Evolution•

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Current Finance Landscape

• Banks – “Open for Business”??• Risk Profile• Financial Packaging – Capital

Expenditure/Working Capital/Expansion• Asset Finance• Invoice Finance• Solutions For Business Schemes

Banks

• Risk • Overdrafts & Loans• Ability to Repay = Serviceability• Financial Viability (Ratios)• Security• Track Record

Enterprise Finance Guarantee (EFG)

• Replaces SFLGS• Accredited Lenders• Min £1k Max £1m• Refinance of existing debt• Government Guarantee 75% on debt• 2% premium• Personal Security

Other Lenders (Debt)

• South West Loan Fund

• Funding Circle

• Regional Growth Fund – Assisted Asset Purchase

• Cleantech Fund

Grants

• R & D Grant – TSB

• EU Grants – EEN

• Environmental – IYRE

• Grant for Business Investment (GBI)

Equity Sources

Investment for shares in a Limited Company

• Dragons Den!• Friends, Family, Staff• Crowd Funding• Angel Investors• SWAIN• Venture Capital – YFM Ventures• Private Equity• Flotation/AIM listing

Characteristics of Equity

• Risk Capital• Ownership dilution• No interest cost but high returns required• No Security• No repayment until maturity• Potential skills of investor• Leverage for debt

Equity Statistics

• Most equity invested in mature larger companies

• 6% of private equity into start up & early stage companies

• 5% average success rate with angel investors• Expensive money – ROI 35%+• 6 months average lead time

Investor Attractiveness Criteria

• Management Team – experience & skills• Strong USP – product/service• Growth & future ROI• Strategic assets or defendable IP• Market research & demonstrable demand• Commercial reality & scaleable• High profitability & cash generation• Committed to a credible exit strategy

Investment Ready Process

• Understanding Equity & Investor Attractiveness • Valuing the Business• Deal Structure/Negotiation/Due Diligence• Taxation (SEIS & EIS)• Professional Advisers• Costs• Timing

Invoice Finance

Ruth BethelBibby Finance

Invoice Finance – what it is; how it works;and how it might help your business to grow

Ruth Bethel

Business Development Manager

07889 643625

agenda

1. What is Invoice Finance?2. Factoring – a description 3. Invoice Discounting – a description 4. What it costs5. How to apply – what a financier asks for6. Security7. Additional “extras” – credit insurance8. Specialist products offered

9. 1

What is Invoice Finance

Do you ever think – “if everyone paid what they owe me I’d be fine”?

Well invoice finance solves that cashflow dilemma, where customers will pay you next month (or the month after) but you have wages or suppliers to pay this month.

You send a copy of your invoices to your financier and they advance you a percentage of the gross invoice value.

Typically this is 75%-85%

You receive it usually the day after you upload (or email) the invoice(s) to the financier

You get the rest, less the financier’s fee, when your customer pays.

Factoring

Factoring offers you cash

against your invoices PLUS the

factor will do your credit control

and sales ledger administration

for you.

This can be done either in the name

of the factor or confidentially – as if

you were doing it yourself.

Factoring- money plus credit control

You issue your invoices to your customer and send copies to your factor. You have your money a day or so later – and leave the credit control to the factor. You should have a dedicated professional credit controller who will work hard to develop good relationships with you AND your customers. The factor will phone, email and write to the customers, and send monthly statements.

Invoice Discounting

Invoice discounting just offers advances against invoices without any credit control service.It is usually offered to businesses that are large enough to have their own credit controller and can prove that they are effective in managing their sales ledger and collection of money – the financier wants to make sure they get repaid!The business will need to provide regular management information to the financier and reconcile ledgers to them monthly.The financier will also audit the business regularly.

What does it cost?There are two elements of the cost.

1. Service charge – expressed as a percentage of the annual factored or discounted turnover.

This is usually subject to a minimum annual cost;

e.g. T/O £400k. Service fee 1.5% subject to an annual minimum charge of £5,500.

2. Discount (interest by another name) on the money advanced. Typically between 5%-8% per annum. E.g. If a business’s average advance was £100,000 all year round, they would pay between £5000 and £8000 discount (interest)

How to apply – what a financier looks for

Criteria is more stringent for invoice discounting. This is a higher risk product for a financier, so businesses usually have to be established with a history of making profits. They also must demonstrate ability to collect their debts and run a computerised accounts package like Sage. A traceable paper trail is also needed, with proof of deliveries or job sign offs.

How to apply

You need to be prepared to supply both financial and operational information to your potential financier.As well as wanting to know that your business has a future and a game plan, the financier will want to know that your paper trail is robust and that the debt is collectable.Your potential financier may want to conduct an audit of your business which will involve spending most of a day with you

How to apply; the info you will need

Sales ledger (customers who owe)Purchase ledger (supplier/bills to pay)Your latest accounts and/or MIDetails of your major customersExamples of paid and outstanding invoices with paper trail, (delivery notes/sign offs)Proof that your VAT and PAYE are paidYou will need to provide full details of your company and ID for Directors and major shareholders to comply with UK law.

Security

You will be asked for:

A debenture –from a limited Company

Possibly a bill of sale if unlimited

A personal guarantee from Directors

Other priority deeds if appropriate

Addition options: Credit insurance

NOTE: this may not be an option as your financier may insist that you have this protection

Credit insurance covers failure of your customers: i.e. If your customer goes bust the insurance will pay out – provided they agree cover in the first placeLike all insurance, it is up to the insurer to agree to take the riskExpect to pay between 0.5-1.5% of T/O

Specialist products offered

Export factoring. Usually restricted to 20/30% of ledger. 100% available from Bibby Factors International LtdConstruction sector will struggle to get funding as high risk of failure: Exception, Bibby Construction FinanceIT. Again, not a popular sector as products unseen and often subject to disputes.

Thank you for your attentionI will be happy to speak to

individuals during lunchtime if anyone has more

questions after this session

Conclusion and ANY QUESTIONS?

Lunch & Networking

Asset Finance

Oliver NashArmada Finance

Independent Financial Planning for Business Owners

Martyn SullivanSt James Place

Martyn Sullivan BA (Hons) DipCIIAssociate Partner

Financial Planning for Business Owners

The Partner Practice represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Services Authority) for the purpose of advising

solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. ‘The St. James’s Place Partnership’

and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place Representatives

http://www.sjp.co.uk/products

Purpose of today

• Introduction

• RDR

• Shareholder protection

• Loan protection

• Key man protection

• Gender Neutral Pricing

• Pension Reform

• Close and Questions

Introduction

Introducing St. James’s Place Wealth Management

• An award-winning, FTSE-250 Company

• Founded in 1991 by Lord Jacob Rothschild,

Sir Mark Weinberg and Mike Wilson

• Providing tax-efficient wealth management solutions to private and corporate clients.

• £31.5 billion client funds under management

• Over £24 million donated to the St. James’s Place Foundation

Wheel of Corporate Services

RetirementPlanning

Corporate

Protection

Exit Planning

Tax and Accountancy

TrusteeInvestment

InsuranceBroking

Wealth Management

Employee Benefits

GroupPensions

Some of the above will involve services that are separate and distinct from those offered by St. James’s Place

The Retail Distribution Review(RDR)

The Financial Services Profession

• 1985 – UK population 60 million• 365,000 Registered Financial Advisers

• 2007 – UK population 61.7 million• 57,000 Registered Financial Advisers

• 2009 – UK population 62 million• 25,000 Registered financial advisers

• How many advisers are expected to be left standing post 2012?

The Financial Services Profession

By 2012 it is estimated there will be

only 10,000 qualified professional advisers…….and with a UK population

of 62.3 million.

Worrying statistics……..

• 95% of businesses have at least one key individual.• 43% of businesses have unprotected corporate debt• 39% of business owners expected their businesses to

fold within 18 months of the death or critical illness of a key person

• A third of businesses (33%) have no Share Protection in place.

• 58% of businesses have no formal agreement to establish what would happen in the event of the death or critical illness of a business owner.

Source: L & G Business Protection Research

Key questions?

• How will you continually cover your costs / make a profit??

A great many business owners we speak to currently are managing to cover wages and no more..• How will you cope if a key employee dies or is

unable to work?• How will you eventually exit your business?• What happens to your business if you die/a

business partner dies?• Will your family be looked after? • Will your business partner/yourself be looked after?• What plans have you made to lessen the impact of

forthcoming and future legislation changes?

SHAREHOLDER PROTECTION

Aim

This section is designed to provide an overview of shareholder protection, the issues and tax position of this type of planning

Agenda

• Why is shareholder protection important?

• Calculating the value of the company

• How do you write shareholder protection?

• The shareholder agreement

• Wills

Why is shareholder protection important?

• Business continuity

• Funds are available to the people who want to

buy the shares

• To improve the tax position on the death of a

shareholder

• The deceased’s estate receives the funds in a

timely manner

Calculating the value of the company

• Multiple of maintainable profits

• Dividend Yield

• Net Assets

• How providers assess the level of life cover

How do you write shareholder protection?

• Own Life Plan

• Business Trust

• Equalisation of premiums

• Critical Illness Cover

The shareholder agreement• Why set up a shareholder agreement?

• Cross Option Agreement

• Single Option /Critical Illness

• Buy and sell agreement

Wills

• Why should Wills be reviewed?

• How to structure the Will correctly

• Working example

Shareholders =

Life Assured

Co-Shareholders

Beneficiaries =

Co-Shareholders

Discretionary TrustShareholder’s Will

Policy

placed in trust

Proceeds of Policy

Proceeds exchanged for shares

Shares passed via will/trust

Key Person Protection

Aim

This session is designed to provide an overview of key person protection the issues

and tax position of this type of planning

Key Person Protection

Who is a key person?

Why is Key Person protection important?

• Loss of profit – key sales person

• Minimise business interruption – future projects /

important contacts

• Loan Protection – Is KP guarantor with the bank

for loan?

• Business start up – combination of key individual

skills in early stages

• Management buy out – Investors/backers request

cover for managers key to success

How to structure key person cover?

• Life cover

• Income Protection

• Critical Illness Cover

How do you calculate the cover required?

• Multiple of profits – 2 x gross profit; or 5 x net profit (higher in some cases)

• Multiple of salary – up to 10 x gross salary

• Proportion of salary roll – contribution to turnover / can be distorted via low salary, high dividends

• Outstanding Loans

Questions to consider• If a key person died what would be the effect on the

business value?

• How long would it take to replace a key person?

• How much would it cost to replace a key person?

• Do any of the Directors or Partners have outstanding

loans to the business?

• Will the business be able to service their existing loans

on the loss of one of their key people?

LOAN PROTECTION

Loan Protection

What is it for?

Businesses, partnerships and sole traders need to borrow for:• New machinery• New premises• Credit or overdraft facility• General development/expansion

Amount of cover = sum of the above

Tax treatment...

Taxation of premiums• Premiums are not an allowable deduction from

profits• They are regarded as part of the cost for raising

the capitalTaxation of benefits• Generally not liable to Corporation Tax• Treated as a capital receipt and not taxed

Loan Protection

Corporate Protection

Summary...

Key Person Protection is to

replace loss of profits caused by the death or serious illness of

the key person

Loan protection is to repay

outstanding debts or loans in those circumstances

Shareholder Protection is to ensure that both the family members and co-shareholders

are protected on death/critical illness of

a shareholder.

Gender Neutral Pricing

Agenda

• Changes in protection pricing• Important Considerations

Gender Neutral Pricing• Challenge by Belgian consumer group, Test-

Achats, regarding car insurance• European Court of Justice ruling 1 March 2011• Cannot use gender to charge different premium

rates• No appeal allowed• Effective from 21 December 2012• Life assurance, pension annuities, car insurance

Possible Effect on Protection• Female life and critical illness cover up by 20 –

25%• Male income protection rates up by 10 – 20%• Female income protection rates down by 15 –

25%• Actual changes unknown but rates will change

Act Now• Plan must be issued by 21 December• Application status is not issued• Applications needing underwriting to providers by

September• Providers may impose gradual increases at any

time

Summary

• Protection rates are at an all time low

• ACTION– If you need to audit your protection

arrangements then act now with the view to secure protection rates before the costs rise

Pension Reform - Auto Enrolment

Source: Daily Express, 18 May 2011

Source: Daily Telegraph, 29 August 2011

More people having to defer retirement

Millions must work after 70

Source: Daily Mail, 15 January

2011

Half of pensioners too broke to stop work

Headlines….

We are all living longer!!

We will all be working longer!!

We will all inherit less “The Parent Trap”!!

Issues to consider….

A third of today’s babies will live to be 100

Source: Daily Telegraph, 27 March 2012

“Till death us do work….Children born today may have to

wait until they are 80 before they can retire”

Source: Metro, 22 March 2012

The Over 75’s• 2008, 9.5 Million people were

aged 75 or over• By 2033 this will increase to

17.3 Million• Businesses will have to adapt!

Source: Daily Mail December 2012

“Many millions of us will be spending around a third of our

lives or more in retirement”

Source: Steve Webb, Pensions Minister, December 2010Source: Steve Webb, Pensions Minister, December 2010

Most believe “retirement is over”Nearly three quarters of people

believe retirement as we currently understand it will not

be possible in the future

Source: BBC Newsnight, 7 September 2010

“Where as it used to be the case that up and coming generations tended to be

more prosperous than their parents, now we’re going

to be in reverse”

Source: Historian, Jeremy Black

“Work until 70 to pay for your

old age”

Source: Daily Telegraph – 3 January 2012

Retirement Provision• 4 in 10 companies said that by 2020, staff

will work to 67.• 1 in 6 companies expect Retirement age to

be between 68 and 70.• 9 out of 10 workers will work part-time/set-

up own business to supplement income.• 9 out of 10 final salary schemes shut to new

members.

Source: Daily Telegraph – 3 January 2012

Alarming decline in saving for retirement

Source: Daily Telegraph – 30 December 2011

Income needs in retirement are not smooth or certain

Income

Age

Active Life –Higher Income

Less Active –Lower Income

Residential Care –Higher Income

Back to the Future!

Life used to be easy!

£ £Do you want a small one or a big

one?

Back to Basics• How are you going to afford to retire?

• My business is my pension?• Inheritance?• Downsizing?• Property portfolio?• Investment Portfolio?• Pension portfolio?

• What does retirement look like for you?

• Are you prepared to work until 75?

• What provisions have you made

already?

Workplace Pension Reform• The Government wishes to promote personal

responsibility for retirement savings• State Pensions are currently unaffordable

and this will only get worse as we live longer• The current pension system does not reach all of

the UK population• Employers will share the responsibility (and

cost) of employees retirement• Auto enrolment ensures employees join an

employer’s pension scheme• Where no employer scheme exists then a

Qualifying Workplace Pension Scheme (QWPS) will need to be established. The National Employment Savings Trust (NEST) is an example of one.

Timetable• Auto enrolment will start from 1 October

2012• Exception – large employers with 50,000 or

more employees are able to start earlier• Start date (known as the staging date) for

individual employers depend on size and PAYE reference

• Employers with several PAYE numbers, start from the earliest date

• Minimum contribution rates phased in over a 4 year period commencing October 2012.

Minimum Contributionsof ‘Banded Earnings’

Minimum Employer

Minimum Employee Tax Relief

Oct 2012 – Sep 2017 1% 0.8% 0.2%

Oct 2017 – Sep 2018 2% 2.4% 0.6%

From October 2018 3% 4% 1%

Auto enrolment - the basics!

• Employees aged 22 to State Pension Age and• Working or ordinarily working in the UK and• Earning more than the ‘income trigger’ for

automatic enrolment (£8,105 in 2012/13) and• Not currently in a QWPS.

Auto enrolment - the basics!• Default: Must be auto enrolled into a QWPS within

one month of the later of:– the employer’s staging date– date of joining the employer– attainment of age 22– exceeding the ‘income trigger’.

• An employer can use the optional waiting period of three months rather than the default one month before an employee needs to be automatically enrolled.

Qualifying Workplace Pension Scheme (QWPS)

• All employers must automatically enrol employees into a QWPS

• Note there will be no exemptions!• Includes business owners employing their spouse!• Employers will be able to certify that their current

Defined Contribution scheme meets the required contribution levels but– This scheme may only be used for existing members if

the auto enrolment requirements are met• Where no QWPS already exists, the employer has

to designate an alternative for auto enrolment.

Auto enrolled scheme• Alternative qualifying pension includes a

personal pension or occupational pension scheme

• Employees who choose to opt out have to be automatically re enrolled every three years when they can choose to opt out again

• There is some flexibility around the timing of re enrolment of employees. This allows employers a window of three months before and after the scheduled date

• If an employee volunteers to rejoin, the employer must allow this at least once a year.

Nest (National Employment Savings Trust)

What is NEST?• A QWPS• Designed to meet needs of low to moderate

earners and their employers• Can be used to fulfil auto enrolment duties• A trust based defined contribution scheme• Run by NEST Corporation – a not for profit

corporate trustee • Contributions currently subject to maximum of

£4,200 pa• No transfers in or out permitted, to be reviewed in

2017– Except monies in or out under a pension sharing order

and at retirement to purchase benefits• Charges are 0.3% AMC and contribution charge of

1.8%

Scheme Registration

• The employer must advise The Pension Regulator within four months of the employer’s staging date details of their QWPS

• And they must reconfirm details of the QWPS every three years

Penalties!!

The Pension Regulator will have the ability to impose penalty notices

if an employer does not comply with their new duties

• Fixed penalty of £400 where an employer fails to respond to a warning notice from The Pension Regulator

• An escalating penalty of £50 to £10,000 a day (depending on the size of the employer). For example if the employer fails to pay contributions on time

• Fixed penalty of £1,000 to £5,000 for prohibited recruitment conduct, for example where an employer screens job applicants for their intention to join the pension scheme.

Things for you to consider• What is your staging date?• Can you use an existing scheme if it qualifies

(check with scheme provider)• Are you able to amend an existing scheme to

meet qualifying criteria• Either, set up a new scheme which meets the

qualifying criteria; and/or• Use NEST – for some or all of your employees• Offer a combination of options for different areas

of the workforce.

Assessing the impact on costs and proposed strategies for minimising this

• Review costs of different contribution options (certify alternative to ‘banded earnings basis’)

• Strategies for minimising costs including review of salary sacrifice

• Consider impact on current reward strategy• Review of payroll, HR and admin processes and

relevant support

Where can I obtain more information?

The Pension Regulator (including staging dates)Visit

www.thepensionregulator.gov.uk/pensions-reformCall 0845 600 1011

NESTVisit www.nestpensions.org.ukCall 0300 303 1949

http://www.thepensionregulator.gov.uk/pensions-reform

http://www.nestpensions.org.uk/

Next Steps

• Know when you need to act• Start the planning process• Brief key management personnel• Mobilise an implementation team• Communicate the changes to staff

Other areas of Financial Planning not covered…

• Business Profit Extraction• Business Succession Planning• Relevant Life Plans• Exit Strategies• Investment planning for business owners

QUESTIONS?

Important Information

Please be aware that past performance is not indicative of future performance and the price of units and the income from them may go down as well as up.

The information contained herein represents the view and opinions of the individuals quoted, and not those necessarily held by other investment managers or St. James’s Place Wealth Management.

Tax rates, trust information and all other limits shown in the this presentation or discussed are set by the UK Government and correct as at 30/04/2012.

UK members of the St. James Place Wealth Management Group are authorised and regulated by the Financial Services Authority. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. St. James’s Place Wealth Management Group plc Registered office: St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP.

St. James’s Place guarantees the suitability of the advice given by members of the St. James’s Place Partnership when recommending any of the wealth management products and services available from companies in the group, more details of which are set out on the Group’s website www.sjp.co.uk/products

Trade Finance

Tim BurdenLloyds TSB International

Trade, South West

Tim Burden International Business Manager

&

Nigel Scott International Business Manager

Introduction to Trade Finance

Page | 127

Agenda

What is Trade Finance The Impact of Foreign Currencies Why use Trade Finance Examples of Trade Finance


Page | 128

What is Trade Finance?

Trade Finance is a term for services provided by a bank to assist

in financing of Trade Transactions and can include:

Trade Services Import L/C Export L/C Export L/C Confirmations Inward (import) Documentary Collections Outward (export) Documentary Collection Guarantees, Bonds, Indemnities Standby L/C’s

Trade Finance Import Finance Pre-Shipment (Export) Finance Post Shipment Finance


Page | 129

Trade Transactions involve

Movement of Goods & Trade

Documents

Movement of Cash

Seller

Buyer

Page | 130

Foreign Exchange - the impact of using other currencies

UK Furniture Business who purchase from China and sell to UK retailers.

Receive an order on 01 January 2010 from John Lewis to supply 1000 sofas in April 2010 @ £700.00 per sofa (they expect to receive £700,000.00).

Cost of Goods to Co - $1000.00 per Sofa.

Exchange rate at the time of the order is 1.6100. At this exchange rate each unit costs £621.11

Expect to make £78.89 per sofa; a total margin/profit of £78,890.00

Company will receive the goods in April and have 90 day payment terms (therefore, will be settling the invoice on 01 July 2010)

They have the choice of fixing the exchange rate at 1.6100 for delivery in June or doing nothing and paying at whatever the exchange rate is when they come to settle the bill.


Page | 131

What happened to the rate?

Daily QGBP= 16/12/09 - 04/01/11 (GMT)

BUDGET RATE @ 1.6100 Price

USD

.1234

1.45

1.5

1.55

1.6

16 01 18 01 16 01 16 01 16 03 17 01 16 01 16 02 16 01 16 01 18 01 16 01 16 03

Q1 2010 Q2 2010 Q3 2010 Q4 2010


Page | 132

Rate went to 1.5060 – increasing costs reducing GPM

Daily QGBP= 16/12/09 - 04/01/11 (GMT)

BUDGET RATE @ 1.6100

Break Even @ 1.4285 Rate at point of payment - 1.5060

Price

USD

.1234

1.45

1.5

1.55

1.6

16 01 18 01 16 01 16 01 16 03 17 01 16 01 16 02 16 01 16 01 18 01 16 01 16 03

Q1 2010 Q2 2010 Q3 2010 Q4 2010


Page | 133

Lock in Profit, or take a risk?

PROTECTED POSITION

GBP/USD Rate GBP cost from $1,000,000.00

supplier invoice

Profit/Loss

YES 1.6100 £621,118.01 £78,890.00

NO 1.5060 £664,010.62 £35,997.39

Break Even 1.4285 £700,000.00 £0.00


Page | 134

why use trade finance?

Page | 135

why use trade finance…

provides transactional borrowing aligned to underlying contract(not balance sheet driven)

Gives a pre-shipment conditional guarantee of payment to suppliers

protect title to goods pending receipt of payment(documentary collection / export letter of credit)

improve end-buyer (debtor) risk(export letter of credit / export letter of credit confirmation)


Page | 136

why use trade finance…

assist exporters to raise finance to complete order(export letter of credit)

Assist importers to finance goods(import letter of credit)

speed up receivables(export letter of credit / avalised bill of exchange

slow down payables(import letter of credit / documentary collection / avalised bill of exchange)


Page | 138


In order to provide trade finance facilities, the bank will usually want to be involved in the underlying transaction, i.e. have ‘control’ of commercial & shipping documents relating to the transaction.

The banks ability of provide trade finance therefore depends upon the payment terms agreed between the importer & exporter.

For this reason early involvement of the bank in any transaction where finance might be required is essential.

Please Remember……

Page | 142

CASE STUDIES


Page | 143

case study 1 – import finance

wholesale & retail of books, stationary & toys funding through CID line – 85% advance rate – including export

lines in USD & EUR new large order received 50% Gross Margin goods sourced from suppliers in Far East suppliers require payment when goods on water additional $320K required – but current facilities fully utilized but CF wont discount until goods delivered and invoice raised


Page | 144

case study 1 – Import Finance

SupplierOrderPlaced

SupplierPaymentMade

GoodsShipped

Goods ArriveIn UK Port

Goods Cleared& delivered

End-Buyer Pays

1 3530 60 65 170

Invoice DiscountingIncreasedOverdraftRequired

Invoice raised& Discounted


Page | 145


Import Finance agreed on a documentary collection basis as goods ‘pre-sold’ we pay collection using import loan and release

documents to customer against trust receipt goods cleared & delivered to buyer invoice raised and discounted – proceeds repay import loan safer then overdraft lending because

we control the payment to supplier and retain ownership of stock we know the end buyer and receive repayment through CF.


Page | 146


SupplierOrderPlaced

SupplierPaymentMade

GoodsShipped

Goods ArriveIn UK Port

Goods Cleared& delivered toASDA

End-Buyer Pays

1 3530 60 65 170

Invoice DiscountingImport Loan

Invoice raised& Discounted


Page | 147

Case Study 2 – Pre Shipment Finance Manufacturer of Air Traffic Control Simulation Systems Undertakes contracts around the world Received order for delivery to Buyer in Turkey End buyer payment terms - Letter of Credit Working Capital required to fund project build stage After due diligence agreed a Pre Shipment Finance Facility


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Export Order timeline

Activity:

Ship goods/present docs under LOC for first 40%

of payment (£1.2m)

Day: 1 30 60 90 120 127

Order hardware£250k (£0)

Pay hardwareSupplier (£250k)

Pay developeroverheads (£50k)



Pay developeroverheads /goods

ready to ship (£50k) Receive LC from Turkish

Bank


Page | 149

case study 3 – post shipment finance

established UK exporter (middle-man) contract to supply kit to middle east goods delivered in stages over 7 months end-buyer seeking finance over 6 months post delivery suppliers offering 60 day open a/c terms contract and payment terms beyond scope of company’s balance

sheet but very good track record in the sector & region


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OrderReceived

Goods ReceivedFrom Suppliers

Goods ShippedTo End-Buyer

Suppliers Paid

End-Buyer Pays

1 7 42 102 242

Orders PlacedWith Suppliers

62

60 Days Credit

Funding Gap 140 days


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end-buyer able to provide series of letters of credit usance terms of 6 months from shipment agreed with risk on middle eastern bank bank and country risk acceptable to LTSB ‘post-shipment’ discount (without recourse) of middle eastern banks

payment obligations (payment risk confirmed by LloydsTSB)


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Export L/CReceived

Goods ReceivedFrom Suppliers

Goods ShippedTo End-Buyer &Docs Presented

Suppliers Paid

L/C Paid &Discount Repaid

1 7 42 92 102 427

Orders PlacedWith Suppliers

62

60 Days Credit

L/C AcceptanceDiscounted


Page | 153


bank & country risk mitigated not balance sheet driven suppliers paid on normal terms exporter paid cash on shipment of goods end-buyer has 12 Months credit


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If your business requires trade finance facilities, your bank will usually want to be involved in the underlying transaction, i.e. have ‘control’ of commercial & shipping documents relating to the transaction.The banks ability of provide trade finance therefore depends upon the payment terms agreed between the importer & exporter.For this reason early involvement of the bank in any transaction where finance might be required is essential.

Government Support is available for Exporters UKEF – Working Capital Scheme UKEF – Bond Support Scheme UKEF – Insurance scheme


Page | 155

QUESTIONS?


Questions, summary & coaching engagement

Summary

• Overview of Coaching Support

• Coach Engagement 1:1

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