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Credit Management Think Tank
2015
The Future of Credit Management
Credit Insurance at a crossroad “Code of Conduct”
16 February 2011
Facilitated by:
The Future of Credit Management“Code of Conduct”
Welcome !
Jean-Louis CoppersCEO CRiON
2
Facilitated by:
Who is CRiON ?
Specialised credit insurance broker
Marketleader in Belgium (30% of the market) Premium: € 30 million Insured shipments: € 20 billion Q*For - Quality Label Member of Aon Group
500 offices in 120 Countries59.000 employees
Credit management audit & consultancy
Credit management software
CRiON helps you to master your credit risks
3
The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
11u05 -11u30
“Credit insurance after the October Revolution of 2008”
- Elsje Verdoodt, Group Credit Manager, Umicore
- Frederic Wittemans, Senior Director EU credit, Ingram Micro
- Peter Van Den Broecke, CFO, Daikin
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The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
11u30
Results of the “Credit Management Thinktank 2015 – 2020”
“The Code of Conduct”
- Rudy Aernoudt, Prof. European Economics
- Paul Becue, author “Credit Insurance, The Invisible Bank”
- Jean-Louis Coppers, CEO, CRiON
12u15 Questions & answers
12u30 Small Lunch
5
UmicoreExperience with credit insurance during the economic crisis 2008-2010
Elsje Verdoodt, Group Credit Manager, February 16th 2011
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Brussels, February 16th 2010 7
Introduction to Umicore
· We are a global materials technology company with activities centered around 4 business areas : Catalysis, Energy Materials, Performance Materials and Recycling
· Our mission is to make “materials for a better life”
· The majority of our growth comes from clean technologies:
· technologies that are specifically designed to optimize the use of natural resources and to reduce environmental impact
· We are listed on NYSE / Euronext Brussels with a market capitalization of some €4.5 billion
Brussels, February 16th 2010 8
Global presence: 14,400 people in 80 industrial sites
Figures include associated companies as of end 2010
North America
• 744 people
• 12 industrial sites
South America
• 1,097 people
• 5 industrial sites
Africa
• 1,512 people
• 3 industrial sites
Asia/Pacific
• 3,025 people
• 22 industrial sites
Europe
• 7,342 people
• 38 industrial sites
Brussels, February 16th 2010 9
Umicore in figures
2010
Turnover € 9,7 bn
Revenues € 2,0 bn
REBIT € 342 m
REBITDA € 469 m
ROCE 17,5%
EPS € 2,33 / share
Dividend € 0,8 / share
Market cap. € 4.5 bn*
Geographic spread of sales
62%
10%
6%
17%
6%
Europe North America
South America Asia Pacific
Africa
* At February 10 2011
Brussels, February 16th 2010 10
Credit insurance @ Umicore
Umicore has a track record of credit insurance of more than 25 years.
Since 2007, a worldwide credit insurance contract insures risks related to sales for most Business Units.
We expect from our credit insurer :-Information on the financial health of customers : prevention of claims by setting the right credit limits / no surprises in P&L-Stability of cover or at least mutually agreeing on exit scenario’s-Financial partner, being ready to understand our business and risks.-Collection service for unpaid invoices
Brussels, February 16th 2010 11
How did we know there was a crisis ?
1. Increased credit risks demonstrated by :- Increased requests from customers to reschedule payments- Increased level of contract repudiation by customers- Increased level of bad debts
2. More difficult collaboration with credit insurer:- Unilateral changes to the contract (obligation to report overdues / waves of
‘mass’ decisions)- High level of credit limit reductions and cancellations- Very low acceptance rate on new requests- Frustrating way of working :
- Hard to reach usual interlocutors or anybody- Negotiated decisions being regularly overruled by computer decisions
Brussels, February 16th 2010 12
Reaction by Umicore
Identify problem cases :· After a period of high metals prices (2007) and combined with a period of low
ordering, our credit limits were high. “Only” 10% of the reductions or cancellations were instantly problematic.
· Of these, respecting the lower or 0 limit gave many times rise to breach of contract / contingency losses
· 80% of newly requested limits were not fully approved
Discuss problem cases with the insurer.
For remaining cases, asses if a “Umicore” limit (no cover) can be set-up· Financial /commercial situation of customer· Trade and payment experience· Contribution to Umicore result /contingency risks
Approval by Umicore Management in function of authorisation.
KNOW YOUR CUSTOMER
“Credit insurance facilitates your business…we agree, in normal economic circumstances. During the crisis, it has
also been a complication of our business approach”
100906_14Confidential and proprietary information of Ingram Micro Inc. — Do not distribute or duplicate without Ingram Micro's express written permission.
Ingram Micro Europe
Frederic WittemansSr Director European Credit
February 15, 2011
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100906_15Confidential and proprietary information of Ingram Micro Inc. — Do not distribute or duplicate without Ingram Micro's express written permission.
No. 67 on 2009 Fortune 500 list
Ingram Micro
A Fortune 2009 "Most Admired
Company"
Ingram Micro: A World Leader In IT
With 30 years experience in IT Distribution
* All information as of fiscal year 2008 unless indicated
The world's largest provider of technology products and services
2009 annual revenues: $30 billion Customers in more than 150 countries Present in 11 European countries 90.000 + customers in Europe About 120 persons in credit
departments in Europe
100906_16Confidential and proprietary information of Ingram Micro Inc. — Do not distribute or duplicate without Ingram Micro's express written permission.
IM EMEA is credit insured since 1999
We are with same partner since 2006
Our focus is on Partnership !
Credit Insurance is one of the pieces in our credit management process
Credit Insurance in Ingram Micro
100906_17Confidential and proprietary information of Ingram Micro Inc. — Do not distribute or duplicate without Ingram Micro's express written permission.
Experience during crisis
IT distribution sector was hit just as many other sectors.– we saw the first signs
in Dec 07 and prepared ourselves accordingly.
– As such our credit organisation saw this as the big test to see how robust our set up and tools are.
100906_18Confidential and proprietary information of Ingram Micro Inc. — Do not distribute or duplicate without Ingram Micro's express written permission.
Credit Insurance relationship – Tested !
20% + reduction of cover
100906_19Confidential and proprietary information of Ingram Micro Inc. — Do not distribute or duplicate without Ingram Micro's express written permission.
3 Types of Reductions
Bulk Cancellatio
ns
In Agreement
Don’t understand
Reductions made by insurer
100906_20Confidential and proprietary information of Ingram Micro Inc. — Do not distribute or duplicate without Ingram Micro's express written permission.
Ingram Micro’s reaction
Create right environment for
Controlled risk taking
Realigned internal procedures towards risk approvals
Proactively adjust limits to risk environment
Adjust – Improve – Train Community&
Tools
Give feed-back to credit insurer on
our disagreements
Decision to support our SMB customers
by injecting more credit in a controlled
way
100906_21Confidential and proprietary information of Ingram Micro Inc. — Do not distribute or duplicate without Ingram Micro's express written permission.
Our Expectations for Credit Insurer:a real partnership
Open communication about customer
risks.
Share information (both sides)
Open management
communication when
customers are affected and learn from
mistakes made.
Avoid brutal decisions and work together
on exiting risks.
Have open mind and listen
to our arguments and
needs.
Heating
Air Conditioning
Applied Systems
Refrigeration
°
All Seasons
CLIMATE COMFORT
Daikin Europe N.V.
22
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All Seasons CLIMATE COMFORT
°
Daikin Industries Ltd.
(In)direct expansion88.7%
Chemicals8.4%
EMEA27%
America9%
Japan36%
Other28%
Sales per business unit R09
AC Sales Result per
Region R09
Company Name:
Head Office:
Chairman & CEO:
Incorporated:
Cons.Turnover:
Cons.Operating profit:
# Employees:
Corporate Profile (as of March 31, 2010)
Daikin Industries, Ltd.
Osaka (Japan)
Mr. Inoue
February 11, 1934
7,817 Mio € FY2009
336 Mio € FY2009
>39,000
Other2.9%
ORGANISATION
3.6934.037
4.7035.115
5.885
8.318 8.350
288 310
393433
522
825
426
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
FY02 FY03 FY04 FY05 FY06 FY07 FY080
100
200
300
400
500
600
700
800
900
1.000
Sales Operating Profit
(€ mio)
F09: 131 JPY / EUR
7.817
336
FY09
39.132 worldwide
12.000
17.000
22.000
27.000
32.000
37.000
42.000
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All Seasons CLIMATE COMFORT
°
• 100% subsidiary of Daikin Industries Ltd.
• Core activities: Sales and manufacturing of air conditioning, refrigeration and heat pump equipment. Europe’s number 1 player on the Air conditioning market
• Powerful sales network in more than 50 countries, throughout Europe, Africa and Middle East
• Production plants in Belgium and Czech Republic, GermanyOther European factories: McQuay Italy and McQuay UK
Continues prominent growth figures during the last years. Comparedto the beginning of the millennium, the sales amount tripled.
Daikin Europe N.V.
Company Name:
Head Office:
President:
Incorporated:
Cons. Turnover:
Cons. Operating profit:
# Employees:
Daikin Europe N.V.
Ostend (BE)
Mr. Minaka
1973
1,614.8 Mio € FY2009
162 Mio € FY2009
4,265
Corporate Profile (as of March 31, 2010)
ORGANISATION
0
500
1000
1500
2000
2500
FY03 FY04 FY05 FY06 FY07 F08
Turnover (x1000)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000Manpower
turnover
operating profit
manpower
F09
25
All Seasons CLIMATE COMFORT
°
HEATINGAIR
CONDITIONING
APPLIEDSYSTEMS
REFRIGERATION
Pillars of growth
PRODUCTS
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All Seasons CLIMATE COMFORT
°
Daikin Europe’s Presence
Daikin Europe’s Sales Presence
ORGANISATION
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All Seasons CLIMATE COMFORT
°
Credit insurance Daikin ( ° 1981 )
1. Move towards more centrally negotiated policies
2. Diverse risks : 1. distributors / end customers / installers / wholesellers 2. Europe / Africa / Middle East
3. Japanese culture on credit ( insurance )1. credit insurance is not widely spread or even unknow 2. “zero risk” approach
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All Seasons CLIMATE COMFORT
°
Daikin experience 2008 - 2009
1. Turnover decrease2. Limited increase DSO & Bad debt ratio3. Premium rate rather stable 4. Reduction or cancellation of limits :
1. no real reason related to customer2. no time to take countermeasures
OK but …….FRUSTRATION :
cfr Japanese image : loss of trust ( take away umbrella ) very limited transparency on evolution of limits no diversification ( e.g. country approach )
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All Seasons CLIMATE COMFORT
°
Daikin Europe actionplan :
1. Professionalisation own credit management :1. credit control manual2. intense follow up and coaching affiliated companies3. evaluationsysteem credit management
2. Internal rapporting ( EMEA level ) was increased :1. evolution own risk2. KPI and target setting ( DSO, overdue, bad debt )
3. Introduction collection & dispute software
4. More intense communication with insurers ( exchange available information )
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All Seasons CLIMATE COMFORT
°
Expectations towards insurers :
1. Improve communication
Anticipate problems / solutions
More transparancy about limits
(new, cancellation, reduction )
2. Diversification premium / limits
( based on quality of credit management )
The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
The rationale for, and principles of a code of conduct
Impact on six different aspects:
- Enhance competition
- Stimulate transparency
- Minimize fraud
- Change perception
- Reduce “air”
- Increase sustainability
33
Facilitated by:
The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
The basic principles of the code of conduct:
- Openness and accurate information exchange
- A win-win for all parties
- Mutual trust and dialogue
- Maximum use of IT possibilities
- Discretion and professionalism
34
Facilitated by:
The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
Contracting parties of the code of conduct
35
Facilitated by:
The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
Characteristics of the code of conduct
- Gentlemen’s agreement
- Every policy
- Yearly report
- Belgian - European
- Widely announced
- Brokers
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Facilitated by:
The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
Commitments of the credit insured companies
Support credit inquiry
Build a healthy credit managementCertification?
Deliver risks and payment behavior
Inform insurer use of credit lines
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Facilitated by:
The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
Commitments of the credit insurance companies
Inform insured of insured creditCustomer friendly databases accessible to the credit insured
Communicate rating + motivation
Explain clear business strategy, objective criteria
Transparent price setting procedures
Develop products in order to avoid systematic and abrupt volatility
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Facilitated by:
The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
Commitments of the brokers
Promote use of Code of Conduct
European Code of Conduct
Coordinate yearly report on the respect or non respect of the Code
39
Facilitated by:
The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
Common commitments
IT facilitate transmission of information
Promote added value (preventive role of credit insurer !)of credit insurance through:
- federations- SME organizations- schools, educational programs, academic networks
40
Facilitated by:
The Future of Credit ManagementCredit Insurance at a Crossroad:
“The Code of Conduct”
Summary table
41
Facilitated by: