EI Banking Relationships Department -update

Eamonn May 19th & 20Th October 2011ManagerBanking Relationships Department

2009/2010 Immense Challenges• Survival, Stabilisation, Access to Finance, Relationships with

the main Banks

• Sectoral Growth… Software, Internationally Traded Services, Lifesciences

• Enterprise Stabilisation Fund and Employment Subsidy Scheme

• Focus on Customer Retention, Eurozone Opportunities, Stimulus Packages, recovery etc..

Enterprise Ireland Export Trend

9.6310.03

10.51

12.31

13.8814.28

12.913.85

56789

101112131415

2003 2004 2005 2006 2007 2008 2009 2010f

Source: Enterprise Ireland

Exports by Main Market Area

Update on the Banks• Banks need to close the trust gap, rebuild – a long road

• The key is transparency and active engagement with customer needs at the centre

• AIB, Bank of Ireland, Ulster Bank

• Barclays, HSBC

• Certus (BOSI)

• Danske NIB, ACC RaboBank, Investec, Silicon Valley Bank

Banking Relationships Role• Our focus is on issues clients have with their bank/s

• Each and every case is different. A sensitive area and

both ourselves and the banks always require client consent to speak with the bank/s

• The banks are looking for more detailed information now

• We are working with the banks (Irish and overseas

owned) to encourage an sme supportive banking approach

EI Agenda With The Banks• Company Focus – support for existing businesses

– One to one discussions on individual cases

– Engagements with the banks on shared insights

– Leveraging EI funding

• Exporting SMEs – following the client into o/seas markets

– Encouraging the banks to participate in EI events

– Bonds - performance etc

– Encouraging the banks to refine and develop financial products to support exporters

• Knowledge-sharing / Secondments / Workshops

• Seed / Venture Funds

Loan ApplicationPrepare & submit formal written application covering the

following:

1.Background history

2.Trading and financial position analysis

• 3 years historical Accounts.

• Recent management accounts, aged debtor & creditor analysis.

• Compare actual results verse forecasts.

• Trend analysis of all key P&L and Balance Sheet areas.

• Comment on variances & trend movements, positive and negative

• Provide a historical Funds Flow Analysis. ‘Cash is King’

• Independent confirmation of overall tax position

Company FY 2012 FY 2011 FY 2010 FY 2009

PBIT [Profit before tax and before interest paid].

Tangible asset depreciation.

Amortisation and other non-cash adjustments.

(Increase in stocks + debtors – creditors).

(Net capital expenditure on tangible assets).

(Interest Paid).

(Tax Paid).

(Dividends Paid).

(€)

439

207

12

118

(326)

(16)

(137)

(109)

(€)

532

232

12

182

(488)

(2)

(177)

(120)

(€) (€)

INTERNAL CASH FLOW: 188 171

(Acquisitions less disposals).

(Increase in cash and investments).

Increase in short-term debt.

Increase in long-term debt.

New Share Capital Introduced.

Other Items.

-

(27)

(169)

8

-

-

-

(141)

(7)

(23)

-

-

NET FUNDING AND INVESTMENT FLOW: (188) (171)

Funds Flow Analysis

Loan Application … cont3.Business Strategy and Operations:• Outline of the strategy for the business

• Description of the business model and products/services produced

• Marketing plan including analysis of key markets

• Competition and competitors analysis

• SWOT analysis to include commentary on important SWOT areas

• Any other relevant information

4.Management & Staff:• Include formal structure chart (with photograph)

• Comment on management skills and experience

• Industrial relation history

• Staff turnover

Loan Application … cont5.Banking Requirements:

• Clearly set out what facilities are being sought – Existing and New.

• Include FX lines and Contingent liability lines

• Include a funding table if appropriate

• Include repayment proposals and support with a funding analysis.

• Support request with Monthly Trading and Cashflow forecasts

6.Security on Offer:

• Details what security is on offer to the bank

• Support with valuation reports

• Consider if Personal Guarantees are going to be provided. Support wAsset & Liability Statements

Loan Application … cont7.Bank Covenants:• Interest cover – 2/3 times • Repayment cover – 1.5 times • Debt to EBITDA – 2/3 times • CAPEX • Loan to Value • Borrowing restrictions

8.Ongoing Information Requirements:• Quarterly management accounts within 30 days.• Quarterly aged analysis of debtors and creditors.• Annual audited accounts within 90 days. • Annual Tax Confirmation.

Loan Application … cont9. Connected/Associated Exposures:

• Associated borrowings, common shareholder companies.

• Personal borrowings of the main shareholders/directors

10.Any Additional Relevant Information:

Report should be factually correct, balanced and should address the ‘downside’ as well as the ‘upside’ potential.

A good Application should ensure that when you meet with

the Bank the time is spent on discussing what you are looking for rather than on ‘fact finding’.

Loan Application Summary1. Executive Summary

2. Background History

3. Trading and Financial Position Analysis

4. Business Strategy & Operations

5. Management & Staff

6. Banking Requirements

7. Security on Offer

8. Bank Covenants

9. Ongoing Information Requirements

10.Connected/Associated Exposures

11.Any Other Relevant Information

Loan Application – Good Practice• Formal written proposal submitted in advance

•Meeting to discuss to be held in your premises

•Establish how much time the bank have available

•CEO should participate fully and other key management should attend at least for part of the meeting

•Overview PowerPoint presentation a good introduction

•Ensure a ‘good first impression’

•Control the agenda

•Follow-up with a letter or email summarising what was agreed and the timelines attaching to it

Current Credit Criteria•Proven Track Record (Profitability, Management Team etc)

•Maximum LTV – 70%/75%

•Proven ability to repay capital and interest over loan period.

•Margin of 4% - 5%, including liquidity premium

•Build-in sensitivity based on possible interest rate increases

•Will look for maximum cross sell opportunities, FX, Fees &

Commissions etc

Info required for Bank engagement • Name of your Relationship Manager incld position,

division within the bank• Bank facilities currently in place e.g.

– Term loans, Overdraft, Invoice Discounting, – Total debt profile

• Performance against the repayment plan• Status of the relationship• What you are asking the bank for?• Recent accounts and projected cash flows

• Any other relevant issues (connected and associated exposures, personal mortgages)

• Security available• Formal application made – Yes or No

EI’s Role in Assisting Clients • On receipt of your consent we will liaise with the bank

to try to ensure that your case is being handled at the right level

• If necessary we will seek a three way meeting (client, EI and the bank)

• Each case is different

• Clients need to Have a Banking Strategy that addresses:

– Working Capital needs

– Non Credit needs

– Trade Finance, Treasury & Bonding, MA,

General observations• The Banks need to repair themselves while not turning

credit off • Credit is crucial for growth however this is a complex area

due to the overhang of debt in certain circumstances• Confidence is essential along with consensus around

expectations – what is a reasonable ask of the bank• The banks need to ask what is a viable business and be

more innovative• Both sides have to work hard (a symbiotic relationship) to

close the trust gap• Companies need to provide robust information for cash-

flow lending• Credit demand survey• Views on level of demand & quality of financial function• CFO network

EI’s vision for Business Banking• Experienced and skilled relationship managers at local and

regional levels supporting a range of SMEs

• Systematic informed assessment of business plans on the basis of expected cashflow as basis for business lending

• Supportive services (advisors, web resources, workshops etc.) provided by the bank to help SMEs assess their cash situation and credit options

• Deep sectoral expertise available centrally within the business banking structures in modern growth sectors such as software/technology, lifesciences and greentech

EI’s vision for Business Banking• Internationalisation teams at the banks centre who aim to

link SMEs in the home base with providers of financial facilities abroad

• a global network of offices and branches providing services to SMEs who are internationalising (especially in the growth markets within EU, USA and Asia)

• A world-class model

EI Banking Relationships Team

Contact:

• Eamonn May 01 727 2128• Teri Smith 01 727 2808• Tom Early 01 727 2942