Financing Equipment for Farmers and Agricultural SMEs

Transcription

1 Financing Equipment for Farmers and Agricultural SMEs AgriFin Conference 21 st August 2013 Hans Balyamujura

2 Contents 1. Barclays Africa Presence and Suit of solutions. 2. Lending to Agriculture. 3. Debt Products for Agriculture. 4. Repayment Terms as a Differentiator. 5. Monitoring and Product Development. 6. Assessment by AgriBusiness Unit. 7. Assessment by AgriBusiness Unit 8. Example of Analysis: A Startup Hatchery. 9. Recommendation on the Hatchery Start-up. 10. Treatment of Seasonal Income. 11. Seasonal Income Assessment. 12. Valuation of the Asset. 13. Business Support 2 Barclays Loans for Farmers and SMEs

3 together in Africa... 1.Barclays Africa present in 12 African Countries Ghana (since 1917) # customers: 541k # branches & ATMs: 91 / 137 # staff: 1,564 Egypt (since 1999) # customers: 304k # branches & ATMs: 65 / 109 # staff: 2,113 Kenya (since 1925) # customers: 728k # branches & ATMs: 117 / 231 # staff: 3,598 Zimbabwe (since 1912) # customers: 137k # branches & ATMs: 52 / 100 # staff: 695 Egypt Barclays Africa Absa/ Rep Office Tanzania 1 (since 2000) # customers: 551k # branches & ATMs: 85 / 290 # staff: 2,270 Zambia (since 1918) # customers: 209k # branches & ATMs: 62 / 151 # staff: 1,119 Ghana Nigeria Uganda Kenya Seychelles Tanzania Uganda (since 1927) # customers: 280k # branches & ATMs: 50 / 75 # staff: 955 Mozambique Mozambique 1 (since 2002) # customers: 297k # branches & ATMs: 53 / 91 # staff: 923 Zambia Namibia Botswana South Africa Zimbabwe Mauritius Seychelles (since 1925) # customers: 36k # branches & ATMs: 7 / 14 # staff: 245 Botswana (since 1950) # customers: 272k # branches & ATMs: 52 / 100 # staff: 1,368 South Africa (since 1991) # customers: 11.8m # branches & ATMs: 898 / 8,783 # staff: 36,770 Mauritius (since 1919) # customers: 138k # branches & ATMs: 27 / 41 # staff: 1,003 3 Barclays Loans for Farmers and SMEs 1) Includes National Bank of Commerce and Barclays Tanzania 2) Based on 2010 figures Source: Barclays, BA Business Development, Absa Africa Finance, Absa Group Finance

4 Vanilla and Complex products to create options for the client PRODUCT Low Complexity High Complexity Transactional Savings Account Cheque Account Debit/Credit/ Garage Cards Electronic Banking Call/Notice/Fix Deposits Trade Solution Spot FX LC CFC Account FEC Currency Loan Short term Debt Overdraft Credit Line Production Loan Call Loan Working Capital Solutions Long term Debt Commercial Asset Finance Term Loan Mortgage Loan Specialised Risk Sharing Solutions Bespoke Risk Sharing Solutions Financial Services Personal Insurance Household Insurance Vehicle/Asset Insurance Hail/Fire/Crop Insurance Multi Peril Crop Insurance Structured Finance Input Cost Insurance Finance Inventory Finance SAFEX Trader Discount Milldoor Warehouse Receipt Finance Risk Management SERVICES Forward/Swap Cap Price Structures: Call Option Cap Price Structure: Put Option Protection with some Flexibility: Collar Non Margin using OTC Swaps Accumulator with Double up and Knock out Agri Services Agri Business Seminars Financial Needs Analysis Cash Flow Planning & Profit Management Feasibility Studies Risk Analysis and Strategic Planning 4 Barclays Loans for Farmers and SMEs

5 2. Lending to Agriculture All Debt is governed within a Mandate and Scale. Outlines the debt appetite: Country Region/Province Commodity/sectors Structured around the need of the farmer or business Solution to meet the clients needs. Short term/seasonal Medium to Long term 1 to 10 Years Length of tenure governed by a number of factors: Legislation Availability of Capital Pricing 5 Barclays Loans for Farmers and SMEs

6 2. Lending to Agriculture (Cont d) Assessment: Affordability/Viability of business activity Economy and Market expectations Price projections Value of collateral provided (guidelines governing the valuation of the asset/collateral) 6 Barclays Loans for Farmers and SMEs

7 3. Debt Products for Agriculture Variations occur based on the following: Nature of the collateral Fixed asset (Influenced by productive life). Loan to Asset value is limited to 50 to 70% (May be higher based on strength of business plan) Commodity with defined and fixed market (Fixed or hedged prices). Finance against 65% of the expected value crop value. The average long term crop yield is insurance against and its price is fixed or hedged on the futures exchange with a minimum price. Exploring ways to implement this among the large agro industries, where the agro industry provides the minimum price. Long term leases with guaranteed offtake and pricing mechanism. Sugarcane (South Africa) 7 Barclays Loans for Farmers and SMEs

8 4. Repayment Terms as a Differentiator Frequency of repayments: Monthly Biannual Annual Balloon or Residual Payments/Refinance options 8 Barclays Loans for Farmers and SMEs

9 5. Monitoring and Product Development Monitoring. The Relationship Manager is responsible for the day to day management. Assisted by system based triggers Excess Arrears and Early Warning List (EWL) Annual Review of all accounts Detailed review may be conducted if relationship manager or credit team have a reason for concern Industry under negative external influences 9 Barclays Loans for Farmers and SMEs

10 5. Monitoring and Product Development Cont d Product development is focused on the use of soft commodities as security and improve finance across value chains. Dependent on the Futures Exchange and Insurance Products Offtake arrangements Continued development: Cost reduction Improve risk definition and mitigation Definition of target clients (Weak or strong balance sheet). Structures under continuous improvement. Learning from every transaction Flexibility to accommodate market-led shifts Excessive imports in East Africa altered the sequence of the sugar cash flows high stock levels as local sugar sales were delayed. 10 Barclays Loans for Farmers and SMEs

11 6. Assessment by AgriBusiness Unit Detailed analysis of the financial performance of the projected business MONTHLY RATIO ANALYSIS YEAR 1 YEAR 2 YEAR 3 NORM NORM NORM Solvency / Debt Ratios Net Capital Ratio > 2.0 to to to 3.5 Gearing Ratio < Debt ratio Opening < 50% 50% 50% Debt Ratio Minimum Stage < 50% 50% 50% Debt Ratio Maximum Stage < 50% 50% 50% Debt Ratio Closing < 50% 50% 50% Payback Ability Ratios Cash Flow Ratio > 120% 120% 120% Cash Flow Ratio: Total Farming > 120% 120% 120% Debt to Turnover Ratio < 100% 100% 100% Production Cost Ratio > 73% 73% 73% Interest to Turnover Ratio < 18% 18% 18% Profitability Ratios Interest Cover ratio > Return on Investment > 5.00% 5.00% 5.00% * Norms sets in line past experience and may vary across sectors 11 Barclays Loans for Farmers and SMEs

12 Value (R) Production finance Based on Surplus Cash 7. Assessment by AgriBusiness Unit Net loss Gross farm income Net margin Annual production cost Interest payments Capital payments Overheads and living costs Based on surplus security and surplus cash Long-term loans based on security and surplus cash M1 M2 M3 M4 M5 etc. 12 Barclays Loans for Farmers and SMEs

13 8. Example of Analysis: A Startup Hatchery Assessment of the investor/entrepreneur Experience (broiler farmer) Industry trends Economy and market trends Client s business development plan Cash flow analysis YEAR 1 ($) YEAR 2 ($) YEAR 3 ($) Current Limit Opening Balance - -5, , Total Inflow 80, , , Total Outflow 86, , , Surplus/ (Shortfall) -5, Shortfall -1, Shortfall 13, Surplus Closing Balance -5, Jun-12-1, Jun-13 8, Jun-14 Worst Balance -5, Jun-12-7, May-13-5, Jun-13 Best Balance -1, Aug-11-4, Jul-12 8, Jun-14 Projected Limit (Worst Balance plus 10%) -6, , , Cashflow Ratio (through Bank) 93% Poor 111% Poor 131% Excellent Production Cost Ratio 86% Realistic 87% Realistic 64% Excellent Cashflow Ratio Total Farming Concern 93% Poor 111% Poor 131% Excellent 13 Barclays Loans for Farmers and SMEs

14 9. Recommendation on the Hatchery Start-up Fund both the working capital and long term debt with monthly repayments. Cash flow in deficit positions for Year 1 and 2 mainly due to startup nature of operations. Displays a positive trend i.e. Production cost ratio on the decline. Overall demand for poultry was growing on the local market. Demand for poultry remains strong and prices expected to remain stable with upward potential. Local industry enjoys some protection from the international market. 14 Barclays Loans for Farmers and SMEs

15 Value (R) Annual Surplus 10. Treatment of Seasonal Income Monthly Outflows Gross farm income Overheads and living costs Based on surplus security and surplus cash Interest Obligations/payments Debt Obligations/payments Long-term loans based on security and surplus cash M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 M13 15 Barclays Loans for Farmers and SMEs

16 11. Seasonal Income Assessment... Overall assessment remains the same. Attention given to affordability of enterprise to service compound interest payment once a year. Debt rules/conveyances set in line with the assessment. 16 Barclays Loans for Farmers and SMEs

17 12. Valuation of the Asset... Minimise loss given default, emphasis is placed on managing the value and quality of assets financed or taken on as security (in South Africa). Assets valued by accredited and professional valuers. Absa provides and regularly updates a set of guidelines for farm valuations. Guidelines are region or area specific and updated at least once a year. Update is through a panel review process that consists of agricultural specialists, farmers, agribusinesses, valuers, sales agents, etc. Absa s team of AgriSpecialists will assess farm valuations submitted by the valuers to ensure guidelines are adhered to. 17 Barclays Loans for Farmers and SMEs

18 13. Business Support... Once a loan account is in arrears for more than 90 days: Handed over to business support. Detailed assessment is done to determine viability and alternative measures to ease pressure on the business. AgriSpecialist involved to provide agricultural background. Regular contact with the client. Upon improvement the management of the relationship is returned to the sales team. Continued non performance may lead to legal recovery. 18 Barclays Loans for Farmers and SMEs

19 19 Barclays Loans for Farmers and SMEs Thank You