Doing Business in Brazil

Transcription

1 Treasury and Trade Solutions March 17, 2015 Doing Business in Brazil Rocio Velarde Country Sales Head, Brazil

2 Brazil Overview GDP (2013): USD 2.2 trillion GDP Per Capita(2013): USD 11 thousand Exports FOB (2013): USD billon Imports CIF (2013): USD billion Labor force (2013): million Unemployment rate: 5.5% Federal republic comprising 26 states and one federal district, where the political capital is located. The president is elected for a four-year term leads the executive branch of the federal government and is the commander-in-chief of the Brazilian Armed Forces. This election between will have the tightest outcome since member Camara de Deputados (Representatives) 81-member Camara de Senadores (Senators) Sovereign Risk Ratings: Moody s S&P Fitch CDS 5 year International Comparison Feb-15 Jan-15 Dec-14 Nov-14 Oct-14 Sep-14 Aug-14 Jul-14 Jun-14 May-14 Apr-14 Mar-14 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 Apr-13 Mar-13 Feb-13 Jan-13 Dec-12 Nov-12 Oct-12 Sources: Bloomberg and Citi Research South Africa Peru Brazil Turkey Colombia Baa2 BBB- BBB More Conservative 2

3 Macro Brazil We expect GDP to contract 0.8% in 2015 after the roughly flat figure in 2014; The forecast CPI inflation is at 7.6% in 2015, above the mid-point target (6.5%), despite the weak GDP growth, due to the corrections in monitored prices; We expect further Selic rate hikes in 1Q15 putting it at 12.50%; Industrial sector confidence indicators still in very low levels, reflecting the underperformance of this sector relative to the overall economy; Dilma Roussef started her second term implementing a turnaround in the fiscal policy; The appointment of a recognized austere MoF, Joaquim Levy, was the first sign of this reversal, followed by several fiscal measures % GDP Growth Interest Rate 0 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Real Interest rate Selic rate We expect further Selic rate hikes in 1Q15 putting it at 12.50% Jan-01 % Jan-02 Jan-03 Jan-04 CPI Inflation and Targets (YoY) Jan-05 Jan-06 Jan-07 Headline CPI Inflation Jan-08 We forecast IPCA inflation at 7.6% in 2015, above the upper limit of the target 6.5% Jan-09 May-09 Sep-09 Jan-10 May-10 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Average of Core Measures Confidence Indicators Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 Jan-14 Industrial Sector Consumer Service Sector forecast Jan-15 May-14 Jan-16 Sep-14 Jan-15 Sources: Bloomberg and Citi Research. 3

4 Industry Diversity - GDP Brazil GDP 5% Services 26% Industrials 69% Agribusiness Industrials Services Manufacturing Real State Electricity, Water, Gas, Sewer and Garbage Collection Metal and Minning 12% 16% 22% 50% 12% 23% 10% 4% 8% 25% 18% Administration, Health and Public Education Commercial Transportation, Storage and Mail Services TMT Banking, Insurance and Pension Funds Other Services¹ Rentals Source: IBGE GDP Business and families services, health and mercantile education, accommodation and food services, membership services, household services, maintenance and repair services. 4

5 Citi Brazil In Brazil, it's nearly 100 years connecting the country to the rest of the world through its services 1 st Trade Finance Internal Ranking Founded in Citibank branches 7 thousand employees Around 400 thousand client accounts Market Benchmarks 1 st International Deposits 5 th Trade Finance 1 st FX 7 million credit cards R$ million net profit R$ 54.3 billion total assets R$ 6.9 billion net equity 100 years investing in Brazil 78 branches in the main cities 400 thousands accountholders clients 7 millions of credit cards Employs 7 thousand employees 5

6 In-Country Key Themes Inbound Company FX Regulatory and Tax Changes Established Company Shared Service Center Capital Structure Control Cash and Visibility Connectivity Reconciliation Local and Intl Account Lean Practices Collection Balance Sheet Efficiency Risk Management Tax Payments Working Capital (DPO / DSO) 6

7 FX Market Overview The Brazilian FX Market at a Glance. Floating rate regime Does not allow free convertibility of the currency Local transactions are settled in BRL There are no Foreign Currency accounts (ex: USD, EUR, JPY) in Brazil There are no BRL accounts off-shore Regulated and controlled by the Brazilian Central Bank Only authorized institutions are allowed to deal. Citi is the country s main FX Dealer Support documentation is mandatory for all FX spot and full-deliverableforward deals FX spot market trades from 9:00AM to 6:00PM (Brasília local time), with limited liquidity during lunch-time (1:00PM to 2:30PM) Although most of the FX deals are settled in up to 2 business days (spot), full-deliverable forward FX transactions are also permitted, up to a maximum tenor of 360 (three hundred and sixty) days. Longer tenors are permitted to support some specific underlying transactions. 7

8 January 2012 March 2012 May 2012 July 2012 September 2012 November 2012 January 2013 March 2013 May 2013 July 2013 September 2013 November 2013 January 2014 March 2014 May 2014 July 2014 (US$ in Millions) FX Market Overview Market Share July ,000 Market Size Evolution 150,000 20, % 130, % 15, , % 10.3% 10.0% 10, % 7.3% 90,000 70,000 5, % 2.9% 50,000 0 Citi Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Bank 6 Bank 7 Bank 8 Export Import Fin. Buy Fin. Sell Source: BACEN. 8

9 International Cash at a Glance With an on-the-ground presence in over 100 countries, and local currency clearing in over 70 countries, Citi is one of the major players in the global foreign currency market and the financial partner of choice of businesses around the world. Brazilian Central Bank Regulatory Arena Before Nov Brazilian Exporters should internalize de integrality of its exports through a FX contract with one of the Banks authorized by Central Bank Nov Central Bank allowed the Brazilian Exporters to receive and maintain the balances using a offshore account, but with limits and deadlines as per resolution of the Conselho Monetário Nacional From Apr Central Bank removed the limits and deadlines for the Brazilian Exporters receivables, allowing them to keep the integrality of its flows abroad International Payment Account Liquidity Mgmt Centralized, non-resident bank account solution to simplify management of foreign currency flows Receivables Operating Account London/NY Payments IPA accounts offered in London in USD, EUR, GBP, CHF, JPY and 13 other major currencies, or in New York in USD Local Customer Service FX Cross Currency Capabilities Electronic Banking Multi-currency conversion capabilities allow you to collect funds and make payments in most major currencies from a single currency of choice. 9

10 International Cash at a Glance WorldLink is Citi s primary cross-currency payments capability, enabling clients to efficiently and seamlessly make payments from their primary functional currency account(s) to beneficiaries in 130 currencies. Cross Currency Solutions to 60% of Forbes top 100 Cross Currency Solutions to 60% of Forbes top 100 Multiple Payment Options Flexible Foreign Exchange Leverage over 30 years of expertise executing x-border payments Funds Transfer: 130+ currencies Onsite Checks: 16 currencies, 30 countries Remote Checks: 30 currencies, 44 countries Spot Contracts Same/Next Day Contracts Daily Fixed Rates Choice of channels to meet diverse payment needs ACH: 28 countries Rate Streaming SEPA: New functionality 32 countries Tiered FX Pricing Auto Conversion Actively managed Citi owned network Cash: 190 countries Multiple Delivery Channels Pre-Purchase FX Breadth of Funding Options Efficiencies with fully integrated FX conversions CitiDirect Online Banking World Link supports funding in over 100 countries globally from a choice of 30 funding currencies First hand knowledge of the evolving currency and payments market in each country File Delivery: ERP File Formats Host-2Host File Formats XML Interface Bespoke File Formats SWIFT: SWIFTFin SWIFTNet Management Information Robust reporting capabilities covering all aspects of client activity Competitive and flexible pricing Global Service Network providing local real time support 10

11 Multibank System Brazilian Payment System Environment Zero Balance Account (Cash Concentration) SPB SPB Brazilian Payment System Brazilian Payment System Delinquency Management Tax Framework Solutions 11

12 Boleto Collections Overview General Concepts Boleto Collections is the most used solution by companies in Brazil. Beneficiary Due Date Amount Payer The Boleto Collections solution is usually offered in two different modalities: Registered: companies send boleto s information to register on bank s system. Usually the clients use this modality for tracking the boletos status and to perform instructions Unregistered: companies do not send any previous information to the bank s for registration. The bank is usually involved after the boletos payments. DDA Direct Debit Authorization Boleto electronic presentation Eliminate the physical issuance and distribution processes Fraud prevention and Security. Upcoming, new rules are being discussed on FEBRABAN 1 for fraud prevention All the boletos should be registered on Clearing s DDA system and validated before payments. 1. FEBRABAN : Brazilian Bank Federation. 12

13 Collection Flow Goods/Services Unregistered Issuance and Distribution Registered Client Bank DDA (Boleto electronic presentation) Client s Customers (Payer) Clearing (CIP and Compe) High value (> BRL250 K) T0 Low value (< BRL 250 K) T + 1 Boleto payment 13

14 How many tributary spheres are there in Brazil? Which are the main taxes paid by the companies? Controls, Security and Visibility: how the companies could improve the process for tax payments simplifying it? 14

15 Fiscal Environment There are three Major Tributary Spheres in the Country: Federal, State and Municipal Federal Sphere (62% of Total) Tax Rates and unique rules to the Country Sphere Financial Quantity Coverage by Tax Master Federal 62% 70% 100% State 33% 20% 90% Municipal 5% 10% 30% Tax Master Solution State Sphere (33% of Total) Different Rules and Tax Rates for each of the 27 States Bank 1 Clients Manual Input Citidirect Municipal Sphere (5% of Total) Different Rules and Tax Rates for each City Companies Demand Simplicity Visibility Security File Transfer Bank 2 Bank 3 15

16 How does your company reconcile receivables for keyaccounts? Are there specific resources in your company to process reconciliation? Are the receivables settled through the company s ERP? Manually? How long does the reconciliation process take? 16

17 Business Center Citi s solution consists on an advanced support service for our clients, where all the operational tasks of a typical financial department are performed on behalf of the client. The Business Center provides end-to-end solutions for the client s collections, payments and reconcilement processes Call Center Predefined scope All calls are monitored and recorded Business Center Payments Reconcilement Access & Maintenance Collections Value for the Company 1. Allows focusing on adding value to the core business 2. Increases business efficiency through enriched reports and metrics 4. Clients will benefit from the Industry s best practices Periodical meetings Performance review Metrics presentation 5. Optimizes the use of resources and reduces operational costs 3. Guarantees a secure environment to manage information 17

18 ARMS Account Receivables Matching Service Citi s ARMS matches commercial and financial information to deliver enriched electronic files containing reconciled payments (related invoices, discounts, refunds, commercial codes, provisions, etc.) Retailers Data Enrichment Client 1. Client sends products and invoice to retailer as part of a regular commercial transaction 2. Retailer effects payment via wire transfer into the client s receivables account at Citi 3. Citi captures all payment details from retailers, processes the information and reconciles it using client s parameters 4. Citi sends to client an electronic file with the detailed information about the payments 18

19 CASE ELECTROLUX 19

20 How long does your company spend to process a high number of manual transactions? How many banks does your organization retain accounts with? Are your goals related to improving liquidity efficiency? 20

21 3 rd Party Banks. MBTBA Multibank Target Balancing MBTBA is a fully automated solution which helps to concentrate balances held with third party banks into one central location to maximize visibility of liquidity structures Market Situation 1. Due to market dynamics, companies in Brazil hold several DDA accounts with different banks 2. Currently all cash concentration mechanism are manual and are processed via TEDs and DOCs 3. Many suppliers to the Public Sector receive payments through banks with whom they do not maintain a close banking relationship 4. Treasurers have a limited visibility over their daily consolidated cash positions. This situation may limit their efficiency to control and place balances. Value for the Company 1. Fully automated solution: this solution uses a fully automated platform to concentrate balances in Citi from multiple source accounts (3 rd party banks). It increases sweep accuracy by reducing manual work and errors 2. Increased operating efficiency: simpler and more effective environment that makes control and forecasting processes easier for your company 3. Optimized internal funding: reduces financial costs through sweeping to fund internal shortfalls 4. Customizable tool to support your liquidity needs: allows to determine minimum target balance, minimum sweep value, frequency, etc. 5. Optimized investment opportunities: invests a greater proportion of idle balances into Citi s wide spectrum of investment options. MT940 End-of-Day Reporting. 1. MT101 Request for Funds Transfer 2.. TED Funds Transfer Client Reports. through CitiDirect. 21

22 How many notaries are there in Brazil? Which is the average amount that companies spend using notary services? 22

23 Delinquency Management Serasa Experian 1 Appointment Notification Notary in Brazil There are around 13K notaries in 5500 municipals in Brazil The average cost of protest are R$52,40/ticket The tenor of protest variable notary-by-notary: average 20 days The original boleto s amount is charged without any penalties or interests Difficult to reconcilement: lack of information Currently, of 100 unpaid invoices sent to notary, only 30 are protested 1. Serasa Experian is a credit services bureau. Serasa notification allows the clients to select overdue Boletos and register them into Serasa s database Integrated with Boleto collection solution Speed in collecting overdue Boletos with less bureaucracy Reduce DSOs Possibility to receive the payment, including penalties and interest Reduced time, costs and efforts in collecting unpaid Boletos Serasa Emits instruction annotation Serasa notifies drawee gives term of 10 days of regularisation Citi sends to Serasa the instruction annotation After Term, boleto is disclaimed in Serasa 23

24 Evolution in Supplier Finance Solution for Importers Citi Supplier Finance brings a new solution for terms alignment that enhances financial ratios and brings benefits to all parts involved. Key Themes Balance Sheet Treatment Non-obvious flows (i.e. freight) Supply chain risk management in a global economy Citi Supplier Finance Solution Payment Services Structure to manage DPO and reduce COGs Based on electronic information. No physical documentation Integrated and centralized Platforms. Web-based transactions Building long-term sustainability into the supply chain strategy Optimize Working Capital New market, non-standard customers and suppliers 24

25 25 CASE BRF

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