WEBINAR SERIES Cash Management

WEBINAR SERIES Cash Management

CASH MANAGEMENT 2 Contents Definition and tasks Account clearing Cash management in a group of companies Cash pooling Netting

CASH MANAGEMENT 3 Centrally defined liquidity... (usually) costs money from a group perspective Land Bank currency Balance by questionary Belgium Banque Lambert EUR 120.748 120.748 Cash Balance Soll-Saldo in EUR EUR Denmark Den Danske DKK -3.560.987-478.744 Holder Banken DKK 437.895 58.871 France Credit Lyonnais EUR 60.686 9.252 BNP EUR 1.899 289 Societe Generale EUR 76.840 76.840 Banque Indosuez EUR -51-51 UK Barclays GBP 530.678 824.415 Italy Banco S. Paolo EUR 46.481 46.481 BCI EUR -397.569-397.569 Japan Deutsche Bank JPY -80.077-640 Deutsche Bank EUR 25.879 25.879 Fuji Bank JPY 346.278 2.766 Netherlands ABN EUR 289.773 289.773 Postbank EUR 87.000 39.479 Austria Creditanstalt EUR -51.356-51.356 RZB EUR 267.580 267.580 Switzerland Postbank CHF 50.035 31.187 UBS CHF 510.678 318.304 UBS EUR 23.165 23.165 Spain Banco Santander EUR 2.632 2.632 Banco Popular EUR 51.988 51.988 Deutsche Bank EUR 147.661 147.661 USA Citibank USD 171.000 157.949 Deutsche Bank USD 73.000 67.444 Bank of Canada CAD 57.000 36.221 Total 2.598.924-928.360

CASH MANAGEMENT 4 Cash pooling / cash concentration / notional pooling Confusion of terms Physical concentration of payments, real cash pooling, cash concentration Interest compensation, notional pooling, interest charging Value-based balancing of several pool accounts with one master account Optimisation of the net interest result Avoidance of simultaneous credit and overdraft balances Improving the market position

CASH MANAGEMENT 5 Cash concentration / zero balancing From the perspective of the bank Overdraft balance of the group Bank balance Credit balance of the group MASTER ACCOUNT +50-200 +100 +50 Residual balance of MASTER ACCOUNT PA 1 PA 2 PA 3 + 200 0-100 0-50 0

CASH MANAGEMENT 6 Notional pooling From the perspective of the bank Overdraft balance of the group Bank balance Credit balance of the group MASTER ACCOUNT + 50 (notional) Notional residual balance of MASTER ACCOUNT PA 1 + 200 PA 2-100 PA 3-50

CASH MANAGEMENT 7 Use of cash pooling structures Cash pooling is more widely used in Germany than in Austria. This relates in particular to the position as master account holder. Use of cash pooling in % of companies surveyed 56 53 36 28 19 8 Germany Master Account Holder - Pool Account Holder No Cash Pooling Austria Source: Schwabe, Ley & Greiner SLG Survey 2010 Germany (Turnover EUR 150m to 10bn.), SLG Survey 2010 Austria (Turnover > EUR 50m.)

CASH MANAGEMENT 8 Cash concentration the potential Pooling potential e.g. per currency based on the average balances per account. Total overdraft balances of all subsidiaries overdraft interest p.a. = overdraft balance overdraft interest rate p.a. Total credit balances of all subsidiaries credit interest p.a. credit interest rate p.a. = credit balance

CASH MANAGEMENT 9 Framework conditions Voluntary or mandatory pooling Automatic or manual Daily or weekly Pooling account as a liquidity valve Task Subsidiary Head Office Daily clearing Cash pooling Payments Bank accounts Daily clearing of all accounts to zero balance Clearing of surplus liquidity via pooling account Optimal management of payments Regional bank accounts coordinated with head office Daily clearing of all accounts to zero balance Provision of pooling system, target account clearing Optimal management of payments Coordination of all bank accounts, information policy

CASH MANAGEMENT 10 Subsidiary accounts Payments Subsidiary Account at Bank A Account at Bank B Account at Bank C 50 100 900 1200 Pool account Account clearing Reciepts Payments Subsidiary 7,00% 0,50% 7,00% 0,50% 6,00% 3,00% Account at Bank A Account at Bank B Account at Bank C 300 2000 300 2000 300 2000 Balance 0 Balance 0 Balance 1700 Pool account

CASH MANAGEMENT 11 Internal perspective Pooling procedure Automatic transfer Mirror-image charging Internal reporting requirements Forderungen an Holding Verr. Kto. Holding (Abb. in Buchhaltung) 1700 Pool-Konto Gruppengesellschaft Konto Bank A Konto Bank B Konto Bank C 1700 1700 Saldo 0 Saldo 0 Saldo 0 Automatischer Pooling-Übertrag Pool-Konto Konto Bank C 1700 Saldo 1700 Gruppengesellschaft Verbindlichkeit ggü GG (Abb. in Buchhaltung) Pool-Konto Verr. Kto. GG 1700

CASH MANAGEMENT 12 Calculation of cash pooling potential Starting point 4 group subsidiaries with high overdraft balances 2 group subsidiaries with (simultaneous) credit balances No cash pooling system in place What would be the potential of introducing cash pooling? Cash pooling potenztal Overdraft interest Overdraft interest p.a. Interest rate p.a. Ø overdraft balance p.a. Credit interest Credit interest p.a. p. a. Interest rate p.a. Company A 36,820 147,280 5.00% 2,945,600 1.00% Company B 7,950 31,800 5.50% 578,182 0.50% Company C 3,820 15,280 6.25% 244,480 1.50% Company D 734 2,936 6.25% 46,976 1.00% Ø credit balance p.a. Company E 7.25% 3,990 15,960 1.50% 1,064,000 Company F 7.00% 9,350 37,400 1.25% 2,992,000 Total 49,324 197,296 5.17% 3,815,238 13,340 53,360 1.32% 4,056,000 Cash pooling potential (avoidance of overdraft interest): 3,815,238 x (5.17% - 1.32%) = 147,103

CASH MANAGEMENT 13 Definition of the rules Cash Pooling Guideline Besides the cash pooling agreement between the bank and the master account holder, there also needs to be an internal agreement between the master account holder and the participating subsidiaries in which at least the following aspects are defined. 1. Banks and accounts encompassed 2. Management and organisation (who is the master account holder and which subsidiaries are included?) 3. Interest charging (reference interest rate, margin and interest charging interval) 4. Overall line (limit) for the pool in accordance with the development of the liquidity of the pool account holders 5. Internal lines (limits) in line with working capital requirements 6. Account clearing forecast and cash flow forecasting 7. Costs of the cash pooling 8. Taxation and liability-related issues 9. Technical implementation (interface EB TMS, automatic booking of intercompany financial clearing accounts, automatic computation of the interest) 10.Formal requirements Starting date and duration Termination Applicable law