SPECIAL REPORT OCTOBER 2012 CORPORATE BANKING IRELAND 2012 INSIDE: - The ‘go-to’ banking products and services identified - Leading corporate banking provider profiles - Capital markets opportunities for Irish companies - How to create a ‘cash culture’ In the future, there will be no markets left waiting to emerge.

Even as soon as 2050, 19 of the top 30 economies by GDP are forecast to be countries that we currently describe as ‘emerging’.*

HSBC was established to fi nance and facilitate the growing trade between China and Europe.

That’s why we have Trade and Supply Chain teams on the ground in the major and emerging trading economies all around the globe, helping you make new business connections and navigate local regulations. So when you are thinking of emerging markets we can provide all the support you need.

For more information log on to www.hsbc.ie or call (01) 635 6000.

*Source: HSBC ‘The world in 2050’

Issued by HSBC Bank plc. AC22830 HSBC Bank plc, trading as HSBC Corporate & HSBC Corporate Banking Ireland, is authorised and regulated by the Financial Services Authority in the UK and is regulated by the Central Bank of Ireland for conduct of business rules. HSBC Bank plc is registered in England No. 14259. Registered Offi ce: 8 Canada Square,London, E14 5HQ, United Kingdom. The Irish branch is registered in Ireland. Registered Offi ce: 1 Grand Canal Square, Grand Canal Harbour, Dublin 2. Registration number 904230.

Contents

4 Round Table: Leading corporate 10 Corporate Advertising Profile: bankers on key issues Danske Bank in Ireland: Finance Dublin 's questions provide Building on the historic platform of insights into current lending conditions, National Irish Bank in Ireland, Danske and the thinking and views on corporate Bank’s corporate banking team set out funding and banking possibilities from their plans for servicing Irish three of the foremost banks in the Irish companies corporate banking landscape. 12 Corporate Advertising 5 How an Irish company beat the Feature: Bank of Ireland world this year in raising low cost The Bank of Ireland is supplementing its corporate banking strategy with a finance focused approach on harnessing its Ryanair’s ‘outside the box’ funding at resources to support FDI 1.74 per cent, almost as low as USA Inc. 14 Internal financing options: 6 Bonds will play a bigger part in Deloitte's Stephen Nolan on internal corporate funding options in the strategies such as divestments, revision future: we asked a leading Irish of loan facilities, and trade finance bond expert to discuss the possibilities 15 ‘Pre-pack’ insolvency transactions: The return of the sovereign to the bond Secured creditors and markets, along with the ESB, and its investors interested in buying the assets implications is discussed by Glas of an insolvent company can now use Securities' co-founder Fergal O'Leary 'pre pack' structures to facilitate a speedy transaction which preserves the 8 Overview: Bank debt, and value of the company's business, write securities options available to major William Fry's Fergus Doorly and Irish corporates Maureen Daly HSBC's Alan Duffy looks at the wide 16 Liquidity first variety of financing structures available, IACT founder member, PwC's Jimmy analysing the different forms of loans Doyle, sets out an evangelistic treasury and paper issuance, including private agenda, with liquidity first placement market, and the rated and 18 A Day in the Life unrated bond markets John Gilsenan, managing director of 9 Public Equity: Porsche’s IFSC-based treasury operations The Irish Stock Exchange hosted a Photographs (this page): two of Ireland’s conference in Dublin’s National corporate funding dealmakers: Top left: Convention Centre last month on the Michael O’Leary, whose Ryanair has just advantages of raising public equity for pulled off a $190 million notes deal at an all-in Irish companies, and other finance financing cost of 1.74 p.c. and (top right), Paddy Power Plc’s CEO Patrick Kennedy, options. Finance Dublin reports whose company has shown stellar returns on the Irish Stock Exchange.

Ideas and strategies for secure The main core of the report however place in every Irish company, large and concerns the options open under the heading small, as we go into 2013, and this report company finance of the various forms of bank credit, featuring provides a veritable treasure chest of ideas to the analysis of leading figures from leading help inform it. THE 'new normal' of restricted bank credit business banks in Ireland, in HSBC, Bank of means that companies everywhere, and Ireland and National Irish Bank- Danske, particularly in jurisdictions with distressed which outline the main options available, Corporate Banking sovereigns (such as Ireland), are facing and their realistic practicability for different unprecedented funding, or, more starkly put, types of Irish company. Bonds and equity Ireland 2012 liquidity challenges. finance are the natural alternative to internal Published by: Fintel Publications Limited, Fintel Corporate Banking Ireland 2012 examines and organic sources and credit, and, IPOs, House, 6 The Mall, Beacon Court, Dublin 18, Ireland. the options available to Irish companies, private equity, and, (a major area of interest Telephone: 293 0566 Fax: 293 0560 covering internal sources of liquidity, the full particularly for larger companies), the rated E-mail: [email protected] gamut of credit, including 'outside the box' and unrated bond markets, which offer Websites: www.financedublin.com; www.finance- sources, such as vendor finance, trade credit, interesting options for those with the magazine.com; www.financejobs.ie or, indeed, a new cash culture in corporate capability to follow that route as part of a Published as a supplement of: treasury that 'evangelises the time value of balanced strategy. FINANCE DUBLIN (ISSN 0790 8628 ) (c) money' (to quote a contributor to our report). A balanced, individually tailored, no- (All rights reserved) ((Incorporating FINANCE (ISSN nonsense funding strategy needs to be in 0790 8628)) (c) (All rights reserved)

4 Corporate Banking Ireland 2012 FINANCE DUBLIN | OCTOBER 2012 Seeking the best in class banking solutions for Irish corporates

This Special Report by Finance Dublin provides a comprehensive assessment of the options for corporate funding, covering loans, other forms of credit, such as vendor and receivables finance, to securities issuance, to public equity, private placement, and bond issuance, both rated and unrated. The report also covers internal sources of cash and, importantly in present times, liquidity.

Bank finance continues to play an important role while capital markets also offer important funding options

In this roundtable discussion with three of the leading figures in banking in Ireland we ask leading bankers. Bank of Ireland’s Pat Gaynor, National Irish Bank/Danske’s Mark Caron and HSBC’s Alan Duffy for their thoughts on the corporate banking services landscape. They identify strategies, products and services that can suggest solutions.

What do you think will be the most Alan Duffy, managing director and the Bank of Ireland Kernel Funds, NCB important sources of finance for mid- Ireland head at HSBC Corporate Venture Capital, Delta, TVC etc and this sized firms over the next 2 years? Banking: remains the case. With the arrival, however, Those with strong relationship banks of initiatives such as The Enterprise Pat Gaynor, managing director, Bank will continue to be able to access Ireland/NPRF Innovation Funds, the of Ireland Corporate Banking Ireland traditional revolving credit, working capital attention of international VCs has been & UK: and/or term loan facilities. Receivables attracted with three players - DJ F Esprit, The answer to this question really financing is increasing in popularity and Sofinnova and Polaris already on board and depends on what stage in its life cycle the will remain a viable financing option. three more to come. In addition the arrival mid-sized firm is. If a company has a There always exists the PP or unrated bond of Silicon Valley Bank (exact offering as yet good track record and a sustainable markets too. unknown) is an indication of interest in cashflow in terms of EBITDA (Earnings Ireland as a hub for innovative and fast Before Interest Tax, Depreciation and Marc Caron, head of client advisory, growing companies with strong growth Amortisation), then it can leverage up on National Irish Bank: potential particularly on the international that cashflow Banks will remain highly important for stage. through bank debt, this sector as a source of funding. While All of this activity bodes well for the be it by way of larger firms are likely to issue in the future. overdraft, invoice international bond markets in ever finance or term increasing numbers, this is unlikely to be “Those with strong debt or a an option for many of the mid-sized relationship banks will combination of companies. However, the new capital rules continue to be able to access these. will mean that it will be more expensive for traditional revolving credit, Equity can form banks to lend to these companies so some working capital and/or term part of the funding of the larger companies in this sector will loan facilities.” structure if required Pat Gaynor also look to the capital markets. It’s unclear for such companies where the equilibrium will be, but the net (or can fund on its result is that these companies will need to Duffy: own for others) and this is available be even more focused on managing their Certainly some sectors such as medical through the various venture capital funding needs. devices, renewables and some food houses or indeed the IPO route. ingredients Irish companies are attracting Innovative businesses may also attract Are we seeing a rebirth of interest by overseas interest. equity from new funds in the market such overseas venture capital firms in Irish as the National Pension Reserve Fund companies? Do you think that issuing corporate supported SME Equity Fund or the bonds will ever be a realistic option for proposed Development Capital Funds Gaynor: mid-sized Irish companies? Will this supported by Bank of Ireland among There has always been a degree of market develop over the next five others. interest by overseas venture capital firms in years in a similar manner to Notwithstanding today’s continued Irish companies but this has typically been Germany's? challenging times, good businesses with at the larger end of the market with limited good management teams and a good appetite for medium sized opportunities. Gaynor: market or sector position can still attract Historically, this space has essentially been I have to confess that I don’t believe this funding from one or more sources. serviced by the domestic players such as will happen in the short to medium term. FINANCE DUBLIN | OCTOBER 2012 Corporate Banking Ireland 2012 5

The corporate bond market both on an Irish particularly where the company hasn’t plan incorporating and indeed international scale is typically an equity raising option open to it to run all of these elements only open to the larger rated entities and it’s alongside debt or is reluctant to go this of their story, their hard to see where the investor base for mid route. Bank of Ireland is genuinely plans for the future sized Irish businesses would emerge from. looking for new business and new and the numbers As a pre-requisite to this developing, I customers but debt levels need to be around these think that a lot more mid sized businesses appropriate for the size and nature of the including detailed will need to go the IPO route so that there business. Growing businesses sometimes financial is a critical mass of companies and are aware of the quantum of funding they projections and the investors in this mid space and a track need but often confuse the equity and assumptions and Alan Duffy record established of such companies living debt element and again that is where sensitivities around in the ‘traded world’. However, one bond Bank of Ireland can help with ideas. these.

“In general we see Irish Duffy: Duffy: corporates maintaining In a nutshell, no. finance directors and Experienced management, a relatively prudent balance CFOs for Irish mid to large size cohesive/robust business plan with sheets. There has also been an corporates are prudent and focused on prudent sensitivity analysis built in, improvement in how they maintaining a healthy balance sheet. steady cashflow, established track record manage the cash resources in Boards are very much in this mindset too. through the cycles. their companies.” type option that may be open to the larger end of the mid-sized world is the US “One bond type option that may Private Debt Placement market which a be open to the larger end of the It can be done: Ryanair’s small number of non quoted Irish mid-sized world is the US ‘outside the box’ example companies have successfully tapped over Private Debt Placement market of recent Irish funding the years in addition to the many quoted which a small number of non success ones. quoted Irish companies have LAST month Ryanair closed one of the successfully tapped over the Duffy: most attractive bond deals in the global years in addition to the many It has been touted for a while now. aviation industry’s history, let alone that quoted ones.” If you look at the US model more funds of Irish companies. The sale by Ryanair are raised in the bond markets than of over $190 million in “Prefunded traditional bank lending. It depends to a Notes” backed by the US Export- degree on the sophistication of the Finance Caron: Function which the company has. The PP In general we see Irish corporates Import Bank on September 6th, sold market is worthwhile exploring as you can maintaining relatively prudent balance for 1.741 per cent. These notes, a new get long tenor and a wide investor base. Its sheets. There has also been an device developed by Ex-Im are backed relatively low maintenance. improvement in how they manage the by the guarantee of Ex-Im, effectively a cash resources in their companies, in US Government body, enabling the Caron: terms of working capital and cash issuer to fund itself at the same rate as It is a major management, which has reduced their the USA itself. The notes, due in 2024, challenge, but there funding requirements somewhat. will fund 7 Boeing 737s and was the is no fundamental lowest spread for a bond guaranteed by reason why it should What do you look for in a company the Export-Import Bank of the United not develop. We have seeking finance? States ever - a recognition also of the seen a buoyant domestic market Gaynor: Irish firm’s rating in bond markets. The develop in some of Now that’s a question that we could transaction was over three times the Nordic countries write a whole article on! In summary, it’s oversubscribed. as well, partially due Marc Caron about the obvious things - there needs to The Ex-Im bank began backing bonds to both issuers and be a strong and balanced management issued by airlines to refinance loans investors wishing to avoid currency team with the appropriate mix of skills when the dislocation in credit markets exposure but partially due to the resources and experience, the business needs to in the financial crisis meant many that the investors have directed towards have a good and clear offering with a airlines were unable to refinance. In understanding these types of credits. good defendable market position, May of this year, Ex-Im went a step diversified in nature (be it further, allowing airlines to raise Do many of the applications for finance products/services, customers, finance for planes directly from the you see from Irish companies seek a geographical markets and preferably all level of debt that is not prudent? three) and a good track record. The market through Ex-Im guaranteed composition of the board and the bonds. The bonds are described as 'pre- Gaynor: shareholder base can also be important. funded' as airlines can sell them before It’s hard to generalise on this question A key element at the outset is that the they take delivery of aircraft. but this can happen quite often and company has a comprehensive business 6 Corporate Bonds FINANCE DUBLIN | OCTOBER 2012

Could Ireland develop a corporate bond market, like Germany and some Nordic countries?

The sovereign-dominated history of the Irish bond market is charted by FERGAL O'LEARY, co-founder of Glas Securities, a bond market specialist adviser, as both the State, and more recently ESB, have returned to the markets. With the downside risks of investing in equities and property now better understood by Irish retail investors, a corporate bond investor base for Irish issuance could conceivably emerge as investors look for alternatives.

rior to July this year, the overall attracted strong independent verification of any issuer’s Irish bond market has seen limited investor demand and ability to repay its debts in a timely Pnew issuance of any substance since was oversubscribed fashion. While most investors’ reliance on the country entered the EU/IMF aid to the tune of 4 ratings assigned by the main agencies has programme in November 2010. times the number of reduced in recent years, a corporate The National Treasury Management bonds on offer. without a rating would find it virtually Agency’s (NTMA's) funding on behalf of Irish corporates impossible to raise financing from the the state in July amounted to €4.2 billion have historically bond market at reasonable levels in the of net inflows to the country at an average used debt financing current environment. S&P and Fitch both rate below 6 per cent for an average term from the bond Fergal O’Leary assign BBB+ Negative Outlook to the of 6 years. This was followed in August by market in Irish sovereign. Moody’s currently rates the issuance of €1 billion of longer dated conjunction with borrowing via both the Irish sovereign Ba1 and assign a amortising bonds at an average rate of domestic and international bank loans. Negative outlook to the rating also. Last 5.91 per cent. Irish Government With banks’ own cost of funding month, Moody’s lowered the local and borrowing from bond investors peaked in increasing substantially over recent years, foreign currency bond and deposit rating 2009 when the country borrowed circa borrowing from bond investors looks ceiling for Ireland from Aaa to A3. This €33 billion. There has been no material more attractive economically and could means that no domestic issuer or any public issuance from Irish financials since offer more attractive longer term structure backed by Irish receivables can 2010 and limited public issuance from financing than that currently available to achieve a rating above this level. In the Irish corporates also. corporates from direct bank borrowing. It short term, this is unlikely to have a Historically, Irish financials have is worth highlighting that most banks significant impact but in the next few largely dominated corporate non- continue to deleverage in a bid to reduce years if Ireland’s ratings start to recover, a government issuance in Ireland. Irish loan to deposit ratios to more manageable break above that ceiling may be difficult banks and insurance companies have levels. to achieve. borrowed via senior unsecured bonds, In the aftermath of the financial crisis subordinated bonds and covered bond “With banks own cost of where sovereign and bank default risk has issuance. Securitisation of residential funding increasing increased considerably, investor appetite mortgages, commercial mortgages and substantially over recent for corporate risk has increased. In leveraged loans also formed part of the addition, the current low interest rate funding platforms for Irish banks before years, borrowing from bond environment, with negative yields in short the on-going economic and financial investors looks more dated maturities of core European crisis began. As historical wholesale attractive economically and countries, is forcing investors to seek funding has reduced or matured, it has could offer more attractive alternative investment strategies in an largely been replaced by government longer term financing than effort to achieve required returns. guaranteed senior unsecured issuance and that currently available to Corporate bond markets in some other increased borrowing from the ECB. corporates from direct bank European countries such as Germany have Following liability management exercises, the benefit of a large retail investor base borrowing.” future issuance via subordinated bond who have a long history of investing in the issuance or securitisation would appear to corporate bond market as opposed to be unlikely and the most probable form of High profile corporates such as CRH, equities, property or other cash borrowing may take the form of covered eircom, Smurfit Kappa have been able to alternatives. bond issuance, which are all currently access bond market financing in the past Ireland does not historically have a rated investment grade. decade. This has not been the case for similar investor dynamic where the lure of Semi-state companies such as ESB, smaller, less well-known issuers who have potential equity and property investment Bord Gais, Aer Rianta all tapped been unable to access this source of returns has historically overshadowed the international bond markets prior to the funding due to a number of factors such potential returns of corporate bonds. country entering the EU IMF Programme. as the relatively low level of retail Perhaps with the downside risks being Last month, the ESB returned to the domestic investors in Ireland; prohibitive better understood for equities and corporate bond market to successfully cost of ratings; lack of focus from property over the last few years, corporate issue €600m 5 year bonds at a rate of international investment banks to date; bonds may become more popular in the 6.25% which also carried a one-off lack of transparent pricing platform. future. coupon step-up of 125bps in the event the Rating agencies have a very important company’s ratings fall below investment role to play in international bond markets Fergal O'Leary is co-founder of Glas grade over the life of the bond. The bond as they are mostly perceived as being an Securities. Building relationships, exceeding expectations

At Bank of Ireland, we understand the importance of establishing solid, one-to-one business relationships that deliver results across a wide range of sectors.

Our track record is based on sourcing and providing finance and tailoring our innovative treasury solutions for our customers.

Our team would welcome the opportunity to discuss how our services can be tailored to exceed your expectations.

Talk to us to find out more:

Padraig Rushe Director Bank of Ireland Corporate Banking Tel: +353 (0)76 624 4607 Email: [email protected] Gavin Rylands Head of Institutional Sales Bank of Ireland Global Markets Tel: +353 (0)76 624 4293 Email: [email protected]

www.bankofireland.com/corporate

Bank of Ireland is regulated by the Central Bank of Ireland.

           8 Corporate Funding FINANCE DUBLIN | OCTOBER 2012

Corporates have a wide variety of different sources of debt financing available HSBC's Alan Duffy looks at the current state of the corporate financing market and the wide variety of financing structures available to corporates looking to service debt and manage their finances.

he seismic changes which have as demonstrated by borrower when there is more than one taken place in global financial the stressed iTraxx lender with an agent being required to act Tmarkets since 2008 have resulted in levels and the as the sub-contractor for the borrower a sea-change in how lenders are engaging unsustainable yields handling the paperwork and administration with their clients and originate new on sovereign debt. for the lenders. transactions. By the same token, corporate Whilst the long-term There are obvious advantages to a club clients are operating in a dramatically refinancing facility including a single point of contact different space and those who have operation (LTRO) for all requests through the agent bank. survived are thinking 'outside the box' cash injections in While one common document is in place, when it comes to servicing debt and November and there is no dependence on one bank with managing finance. February served as a Alan Duffy most decisions subject to majority bank In addition to macro-economic temporary fix for European banks, voting. Borrowers can raise funds more instability, the eurozone crisis and fundamental weaknesses in Southern cheaply than bilateral engagement while regulatory pressures among other factors, Europe still threaten the financial system, flexibility in structure and pricing often the demand for credit and finance has given the material exposure to sovereign allow for multicurrency drawings and meant that many corporate borrowers now debt by the European banks. prepayment without penalty. It can allow place great stock in relationships This negative economic backdrop, as access from a diverse group of financial developed with lenders when doing well as the heightened regulatory institutions but this means it can be more business. Established and tangible track- environment, has led to banks’ credit challenging to amend any terms and records are viewed more than ever as models pricing in a higher probability of conditions. pivotal as the global economy drags itself default which has increased the cost of By contrast, a bilateral facility with an from the gutter and sets about re-inventing capital for corporate lending. institution means the client can mix the itself. The loan market saw a significant uplift terms and maturities of each commitment Overall, net lending continues to be in margins and fees after the Credit Crunch with the lender responding to the borrower negative reflecting ongoing bank and the failure of Lehman Brothers but this directly. Lenders may be more flexible in deleveraging and expansionary capital was more than offset by the impact of bilateral transactions and the borrower expenditure. Boardroom confidence expansionary monetary policy initiatives to avoids agency fees although this can be help revive growth in a struggling offset by higher legal fees due to the Syndicate lending facility: economy. Margins throughout 2010 and number of different agreements. However, “Borrowers can raise funds 2011 came under significant pressure as negotiating numerous documents with more cheaply than bilateral many companies repaid debt rather than multiple banks can be time consuming and engagement while flexibility in taking on additional risk in the form of inefficient, more monitoring may be debt funded activity such as mergers and required if there are uncommon terms. structure and pricing often acquisitions. Finally, inter-creditor agreement may also allow for multicurrency In the summer of 2011, we reached a be required taking additional time and drawings and prepayment plateau in the corporate deleveraging cycle money with the company needing to without penalty.” with margins bottoming out. This was administer drawings of each facility followed by a deterioration in the eurozone separately on an ongoing basis. continues to be relatively low although economy which has since culminated in Well capitalised banks with stronger there is recent evidence of some margins widening as increased funding sovereigns are however maintaining their confidence emerging on the mergers and costs fed through bank models and loss consistent strategy of lending to core acquisitions front, albeit with a focus on given default rates rose. relationships. Going forward, the geographical expansion. Bank deleveraging and higher funding implementation of Basel III in 2013 is The US private placement market costs has reduced euro bank participations likely to materially alter how euro banks continues to be conducive for new issuance in transactions as the financial crisis and structure acquisition financing and long- as underlying treasury yields are very low uncertainty around Europe continues to term structured loans which may reduce and credit spreads are attractive. Although effect bank liquidity. liquidity further. conditions are volatile, the high yield Since 2008, euro bank participations Given this backdrop, alternative sources market is also playing a big part, especially have reduced significantly, coinciding with of debt financing for corporates shouldn’t in the financing of mergers and a downgrade in their credit ratings as well be ignored and we can look at some acquisitions. as the sovereign rating. As a consequence, options in the table below. From a loan pricing perspective we are the number of lenders traditionally present Bank debt offers the advantages of high seeing the emergence of a number of key in syndicated and/or club facilities has flexibility and a lower cost of funding than themes regarding corporate loan pricing sharply retrenched. Nonetheless, there is typically available through non-bank (which has widened in recent months still a significant level of activity in this sources. However, it is shorter tenor and across the spectrum as we shall explore.) area. liquidity can be constrained by ancillary The unresolved sovereign debt crisis A club or syndicated facility is typically income available. continues to weigh on the capital markets the preferred structure for lenders and the Private Placement offers investor FINANCE DUBLIN | OCTOBER 2012 Corporate Funding 9

Bank Debt Private Placement Schuldschein Unrated EUR Bond Public Bond Rating Not required Not required Not required Not Required Required Size Parameters N/A USD75-500m EUR50-150m EUR250m+ EUR300m+ Flexibility High Medium Medium Medium Medium Maturity 3 - 5 yrs 5 - 15yrs 3-7yrs 5yrs + 5yrs + Relationship Lenders Yes Yes Yes No No Pricing Low Medium Medium Medium Medium Market Capacity Moderate High Moderate High High diversification, longer tenor funding than required for issuance. market to the company. They do however, bank debt but with equal ranking and no The Unrated EUR Bond market has require a rating which demands cost and requirement for public ratings. On the deep liquidity from a wide pool of new management time as well as increased down side, early repayment terms can be investors and one can revisit the market to disclosure requirements. onerous and an increased number of possibly build out a curve but on the flip- Overall, in the current climate, it pays to stakeholders exists for borrower side, it is more public than PP or transact with an experienced banking negotiations. Schuldschein and a premium is required partner with knowledge of these products Schuldschein (German Private for unrated issuance which ranges from 50 as well as the traditional product suite. Placement) offers similar advantages to to 75 basis points. US Private Placement and provides lean Public Bonds are the deepest and most Alan Duffy is managing director and documentation under German law. liquid source of debt finance and Ireland head at HSBC Corporate However a local presence in Germany is demonstrate the financial strength of the Banking. Public equity: Irish companies should consider early IPOs The Irish Stock Exchange hosted a conference in Dublin’s National Convention Centre on the advantages of raising public equity for Irish companies, and other finance options last month. FINANCE DUBLIN was there.

he advantages of initial public a company with a €10 million turnover to been more successful, numerous more offerings (IPOs) to Irish companies double its revenues than for a company tech companies would have followed suit. Twere highlighted at an Irish Stock with €100 million in revenues. However Panelists also said that equity financing Exchange's conferenc on growth funding some degree of scale is necessary; he said has been impacted by a flight to safety on the 26th of September. Chair Pádraig Ó that a company should have at least €15 to and currency concerns. According to Ríordáin, a partner at Arthur Cox, as well 20 million in revenues to attract investors. Kenny, overseas venture capitalists who as panelists Pat Gaynor, managing Predictability of earnings and a solid invested heavily in the 2000s and left in director of corporate banking Ireland & track record is also important to a 2008 are now returning. Gaynor says that UK at Bank of Ireland, Frank Kenny, discerning market, so preferably a banks must redevelop their expertise in in founder of Delta Partners and Simon company should be profitable and early relation to financing SMEs because they Howley, a director at Goodbody Corporate stage companies will be less suitable. A lost that experience after a decade of Finance, agreed that companies should be company that can afford a growing property lending. encouraged to go to the market at an dividend yield will also stand out. When a Many companies also have a property earlier stage of their development, at as member of the audience asked what steps overhang. Gaynor referred to the early a stage when they need to raise as a company should take when preparing for Independent SME Business Banking little as €5 or €10 million. an IPO, all of the panelists emphasised survey carried out by Millward Brown Comparing the IPO environment in putting in place the right team with a Lansdowne for Bank of Ireland in Ireland to the success of AIM in the UK, proper board structure and management September 2011, in which 62 per cent of Howley pointed out that IPOs ‘simply that has the capacity to deal with public respondents said they felt 'banks are not don't crop up on small and medium Irish markets. open for business,' even though 42 per companies' funding agenda and that It was noted that the time windows for cent of these people were approved in full greater awareness needs to be built IPOs are very small. A company needs to for facilities on their last finance request. concerning the available options’. ‘In ensure it is prepared for when the time is Whether venture capital firms active in Ireland there's been approximately one right to float, which can last less than Ireland have been overly focused on IPO a year for the last 10/12 years and out three months; 50 per cent of all IPO technology companies was identified. of the 50 listed companies in this country, capital raised in the US in 2011 was done Untapped opportunities in a wide range of only 10 - 12 have a market capitalisation in a period of seven weeks. The best time sectors were mentioned - food, below €50 million. Yet over half of the for an IPO has traditionally been pre- pharmaceuticals, services, gaming, companies listed on AIM, a total of 626 summer and September/October. In a medical devices, aircraft leasing, payment companies, have a market capital below volatile market investors will wait until systems and horse breeding. However £25 million’, he said. they are confident and conditions are some potholes were identified in relation According to Howley institutional right, and this can often be a very brief to these industries; food was noted to be a investors are always interested in good period. Once this happens a large number capital intensive business, where a return quality medium sized companies because of companies will often list at the same can't be made on equity alone, as well as the growth prospects for such companies time, striking while the iron is hot. an industry where there is huge are often more achievable - it is easier for Howley says that if Facebook's IPO had international competition. 10 Corporate Advertising Profile: National Irish Bank FINANCE DUBLIN | OCTOBER 2012

National Irish Bank ticks all the boxes as a banking partner for Irish corporates

hat does Corporate Banking corporate and investment banking 2. Is having an international banking mean to you? As strange a services to Irish and international group as your banking partner an Wquestion as that may seem, corporate clients. From its base in the advantage? especially in a Corporate Banking IFSC, the team is committed to feature in probably the most corporate building long-term relationships with Yes. An international group such as of publications, perhaps you should customers nationwide and delivering Danske Bank will give a company access take a look at the five questions below superior financial solutions. to the funding potential and international and ask yourself whether you and your The Corporate Banking team offers a expertise that isn’t always domestically corporate banking activities could fit variety of services ranging from cash available. together better. management to advising on complex Having international banks in Ireland corporate transactions. Dedicated is central to the future of the banking 1. What should your bank give you? teams provide bespoke strategies to help customers achieve their objectives The future of funding All the things you’d expect - sound by working closely with Danske Bank The market for corporate lending has advice, peace of mind, assurance, been quietly changing in recent years. confidence to concentrate on your own Many corporates are developing their business, value-for-money, etc... You’ll “We’re already seeing the treasury functions and going to the find these terms in the brochure of any business potential in advising capital markets themselves, using bank with a corporate focus. And, of our clients on their funding their banking partners for advice course, they are all true. But in reality, instead, a trend that’s likely to needs and then helping them your bank should be your partner. It continue, says Caron. ‘The should be the place you go to first for to secure that funding outside introduction of Basel III from next advice. It should have your best of the traditional model.” year will accelerate this process as interests to heart banks will be required to hold more and it should listen capital against their loans. We’re to what you want Group colleagues, already seeing the business potential and then deliver ‘As we have a ‘one banking platform’ in advising our clients on their solutions. It ethos, not only do we get the benefits funding needs and then helping them should do this in of this constantly improving to secure that funding outside of the the most efficient technology, but we also have a fully traditional model,’ he says. and cost-effective integrated Group ‘Larger companies are now going in way possible, platform, ideally greater numbers to the market to raise allowing you, the suited to cross- funds. We’ve recently seen Ryanair customer, to Terry Browne border transactions and ESB raising funds through bond maximise your and trading,’ sales, giving them greater control of resources and returns. Browne says. their funding operations and often at National Irish Bank (NIB) has been a ‘The advice we keener prices and longer tenors. We key provider of corporate banking provide is entirely can leverage our position as a services for many years. From next focused on, and primary dealer in Ireland, and across month, it will be known as Danske tailored to, our Europe, to facilitate our customers to Bank as it takes on the name of its clients, Marc Caron fund themselves on the open market.’ parent in a Group-wide move where all considering what its banking operations across Europe are the best financial solutions for the will be harmonised under one brand. coming years, not just the next three or sector here, says Browne. ‘They’re key to NIB’s strong corporate presence is six months. For example, there are maintaining competition in the market evidenced by the large number of various regulatory and accounting and to giving customers an international Ireland’s top companies who choose it changes that will impact on companies’ exposure. This is especially evident with as their banking partner. Its Corporate financial position over the next few a bank like Danske who entered the Irish Banking team, led by Terry Browne years, but that companies should be market in 2005. Having an international (pictured), offers market-leading considering now,’ adds Marc Caron, presence in Ireland is especially relevant financial advice and specialised head of Client Advisory. when you consider the importance to the FINANCE DUBLIN | OCTOBER 2012 National Irish Bank 11

Irish economy of having so many multi- international focus operating in Ireland,’ Irish Bank also benefits from Danske’s national corporations here. An Mullin says. credit ratings, making it one of the international bank can cater for these Reputation – NIB’s International highest rated banks operating in Ireland. corporations’ domestic and international Corporate Banking team has a growing banking needs and thereby help to attract reputation for dealing with multi-national 5. What makes National Irish Bank continued Foreign Direct Investment corporations in Ireland. It has a particular your ideal corporate banking (FDI) into Ireland’. interest in supporting the development of partner? FDI into Ireland. ‘FDI is a key area in Apart from the counter-party strengths 3. How can an international bank supporting economic recovery and listed above, NIB has the expertise, the help an Irish company? development in Ireland,’ says Mullin. ‘It’s experience and the appetite to become The answer to this can be given in four words - relationships, research, risk and SEPA will change the European payments process reputation. SEPA is the most important development in international payments for many Relationships - Stephen Mullin, years. It will create a harmonised payments system across Europe, allowing National Irish Bank’s Head of payments to be made from Ireland to anywhere in the eurozone at the touch of a International Corporate Banking button. commented - ‘Danske Bank prides itself An acronym for Single Euro Payments Area, a home market area is being on building strong relationships with established for payments traffic in the European Economic Area (EEA) including multinational clients across the whole of all 27 EU member states, as well as Norway, Iceland, Lichtenstein, Switzerland Northern Europe and in the US’, he says. and Monaco. By using SEPA, a company can carry out all payments in the SEPA With its network of banks, its area from one country, through one bank, using one standard payment type in one relationship focus and its eBanking instalment and using the same terms. platform, Danske is ideally placed to Barry Manning, Head of Corporate Cash Management is a fan. ‘SEPA will open the market up in a truly European way for the first time, allowing all businesses to benefit from a single payments system, offering convenience, time and money- “As we have a ‘one banking savings. It will lead to new initiatives such as e-invoicing and the greater use of platform’ ethos, not only do we internet payment solutions. All in all, it will make payments simpler for the get the benefits of this customer.’ constantly improving SEPA will mean significant technological change in European payment systems technology, but we also have a because it involves more than 300 million consumers, 15 million companies, as fully integrated Group platform, well as 8,000 banks, public corporations, clearing corporations and software ideally suited to cross-border suppliers. Manning says that SEPA basically means ‘creating a payments infrastructure transactions and trading.” where there’ll be no difference between sending a payment to a supplier in France compared to one in Dublin, Cork or Galway.’ support import and export companies, for For the customer it makes sense. ‘If you’re a corporate customer headquartered in example, in reducing the complexities Ireland, and you have sales operations across Europe, from your account in Dublin sometimes associated with international you’ll now be able to pay salaries, creditors, direct debits and receive payments for trade. your German or Italian sales offices. When SEPA is fully operational, everything Research – will be payable from one euro account.’ Mullin continues, It is critical that Ireland can rely on its banks to be ready for SEPA. Every ‘The markets are company in Ireland that deals with businesses elsewhere in Europe will need to international, so have a SEPA-ready bank. With its cross-border capability and its award-winning having up-to-date technology platform, Danske Bank is SEPA-ready. In fact, NIB already has a international number of customers using its SEPA-direct debit solution. information is vital if our customers are to compete an area where we want to be positioned the bank of choice for corporate effectively.’ Danske as the bank of choice for multi-national customers across Ireland and Research regularly Stephen Mullin corporations operating, or seeking to internationally. publishes reports on locate here.’ Danske Bank is a leader in electronic market and economic developments banking services and is continually across Europe and global markets. ‘NIB 4. Does Corporate strength really developing its online product suite. ‘This customers benefit greatly from these matter? allows us to look at innovative and reports and from the regular customer Again, yes. The relative strength of secure ways of enhancing our customers’ presentations we offer,” he says. your bank is something that can’t be banking experience, by improving cash underestimated, as it can directly affect flow, maximising returns on surplus Risk - Companies are increasingly the cost of, and access to, key funding. liquidity, effectively saving time, money opting for more secure methods of Danske Bank is one of the largest, best- and administrative costs. For payment for the export of goods and capitalised banking groups in northern international corporate clients this is a services. ‘The use of financial Europe, with total tier 1 capital ratio of means of increasing efficiency, instruments to reduce the associated 16.0 per cent at the end of 2011. The increasing profitability, releasing money uncertainties is finding greater use with Group also had assets of €460bn and a tied up in working capital, and, businesses all over the world, and that is market capitalisation of €11.8 billion. ultimately, increasing shareholder value,’ equally true for businesses with an As a full branch of the group, National concludes Browne. 12 Corporate Advertising Feature: Bank of Ireland Corporate Banking FINANCE DUBLIN | OCTOBER 2012

Following a tradition dating back to the 1960s, Bank of Ireland continues to support inward investment

Bank of Ireland has been helping foreign investors finance their projects in Ireland since the 1960s and today the bank, through its Inward Investment Team continue to support the efforts of the Government and IDA Ireland in winning new investments across key sectors such as ICT, life sciences, social media and financial services, creating jobs and aiding economic recovery writes BARRY MCCALL. It benefits from the relationship banking model they created to support international financial services companies setting up in the IFSC since the 1980s

reland’s economic recovery is supported by our continued ability to Iattract foreign direct investment and the ongoing growth of key sectors such as ICT, biopharma, and international financial services. Indeed, according to recent research carried out on behalf of law firm Matheson Ormsby Prentice multinational companies plan to create up to 20,000 new jobs in Ireland over the next three years. The survey of 315 executives with global firms by the Economist Intelligence Unit asked about attitudes to investing in Ireland. The report found that 45 per cent of them either planned to invest in Ireland for the first time or to expand their current operations in Ireland between now and 2016. Tellingly, half of those planning to create new jobs were in financial services while a further quarter were in the technology sector. Padraig Rushe, director at Bank of Ireland Corporate Banking: ‘Bank of Ireland has been front and centre in supporting inward investment into Ireland for many decades going back to the 1960s’ “We have been proud to and their parent companies in the US, unparalleled experience of working with support the efforts of the Europe and throughout the world. 'We multinational companies and has a clear Government and the IDA in have a full branch in Stamford in the US, understanding of their needs. 'We are a attracting investment during for example', Rushe adds. 'This allows us full service bank with more than 250 that period. When new to grow and develop relationships with branches in every corner of the country companies come to set up in US based parents of companies located and we can provide a seamless, end-to- Ireland they create new jobs here. It allows us to complete the circle in end banking service from treasury right terms of the services we offer those through to personal banking. It’s a more and that is good for the companies.' traditional suite of banking services rather country and the economy.” The bank’s relationship with the than a credit based relationship now. Our - Padraig Rushe multinational sector has changed quite customers tell us that the primary reason significantly over the years, Rushe for banking with us is this full service explains. 'If you go back to the 1970s the offering and significant branch network. 'Bank of Ireland has been front and multinational firms who came here would They also acknowledge the strong centre in supporting inward investment typically build very significant relationship we have with international into Ireland for many decades going back manufacturing plants. A lot of the time banks that we partner with. When a to the 1960s', says Padraig Rushe, Bank these plants were funded by Irish banks. multinational company comes here they of Ireland Corporate Banking. 'We have This meant that the Irish banking industry can be confident that we already have a been proud to support the efforts of the had a critical role to play in bringing strong relationship with their main Government and the IDA in attracting investment to Ireland. We don’t tend to international bank', comments Collins. investment during that period. When new see such large bricks and mortar He believes the global and domestic companies come to set up in Ireland they investments these days so the nature of financial crises have made little create new jobs and that is good for the our relationship and the services we difference to Ireland’s attractiveness to country and the economy. Of course, that provide has changed.' inward investors. 'In broad terms, from in turn is good for the bank.' These services are underpinned by the the perspective of a multinational firm This supporting role has seen Bank of bank’s dedicated inward investment team. Ireland is a politically and financially Ireland grow and develop relationships The team, led by Derek Collins, Bank of stable location. Companies have both with the locally based multinationals Ireland Corporate Banking, has continued to establish a presence in FINANCE DUBLIN | OCTOBER 2012 Bank of Ireland Corporate Banking 13

Ireland since the recession started. They come here for the people, the reducing cost base and other factors. They don’t see Ireland and the economy as problems for them in the overall scheme of things. They are looking for a European presence to grow their business and they just get on with it.' Collins attributes much of this continued success to the work of IDA Ireland over the years. 'The IDA’s role in the strong flow of inward investment has to be acknowledged. Their excellent work over the years and focus on delivering new investments in the key sectors of ICT, life sciences, financial services, social media and consumer content has been of enormous importance.'

“Its a more traditional suite of Derek Collins and the Bank of Ireland Inward Investment team banking services rather than a this potential. 'Our analysis revealed huge The Green IFSC is on target in terms of credit based relationship now. levels of spending projected in the sector. growth and Rushe believes it has a direct Our customers tell us that the While we had been thinking about role to play in the domestic energy sector primary reason for banking millions and billions in terms of the level as well. with us is this full service of investment it turned out to be billions 'Ireland’s renewable energy resources offering and significant branch and trillions', he recalls. 'The research we are among the best in the world and all network.” commissioned forecast investment of that is needed is to bridge the gap - Derek Collins €2.9 trillion in the EU25 from 2011 to between those assets and the capital 2020 with €600 billion of this being required for their development. That’s development capital and the balance ultimately what the Green IFSC has the Bank of Ireland has also supported IDA being on the exploitation of the potential to do and Bank of Ireland will Ireland’s efforts in the growth and technologies once developed.' be right there at the centre of that.' development of the IFSC over the years. The question is how all of this 'We set up a relationship banking model investment will be financed. 'The capital “Look at the aircraft leasing at the very start of the IFSC to offer will come from a mix of private equity, sector. Ireland is a world companies establishing there the banking venture capital, leasing, investment funds, leader in this area because we support they needed', Rushe points out. bonds, project finance bank credit and so have the people with the 'They may be financial services on', Rushe notes. This creates an companies but they need traditional opportunity to develop a new segment of expertise in it. GPA is banking services just as much as activity across the IFSC via the Green responsible for that...Nobody companies in any other sector. We also IFSC. The challenge for us will be to can claim green expertise yet actively support the industry associations convince people that they should come to and there is a very real and government agencies as part of the Ireland rather than anywhere else to carry opportunity to get ahead in ongoing development of the industry in out this activity. A key enabler will be that area.” - Padraig Rushe Ireland.' education and there are now This support for the growth of the undergraduate and postgraduate courses international financial services sector has on green finance being offered by both He reiterates his view of the IDA’s role seen Bank of Ireland play a lead role in DCU and UCD.' in Ireland’s continued success as a global the creation of what has become known He draws a parallel with the aircraft investment location. 'The IDA is doing a as the Green IFSC. 'We have always been leasing industry in this regard. 'We need great job but everyone else has a part to enthusiastic supporters of the IFSC and to have an additional capability in the play as well. If the IDA has a company the Green IFSC is the latest initiative in area of green finance that other countries looking at Ireland everyone should help terms of growing the sector', he says. don’t have', he explains. 'Look at the to achieve the goal of getting them to 'When we were looking for potential aircraft leasing sector. Ireland is a world locate here. And once they come it’s up to growth areas back in 2009 we found leader in this area because we have the all kinds of businesses including the strong anecdotal evidence of a large people with the expertise in it. GPA is banks to avail of the business increase in investment in the broad responsible for that. The late Dr Tony opportunities they will bring; but we’ve environmental and sustainable industry Ryan helped develop a whole generation got to get them in first. Bank of Ireland’s sectors. Our view was that this could of people with the required skillsets and a role in the first instance is to support the provide a significant opportunity for the whole industry sector has more or less Government and the IDA in terms of IFSC.' been founded on that basis. Nobody can generating investment and economic As chairman of the IFSC Banking & claim green expertise yet and there is a growth. After that it’s up to us to avail of Treasury Group, Rushe established a sub- very real opportunity to get ahead in that the banking opportunities presented by group from within the IFSC to investigate area.' this investment.' 14 Corporate Finance FINANCE DUBLIN | OCTOBER 2012

Internal financing options are playing a bigger role for Irish companies

Companies should try to acquire a financing mix that limits risk and manitains flexibility writes STEPHEN NOLAN. With the availability of bank financing limited, Irish corporates are looking to other forms of financing both internally and externally.

ew companies are immune from the remaining focused period; medium term debt financing is effects of the downturn. Those who on recapitalising more appropriate for plant and machinery Fprosper have three common strands their balance sheets, and is usually financed over three to five - best practice in managing finances, the availability of years and short term debt financing efficient working capital and debt debt financing generally relates to working capital needs arrangements and a tight, cost effective through traditional over six months to three years. operation. Central to this is ensuring that banking sources has Furthermore, sometimes doing nothing the appropriate forms of financing are in been limited. Many is not the best option. Organisations need place to meet the organisation’s current organisations have to continually invest to maintain and requirements and plans for the future. To found it extremely enhance their competitive position. For Stephen Nolan help achieve this, the following four steps difficult to raise the example, debt facilities and banking are essential. required quantum of covenants can be renegotiated or bank financing and have been forced to refinanced. Be proactive and do your homework utilise other funding sources. Where bank To truly optimise an organisation’s Many businesses fall at the first hurdle funding is available, the terms are strict position and bargaining power in the by failing to adopt a proactive approach to and leverage is low. An increased focus on external market, organisations should financing. A proactive approach includes the due diligence and approvals process assess the availability of financing from reviewing and managing the organisation’s has resulted in applications either taking different sources. All terms and pricing financial controls, setting aside time to longer to approve or, in many cases, not should be benchmarked and the ability to manage relationships with external being approved at all. service interest or dividend payments funding providers and assessing the short For larger organisations, the bond should be stress tested to ensure the term and long term financial needs of the markets are likely to be the main source of optimal option is selected. business. Organisations that take a debt financing. Bond investors have A diverse approach, whereby an reactive approach generally realise they shown an appetite to provide liquidity organisation is not wedded to one have a funding requirement at the last should the duration and coupon on offer particular financing option is advisable. A minute and fail to consider the long term be attractive. CRH and Smurfit Kappa financing mix that contains both debt and effects of a financing decision, thus have taken advantage of this option in equity, is spread across different inhibiting potential future growth plans. recent times. maturities, and perhaps geographies, When seeking financing, irrespective of The relative vacuum of debt financing limits risk and maintains flexibility. whether you are raising debt or equity, an has led to equity financiers playing an informative, clear and concise business increasing role in the marketplace. Don’t lose focus on the day job plan should be prepared. All external International private equity firms have Financial pressures and the requirement finance providers will want to see a clear demonstrated their interest in Ireland with to raise finance can divert attention away plan that shows a well thought strategy the recent acquisitions of Clerys by from the core business. The main and, importantly, one that shows a return Boston-based Gordon Brothers and objective of any management team is to on investment. Fintrax by the UK firm Exponent. For ensure that their underlying business is smaller organisations, the increasing successful on a day to day basis. Assess which options suit best community of angel investors may be an Undertaking the sale of a subsidiary, or Organisations can source financing both option to consider. Generally, not only courting financing providers to access internally within the business and does this investor class provide financing, funding, has the ability to distract from externally in the financial markets. but they also frequently lend their time managing the core business and can end Internally, assessing options such as and expertise to ensure their investment up doing more harm than good. By realising an existing asset on the balance flourishes. staying on top of financing requirements, sheet (for example a sale of a subsidiary management time is optimised. or surplus property) may be an option to Optimise, optimise, optimise Whilst views differ on the forecast consider. If this is progressed, Maintaining a sustainable capital length and severity of this period of organisations should assess the associated structure is essential to a successful subdued economic growth, the reality is implications of such a move, such as loss business model and the suitability of each that this environment is now the new of knowledge capital if a subsidiary is sold form of finance is different for each ‘normal’. Organisations that proactively or foregoing on-going rental yield in the organisation. adapt and stay on top of their financing case of a property. Furthermore, there is The duration and terms of financing requirements are those who will be in the the option to raise equity through existing differ across options and picking the right strongest position to take advantage of shareholders, who may be willing to invest form is critical. For example, long term growth once it returns. further once a return on investment can be debt funding will likely be required when demonstrated. acquiring land or buildings and is Stephen Nolan is a senior manager in Externally, with financial institutions normally repaid over a five to twenty year Deloitte’s Corporate Finance team. FINANCE DUBLIN | OCTOBER 2012 Corporate Recovery 15

Pre-pack insolvency transactions can help to preserve the value of a company's business

Pre-pack' insolvency transactions have been a feature of insolvency transactions in countries such as England and Wales for some years but until relatively recently, had not featured in Irish insolvencies write FERGUS DOORLY and MAUREEN DALY. Investors interested in buying the assets of an insolvent company and secured creditors should consider using a 'pre-pack' structure to facilitate a speedy transaction which preserves the value of a company’s business, goodwill and other assets, they write.

re-pack' insolvency transactions company experiencing financial difficulty. the licensing of insolvency practitioners. have been a feature of insolvency Prior to the formal appointment of the Those guidelines were implemented to Ptransactions in countries such as receiver, a purchaser is identified and increase transparency for creditors and England and Wales for some years but terms of sale are agreed for the sale of the confidence in the marketplace regarding until relatively recently, had not featured assets in question. The receiver then the use of pre-pack administrations. The in Irish insolvencies. implements the pre- guidelines provide that unless exceptional Investors interested agreed terms circumstances exist certain prescribed in buying the assets immediately on or information must be disclosed to creditors of an insolvent subsequent to his after the pre-pack sale has been effected. company and appointment. The English courts have also approved the secured creditors The advantage to use of pre-pack sales in the appropriate should consider the 'pre-pack' circumstances. using a “pre-pack” structure is that the In the absence of any such guidelines in structure to facilitate sale can be Ireland, the critical standard for the a speedy transaction completed without insolvency practitioner is to ensure that he which preserves the Fergus Doorly material Maureen Daly obtains the best price reasonably value of a interruption to the obtainable for the assets at the time of company’s business, goodwill and other trading activity of the target company or sale, a duty imposed on him by the Irish assets. asset, thereby preserving value and Companies Acts. This process can allow a change in safeguarding jobs. The devaluation of Provided the insolvency practitioner ownership of a business, a continuance of goodwill and the deterioration of key complies with his statutory obligations trade and the preservation of employment relationships with employees, suppliers and adheres to the highest professional without the loss in value that can arise and customers that would ordinarily result standards, there is no barrier to effecting a where a business is operated during an from a protracted corporate insolvency pre-pack sale in a manner which will insolvency process while a purchaser of process can be avoided and creditors can stand up to scrutiny. assets is sought. It is particularly attractive achieve a higher return than might Pre-packs are not suitable in all cases in the retail sector. otherwise be the case. and it will not always be possible for the In Ireland there have been a number of There are some cases where a 'pre-pack' insolvency practitioner to carry out any sales structured through pre-pack is not appropriate and there are risks marketing of the assets, the subject of the receiverships in the last twelve months in associated with implementing a 'pre-pack'. sale, or to obtain comprehensive the retail sector. Creditors could be prejudiced as there will valuations for the assets in advance of the The term 'pre-pack' refers to a sale of all not have been much time for the assets to sale. There are also some company law or part of a company’s business or assets be marketed. provisions which, in some circumstances, where a purchaser or investor has been This concern is more acute where the could delay a sale. In those cases a identified and the terms of the sale have sale is to a party that is connected to the lengthier period of time will be required been negotiated before an insolvency insolvent business such as the to market and sell the assets. appointment is made. Once the insolvency management, directors or shareholders. The absence of formal reporting practitioner is appointed he then effects Insolvency practitioners must be able to requirements for pre-packs means there the sale immediately on or shortly after demonstrate compliance with their are no statistics available on the use of the his appointment. In Ireland a corporate statutory duty to obtain the best price process in Ireland, however, it is clear that insolvency process includes a reasonably obtainable at the time of the investors looking to purchase assets from receivership, liquidation or an sale of the asset. For this reason great care entities in financial difficulties with a examinership and whilst there is has to be taken to ensure that appropriate view to preserving the value of a effectively no reason why a liquidation or valuations have been obtained for the company’s goodwill and business are examinership process cannot be used to assets and that he is aware of and takes increasingly considering pre-pack implement a 'pre-pack', such sales are account of any previous marketing arrangements as a suitable opportunity for usually implemented through activities carried out in relation to the investment. It is also the case that secured receiverships. There are circumstances assets whether by the company or the lenders can avail of the process in the where a restructuring without a sale of lender. appropriate circumstances to realise the assets could be achieved through the In England and Wales (where, unlike in value of a trading business. examinership process. Ireland, insolvency practitioners must hold Receivership pre-packs typically a licence), detailed guidelines for the Fergus Doorly is a partner and involve a bank or other secured lender conduct of pre-packs have been adopted Maureen Daly is an associate at appointing a receiver over the assets of a by the professional bodies responsible for William Fry. 16 Cash Management FINANCE DUBLIN | OCTOBER 2012

An evangelist’s agenda for creating a successful corporate cash, and liquidity, culture

JIMMY DOYLE considers how corporates can create a successful ‘cash culture’. He shows the steps needed to improve the monitoring of liquidity and credit risk.

ever waste a good crisis. This oft- compartmentalise or for some companies and with mounting cited quote - recent users include ring fence it. cash for others, flexible trade credit terms NHillary Clinton - has become a The events of and vendor financing can provide an mantra for those in search of 2008 gave textbook alternative source of funding and tools for opportunities to deliver value in these concepts like supplier relationship management. Also difficult times, and seems a good motto counterparty, trade implementing a cash culture and having for reflection at the start of a new credit, liquidity and treasury involved in day-to-day WCM of budgeting season. The past few years have systemic risk a very the enterprise can lead to managing been a rollercoaster ride for many real and mostly balance sheet and other financial ratios corporate treasury professionals. The hostile face. Cash Jimmy Doyle more effectively. 2008 credit crisis and its aftermath stress visibility and cash A cash culture naturally extends tested common practice and, occasionally, planning have become a daily obsession treasury departmental roles enterprise- demonstrated how tangible ‘opportunity for most corporate treasurers. Monitoring wide. For instance, the themes discussed losses’ can be. Given the recent past, what liquidity and credit risk has become a in Figure 1 of ‘full cash visibility’ and should corporate treasury consider as matter of survival. Thus, treasury has to ‘grip on cash’ expand treasury’s their strategic focus for the next few become an enterprise-wide process rather responsibility for bank relationship years? than a corporate department. management to including that of day-to- day bank connectivity, irrespective of What kept you awake? Corporate cash culture whether the account is controlled by By the end of 2007, daily treasury A cash culture builds around ‘cash treasury, is stand-alone or is only operations had become routine for most efficiency’, which is about more than just indirectly linked to corporate cash pools. treasurers. There might still have been managing the cash within the treasury This is because full visibility implies some room for improvements, but in chest. It is best characterised as 'just-in- accurate and real-time consolidated general corporate treasuries were content time' cash management, securing the reporting on all balances, including those with their basic processes. Tactical and company’s ability to pay its bills in time. of stand-alone accounts. Consequently, a strategic treasury agendas often contained A successful cash culture will typically project aiming for full cash visibility must mostly ‘nice-to-haves’ and even acknowledge that: consider: developments on the technology vendor - Cash is a corporate resource. Cash is - Creating a bank statement hub and front seemed stagnant. more than a bank balance and the affiliate central repository linked to treasury The collapse of Lehman Brothers in that legally owns a bank account has no management systems (TMS) and (local) September 2008, however, changed ultimate title to that cash. enterprise resource planning (ERP). everything. Overnight, corporate - A sale is completed only after the cash - Automating bank statement upload treasuries had to go into overdrive, is collected from the customer. and auto-matching. collecting the necessary cash and cash A cash culture puts collection from - Integrating bank balance reporting and flow information for executive customers at par with revenue recognition cash forecasting. management. Even when the company and evangelises the time value of money. The themes ‘understanding cash’ and was not itself at risk from the turmoil, It galvanises the organisation around facts ‘controlling cash’ bring treasury closer to management had to contend with trading such as: the businesses. They insert treasury into partners not being so lucky. The - Every 3.5 days’ sales outstanding daily processes of local units and entail a contracting economy also meant for many (DSO) represents a funding requirement transfer of decision-making power and/or companies that substantial amounts of of 1 million per 100 million sales. control over the timing of payments and cash were released from working capital - At a weighted average cost of capital business terms and conditions, including with very few investment opportunities. of 8 per cent each 45.6 DSO equals 1 per trade credit terms, credit limits and cent gross margin. business partner approval. Taming your nightmares Introducing a cash culture brings For most treasurers the additional treasury closer to core business Corporate risk culture workload during the immediate aftermath operations. It makes treasury a partner for A risk culture builds on the principle of the credit crisis provided valuable input strategising on trade terms and conditions, that: for their longer-term strategic agenda. If working capital management and payment - Risk is inherent to doing business. the 2008 crisis demonstrated anything it execution. A cash culture will most - Risk drives the quality of the cash showed the following hard truths: certainly make a payment factory and in- flow and the company’s business - External credit will no longer be house banking readily acceptable and no continuity in the best interest of all easily accessible and will remain longer a corporate intrusion. stakeholders. expensive for many years to come. A focus on corporate cash expands - Managing the volatility of projected - Securing access to liquidity is a treasury’s role and responsibilities in cash flows adds value for all stakeholders. prerequisite for business continuity. relation to working capital management There are two key dimensions to - Labelling risk does not (WCM). With credit lines under pressure treasury’s contribution to a risk culture, FINANCE DUBLIN | OCTOBER 2012 Cash Management 17

being the management of risks arising FIGURE 1: SUMMARY OF THE POTENTIAL CONTRIBUTION OF TREASURY from: TO A CASH CULTURE 1. Business operations. 2. Financial market exposures. The business operations dimension of a risk culture concerns trading partner acceptance, enforcing trading limits and credit management in general. It also concerns the risk adjusted provisions booked for overdue outstanding trade balances. A risk culture makes sales and procurement sensitive to the financial viability of customers and vendors, and gives incentives for negotiating risk- FIGURE 2: ACTION PLAN FOR CORPORATE RISK CULTURE adjusted terms with partners. Ultimately this means that price lists and trade terms and conditions differentiate by the credit rating of business partners similar to pricing strategies in the financial sector. The financial markets dimension of a corporate risk culture centres on balance sheet management, optimising key financial ratios and reducing cash flow variability due to market price risks. The FIGURE 3: ACTION PLAN FOR CORPORATE COMPLIANCE CULTURE focus on financial ratios and weighted average cost of capital (WACC) is important for the company’s ability to access external funding from shareholders, banks and other investors. Under Basel III, financial markets will differentiate more and be highly sensitive to risk and credit ratings. Consequently, companies have an interest in managing key input variables for (implied) rating models as these define access to and cost of funding. Source: PwC Corporate compliance culture Operational efficiency and Responsibilities, KPIs/incentives and A rewarding experience that delivers transparency, along with process tooling, reporting real value define a compliance culture. The key The elements of the strategic agenda are Embarking on implementing a strategic objectives are to protect corporate called ‘cultures’ for a good reason. Cash, agenda along these lines will require reputation and minimise operational risk. risk and compliance must be part of the vision, commitment and investment in A compliance culture will focus on: corporate mindset, just as sales, growth and effort and resources. However, the overall -Process standardisation and profitability are already. Successful benefits of a functioning cash and risk automation implementation of a (new) culture requires culture can far outweigh the effort. - Global applications with strong cross-functional collaboration, endurance Making cash and risk part of the workflow management functionality. and executive sponsorship. corporate DNA improves the quality of The scope of potential treasury Executive sponsorship is necessary cash flow and of financial ratios by projects related to compliance dovetails because the key to success is the roll out of aligning interests across the business. It with those associated with implementing a new, consistent set of SMART key also improves information on daily cash and risk cultures. The compliance performance indicators (KPIs) and related liquidity. Such an approach contributes agenda drives the deployment of incentive schemes for most business positively to treasury’s interaction with centralised and integrated systems which departments. New KPIs do not necessarily stakeholders and enhances the cost of support business processes. It is no overwrite existing metrics. funding/return on assets. There is a huge wonder that those responsible for a Tracking and reporting the underlying reward and satisfaction for any treasury company’s internal control system KPIs is pivotal when redesigning incentive professionals willing to meet this welcome payment factory/in-house schemes. If local managers are to become challenge, including potential new banking (IHB) and bank connectivity hub responsible for swiftly approving supplier responsibilities and a closer alignment to projects, as they make they can invoices such that they can be discounted the business. standardise and make transparent under a vendor financing scheme, a sensitive payment process and therefore dashboard has to report on the elapsed time Jimmy Doyle is a senior treasury more compatible with the key control between invoice and approval date at an consultant with PwC. framework. individual invoice level. 18 A Day in the Life FINANCE DUBLIN | OCTOBER 2012

The daily role four IFSC companies play in the global treasury of Porsche

7.15 a.m. Up out of bed. I am not a morning person so this is not as easy as it sounds! Every morning is different at least regarding the ‘lifts to schools’ stakes. We have 5 children, 2 of whom, Conor and Jane are in UCD, while the others, Matthew, Mark and Robert, are still in school, so early morning rugby training or swimming will dictate the time of departure, the route taken and the number of occupants in the car and indeed drop-off points. After all that logistical effort, work itself is a doddle!

9.00 a.m. Arrive in office - I could say that I start at 8 am or earlier for the purposes of this article but friends and colleagues know the truth. I have noticed that traffic travelling from the southside to the IFSC has increased as more companies relocate to the South Docklands, so that’s my excuse. On arrival, do the usual - check emails and post, although I get company emails on my mobile phone and so have a fair idea in advance if anything troublesome is heading our way.

9.15 a.m. Our loyal and hard working global cash manager Siobhan White has our daily cash position sorted as usual and has calculated our investment fund subscriptions and/or redemptions for the day. Our treasury mandate here in Dublin is to balance daily the global multi- currency cash pool comprising our own accounts and all the Porsche AG Group subsidiaries’ bank accounts. In other words, we try to bring all the positive and negative bank balances to as close to zero as possible in order to optimise the group’s liquidity. Within this framework, we provide loans to and take deposits from our fellow subsidiaries. We have Deutsche Bank accounts in Euro, USD, GBP, JPY, CAD, AUD, CHF, SGD and HKD and we have cash sweeps in euro, USD, GBP and JPY to automatically sweep our John Gilsenan, managing director of the Porsche Group of subsidiaries’ balances in these currencies companies in the IFSC, has been part of Porsche’s IFSC into our own bank accounts. After our presence since the company first arrived in the IFSC in 1991. position is calculated and checked, we basically settle our net euro position, The four IFSC companies play a key role in the treasury including that arising from FX forward functions of Porsche worldwide. Gilsenan discusses the role swaps, with the parent company. Easy! these companies play for the group’s international business. Other services we carry out include the collection of invoices less credit notes due to the parent from the main Porsche sales subsidiaries worldwide, net them into the FINANCE DUBLIN | OCTOBER 2012 A Day in the Life 19 various currencies and remit them to the right first time. Here in Dublin, we are but 3.30 p.m. Respond to emails regarding parent three times per month. We also four staff - we all work hard, we get the job net premium payments due from our collect Euro invoices due to the parent done and then we go home! fronting insurer Allianz. Our reinsurance from many Porsche importers in Europe. subsidiary Porsche International We have four companies here in the IFSC:- 11.30 a.m. Meeting of the Stand Alone Reinsurance Ltd is involved in reinsuring a management services company Porsche Corporate Treasury Group of Financial warranty contracts on pre-owned Porsche Financial Management Services Ltd; our Services Ireland in the IBEC offices in Lr. cars sold by Porsche dealers throughout treasury vehicle Porsche International Baggot Street. This group comprises ‘stand Europe. It started as an add-on activity to Financing plc (PIF) as explained above; alone’ treasury management companies our treasury business but has now grown Porsche car warranty reinsurer Porsche operating in Ireland such as Pfizer, Xerox, each year and now we reinsure 40,000 International Reinsurance Ltd (PIRL); and Securitas and Porsche. We discuss the contracts each year through our fronting a Bond issue company Porsche Holding issues of the day that pertain to the insurer Allianz Versicherungs AG. The Finance plc. We are 21 years in existence international financial services and company is regulated by the Central Bank in Ireland and are proud of the business we treasury sectors. In the present climate this of Ireland and we work closely with our have built up here over the years and are naturally involves regulatory issues such as auditors Ernst & Young, our actuarial fully intent on maintaining and indeed the possible future reporting of derivatives advisers Allied Risk Management and expanding it into the future. business. The overall scene is surveyed KPMG and legal advisers William Fry to including taxation, training and new ensure the smooth running of the 10.00 a.m. Meeting with our auditors, possibilities for activity in the areas of company in all respects. Ernst & Young to plan this year’s audit. Green finance, Islamic Finance and 31st December 2012 will be our first final venture capital/ private equity. It is great to 4 p.m. We have just refurbished part of accounts reporting date following the be involved in this Group to find out what’s our offices here on the 3rd floor of Porsche - Volkswagen merger last August. going on in the sector and indirectly help Exchange Place in the heart of the IFSC. As PIRL is a subsidiary of PIF, we have maintain Ireland‘s attractiveness and Our contractor arrives to complete the consolidated accounts to prepare, as well continued growth as a location for snag list and hopefully from his point of as the four individual companies’ financial international financial services. view to convince us to release the balance statements. PIF is the issuer of Eur 1 bill due to him. He’s done a great job but it is corporate bond issue (in addition to its 1 p.m. Catch up with a friend of long and true that it is almost impossible to carry cash management business) and so under good standing, now retired from the out such works without upsetting the EU Transparency Directive, we must banking world and successfully working as someone - which reminds me to send a publish these consolidated accounts no an independent non-executive director for couple of model Porsche cars to the later than 4 months after the year end. This several international financial services tenants on the first floor as a peace appears a reasonable time frame but companies. Have noticed that the ‘pension’ offering! despite all sorts of new year’s resolutions word is cropping up more often as my peer we are always up against it. group advances in age! 5.00 p.m. Phone my wife Micheline and Our parent company Porsche AG is well catch up on the day’s news and ask her known as a premium car brand and 2.30 p.m. Back in the office preparing for where my dress suit is - she reminds me currently enjoys being the most profitable our next board meetings in November. As that it is indeed my dress suit and car manufacturer in the world. 128,000 with most businesses operating in a therefore (not unreasonably) that I should cars were produced in 2011 and the group multinational environment, board meetings know where it is and indeed the condition earned net profit of Eur 2.1 billion from a in the Porsche Group are a very formalised of it after its last outing! turnover of Eur 11 billion, a return of a process with agenda papers to be The reason for all this witty banter is that very healthy 19 per cent. distributed and requests for approval tonight is the black tie Annual Dinner of Extra reporting requirements are of course circulated to directors at least four weeks the Irish Association of Corporate a given due to the merger, at least for the before the meetings. A full presentation Treasurers. short term, and we are adjusting our pack must be prepared for each company The Association is 25 years old this year monthly routines to meet these. Year end including full reviews on compliance, and the past presidents (of which I am reporting deadlines are so tight now that a reporting and regulatory matters. Time was proud to be one) are receiving a lot of the audit work is done before the when there was an entrepreneurial spirit to commemorative medal from our president year end. In general we seem to move from our endeavours as our presence here grew. Barry Dempsey. I am looking forward to one deadline to the next - no sooner is one But with more regulation and compliance, meeting my friends and colleagues and met than another one looms menacingly! both from external regulators and hearing my favourite comedian Barry Our Financial Controller Avril Farrelly has legislators and from within as the Porsche Murphy do his after dinner German/ Irish to and does perform wonders in the short Group has grown in size and complexity, pixies routine. time from month-end to reporting deadline this is the current real growth area rather to get all in order and placate our masters. than increasing the size of the business. Indeterminate hour: Home! The We try to be professional and consistent at Nonetheless, I think this will settle down weekend stretches ahead and has arrived all times and this earns us a very good and allow us move to our next phase of just in time. reputation (we hope) with our parent growth. company and fellow subsidiaries in the Porsche Group. John Gilsenan is managing director of the Porsche group of companies located in the IFSC In the office, we have all concluded (from Dublin. Educated at St Mary's College Rathmines, he is a commerce graduate of UCD and a bitter experience!) that there is usually only fellow of the Chartered Association of Certified Accountants and the Institute of Taxation in one way to do something right but lots of Ireland. He joined Porsche from its inception in 1991 and was made general manager and a ways to do it wrong, so we try to get it director in 1996, having previously worked in banking and in Ernst & Young. Strength and experience. Managing investments in any climate.

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1 Pensions & Investments, 27/06/2011. State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered number 145221. Member of the Irish Association of Invest ment Managers. State Street Global Advisors is the investment management business of State Street Corporation (NYSE: STT), one of the world’s leadin g providers of financial services to institutional investors. IREMKT-0497. Expiration Date: 31/08/2013. © 2012 State Street Corporation – All rights res erved.

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