Ni Hao, get more out of China
1. Opening and introduction speakers
2. CEVA Logistics introduction
3. Facts and trends in China
- What has happened/what is really going on
4. Introducing 2 main topics
5. Cash management in China
6. Offshore accounts
7. Looking forward
8. Q & A
Content workshop
2
- Headquartered in the Netherlands, CEVA is the fourth largest integrated supply chain logistics provider in the world with 46,000 employees
- Global capabilities include approximately 1,200 locations in over 170 countries serving over 15,000 customers worldwide
- CEVA provides end-to-end supply chain solutions for Contract Logistics, Freight Management, Brokerage and other logistics services
- LTM June 30, 2011 revenues and EBITDA of €7.0 billion and €333 million, respectively
CEVA will be the most admired company in the supply chain industry exemplifying Unity, Growth and Excellence
CEVA – making business flow
Vision
Mision
CEVA Worldwide presence
3
Note: The map above only reflects countries in which CEVA operates facilities. CEVA also operates in many other countries together with local agents.
CEVA Worldwide presence
4
CEVA’s core service
Supply Chain Solutions
AIR
CEVA Ground
OCEAN
WAREHOUSING
5
Sites and stations in Greater ChinaCEVA and Anji-CEVA
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Ulumuqi
Lanzhou
DeyangChengdu
Chongqing
Kunming
Hongyan
Liuzhou
Dongguan
GuangzhouShenzhen
Taipei
HongKong
XianyangWuhan
Xi’an
TaoyuanTaichung
Kaohsiung
Fuzhou
NingboAnneiSuzhou
Tongyong
Hangzhou
Xiamen
AntingWuxi
Lingang
Shanghai
YizhengChuzhou
NanjingZhengzhou
Yuci
QingdaoYantai
YantaiTianjin
Beijing YingkouShenyang
Changchun
North China
East China
South China
West China
Taiwan and Fujian
Sites and Sta6ons
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Deutsche Bank in Greater China
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Chongqing
Guangzhou
Taipei
HongKong
Shanghai
Qingdao
Beijing
- Since 1872
- 550+ employees in China, 1,500+ in Hong Kong
- Offering services in all business areas of DB
- Licenses cover whole China Mainland
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- 2010, creation of offshore deliverable RMB market: CNH
- CNH will resemble a traditional deliverable currency more and more.
- significant cost reductions / strategic advantages by adopting RMB as the payment currency
Facts and trends in China; what has happened so far
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From Fixed to Managed Floating Expectation of CNY Appreciation
History of CNY Appreciation
- Reformation of RMB exchange rate regime since Q2 2010
- Official daily trading band of +/-0.5% for the USDCNY rate
- More two-way volatility
- Expect CNY will appreciate about 5% against USD in the next 3-5 years
RMB Reform and Outlook
USD/CNY 11Q2F 11Q3F 11Q4F 12Q1F
DB Forecast 6.4600 6.3900 6.3200 6.2200
Consensus 6.4500 6.3700 6.3000 6.2300
Forward 6.4852 6.4483 6.4076 6.3705
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- Growth - Still exceptional growth but gradually slowing - World’s largest economy in the next decade - No. 1 trading nation already in 2012
- Deregulation
- 7% of China’s trade is currently settled in CNY
- Cross-border volume increased from CNY3.5bn from Jul – Dec 2009 to CNY506.3bn in 2010
- RMB will become one of the top 5-most trade currencies in the world
- Expect significant increase in RMB volumes / decrease in USD
What is going on in China
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- European companies can settle in RMB, between parent company and subsidiary too
- Improve market position through invoicing in RMB
Cash management within China
Dutch company
Dutch company
Chinese subsidiaryof Dutch company
Chinese company
Chinese company
Goods
Goods Goods
Payment in CNY
Payment in CNY Payment in CNY
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- Liquidity comes first…
- …interest compensation follows
- One bank per region with cash flowing East to West
- Minimise
- Local and trapped cash
- Bank accounts
- In-country cash pools linked to regional pools
- Global pool in Netherlands notionally pooled to EUR
Treasury Liquidity Solutions - PrinciplesImprove pricing
conditions and interest compensation
One bank per region
Liquidity, minimise local and trapped
cash
Best Cash management
structures
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Idle Cash Programme - CEVA Business ModelHistorically, most global customers located in the USA/Europe
Freight is globally shipped from Asia to Europe and the USA
Natural intercompany trade settlements in USD, settled across vast geographical areas
Many Asian CEVA countries receive >80% collections through intercompany process
Possible CEVA open NRA accounts for restricted countries in Asia to receive USD
CEVA built a multicurrency notional cash pool in Singapore to hold USD flows
Supported by funding locally from the cash pool
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Top Tips to Avoid Trapped Cash
Centralise global billing - push for centralised billing in a non-restricted country and currency
Cash management solutions – multicurrency offshore cash pools and in-country pools especially in China
Transfer pricing arrangements
Restricted countries to participate in global intercompany settlement arrangements
Intercompany settlements
Understand and keep current with the regulations, be ready for change
Open offshore non-resident accounts for restricted currencies
Off-shoring of activities from restricted to non-restricted countries
Payment Factory and in-house bank
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How do we Execute This?
Cash management
Further enhancing cash pool structures
All entities migrate to nominated cash pool banks
Payment Factory and In-House Bank
In country cash pool
Intercompany
Maintaining permission for restricted countries
Intercompany settlements
Commercials
Centralise global billing
Off-shoring and outsourcing
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OK… we have Trapped Cash… How do we Manage or Use it…?
Commercials: exploit re-negotiation opportunities
Dividends/ Intercompany loans
Intercompany settlements
Reciprocal lending structure
Using Trapped cash smartly:Reciprocal lending structure to support investment in other countries
Appreciation of the RMB (now+ the forecast for upcoming years) generates an effective negative real interest rate on the funding of the investment through this avenue
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OK… we have Trapped Cash…How do we Reduce it…China specifically- CEVA has significant RMB onshore in China
- Dividends are useful but take time to process and are limited to previous year’s retained earnings
- Options: - Domestic RMB bi-lateral entrusted loan structure i.e. Chinese cash pooling structure
- Supported by offshore cash pool in Singapore - FX risk partly managed by hedging to date funds
required onshore - Pledging RMB in China to secure a credit facility outside
China
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6,20
6,30
6,40
6,50
6,60
6,70
6,80
6,90
01/14 04/14 07/14 10/14 01/15 04/15 07/15 10/15
USDCNY onshore USDCNH offshore
- Significant risk aversion since September 22nd.
- CNY onshore / CNH offshore
- Expect the CNH/CNY spread to remain volatile correlating to global risk sentiments.
Broken Convergence of the On and Offshore rate
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Opportunities and flexibility in market selection:
6,30
6,32
6,34
6,36
6,38
6,40
6,42
6,44
jul-11 okt-11 jan-12 apr-12 jul-12
6,30
6,32
6,34
6,36
6,38
6,40
6,42
6,44
okt-11 jan-12 apr-12 jul-12 okt-12
USDCNH and USDCNY Forward Market
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- Offshore deliverable RMB / CNH
- Cross-border payments
- Multinationals can pay in RMB
- Mainland Designated Enterprise (MDE)*
- Offshore deliverable RMB / CNH
- Cross-border payments
- Multinationals can pay in RMB
- Mainland Designated Enterprise (MDE)*
Example: RMB-Invoicing for International Importer
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Chinese GDP Growth (1979 – 2011)
China Outlook
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Chinese GDP to surpass the US‘s Nr. 1 trading nation already in 2012
China Outlook
0 5
10 15 20 25 30 35 40
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
US China
USD tr
Source: IMF, DB 0
2
4
6
8
10
12
2006 2008 2010 2012 2014 2016 2018 2020
China US
Merchandise exports and imports, USD tr
Source: IMF, DB
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China’s Economic Growth Outlook
- Globally more correlation to China’s economy
- Downturn in the US and Europe; 3 US / EU growth scenarios (Q3-2011 – Q2-2012) + impact on China’s growth
Implications of the recent U.S. / EU downturn
US / EU Scenario (average % GDP growth)
Probability Impact on China‘s Economy (average % GDP growth)
Description / Implications
Slower Growth 60% 8.6% Main shock to the economy would be modest deceleration in export growth
Mild Recession 25% 7.9% Significant impact on exports and imports, industrial production, and investor confidence
Deep Recession 15% 7.0% Similar effect to the mild recession scenario, with possible CPI deceleration and a heightened risk of deflation
Possible reduction in nominal retail sales growth given the slowdown in consumer inflation
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Conclusions:
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- China becomes more important for international companies
- Deregulation provides opportunities
- China is growing – transformation from export country into consumption market
- Corporates can benefit from flexible set up
Questions?
- Will China be the strategic focus of future business (Yes / No)
- From treasury / Finance perspective, what is your No. 1 concern with regards to doing business in China?
- Government regulations - CNH development - Understanding of local business culture and practices - Trapped cash - Managing FX risk - Supply Chin Finance - Establish greater control over group’s working capital and cash
positions
- Have you been regularly updated on China market? (Yes / No)
- 3 RMB curves: why is CNH higher than CNY (on en off shore)?
- Options for long term China hedging?
Questions
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