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Treasury and Trade Solutions
Corporate Challenges and
Opportunities in Brazil
Rocio Velarde
Brazil Sales Head
+55 (11) 4009-3396
Brazil Overview
• GDP (2013): USD 2.2 trillion
• GDP Per Capita(2013): USD 11 thousand
• Exports FOB (2013): USD 242.2 billon
• Imports CIF (2013): USD 239.6 billion
• Labor force (2013): 104.7 million
• Unemployment rate: 5.5%
• Federal republic comprising 26 states and one federal district, where the political capital is located.
• The president is elected for a four-year term leads the executive branch of the federal government and is the commander-in-chief of the Brazilian Armed Forces. This election between will have the tightest outcome since 1989.
• 513-member “Camara de Deputados “(Representatives)
• 81-member “Camara de Senadores” (Senators)
• Sovereign Risk Ratings:
Moody’s S&P Flitch
Baa2 BBB
BBB-
More Conservative
Sources: Bloomberg and Citi Research
Sources: Bloomberg and Citi Research
CDS 5 year – International Comparison
60
100
140
180
220
260
300
340
Oct-12
Nov-12
Dec-12
Jan-13F
eb-13M
ar-13A
pr-13M
ay-13Jun-13Jul-13A
ug-13S
ep-13O
ct-13N
ov-13D
ec-13Jan-14F
eb-14M
ar-14A
pr-14M
ay-14Jun-14Jul-14A
ug-14S
ep-14O
ct-14N
ov-14D
ec-14Jan-15F
eb-15M
ar-15A
pr-15
South Africa Peru Brazil Turkey Colombia
2
Macro Brazil • We expect GDP to contract 1.0% in
2015 after the slight increase of 0.1% in 2014
• Inflation forecast is at 8.2% for 2015, above the mid-point target (6.5%), despite the weak GDP growth, due to the corrections in monitored prices;
• COPOM continued the Selic rate hikes in 2Q15 putting it at 13.25%;
• Confidence indicators plummeted in 1Q15, reaching levels consistent with recession;
• Dilma Roussef started her second term implementing a turnaround in the fiscal policy;
• The appointment of a recognized austere MoF, Joaquim Levy, was the first sign of this reversal, followed by several fiscal measures;
Sources: Bloomberg and Citi Research
GDP Growth
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2012.I
2012.II
2012.III
2012.IV
2013.I
2013.II
2013.III
2013.IV
2014.I
2014.II
2014.III
2014.IV
2015.I
2015.II
2015.III
2015.IV
2016.I
2016.II
2016.III
2016.IV
%
GDP QoQ (LHA) GDP YoY (RHA)
%
CPI Inflation and Targets (YoY)
0
2
4
6
8
10
12
14
16
18
20
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
%
Headline CPI Inflation Average of Core Measures
forecast
Interest Rate
0
5
10
15
20
25
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
%
Real Interest rate Selic rate
Confidence Indicators
70
80
90
100
110
120
130
140
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
Industrial Sector Consumer Service Sector
3
Brazil Environment Summary
External Internal
Only local currency accounts are allowed, with few exceptions BRL
Brazilian Payment System allows real time funds transfer.
ACH Debit services not available SPB
Collection slip widely used for as facilitator for reconciliation.
Boletos can be paid in any bank, and settlement between banks are made by a national clearing.
Moving from Paper to Electronic
“Boletos”
Cross border pooling is not efficient from a tax perspective
Local standard cash pooling between different entities produces huge tax implications
Cash Pooling
Investment: Regressive Tax over TDs below 30 days
Credit: 0,38% flat + 1,5%pa
FX from 0 to 6% flat according to the nature
Financial TAX - IOF
Brazilian are allowed to have off-shore accounts in other currencies (subject to local regulations)
Off-shore Account
Brazilians are allowed to borrow directly from external lenders, subject to applicable regulation and taxes.
Current regulation exempts all taxes related to foreign currency loan to exporters
USD Finance
Brazilians are allowed to invest in funds, TDs and others instruments abroad
USD Investment
4
Citi Brazil
Uninterrupted presence for 100 years, connecting the country to the rest of the world
Founded in 1915 72 Citibank branches
5.7 thousand employees
Around 400 thousand client accounts
+ 1 million credit cards
R$ 713.8 million net profit
R$ 54.3 billion total assets
R$ 6.9 billion net equity
100 years investing in Brazil
72 branches in the main cities
400 thousands accountholders clients
1+ million of credit cards
Employs 5.7 thousand employees
1st Trade Finance – Internal Ranking
1st International Deposits
1st FX
5th Trade Finance
Market Benchmarks
Sources: Brazilian Central Bank and Citi
5
Which are your main priorities for the 2nd Half of 2015?
A. Expense Reduction
B. Risk Mitigation
C. Operational Efficiency
D. Funding Efficiency
6
Business Center
Business Center
Call Center
Payments
Reconcilement
Collections
Access & Maintenance
Predefined scope
All calls are monitored and
recorded
Periodical meetings
Performance review
Metrics presentation
1. Allows focusing on adding value to the core business
2. Increases business efficiency through enriched reports & metrics
3. Guarantees a secure environment to manage information
4. Clients will benefit from the Industry´s best practices
5. Optimizes the use of resources and reduces operational costs
Citi’s solution consists on an advanced support service for our clients, where all the operational tasks of a typical financial department are performed on behalf of the client. The Business Center provides end-to-end solutions for the
client’s collections, payments and reconcilement processes
Value for the Company
7
Business Center - Client Testimonial
Electrolux
Experience
8
ARMS - Account Receivables Matching Service
Citi’s ARMS matches commercial and financial information to deliver enriched electronic files containing reconciled payments (related invoices, discounts, refunds, commercial
codes, provisions, etc.)
Retailers Data Enrichment
Client
1. Client sends products and invoice to retailer as part of a regular commercial transaction
2. Retailer effects payment via wire transfer into the client’s receivables account at Citi
3. Citi captures all payment details from retailers, processes the information and reconciles it using client’s parameters
4. Citi sends to client an electronic file with the detailed information about the payments
9
ARMS – Client Testimonial
10
Funding Efficiency: Working Capital Chain
Impact of Treasury on DPO and DSO
No Yes
Sources: Citi Treasury Diagnostics; FactSet
Deployment of Supplier Financing Programs
▲12%
Customer Receivables: DSO
57 days 61 days
-4 days
61 days 56 days
Supplier Payments: DPO
+5 days
Cash Conversion Cycle Days Sales
Outstanding
Days Inventory
Outstanding
Days Payable
Outstanding
Centralize A/R and A/P processes
Functional coordination of supplier and distributor financing
Acceleration of Cash
Conversion Cycle
Optimal Financing
Programs
11
Evolution in Supplier Finance Citi Supplier Finance brings a new solution for terms alignment that enhances financial ratios and brings benefits to all parts involved
Balance Sheet Treatment
Non-obvious flows (i.e. freight)
Supply chain risk management in a global economy
Building long-term sustainability into the supply chain strategy
Payment Services Structure to manage DPO
and reduce COGs
Based on electronic information. No
physical documentation
Integrated and centralized Platforms. Web-based
transactions
New market, non-standard customers
and suppliers
Citi Supplier Finance
Optimize Working Capital
Key Themes Solution
12
Supplier Finance – Client Testimonial
13
Partnering for Success
14
Citi believes that sustainability is good business practice. We work closely with our clients, peer financial institutions, NGOs and other partners to finance solutions to climate change, develop industry standards, reduce our own
environmental footprint, and engage with stakeholders to advance shared learning and solutions. Highlights of Citi’s unique role in promoting sustainability include: (a) releasing in 2007 a Climate Change Position Statement, the
first US financial institution to do so; (b) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of renewable energy, clean technology, and other carbon-
emission reduction activities; (c) committing to an absolute reduction in GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (d) purchasing more than 234,000 MWh of carbon neutral power for
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advance understanding and solutions.
Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.
efficiency, renewable energy and mitigation
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