[PPT] - New DSO Data: A High Stakes Game Speaker: Maxime Lemerle, Economic PowerPoint Presentation

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Euler Hermes World Agency Webinar

New DSO Data: A High Stakes Game

Speaker: Maxime Lemerle, Economic Research Moderator: Ilan Goren, Economic Research 27th July 2017 16.00 CET

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Maxime Lemerle joined Euler Hermes in 1993 as a Credit Analyst for EH France, specializing in the food and retail sectors. He then moved to the Research team in 1999 before becoming Team Leader for global forecasts. Maxime now leads cross-cutting sector and insolvency research and is in charge of sector risk ratings.

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Agenda

1 Global figures 2 Country Trends 3 Sector Trends 4 The 2016 DSO Heat Map

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1 Global figures 2 Country Trends 3 Sector Trends 4 The 2016 DSO Heat Map

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Days Sales Outstanding (DSO) based on balance sheets financial data

Systematic

updating on a yearly basis

What?

What is DSO?

DSO = (Accounts Receivables / Total Revenues) * 365

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Days Sales Outstanding (DSO) based on balance sheets financial data

Leading indicators of

payment terms

Keys for our

business/clients since 1

ut of 4 insolvencies due

to a major payment incident

Systematic

updating on a yearly basis

Why? What?

DSO = (Accounts Receivables / Total Revenues) * 365

What is DSO?

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Days Sales Outstanding (DSO) based on balance sheets financial data

Leading indicators of

payment terms

Keys for our

business/clients since 1

ut of 4 insolvencies due

to a major payment incident

Perimeter of 27,000 listed

companies

20 sectors
36 countries all around the

world

Systematic

updating on a yearly basis

Why? How? What?

DSO = (Accounts Receivables / Total Revenues) * 365

What is DSO?

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Days Sales Outstanding (DSO) based on balance sheets financial data

EH’s Economic

Research Department

Based on Bloomberg

database

Systematic

updating on a yearly basis

Why? How? Who? What?

DSO = (Accounts Receivables / Total Revenues) * 365

What is DSO?

Leading indicators of

payment terms

Keys for our

business/clients since 1

ut of 4 insolvencies due

to a major payment incident

Perimeter of 27,000 listed

companies

20 sectors
36 countries all around the

world

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Days Sales Outstanding (DSO) based on balance sheets financial data

EH’s Economic

Research Department

Based on Bloomberg

database

Systematic

updating on a yearly basis

Why? How? Who? When? What?

Yearly updates

DSO = (Accounts Receivables / Total Revenues) * 365

What is DSO?

Leading indicators of

payment terms

Keys for our

business/clients since 1

ut of 4 insolvencies due

to a major payment incident

Perimeter of 27,000 listed

companies

20 sectors
36 countries all around the

world

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Worldwide DSO average stable around 64 days…

Global steadiness of world average - Little fluctuation since 2012 around 64 days - Slightly lower than pre crisis level – 2017 expected at 64 days

65.1 59.5 60.8 63.8 62.2 63.7 64.3 63.9 64.1 64.1 64.0

56 57 58 59 60 61 62 63 64 65 66 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f

DSO- worldwide average (in number of days)

Sources: Bloomberg, Euler Hermes

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…but watch out for the distribution

High dispersion: 1 out of 4 companies were paid after 88 days in 2016 (2 days faster than in 2015)

8.8% 14.9% 31.2% 23.9% 12.2% 9.0%

0% 5% 10% 15% 20% 25% 30% 35%

Below 10 days Between 10 and 30 days Between 30 & 60 days Between 60 & 90 days Between 90 & 120 days Above 120 days

2015 2016

Worldwide DSO – Distribution around the average (in number of companies by range of DSO, in %)

Sources: Bloomberg, Euler Hermes

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1 Global figures 2 Country Trends 3 Sector Trends 4 The 2016 DSO Heat Map

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We see 4 main country groups in terms of levels: 1 out 3 countries posted an increase in DSO (1 out of 3 a decrease)

DSO level by country in 2016 (in number of days and changes versus 2015, selected countries)

Heterogeneity and Country trends

42 44 46 48 49 49 50 53 53 53 54 56 58 61 64 67 67 69 69 73 75 80 85 88 89

20 40 60 80 100 120 140

Sources: Bloomberg, Euler Hermes

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DSO level by country in 2016 (in number of days and changes versus 2015, selected countries)

42 44 46 48 49 49 50 53 53 53 54 56 58 61 64 67 67 69 69 73 75 80 85 88 89 20 40 60 80 100 120 140

Sources: Bloomberg, Euler Hermes

4 -1 +1 +2 +3 -1 +5 +2 -3 +3 -2 -2 +1 +7 -1 -3 -4 +1

Heterogeneity and Country trends

We see 4 main country groups in terms of levels: 1 out 3 countries posted an increase in DSO (1 out of 3 a decrease)

: increase in DSO : decrease in DSO

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Western Europe: a clear improvement in companies’ longest-delayed payments (DSO above 90 days)

Focus 1: Western Europe

Sources: Bloomberg, Euler Hermes

DSO distribution across Western Europe for the share of DSO exceeding 90 days

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Focus 2: China

China has not succeeded in reducing outstanding payments (DSO above 120 days) since at least 2015

DSO split in China between 2007 and 2016 (% of Chinese companies paid within a given time period, in number of days)

Sources: Bloomberg, Euler Hermes

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53 55 59 65 65 65 67 73 66 70 71 68 82 77 88 90 91 96 97 98 94 112 114 120 133 18 33 38 33 24 28 22 24 31 31 26 33 22 35 31 31 32 40 40 44 34 43 55 49 37 42 44 46 48 49 49 50 53 53 53 54 56 58 61 64 67 67 69 69 73 75 80 85 88 89 20 40 60 80 100 120 140 25% of companies are paid after 25% of companies are paid before Average DSO in the country

From the smallest (Austria, Netherlands) to the largest dispersion (China)

DSO level and distribution by country in 2016 (in number of days, selected countries)

DSO distribution varies by country

Sources: Bloomberg, Euler Hermes

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1 Global figures 2 Country Trends 3 Sector Trends 4 The 2016 DSO Heat Map

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On average, upstream sectors (Electronics, Machinery and Equipment, Construction) have to cope with higher DSO than sectors related to household consumables

A structural difference between B2C and B2B

Sector DSO on a global average ( 2016 level and change since 2012, in number of days)

27 46 46 46 51 56 56 58 59 60 61 64 68 69 71 73 80 82 87 88

1 1 3 1

2
7

3 8 4 3

4

1 1 3 1

8
6
4
2

2 4 6 8 10 10 20 30 40 50 60 70 80 90 100

Change in the number of days Number of days

2016 (lhs) 2016 vs. 2012 (rhs)

Sources: Bloomberg, Euler Hermes

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From the smallest (Retail) to the largest range (Construction)

DSO level and dispersion by sector in 2016 (in number of days)

DSO distribution varies by sector

39 68 62 62 68 75 78 74 79 80 79 83 87 86 94 95 106 113 113 115 5 13 21 22 29 29 22 33 31 27 35 38 41 44 43 44 46 40 51 55 27 46 46 46 51 56 56 58 59 60 61 64 68 69 71 73 80 82 87 88 20 40 60 80 100 120 25% of companies are paid after 25% of companies are paid before Average DSO in the sector worldwide

Sources: Bloomberg, Euler Hermes

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On a global basis, 8 sectors have registered an increase in Working Capital Requirements (WCR). Aeronautics requires attention as both DSO (+8 days since 2012) and WCR (+16) are up

Compare DSO with Working Capital Requirements

Electronics Retail Other services Oil & gas Food Metals Pharma Transportation Auto Telecom Aero Household goods Construction Chemicals Business services Technology Machinery & eq Utilities Personal & recreational goods Paper

10
5

5 10 15 20

10
8
6
4
2

2 4 6 8 10

Sector DSO (x-axis) and WCR (y-axis) on a global average ( 2016 level versus 2015 level, in number of days)

Sources: Bloomberg, Euler Hermes

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1 Global figures 2 Country Trends 3 Sector Trends 4 The 2016 DSO Heat Map

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The 2016 Days Sales Outstanding Heat Map

Retail Other services Transportation Food Financials Telecom Personal & recreational goods Metals Utilities Household goods Oil & gas Paper Business services Aero Auto Chemicals Technology Pharma Construction Machinery & eq Electronics Country average New Zealand 14 23 36 49 23 39 38 51 34 50 20

46
75

70 38 57 68 42 Austria

38

30 45

27

39 47

73
33
42

48

44

Netherlands 7 47 34 49 103

35
52

60

64
53

54

43

51 55 46 South Africa 33 44 39 43 40 41

36
33

91 51 61

60

74 74 50 60 55 48 Denmark 26 29 55 40 46

37
80

40 35

51
56

59 54 68 48 48 U.S. 21 39 34 34 52 37 42 42 52 38 55 37 54 52 53 54 59 63 53 58 59 49 Switzerland 15 26 22 43

68

53 66 67

64

57

89

60 64 53 54 64 49 Australia 23 52 36 51 46 44 53 37 40 56 47 69 57 44 50 54 59 81 58 57 70 50 United Kingdom 15 46 38 50 55 40 41 33 48 40 46 60 59 48 61 69 72 80 54 72 69 53 Finland 20 26 41 24 44 91 57 43

46
40

48

86
37

57 62 53 Germany 30 45 40 41 64 54 51 42 52 41 59 15 63

63

53 59 69 47 59 63 53 Canada 16 59 46 34 60 42 57 38 49 59 69 33 59 60 68 46 71 83 60 59 61 54 Sweden 24 43 30 34 34 35 64 53 46 42 37 43 65 60 40 72 74 63 60 65 62 56 Norway 6 34 36 51 80 33

51

37

73
55
46

58 46 55 61 93 56 Poland 35 52 46 52 49 45 40 43 33 53 31 51 69 58 39 53 70 73 63 85 72 58 Russia 25 23 27 33 48

23

46 55 59 56 40 46 78 72 31 96 103 69 71 82 58 Bulgaria 68 25 52 46 71

50

42 58 67 51 60 15

63

72

59

98 73 42 59 Brazil 57 44 44 40 54 85 101 49 63 59 41 43 61 65 53 49 53 70 66 93

61

Hong Kong 30 42 45 41 30 33 55 55 52 60 83 59 70

80

69 69 97 67 108 90 63 Chile 65 73 59 61 55 67 62 56 60 77

31

58

81

68

68

101

64

Belgium 43 57 60 57 114 62 45 30 125

72
85
47

83 67 51 78 64 65 India 54 58 49 41 60 31 57 57 73 55 67 45 77 120 54 73 85 72 82 80 101 67 Saudi Arabia 19 51 60 49 81 99

56
53
109
69
85

65 138 67 South Korea 36 51 48 47 55 60 56 72 65 58 53 65 49 59 68 65 67 104 69 84 67 67 Portugal 16 40 97 67 29

88
48
116
101
69

Romania 42 18 66 82 36

29

48 58 51 68 54 79 57 58 63

87

83 83 69 Japan 22 36 49 51 17 66 60 80 43 65 49 86 59 101 65 94 71 97 109 104 95 69 Taiwan 35 25 35 47 33 43 57 56 44 58 63 56 69 86 73 72 69 76 69 94 96 72 France 33 78 61 59 97 54 54 57 82 63 85 53 80 75 47 84 97 75 68 90 77 73 Singapore 35 28 66 47 46 38 78 72 66 72 98 84 79 76 78 83 82 68 90 92 87 73 Spain 21 62

62

47 52 76 51 51 56 100 59 69

88

93 125 115

75

Turkey 27 75 45 67 56 109 85 75 28 80 86 102 48

76

75 108 100 111 94 110 80 Morocco 61 79

58

98

53
41
140

96 80

83

Italy 55 98 70 54 89 73 66

106

94 77

107
44

129 101 75 101 97 71 85 Greece 41 50 34 97 46

68

95

123

24

100
90

99

117

116

87

China 20 51 48 38 34 48 60 72 49 73 115 94 86 142 111 80 112 96 112 130 136 89 Sector average 27 46 46 46 50 51 56 56 58 59 60 61 64 68 69 71 73 80 82 87 88 64 Sources: Bloomberg, Euler Hermes

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Find more details in our report: eulerhermes.com/economic-research Payment risk data and dynamic charts mindyourreceivables.eulerhermes.com

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Thank you for your attention

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Apendix: the 27,000 listed companies

By sectors By countries