Treasury Tools for Balance Sheet Management at ABX LOGISTICS

1. Case Study Treasury Tools for Balance Sheet Managementat ABX LOGISTICS Jean-Claude Jossart Treasury Project Manager Yvo K. Vercouteren Corporate Treasurer www.abxlogistics.com

2. Presentation Outline Introducing ABX LOGISTICS : Who are we ? • A Specific environment • Corporate Treasury strategy • The Corporate Treasury infrastructure • Strengthen the Balance Sheet from Treasury ? • Other areas of Corporate Treasury www.abxlogistics.com

3. Corporate Introduction ABX LOGISTICS, the Belgian Railways owned transport and logistics company, recently established, is today one of the world's front runners among logistics service providers, with an international network covering 35 countries, 500 Offices, which employs 15,000 people and has a consolidated sales equal to 2,7 billion euros in 2002. ABX LOGISTICS Worldwide HQ in Brussels, recently established, is in charge of the Group coordination with a minimum staff (35 people) and covers the following main topics : • Legal aspects • Buying procurement • Financial reporting and controlling • Treasury co-ordination • IT coordination and group projects www.abxlogistics.com

4. ABX LOGISTICS Worldwide • LegalOne-stop-shopping ABX LOGISTICS Worldwide combines all the skills of professional transport and logistics under one banner : distribution, storage, consultancy, …We offer one integrated logistics solution, worldwide : The total logistics Matrix • Think global, act local As it manages these services and products as an integrated whole, ABX LOGISTICS can offer all-in, modular logistics solutions that meet the specific needs of its customers at local level.Although we have one global strategy, we respect the business culture of each region www.abxlogistics.com

5. Corporate Environment Out of a Belgian Company ABX LOGISTICS has in a 3 years time, i.e. from 1998 to 2001 emerged into an global international one. Recently the company was set-up as a separate holding with its own managing entities. Its area of activity switched from a local market to a world-wide one. All this was possible keeping into account the slackening of the economic situation in 2002 and 2003 and the uncertainties concerning the general economic evolution. The Group has achieved spectacular growth through a combination of massive investment and strategic acquisitions of international companies. • One inevitable outcome of acquiring so many local service providers in such a short time frame was an inconsistent network of local sites underlying : • The management of undercapitalized entities • The need to improve ABX LOGISTICS net worth ratio • Ensure a positive return on the cost of acquisitions and development www.abxlogistics.com

6. ABX Logistics Sales The ABX LOGISTICS Matrix in figures :Product & Sales by Region Spread by Country/Region Spread by Product www.abxlogistics.com

7. Balance Sheet Issues Balance Sheet Issues - Conceptual Introduction Within ABX LOGISTICS, the ability to effectively manage capital, while remaining within the constraints of a realistic balance sheet structure, is essential to financial stability. This ability grows ever more important are our industry constrains, where increasing limits on revenue growth are accompanied by steady expense growth. ABX LOGISTICS treasury actions focuses on asset/liability management, and the challenges that arise in capitalizing an endowed institution. Although content addresses the entire balance sheet, information will be concentrated on working capital decisions, and the effects that capital decisions have on working capital. www.abxlogistics.com

8. Balance Sheet Issues Management of Balance Sheet is bounded to Working Capital Aggressively managing the balance sheet continues to be an integral part of the ABX LOGISTICS strategy. As part of this strategy, Cash Management, Balance Sheet & Risk Management, actively manages our different businesses by ensuring that the allocation of risk and balance sheet resources is directed to higher-return and/or strategic growth activities. Balance Sheet Management should ensure that ABX LOGISTICS is strongly capitalized and that capital is structured in the most effective manner. It also manages capital in our operational entities. Activities include recommending and implementing of participation re-grouping programs, capital issuance.The critically important balance sheet and capital resource allocation process resides here www.abxlogistics.com

9. Balance Sheet Issues Balance Sheet Issues - Treasury Conceptual approach The ABX LOGISTICS Corporate Treasury “infrastructure” provides valuable advanced technical assistance for entities seeking to optimize growth, lower expenses, or manage risk. Which of the following tools could help improve our all-in performance? • Core-Investment Follow-upEvaluate the rate-sensitivity of your core investments. • Five-Year Capital StrategyExamine the relationship between ROA, ROE, and leverage. • Funding-Strategy ModelsDo our affiliates prefer long-term fixed-rate loans? How do we measure the profitability of funding these assets using advances. • Marginal Cost of Funds AnalysisDetermine the impact of paying up for non-rate-sensitive deposits to retain rate-sensitive investment. • Strategies for SuccessWork with industry experts and banks to craft concrete business strategies based on your own balance sheet. www.abxlogistics.com

10. ABX LOGISTICS Worldwide The Corporate Treasury Philosophy • Develop strategy for cash and debt management (short and long term) • Provide infrastructure for cash, risk and balance sheet management, for the entire organisation (profit centre > < Service Centre) • Corporate Treasury is a leading Sovereign Function within the Group • Service Provider & Support Benchmarking • No Back-Office, No payment factory • Maximising the respect for the global ABX LOGISTICS philosophy : Think global, act Local www.abxlogistics.com

11. Corporate Treasury Global Treasury Infrastructure Concept CASH POOL Securitisation Corporate strategy Balance Sheet Mgt. Assets Mgt CORPORATE TREASURY Cash Mangement FX Mgt Netting Risk Management GCS www.abxlogistics.com

12. Balance Sheet Management Tools : Cash Pooling MAIN FEATURES • Notional Pool : pool does not even exist at balance sheet level • Cross border with central location (but not off-shore respecting corporate governance • Multi currency : no swaps needed, no exchange risk, no IAS39 impact • Administration of intercompany loans facilitated or avoided of desirable • Obtain rapid control over new subsidiaries in key financial aspects www.abxlogistics.com

13. Balance Sheet Management Tools : Cash Pooling IMPACT OF CHOSEN SOLUTIONS • Legal : Thin Capitalisation rules • Tax : Withholding Tax • Accounting : Treated as local bank accounts • Gain rapid control over the different new acquisitions in key financial aspects • Cost benefit aspects www.abxlogistics.com

14. Balance Sheet Management Tools : Cash Pooling Global Cross-Border and Multi-Currency Liquidity Management Integration ModelHow does it work ? INTERCOMPANY NETTING INTRADAY REPORTINGMT 942 INTERCOMPANY LOANS Cross Border Multi-Currency Notional Pool MULTIBANK REPORTINGMT 940 INTRO-PAY MT 100-103 (SWEEPS) Regional Pool AmericasRegional Pool ASIA PACIFIC Domestic Pool Germany FX Management CROSS BORDER TFT www.abxlogistics.com

15. Balance Sheet Management Tools :Receivables Securitisation Conduit transactional structure NEW RECEIVABLES RELEVANT TRANSFERREDRECEIVABLES INELIGIBLE RECEIVABLES ADDITIONAL DEPOSIT NET POOL BALANCE Net Funding Amount SUBORDONATED DEPOSIT www.abxlogistics.com

16. Balance Sheet Management Tools :Receivables Securitisation Optimizing Receivables Management Res. Outsourcing - TOTAL IMPACTSecuritisation(Fixed program term <> Short-Term Roll-Over FundingFactoring(Complete or Selective)Total Receivables Outsourcing(Major Organizational Impact) Complete - Factoring - Selective - Securitisation - - - - - Organisation. Cash B/S Term www.abxlogistics.com

17. ABX Global Commerce Solutions ABX LOGISTICS Outbound Transport Air & Sea Freight Customs Storage Logistics Distribution Delivery goods & B/L Goods & B/L + Exporter Client ABX Global Commerce Solutions + Credit insurance = Asset Backed Funding Capability www.abxlogistics.com

18. Balance Sheet Management Tools : Global Commerce Solutions Global Commerce Solutions : features and B/S impact Mgt • GCS is a financial product that completes the one-stop shopping for our clients • Being the dedicated logistic supplier, the legal owner of the goods transported (B/L or AWB) and having set up a complete pre-approved credit insurance , we can obtain Asset Backed funding • Through a specific minority participation in the SPV, the transaction remains off balance sheet www.abxlogistics.com

19. Balance Sheet Management Tools : Fixed Asset Management Sales & Lease/Rent back operations • By definition it is the sale of property by the owner-user of the asset to an investor. The seller becomes the lessee then leases the property back from the investor who becomes the lessor. • Benefits includes - Refinancing your equipment with better monthly payment - Creating working capital - Turning your long term asset to short term - Improving current ratio We want to gain “access” to our assets (infrastructure), not ownership and so remain flexible to fast adapt to any market change In addition we avoid any “ballast” on our balance sheet www.abxlogistics.com

20. More Corporate Treasury issues : Centralizing ? Choosing to Centralize Treasury infrastructure to steer balance sheet of the group ? Decentralised Centralised Centralised Netting Centralised Liquidity Mgt. Centralised Intra-Group Funding Centralised FX Mgt. Regional Cash Mgt. Structure Streamlined bank relationship and Bank Accounts Strategic Banking Relationship Operating Banking relations Different bank accounts FX Management Liquidity Mgt. Decentralised Local Funding Policies Local Payment Initiation ? Showing the complexity of the choice facing a full centralized Treasury www.abxlogistics.com

21. More Corporate Treasury issues : Centralizing ? Strategy & Coordination in ABX Treasury BENCHMARKING TREASURY CASH MANAGEMENTSCORECARD IT / OUTSOURCING STRATEGY & SERVICES SUPPLIERCORPORATE TREASURY OFFICE ACTIVITY BASEDCOSTING BALANCE SHEET MANAGEMENT PROJECT MANAGEMENT www.abxlogistics.com

22. Balance Sheet Management Weighted Average Cost of Capital - WACC &Capital StructureThe WACC is the weighted average of the cost of equity and the cost of debt based on the proportion of debt and equity within ABX capital structure. The proportion of debt is represented by D/V, a ratio comparing the company's debt to the company's total value (equity + debt). The proportion of equity is represented by E/V, a ratio comparing the company's equity to the company's total value (equity + debt). The WACC is represented by the following formula: WACC = Re x E/V + Rd x (1 - corporate tax rate) x D/V. www.abxlogistics.com

23. More Corporate Treasury issues : Outsourcing Operations ? ABX Treasury contains certain areas eligible for Outsourcing based on : • Market perspective (Issues and Innovations) • Criteria for Outsourcing (Typical Corporate Profile for Outsourcing) • Goals & Objectives (Why outsourcing, and for which Benefits ?) • Implementation process (Our approach and the different steps) • Conclusion www.abxlogistics.com

24. More Corporate Treasury issues : Outsourcing Operations ? Strategies for Change : Market Perspectives • Issues and Innovations - Lean treasury organizationsArguably, the most important and vexing challenge facing treasurers is getting the human resource equation right. • Centralize, reengineer and automate Those organizations which have been successful in their human resource allocation have centralized treasury activities, reengineered their processes and implemented automation tools to enable the most effective utilization of human resource. • Addressing credit and liquidity constraintsLiquidity and credit constraints have been a primary focus of many treasurers during the economic slowdown of the past 2 years • Effective cash flow forecastingCompanies that have implemented effective cash flow forecasting have found that they are able to manage their borrowing activities more effectively and plan liquidity needs more precisely. • Improving working capital management www.abxlogistics.com

25. Outsourcing Profile Typical Corporate Profile for Outsourcing • Partially Centralised or Decentralised structure • Global operations in various countries/regions • Limited internal resources (Staff, Systems, procedures) • Subsidiaries with funding mismatches • Interest in outsourcing your treasury administration • Wide open Corporate Culture • Guarantee of efficient and safe alternatives www.abxlogistics.com

26. Why Outsourcing ? Why Considering Outsourcing Part of Corporate Treasury ? Increase your ProductivityMinimise Administration BurdenAt a time of restructuring or streamlining your operationsSafe time to focus on core business activities Maximise Internal ResourcesHeadcount – Office – Systems ExpenditureDuring any economic downturn or a bear market Optimise Internal Treasury ProceduresTried and tested Control ProceduresExperienced Treasury StaffClear Segregation of duties www.abxlogistics.com

27. Outsourcing Benefits What are the real Benefits ? Allow Treasury to Concentrate on core business Improve quality of services Reduce Technology and Operational Risks Improve the ratio Performance/Responsabilities Achieve Cost Reductions Lower Capital Investment Optimise Internal Treasury ProceduresIncrease flexibilityLightening of the process activity www.abxlogistics.com

28. Project Management Impact on systemsand processes What are the effects onManagement Reporting &Internal Communication ? Technology ImprovementHuman ResourcesTraining Sub projects coordination Who is affected by the conversion effects and what are their training needs ? www.abxlogistics.com

29. Project Management Keys of Success : • The planning techniques we cover provide tools for establishing a measurable business-relevant objective for each project. This approach allows us to measure success through the customer’s eyes. When complete, the it steers the entire project and, as importantly, it sets parameters for the scope of the project and tells the sponsor and project manager what NOT to do. ABX LOGISTICS approach is the foundation for developing a project plan that consists of measured achievements, not activities • Effective portfolio management with control of resources www.abxlogistics.com

30. More Corporate Treasury issues Embracing New Treasury Principles www.abxlogistics.com

31. More Corporate Treasury issues ABX Corporate Governance The essence of corporate governance (A concept paper for discussion and comment) The essential components of ABX organisation’s corporate governance arrangements are Parties Best Practice Principles Organisation Specific Integrated Governance Framework Clear Objectives & Responsibilities Culture & Values Tools CommunicationDisclosureAccountability Clear Direction & Control Fully informed Governing Body with Correct Focus Optimised Performance Satisfied Shareholders & Stakeholders GOOD CORPORATE PERFORMANCE www.abxlogistics.com

32. Questions Questions ?Thank you very much. Yvo VercouterenCorporate Treasurer Tel. +32.47.8888.55.8 Mail : vercouteren@abxlogistics.com www.abxlogistics.com