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Target Components – Open Day ‘Managing Credit Risk’ Steve Hamstead 16 th September 2011

Target Components – Open Day ‘Managing Credit Risk’ Steve Hamstead 16 th September 2011. Reynolds Trade Credit. Established 1912 Specialist Credit Insurance Broker (Domestic & Export) One of the largest Independents Full client support services Wide range of client industry sectors

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Target Components – Open Day ‘Managing Credit Risk’ Steve Hamstead 16 th September 2011

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  1. Target Components – Open Day ‘Managing Credit Risk’ Steve Hamstead 16th September 2011

  2. Reynolds Trade Credit • Established 1912 • Specialist Credit Insurance Broker (Domestic & Export) • One of the largest Independents • Full client support services • Wide range of client industry sectors • Speciality in Energy/Non Food Retail/IT trade sectors

  3. Key Messages • UK Corporate Insolvencies 2000 - 2010 • The Risk Assessment Process • Sources of Information • Credit Insurance – What is it? Why have it? • Major Insurers • The Future

  4. UK Corporate Insolvencies 2000 – 2010

  5. UK Insolvencies by volume Q3 2010

  6. The Risk Assessment Process Information Sources Risk Assessment Customer Visits Identifying potential failures

  7. Sources of Information Companies House Management accounts Trade journals News releases and other press sources Company websites Customer meetings Payment performance CCJ’s Director details Rumours & relationships

  8. Risk Assessment – Financial Statements Profit & Loss Account – ‘a summary of the trading year’ Key figures: - Profitability Interest cover Dividends Trends Age of accounts

  9. Risk Assessment – Financial Statements Balance sheet – ‘a snapshot of the strength of the business’ Key assessment figures: - Tangible net worth Debt structure/gearing ratio Working capital/liquidity Trends in stock turn, debtor days & creditor days Age of accounts

  10. Risk Assessment – Financial Statements Cash flow – ‘a summary of actual cash movements, not accounting rules’ Key figures: - Cash flow from operating activities Net inflow/outflow after tax/interest obligations Free cash flow – figure used by banks to assess ability to repay debt Trend in figures Age of accounts

  11. Customer Visits Opportunity to obtain information and ask questions: - Ownership Management Funding Main clients Suppliers Future strategy

  12. Warning Signs Weak management Inadequate financial control Lower profitability/losses Slow payments Fraud Change in ownership Track record Late filing of accounts

  13. What is credit insurance and why have it? Insolvency/Default Export / Political Risk Whole turnover Principal Customer Specific Account Catastrophe Risk Transfer Buyer Information Pro-active Management of risks Improve/Standardise Processes Improve Bad Debt provision/control

  14. Major Insurers Traditional Market – Whole turnover 80% of market Euler Hermes (Allianz) Atradius (CyC) Coface (Bank Netaxis)

  15. The Future??? Challenges continue…… Fuel prices a major cause of inflation Government projects will run off – Public Sector is not a panacea Tough rent negotiations Outdated business models Cautious consumers Global downturn – if exporting, where? What can you do? • Vigilant • Proactive • Processes • Controls • Minimise overdues • Consistent approach • Know your customers

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