REPARIS Workshop

1. REPARIS Workshop The Importance of ReliAble Financial Reports: A Banker‘s Perspective Risk Control thomas.zaencker@commerzbank.com March 14-15, 2006 Vienna, Austria

2. Agenda Page Financial Analysis Process 3. Debt / Equity Classification 4./5. Evaluation Finished Goods 6./7. Extraordinary Result 8./ 9. Off Balance - Leasing 10./11. Summary / Short Discussion 12. Definition of Ratios 13.

3. Banks expect Financial Reports are presented to the Bank Financial Data Financial Data Understandability Comparability Relevance Reliability Timeliness Transparency Balance Sheet Profit & Loss Account Cash Flow Statement Financial Analysis System Ratios Bench- marking Rating (PD) Fairness and Correctness Entry of financial data by an external company Financial Analysis Process Reliable Financial Reports are the basis for a realistic evaluation of clients‘ business .

4. Financial Analysis System Financial Reports are presented to the Bank Ratios Rating (PD) Financial Data Balance Sheet P & L Account Cash Flow Statement Debt / Equity Classification - Theory Criteria (Silent Partnership) German Accounting Standard (HGB 266) IFRS (IAS 32) Term > 7 Years Subordination • Loss Participation Result – Related Dividends • All Criteria met Treatment as Financial Debt Treatment as Equity

5. Financial Analysis System Financial Reports are presented to the Bank Ratios Rating (PD) Financial Data Balance Sheet P & L Account Cash Flow Statement Registered Capital 100Silent Partnership 400Other Financial Debt 500 Criteria German Accounting Standard IFRS • All Criteria fulfilled Treatment as Equity Treatment as Debt Equity Gross Debt Capitalization Extended Tangible Net Worth Different Treatment results in different Ratios But: Transparency allows fair Analysis 500 0,5 500 100 0,9 500 Debt / Equity Classification – Example

6. Financial Analysis System Financial Reports are presented to the Bank Ratios Rating (PD) Financial Data Balance Sheet P & L Account Cash Flow Statement Required Required Directly Attributable Costs Optional, as far as related to Production Required, as far As related to Production Criteria (Cost of Goods - Finished Goods) German Accounting Standard IFRS General Costs General Overhead, Social, Pension Provision Costs As a rule not allowed, sometimes optional As a rule not allowed, sometimes optional (IAS 23.11) • Debenture Capital Costs (Interest) • Costs of Distribution Not allowed Not allowed Evaluation of Finished Goods - Theory

7. Criteria German Accounting Standard IFRS 500 500 Directly Attributable Costs General Costs 200 200 0 General Overhead, Social, Pension Provision Costs Finished Goods Total ST Assets Working Capital 100 0 • Debenture Capital Costs (Interest) 0 100 800 1300 500 700 1200 400 500 1000 200 800 1300 500 100 100 • Costs of Distribution Evaluation Finished Goods – Example Financial Analysis System Financial Reports are presented to the Bank Ratios Rating (PD) Financial Data Balance Sheet P & L Account Cash Flow Statement Other ST Assets 500 Total ST Liabilities 800 Many Options result in different Ratios But: Transparency allows fair Analysis

8. Financial Analysis System Financial Reports are presented to the Bank Ratios Rating (PD) Financial Data Balance Sheet P & L Account Cash Flow Statement Extraordinary Result - Theory Extraordinary Result Criteria German Accounting Standard (HGB 277,4) IFRS (IAS 8.10) The Annual Result contains both, the Result of Ordinary and the Result of Extraordinary Business.

9. Total Sales 1000Cost of Sales 400Other Oper. Expenses 100 Other (?) Income 200Depreciation 100 • No Information, Treatment as • Extraordinary Income 400 1.625 550 2.235 Adjustments result in different Ratios But: Transparency allows fair Analysis EBIT Debt Capacity EBIT Debt Capacity Extraordinary Result – Example Financial Analysis System Financial Reports are presented to the Bank Ratios Rating (PD) Financial Data Balance Sheet P & L Account Cash Flow Statement Total Sales 1000Cost of Sales 400Other Oper. Expenses 100 Other Income 200thereof Government Grant 50 thereof Rents 150Depreciation 100 • Information are available - partial Treatment • as Extraordinary Income only

10. Financial Analysis System Financial Reports are presented to the Bank Ratios Rating (PD) Financial Data Balance Sheet P & L Account Cash Flow Statement Off Balance – Leasing - Theory Off Balance - Leasing German Accounting Standard Alternatives IFRS (IAS 17) • Operating Leases • Finance Leases • Sale-and-Leaseback

11. Off Balance – Leasing – Example Financial Analysis System Financial Reports are presented to the Bank Ratios Rating (PD) Financial Data Balance Sheet P & L Account Cash Flow Statement Balance SheetTotal Financial Debt 500 Profit & Loss AccountTotal Sales 1000Cost of Sales 400Leasing 100Other Expenses 100 Balance SheetTotal Financial Debt 500 Profit & Loss AccountTotal Sales 1000Cost of Sales 400Leasing 100Other Expenses 100 Gross Debt + Off Balance Leasing / EBITDA + Leasing Gross Debt + Off Balance Leasing / EBITDAR Transparency results in exact Ratios and Fair Analysis. • Off Balance – No Information • Off Balance Leasing Obligations 500 1,0 2,0

12. Banker‘s Perspective: Transparent Financial Reports result in True and Fair Treatment ! Summary

13. Registered Capital as per Balance Sheet Other Financial Debt Other Financial Debt + Equity Registered Capital + Silent Partnership Sum of Costs – Costs of Distribution Other ST Assets + Finished Goods Total ST Assets – Total ST Liabilities Total Sales - Cost of Sales – Other Oper. Expenses + Other Oper. Income - Depreciation Present Value of Adjusted EBIT, 7 Years, Tax Rate 35 % Total Financial Debt + Off Balance Leasing EBITDA + Leasing (as per P&L) Equity Gross Debt Capitalization Extended Tangible Net Worth Finished Goods Total ST Assets Working Capital EBIT Debt Capacity Gross Debt + Off Balance Leasing / EBITDA + Leasing Ratios – Definition