Euro Contingency Planning DACT workshop – ‘if a country left the Eurozone ’

1. Euro Contingency Planning DACT workshop – ‘if a country left the Eurozone’ November 9, 2012 Courtney Keating (Nike) Pieter Veuger (PwC)

2. News of today… Financial times, September 5th 2012 Financial times, October 15th 2012

3. Exit strategies, realistic or fiction? Are you prepared? Implemented strategies…? • Expectations of this meeting • Business in Greece, Italy, Spain or … Germany? • Sharing experiences • What do you think are the chances for an exit by one of the European countries

4. Roadmap for today • Predictions that proved to be true • Four possible scenario’s in the Eurozone • Consequences for corporates – how Nike ‘Just did it’ • What to expect in case of an exit strategy • Nike’s 100k action plan and success factors • Realistic or fiction – can we prepare (open discussion)

5. Scenario’s for the Euro in problemsWhat was predicted in 2011 • Scenario 1:Monetary and Fiscalaction • Crisis initially contained by ECB bank financing and agreement on Greek debt haircut. As a result of Greece failing to meet the conditions of the deal, this will trigger another round of ECB financing coupled with fiscal transfers to peripheral economies in exchange of austerity measures. A looser monetary policy is adopted at the end of 2012 to help restore the competitiveness of the peripheral economies. • Scenario 2:Orderlydefaults • A programme of voluntary defaults is agreed for the most indebted countries, which triggers a contractionary debt spiral and a prolonged recession, lasting between 2 and 3 years, and which results in a cumulative loss in GDP of around 5%. [ proved correct ] [ proved correct ]

6. Potential strategies that may lead to recovery Southern exit • Greece, Spain and/or Italy is compelled to leave the Eurozone. The leaving country will then suffers a sharp deterioration in its economy, a rapid depreciation of its new currency and an inflation spike. The Eurozone seeks to protect its currency through tough fiscal discipline and other investor confidence increasing measures, but still suffers a recession that lasts for up to two years. Northern exit If ECB bought up all the bonds of Spain for instance to save the country from an exit it will drive down the Euro in foreign exchange and stimulates inflation further. Alternatively, if Germany and other Northern countries were to exit the single currency, it will remove the devaluation risk from the southern countries as Greece, Spain or Italy. This would create smaller and more tightly regulated currency blocs. Europe Market Impact IOU (“I owe you”) • Besides the bulk of cuts from pensions and welfare IOU will be issued in the southern countries. An informal document acknowledging debt. Along the lines of a strategy followed by the state of California the issuance of IOUs by these countries will be necessary to meet their financial obligations. This strategy buys them enough time to benefit from a increasing economy the coming years. • Privatization to decrease debt • The conditions for Greece to stay in the euro area for more than a few months are not met. This will imply a further privatization of Greece’s infrastructure being able for them to write off the about €300bn remaining sovereign debt. With the Greek general government expected to run a small primarily surplus next year, there is hope this will enhance an economic rebirth. Local Protective Courageous Strategy

7. Introduction Initial focus by Nike was the Scenario of a Greek exit. This was that the banks and advisory groups showed this as the highest risk and a good basis to prepare for other scenarios Project goals Ensure the safety and well being of all Nike Employees in Greece Continue to do business with the Nike Wholesale customers and DTC Create a Playbook that can be accessed by all functions and can a plan that can be put into action as soon as there is an announcement from the Government The Plans should also be adaptable to other European Territories Background information Nike operates an agent model in most Eurozone countries Centralized functions in Nike EHQ in Hilversum including treasury Greece successful market . Italy and Spain larger markets more significant

8. Expected Phases of Greek Exit • Pre Announcement: • Risk mitigation phase allows companies to adopt quick wins • Exit Announcement: • Border Freeze • Capital controls • Redenomination Details • New currency, debt and existing contracts • Currency stamping • Regulations and central bank powers for new currency • Currency devaluation • Expected significant devaluation / high inflation in first year

9. 100K Key Actions by Lead Function

10. 100K Key Actions by Lead Function

11. Examples from 10K Plan Risk Mitigation Daily cash sweeps in place New bank for payroll payments in place Extra security on AR in place Business Continuity Prepared communication plan for employees , customers and Media Trained local staff in Crisis Management Communication list and protocols agreed with Global for day of announcement War room set up in 2 hrs in Greece and EHQ to execute the Immediate Response Plan. Detailed X functional plan Agreed stopping shipments on route and changes to shipping lines with carriers Scenario Planning done for the Key Accounts Designed and tested changes in SAP and other systems Nike Store POS system (Point of Sale) can convert in < 1 week Worked with loss prevention on protection of Stores (shutters, etc.)

12. Key Success factors Project basis Ensure senior management involvement and sponsorship Involve country team and HR Start with strategy that meets your company’s business Business Continuity Mitigate risks where possible as where aligned with strategy Highlight open risks Clarify pricing strategy before working on treasury needs or designing systems other changes Compare with experiences elsewhere e.g. Argentina Highlight differences with former experiences e.g. countries entering the EuroZone, then leverage Cross functional discussions and alignment Dynamic recording of decisions and ownership Ongoing monitoring and updates Regular discussion and assessment of risks and update of playbook

13. Summary A lot can be done without major investments to increase response time and mitigate impacts on employees, customers and other stakeholders Treasury has a key role in preparing and advising on contingency plans Most actions decisions need to come from the business Working with the business cements and reinforces the role of treasury Find your greatness !

14. Hot topics treasury seminar - Treasury Post-Crisis

15. APPENDICES

16. Play Book One Click > High level Powerpoint Two/Three Clicks >> Detailed Plans on Sharepoint. http://euroswoosh.nike.com/EuroContingency/index.htm

17. 100K Plan NOW FREEZE REDENOMINATION NEW CURRENCY 4 weeks

18. Methodology – High Level DiagnosticThis diagram sets out the main stages and activities in the high level diagnostics:

19. What does the future of the Eurozone mean for your business