Georgian Leasing Company Bond presentation www.leasing.ge
Key features of the bond Issuer Georgian Leasing Company LLC Bonds Unsecured and unsubordinated obligation Regulatory treatment Georgian law Issue size US $ 10 million Issuer call date 22 September 2014 Maturity date 22 September 2017 Coupon rate 7.50%-8.75% Listing GSE’s official list 1 www.leasing.ge
GLC at a glance: GEL 27.4 million GLC – the only leasing company, which: • Company portfolio*, 2013 • Number of customers, 2013 423 2.7x • Total liabilities/Total equity, 2013 • Average lease size, 2013 GEL 42,669 • Has gained OPIC/WBC trust and long- term partnership GEL 6.14 million • Total revenues, 2013 • Executes projects larger than USD $ 17.6% • Return on equity, 2013 500,000 • Uses specialized software (Microsoft Dynamic Nav) to make processes more *Note: Company portfolio=Gross portfolio (23.65 mln) standardized and efficient +prepayments for assets held for leasing purposes (3.75 mln) Leasing market share by main companies, Leasing portfolio breakdown by sectors, 2013 Total operating income, GEL million GEL million, 2013 2.3 19.1% Transportation 3.6 3% 4.1% 4.0 4.0% 2.9% 2011-2013 13.4% Service 3.5 TBCL CAGR 19% 3.0 12.4% Construction and real estate 4.1% 3.0 GLC Road Construction 11.2% 2.3 19.1% 2.1 2.5 27.4 4.8% Agriculture AGL 9.6% 36% 2.0 Medicine 8.3% 6.2% 1.5 13.4% Trade 6.2% 1.0 8.3% 46.5 Polygraphy 4.8% 0.5 61% Distribution 12.4% 4.1% 9.6% 0.0 Mining industry 4.1% 11.2% 2010 2011 2012 2013 Food & Beverages production 4.0% Other 2.9% Source: Company data Source: Company data Source: Company data 2 www.leasing.ge
Competitors Along with GLC other major players are, TBC Leasing (TBCL) and Alliance Group Leasing (AGL), that were established in 2003 and 2006, • respectively. These three companies dominate Georgia’s leasing market. Of these 3 players, the 2 largest are bank-owned leasing companies, which is in-line with global practice. • With the exception of 2010, TBC Leasing has In 2013 the sector’s total assets of GEL Although TBC Leasing boasts a larger portfolio, held the largest market share for the past number 75.4 million amounted to 0.3% of 2013 GLC has consistently posted higher profits and of years. Its market share stood at 61% as of GDP ( Eastern Europe’s benchmark is has outperformed competitors in terms of the 2013, followed by GLC (36%) and AGL (3%), 1.67%). return on equity ratio. respectively. Shares in total leasing portfolio, of the three Leasing market development, GEL million Return on equity, 2013 major companies 75.4 80 60% 49% 100% 20% 17.6% 3% 3% 3% 3% 8% 9% 10% 70 50% 39% 38% 18% 14.5% 54.5 80% 33% 34% 60 40% 16% 36% . 42% 35% 38% 14% 47% 50 30% 10.1% 60% 12% 36.5 8.8% 40 20% 8.8% 8.0% 30.3 10% 26.2 6.4% 40% 30 10% 8% 4.6% 64% 63% 61% 6% 3.6% 56% 55% 3.1% 20 0% 52% 4.9% 45% -13% 20% 4% 3.4% 10 -10% 2.7% 2% 2.8% 2.7% 0.8% 0% 0 -20% 0% 2007 2008 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 TBCL GLC AGL Market size Annual market growth rate TBCL GLC Source: company data Source: company data Source: company data 3 www.leasing.ge
Legislative environment Slow growth prior to 2011 due to different legislature. • 2011 new legislature bringing Georgia in-line with international standards-UNIDROIT. Amendments were made to Georgia’s Tax and Civil Code. • Main problems solved after the Still existing problems: WIP on solutions: introduction of the new legislation: Tax administration was simplified and the tax Some of the amendments in tax and civil New Tax Code Manual is being developed by • • • burden reduced codes are still vague and leave room for industry players and Ministry of Finance and interpretation will be adopted shortly Leasing companies were allowed to write-off • 80% of the value of above 60 day overdue Clients’ awareness of leasing’s advantages is Advertisement/public education campaign is • • leases still low being developed with the support from USAID Leasing companies became able to apply • 100% amortization rates Lease payments came to be treated as an • expense for tax accounting purposes, allowing companies to reduce profit tax Property tax calculation on leased assets • became more effective Any risk in connection with the asset came to • be carried by supplier or the Lessee Easier and more flexible forms of • repossession were put in place Leasing definition has become more accurate • and useful 4 www.leasing.ge
GLC’s portfolio The construction, transport, medical and agriculture sectors are among the largest markets for leasing. • GLC has a portfolio that is more oriented towards transport, services and construction. • GLC aims to increase its share in the medical and HORECA equipment segments through new products and more attractive terms. • Leasing portfolio by sectors, 2013 Leasing portfolio by asset type, GEL million, 2013 0.8 1.1 Transportation 2.9% 4.0% 2.9% 3.9% 19.1% 1.1 Vehicles and machinery 4.1% 58.6% 4.1% Service 13.4% 4.1% Construction and real estate Irrigation (systems pivot) 12.4% 19.1% 12.7% . 2.2 Road Construction 11.2% 8.1% Caterpillar Excavator 4.8% Agriculture 9.8% 9.6% 2.7 Medicine 6.2% 8.3% Medical andesthetics Equipment 9.8% 8.1% 13.4% Trade 16.0 6.2% 58.6% 8.3% Construction factory (Concrete, Asphalt etc.) Polygraphy 4.1% 4.8% 3.5 Distribution 12.7% 4.1% 12.4% Printing Equipment 9.6% 3.9% Mining industry 4.1% 11.2% Food & Beverages production Other 4.0% 2.8% Other 2.9% Source: company data Source: Company data 5 www.leasing.ge
Financial highlights Revenue breakdown, GEL million Salaries and SG&A breakdown, GEL million 1.5 4.1 4.5 1.6 1.4 4.0 Other 1.4 0.3 1.1 3.5 2.9 1.4 Other non ‐ interest 0.3 1.2 2.7 0.9 3.0 income 1.0 Salary 0.7 2.5 0.3 0.6 2.0 0.8 0.3 0.5 2.0 1.5 0.8 0.6 1.5 Legal and profesional 2.7 0.5 Net interest 0.3 2.2 0.2 services 1.0 0.4 0.5 income 1.2 1.2 0.5 0.1 0.2 0.4 0.3 0.1 Operating taxes other 0.2 0.0 0.0 - than income tax 2010 2011 2012 2013 2010 2011 2012 2013 (Property Tax) Source: Company data Source: Company data Return on equity 20% 17.6% 18% 14.5% 16% 14% 12% 10.1% 8.8% 10% 8.0% 6.4% 8% 6% 3.6% 3.1% 4% 2% 0% Source: Company data 6 www.leasing.ge
Financial highlights Cost-income ratio Cost of risk 60% 3.5% 2.9% 48.4% 3.0% 50% 41.7% 2.5% 38.3% 40% 34.6% 2.0% 30% 1.4% 1.3% 1.5% 1.0% 20% 1.0% 10% 0.5% 0.0% 0% 2010 2011 2012 2013 2010 2011 2012 2013 Source: Company data Source: Company data Portfolio yield, Cost of financing, spread 22.8% 25% 22.4% 21.8% 20.6% 20% 15.1% 15% 12.4% 12.1% 11.1% 10% 10.0% 9.8% 9.5% 5% 7.6% 0% 2010 2011 2012 2013 Portfolio Yield Cost of financing Spread Source: Company data 7 www.leasing.ge
Potential of the market Market analysis confirm a very strong untapped opportunity in leasing sector Demand for leasing estimated based on SME potential Demand for leasing estimated based on benchmark Primary users of leasing are SMEs Georgia’s 2013 annual leasing volume to GDP - 0.28% • • If Georgia reaches Eastern Europe’s benchmark, Leasing portfolio will In 2012 total demand for SME loans was estimated at US$ 1.88bn: • • increase 6x. Leasing volume as a % of GDP, 2012-2013 48,100 1 A Number of SMEs 12x increase of leasing portfolio B 82,106 2 Average loan size demanded, US$ 4.0% 3.25% 3.5% 3.0% C % of enterprises needing a loan 47.5% 3 6x increase of 2.5% leasing portfolio $523 mln 2.0% Total loan demand (A * B * C), 1.67% 1,875.9 1.5% US$ million $268 mln 1.0% $43.4ml Assuming that around 50% of loan demand is relevant to leasing (i.e. 0.28% 0.5% • 50% of loans are used to finance equipment/assets), implied potential 0.0% n market for leasing works out to be more than 20x the current size Georgia Eastern Europe's peer Latvia countries Source: Company data Company plans to aggressively expand into following sectors: • Source: EIB 1 GeoStat o Medical/Aesthetics 2 BFC survey of local lenders; EUR/US$ FX rate of 1.286 applied o Agriculture 3 World Bank Enterprise Surveys o HORECA 8 www.leasing.ge
Annexes www.leasing.ge
Annex 1 Leasing advantages Leasing advantages vs. loan Asset acquisition is financed without any collateral • Monthly leasing payment is recorded as an operating expense, which significantly • reduces Profit Tax (in case of loan only accrued interest is recorded as an operating expense) VAT is paid proportionally to the lease payments, which reduces total cash outflow • and gives opportunity to allocate VAT during the lease period During lease period property tax is reduced and at the end of the term it equals 0% • Working capital is freed up for further business development • All asset acquisition expenses (Asset value, transportation, customs clearance, • insurance, installation, etc.) are financed through lease Flexible payment schedule is tailored to clients’ needs • Simplified procedures - no additional expanses are required to draw up leasing • agreement Support during negotiations, purchase and documentation (with supplier, • transportation company, customs clearance office and insurance company) Solvency is maintained • 10 www.leasing.ge
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