SME Finance & Market Development December 2018 Strictly Private and confidential
Introduction
Introduction SME Finance & Market Development What is it? Why? • An initiative developed by BiG Moçambique Mozambican companies currently rely on and FSDMoç to: limited financing alternatives to fund the development of their businesses; • Enhance the Mozambican capital markets; • Investors have few savings and investment • Promote alternative sources of finance options, resorting to traditional financial and investment to companies and products; individuals. • Companies and investors, on a generalized level, lack information on investment and financing alternatives. Improve awareness and knowledge about capital markets Attract more Companies to issue securities in the stock exchange Improve liquidity, by increasing the participation of individual retail investors in the market 3
Introduction Why is this particularly important in Mozambique? Market Context Stock Exchange Economy in the last 3 years affected by: Characteristics of the Moz. Stock Exchange: • • Adverse weather conditions Small in size, as a % of GDP • • FX volatility Market cap dominated by government debt • High inflation rates securities • • High interest rates Low liquidity • • Difficulties in accessing credit Only 1 “real” IPO in the past 10 years Capital markets • Bonds; commercial paper; shares Companies need financing alternatives Private debt Private equity 4
Methodology
Methodology How was it implemented? 1) Initial Market 3) Investor 2) Gap Analysis Overview Attractiveness > 300 companies 58 companies interviewed 20 companies identified interviewed 45 subject to gap analysis 140 companies contacted 10 teasers prepared and study presented to investors 110 companies 6 companies received interviewed positive feedback 6
Initial Market Overview
Initial Market Overview Description of the sample Geographic dispersion – head offices Sector Services 29% Retail 16% Manufacturing 15% Transports and Logistics 10% Agrobusiness 10% Construction 6% Financial Services 5% Telecoms 2% Education 2% Fishing 2% Extractives 1% Utilities 1% 8
Initial Market Overview 76% of the companies had revenues between MZN 120 – 600 M Turnover Profit/Loss 41% 18% 17% 76% 12% 4% Net profit 3% 3% 2% Net loss MZN MZN 3M MZN MZN MZN MZN More n.a 600k to to 12M 12M to 30M to 120M to 300M to than 24% 3M 30M 120M 300M 600M MZN 600M Legal form Nº of employees 2% 3% 3% 1 to 5 Private Limited Liability Company 6% 6 to 10 10% 35% Public Limited Company 11 to 25 56% 26 to 50 63% 22% Sole Proprietorship 51 to 100 More than 100 9
Initial Market Overview 67% used bank credit as their main source of funding Ownership Book value of equity 4% 10% Family Owned 14% 21% Up to MZN 4M Businnes MZN 4M to 27% Other 16M 63% More than MZN 16M n.a n.a 61% Sources of funding Auditing Bank Credit 67% 20% Shareholder 41% equity Audited Shareholder Accounts 37% loans Unaudited Capital Accounts 3% Markets 80% None 5% Other 3% 10
Initial Market Overview After the survey, 65% would consider a listing in capital markets Awareness of capital markets and BVM Awareness on requirements to list 5% Know the requirements 37% Aware Don´t know the Not aware 63% requirements 95% Has considered listing (before the survey) Willing to consider listing (after the survey) 26% Considers Has considered 37% listing listing Has not Doesn´t 65% considered listing consider 74% listing 11
Gap Analysis
Gap Analysis Brief benchmark of the requirements of other international exchanges Namibia South Africa Mauritius Nigeria Malaysia (NSX) (JSE) (SEM) (NSE) (MIX) Audited financial 3 years 3 years 3 years 3 years 3 years statements Market cap ~ USD 70k ~ USD 35M ~ USD 580k ~ USD 11M ~ USD 119 M Free float 20% 20% 25% 20% 25% SEC’s Code for Corporate Namibian Code Corp. Gov. for Malaysian Code South Africa Governance Governance for Corporate Public of Corporate King Report Code for Governance Companies in Governance Mauritius Nigeria Accounting IFRS IFRS IFRS IFRS IFRS Standards Profitable Uninterrupted trading record EBT of at least ~ EBT of at least ~ profit after tax in Financial for 3 years and USD 1 million in n.a. USD 825k over the last 3 years performance current year EBIT the previous the last 3 years of ~ USD 4.8 of at least ~USD year million 35k 13
Gap Analysis Additional information collected from the companies: Accounting and Transaction and Financial reporting Governance • • • EBITDA Margin International Accounting Business Plan Standards • • Net Income Margin Dividend distribution policy • Audit frequency • • Financial Autonomy Existence (or willingness to • Qualified audit opinion have) independent • Net debt / EBITDA directors • Willingness to publish • Operational Track Record • accounts % willing to float • Purpose of finance 14
Gap Analysis Most companies had positive operating results and low gearing levels EBITDA margin Net income margin >30% 7% >10% 16% 20%-30% 20% 5%-10% 16% 10%-20% 18% 0%-5% 41% 0%-10% 39% <0% 23% <0% 14% n.a 2% n.a 5% Financial autonomy Net debt to EBITDA >40% 41% <2x 68% 30%-40% 14% 2x-4x 11% 20%-30% 11% >6x 18% 10%-20% 14% n.a 2% <10% 18% n.a 2% 15
Gap Analysis Almost 2/3 of the companies audited their accounts in the last 3 years Audit frequency Audit company 22% 36% Yes (last 3 years) Big 4 5% Yes (last 2 years) Other 9% 64% Yes (last year) 64% No Operational track record Willingness to publish accounts 6% >10y 59% 5y-10y 27% 94% <5y 14% Yes 16
Gap Analysis 72% of the SMEs had a business plan Existence of business plan Dividend distribution policy 28% Have 45% Yes 55% Doesn't No have 72% Existence of independent directors Willingness to have independent directors 2% 33% 38% Yes No 62% 65% Yes No n.a 17
Gap Analysis 84% of the companies wished to raise capital to finance expansion plans Modality of financing Purpose of financing 2% 2% 7% Expansion 12% Equity To finance 47% current activity Debt 47% To refinance Both debt 84% Shareholder exit % willing to float (equity) 9% 26% More than 25% From 10 to 25% Up to 10% 65% 18
Gap Analysis Each answer scored 1-10, to achieve a final overall score Example Score-card 1 Poor 2 3 Weak 4 5 OK 6 7 Satisfactory 8 9 Good 10 Overall Score 19
Gap Analysis 25 Companies achieved a scoring ≥ 7.0 Score Company Sector Accounting and Transaction and Financial Profile Overall Reporting Governance 1 Company 1 Services 9.4 9.0 10.0 9.5 2 Company 2 Transports and Logistics 7.8 10.0 9.0 8.7 3 Company 3 Services 9.4 10.0 5.4 8.6 4 Company 4 Manufacturing 7.8 10.0 9.0 8.6 5 Company 5 Financial Services 7.8 10.0 8.0 8.4 6 Company 6 Construction 9.4 7.0 7.7 8.4 7 Company 7 Services 8.2 8.6 8.2 8.3 8 Company 8 Manufacturing 7.8 10.0 7.8 8.3 9 Company 9 Retail 9.7 9.0 4.4 8.2 10 Company 10 Manufacturing 7.8 10.0 7.0 8.2 11 Company 11 Retail 7.9 8.2 7.7 7.9 12 Company 12 Telecoms 7.5 10.0 6.7 7.9 13 Company 13 Construction 7.5 10.0 6.3 7.8 14 Company 14 Services 8.4 10.0 4.0 7.7 15 Company 15 Agrobusiness 6.6 10.0 6.7 7.5 16 Company 16 Transports and Logistics 6.5 9.0 7.7 7.4 17 Company 17 Retail 5.4 10.0 8.6 7.4 18 Company 18 Services 5.7 9.6 8.2 7.3 19 Company 19 Education 5.9 9.0 8.5 7.3 20 Company 20 Services 6.9 9.0 5.8 7.2 21 Company 21 Manufacturing 7.8 8.6 4.4 7.1 22 Company 22 Transports and Logistics 5.3 10.0 7.7 7.1 23 Company 23 Transports and Logistics 7.1 9.0 5.0 7.0 24 Company 24 Manufacturing 6.9 7.0 7.0 7.0 25 Company 25 Retail 6.6 7.0 7.3 7.0 20
Gap Analysis 25 Companies achieved a scoring ≥ 7.0 10 Financial Profile 9 8 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 7 8 9 10 Technical Requirements 21
Investor Attractiveness
Investor Attractiveness 1 Page Teaser Information collected on 10 companies • Brief presentation of the company • Type of transaction • Amount to be raised • Transaction goals • Business highlights • Key financial indicators • Shareholder structure 23
Investor Attractiveness 10 Teasers presented to investors, to assess if they found the companies attractive Yes, why? No, why? 1. Limited perception of capacity to repay 1. There is room to add value in the (debt) Company 2. Limited perception of exit strategy 2. Company displays potential for (equity) efficiency improvements 3. Transaction purpose not attractive 3. Company displays growth potential 4. Financial performance not attractive 4. Transaction purpose is attractive 5. Business model not attractive 5. Financial performance is attractive 6. Does not invest in the specific sector of 6. Business model is attractive the company 7. Sector is interesting 7. Ticket size too small / too big 8. Does not invest in the specific instrument 24
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