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Master of Science Thesis TRITA-ITM-EX 2019:424
Eliminating Cash; cash-free corporate liquidity A study on the plausibility and efficiency of financial
lean
Viktor Charpentier
Approved
2019-06-03
Examiner
Tomas Sörensson
Supervisor
Tomas Sörensson
Commissioner Contact person
Abstract
This paper addresses the problem of a failing net debt approach; deposited funds rarely compensate the cost of debt. Venturing into operational credit facilities, the study evaluates the efficiency and feasibility of transitioning into fully cash-free liquidity management. The study takes a holistic approach and evaluates the research questions from the perspective of management through case studies on four smaller Swedish industrial firms. The study finds that there is substantial potential to free up capital; return on equity could have been boosted by an annual 5-10 percent including substantial one-off distributions. The study also concludes that Agency reasons are strong reasons for why firms are carrying material cash reserves. Through qualitative interviews, the study identifies several additional, but not less important, obstacles in the way of a full out cash-free transition. Most significantly, the financial system is not offering fully committed long term operational credit facilities and operating across different jurisdictions complicates the consolidation of liquidity. The study concludes that the matter would not have vast negative implications on real business activities, although further research would be required in regard to an extended debt overhang problem.
Key-words
Capital structure; capital stack; leverage; cash position; cash holding; interest bearing debt; net debt; operational credit; credit facility; RCF; rolling credit; overdraft account; overdraft; debt overhang; cash pool; liquidity; liquidity management; cash management; working capital;
liquidity fluctuations; financial lean
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Examensarbete TRITA-ITM-EX 2019:424
Eliminating Cash; cash-free corporate liquidity A study on the plausibility and efficiency of financial
lean
Viktor Charpentier
Godkänt
2019-06-03
Examinator
Tomas Sörensson
Handledare
Tomas Sörensson
Uppdragsgivare Kontaktperson
Sammanfattning
Uppsatsen kretsar kring den fallerande logiken med begreppet nettoskuld; tillgodohavanden på bank genererar sällan upp för kostnaden relaterad till motsvarande skuld. Med utgångspunkt i operationella kreditstrukturer utvärderas möjliga effektivitetsvinster och genomförbarheten av en fullständig övergång till kassa-fri likviditetshantering. Studien har ett holistiskt angreppssätt och utvärderar frågeställningarna från ett management-perspektiv genom fallstudier på fyra mindre svenska industriella bolag. Studien finner betydande möjligheter att frigöra kapital;
årliga avkastningen på eget kapital hade kunnat öka med 5–10 procent och betydande engångsutdelningar hade varit möjliga. Studien finner vidare att agentteorin är en stark anledning till att bolag bär betydande kassapositioner. Genom kvalitativa intervjuer identifierar studien ytterligare, men ej desto mindre betydande, hinder för en kassa-fri övergång. Mest betydelsefullt, är att nuvarande finansiella system inte erbjuder för syftet fullgoda kreditstrukturer, samt det faktum att företag med verksamhet över olika jurisdiktioner upplever juridiska svårigheter med att konsolidera likviditet. Studien drar slutsatsen att en övergång inte skulle medföra betydande negativa konsekvenser för den operativa affärsverksamheten, men identifierar samtidigt att ytterligare studier skulle vara nödvändiga framförallt kring hur finansiella incitament kopplade till agent-teorins ’debt overhang’ skulle förändras vill en övergång till en fullt garanterad operationell kreditstruktur.
Nyckelord
kapitalstruktur; skuldsättning; kassa; räntebärande; nettoskuld; operationell kredit; RCF;
revolver; checkräkningskredit; debt overhang; cash pool; likviditet; likviditetspool; cash management; rörelsekapital; finansiell lean
Board of Direct. 36.1%
Major private 15.6%
Management 3.3%
Inst. and funds 3.0%
Others 42.1%
Hanzas business model is to develop and offer complete manufacturing solutions and advisory services related to increasing growth and profit for Hanzas customers. Hanza is trying to ride the trend of "backsourcing", bringing back production closer to the design country, as well as trying to be a one-stop-shop for product companies. Hanzas slogan is "All you need is one". In addition to conventional manufacturing, Hanza offers Manufacturing Solutions for Increase Growth and Earnings (”MIG”-services) and environmental services, Material Compliance Solution (”MCS”).
Hanzas business model is to attract manufacturing contracts through adding competence and services, easing the development and production processes of product companies. To realize this in a cost effective way, Hanza acquires and consolidates "manufacturing-clusters" where products can be manufactured rationally, to a lower cost and with less environmental impact compared to conventional contract manufacturers.
Consolidating manufacturing technologies into clusters allows for the one-stop-shop concept as well as freeing up capital by increasing occupancy across different manufacturing technologies.
Historically, Hanza has relied upon shareholder loans as well as convertible instruments to finance its business. Having proved profitablity and grown, banks are more willing to lend Hanza capital, materializing in lower financing costs. Today, Hanza carries roughly 340 MSEK interest bearing debt, where the majority is secured bank loans carried by individual subsidiaries in respective countrys currency. The largest bank loan is the acquisition loan of 88 MSEK. Hanza have also a number of RCFs totalling c. 103 MSEK commited capital and spread across 9 different subsidiaries. Hanza typically taps around 60 MSEK on these RCFs. In addition to the around 40 MSEK untapped commited capital, Hanza keeps readily liquidity in cash accounts measuring also around 40 MSEK.
Hanza Holding
Value proposition
Business model description
Financial overview Key business events
In July 2015, Hanza acquired Metalliset at a purchase price of 75 MSEK plus an additional earn out of maximum 1 MEUR. To finance the acquisition, Hanza issued shares, at the time valued at around 15-20 MSEK, to the seller, as well as carried out a rights issue bringing in c. 50 MSEK. In February of 2018, Hanza Holding acquired Wermland Mechanics Group at a purchase price of 145 MSEK plus an additional earn out of maximum 22.5 MSEK. In order to finance the acquisition, Hanza carried out an underwritten rights issue of 60 MSEK and financed the remainder with a 5 year bank loan of 88 MSEK.
Equity ownership
EBIT (2018) 70.9 MSEK Geographical presence (by rev.)
Sweden, Finland, Estonia, Poland, …
Revenue (2018) 1,810 MSEK Market
capitalisation 540 MSEK Sector Manufacturing Year founded 2008 (IPO 2014)
0.0 %/x 2.0 %/x 4.0 %/x 6.0 %/x 8.0 %/x
0 100 200 300 400
Million SEK
Gross total debt (LHS) RCF drawn (LHS)
Cash position (LHS) Net Working Capital (LHS)
Gearing ratio, Net debt/EBITDA (RHS) Average interest rate, % (RHS)
617
411
402
348
78
338
Total Assets Total Equity and
Liabilities
Million SEK
Fixed assets Equity
Current assets excl. Cash Other liabilities Cash and cash equiv. Interest bearing debt
