Investor Presentation September 2016 - Finance Flanders · Investor Presentation September 2016 . 2 Flanders in a Nutshell Key Investment Highlights ... Extensive inland waterway

Investor Presentation September 2016

2

Flanders in a Nutshell Key Investment Highlights

One of the strongest regions in Europe

Solid Financial Situation

Positive track record of Budgetary discipline

Moderate direct debt levels

Flanders has a wealthy diversified and strong economy with one of Europe’s highest GDP per capita; unemployment rate close to Germany and solid economic growth

Flanders is collecting a greater part of its revenues via own fiscal instrument; which is positive in the context of economic growth and increasing GDP per capita levels

Fiscal flexibility: Flanders can levy more taxes rapidly if needed

Fiscal Autonomy Through the 6th state reform, Flanders has received a greater range of area of competencies and benefits from an increased tax autonomy (own fiscal instruments). Flanders has also a solid taxable basis

Over recent years, Flanders has demonstrated its ability to reduce deficits while maintaining economic growth and social welfare.

Despite ESA 2010 rules, moderate levels of debt combined with a sound financial management strategy (no debt wall)

3

I. Flanders Part of the Federal State Belgium

II. Main Facts & Figures

III. Key Strengths

IV. Public Finances – Impact 6th State Reform

V. Consolidated Debt

VI. Flanders in a nutshell

4

Flanders Part of the Federal State Belgium

Federal State

10 Provinces

3 Regions:

Flanders

Wallonia

Brussels

589 Towns and Cities

3 Communities:

Flemish

French

German

The Flemish Community

and the Flemish Region

immediately decided to

merge their competences.

As a result, Flanders has

one Flemish Parliament,

one Flemish Government

and one public

administration, responsible

for community and

regional matters.

Belgium Federal Structure

Belgian Communities Belgian Regions

5

Flanders Part of the Federal State Belgium Competence Distribution

Federal State “powers related to public interest”

Public Finances

Defense

Security

Justice

Social Security

Public Health

Domestic & International

politics

Transport & Communication

Flemish Community

“powers related to language

and culture”

Education

Culture

Public health (prevention)

Welfare

Language issues

Child protection

Family Affairs

Flemish Region

“powers related to territory

and economy”

Economic development & co-

operation

Public infrastructure

Town & country planning

Environment

Energy

Employment

Agriculture

Foreign Trade

Regional transport

Control & organization of

local governments

6



III. Key Strengths




7

Main Facts & Figures

Capital Brussels

Language Dutch

Surface 13 684 km²

Population 6 477 804 (1/1/2016)

Density 482 hab./km² (2015)

Currency Euro

N° of Companies 500,700 (subject to VAT)

Nominal GDP (PPS) EUR 216 bn (2015)

GDP/Capita (PPS) EUR 34 200 (2015)

Real GDP growth rate 1.6% (2015)

Unemployment rate 5.2% (2015)

PPS = purchasing power standards

Key Data

8

Main Facts & Figures High GDP per Capita (2015)

Source: Study Office of the Flemish Government

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Flanders EU-28 Belgium Germany France Netherlands United Kingdom

9

Main Facts & Figures Strong Economic Fundamentals

Flanders benefits from very strong economic fundamentals.

Flanders France Germany Netherlands EU - 28

Unemployment Rate (2015) 5.2% 10.4% 4.6% 6.9% 9.4%

Real GDP Growth Rate (average

2011 – 2015) 1.3% 0.8% 1.5% 0.6% 1.0%

Source: Eurostat - Labour Force Survey, Study Office of the Governement of Flanders

• In 2015 the real GDP growth was 1.6% in Flanders which was much higher compared to the

other regions (Walloon Region 1.1% and Brussels Region 0.9%)

10



III. Key Strengths




11

Key Strengths Located in the Heart of Europe

Flanders lies at the center of the EU’s

wealthiest and most populated area;

Highly developed transport and

communications systems so that

companies can take full advantage of this

fact;

Strong stimulus for companies to locate

in Flanders – central location;

Source: Healey & Baker study

12

Key Strengths A Unique European Hub

Flanders offers companies rapid and efficient supply

and distribution links with other major European

centers and beyond.

Leading ports Antwerp, Ghent, Ostend, Zeebrugge

Airport freight & logistic hubs

Brussels, Ostend

Extensive inland waterway system

Linking into the European system

High density of freeways Connecting directly to other European countries

High density rail network Dedicated freight lines to other parts of Europe

Source: Healey & Baker study

13

Key Strengths An Economy based on Trade and Services (2014)

Real Estate and Business Services 23.2% Wholesale and Retail 13.9% Transport 6.6% Health Services 4.8% Other 24.5%

Construction 6.5% Chemicals 3.0% Iron, Metal & Steel 2.1% Food & Tobacco 2.6% Other 12%

Source: Institute of National Accounts

Primary sector 1%

Secondary sector 26%

Tertiary sector 73%

Flemish GDP – Sector contribution

14

Key Strengths Strong Export-Driven Economy

The Flemish economy is strongly export oriented: Flanders’ exports represent 83.1% of Belgium’s

total export in volume;

Flemish exports remained fairly stable over time;

The region’s most successful export products are chemicals, minerals, vehicles, machines and

equipments, pharmaceuticals.

Source: Institute for the National Accounts

2.3%

83.1%

14.6%

Regional Distribution of Belgian exports (%) (2015)

Brussels

Flanders

Wallonie

0

50

100

150

200

250

300

350

2008 2009 2010 2011 2012 2013 2014 2015

Flemish Exports (EUR billion)

15

Key Strengths Diversified Base of Trading Partners

The EU28 is the most important Flemish export market and the 3 neighbouring countries (Germany, France

and the Netherlands) are Flanders main trading partners. Also emerging economies like India and China are

steadily becoming more important for Flemish exports.

Source: Institute of National Accounts

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Germany France Netherlands UnitedKingdom

UnitedStates

Italy India Spain China Poland

Top 10 of Flemish Export Markets in 2015 (as % of total)

Key Strengths

16

Foreign Direct Investment Figures & Trade Partnerships

Top 10 biggest investors (in 2015)

1 USA

2 Netherlands

3 United Kingdom

4 Germany

5 China

6 France

7 Japan

8 Switzerland

9 Sweden

10 India

Flanders has a proven track record of welcoming foreign

businesses to its region.

Life Sciences Johnson & Johnson, Pfizer,

Schering-Plough, AstraZeneca, ...

Automotive Volvo

ICT Alcatel Lucent, British Telecom,

Philips, ST Microelectronics, ...

Chemicals BASF, Total, Suez-GDF, Bayer,

Kaneka, Nippon Shokubai, ...

Food Products Heinz, Procter & Gamble,

Tropicana, ...

Logistics Caterpillar Logistics, Deutsche

Post, NYK, ...

Source: Flanders Investment and Trade Office

17

Key Strengths Low Unemployment Rate

Source: Statistics Belgium EAK, Eurostat, Labour Force Survey

10.7

4.4 4.0 3.9

5.2

13.5

12.0 12.2

17.5

10.8 9.9

0

5

10

15

20

25

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

(%)

Flemish Region Walloon Region Brussels Capitol Region EU-15

18

Key Strengths R&D budget evolution (in million euro)

Source: Department of Economy, Science and Innovation

0

500

1000

1500

2000

2500

Research and Development (R&D) Education and Training (E&T) Scientific and Technological Services (STS)

19



III. Key Strengths




20

Public Finances – Impact 6th State Reform Impacts in a Nutshell

• October 2011: Sixth state reform is transferring more competences towards the Communities and Regions (effective as from July 2014)

• New area of competences for the Flemish Community such as Labour market, health care,

family allowances, justice, mobilty… • Impact for Flanders:

• Possibility to define own rules and replace Federal regulation • More homogenous competences more efficient policy • Increase in financial means Transfer of competences = transfer of revenues (in

2015, approx. 9.7bn EUR) • Competence to levy surtax on Personal income tax financial autonomy raised to

34% (previously 20%)

• The sub-regions contribute to the recovery of public finances at general government level. For Flanders this contribution until 2016 amounts to over 1.5 billion euro (759 million euro in the 2015 budget and 1547 million euro from 2016 onwards).

21

Public Finances – Impact 6th State Reform Revenues by Segment

Large increase in revenues in 2015 due to the 6th State Reform; Increase in revenues mainly coming from additional personal income tax charge

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

2014 ACT 2015 ACT 2016 BA

Institutions within scope of consolidation Lottery funds Own non-tax non-allocated income Own non-tax allocated income

Regional taxes Specific allocations SFA Regional and Community resources SFA Gross additional personal income tax charge

22

Public Finances – Impact 6th State Reform

Increase in tax autonomy due to the 6th State reform. In 2016 Flanders is collecting a larger part of its resources (nearly 34%) via own fiscal instruments: regional taxes (15%), and the additional personal income tax charge, the so-called 'surcharges' (19%);

Revenues by Segment

0%

70%

20%

4% 6%

2014 ACTUALS

Surcharges

Combined and shared taxes

Regional taxes

Rest

Institutions within scope ofconsolidation

19%

58%

16%

2% 5%

2016 Budget review

Surcharges

Combined and shared taxes

Regional taxes

Rest

Institutions within scope ofconsolidation

23

Public Finances – Impact 6th State Reform Breakdown of Public Spending

Also in the expenditures we see a large increase, as a result of the Sixth State Reform, in the budget adjustment 2016 (2016 BA) compared to the realizations 2014 (ACT).

The largest increases are situated in Welfare, Public Health and Family and in Employment and Social Economy.

0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000

Culture, Youth, Sport and Media

Economy, Science and Innovation

Other

Finance and Budget

Mobility and Public Works

Chancellery and Administration

Employment and Social Economy

Welfare, Public Health and Family

Education and Training

2016 BA 2014 ACTIn keuro

24

Public Finances – Impact 6th State Reform

The Sixth State Reform not only increased significantly in absolute terms the expenditures of the Flemish Community, but also changed the proportion of the different policy areas in the expenditure budget.

Breakdown of Public Spending

28%

27% 9%

8%

8%

7%

4% 3% 3% 3%

Breakdown of the expenditures 2016 BA Education and training

Welfare, public health and family

Work, professional training and social economy

Chancellory and general government (incl.transfers to local authorities)

Mobility and public works

Finance and budget

Economic development, science and innovation

Culture, sport, youth, media

Environment, nature, energy

other

25

Public Finances – Impact 6th State Reform Realisations

Budgetary targets and results (in mio euro)

26

Public Finances – Impact 6th State Reform Forecasts Budgets

• In 2016, the deficit for Flanders reached EUR 370 million

• Flemish government fully focused on a sound budgetary policy for the coming years

• Additional budget for investment in infrastructure (Oosterweel)

• 2017: political discussions ongoing

27



III. Key Strengths




28

Consolidated Debt Overview of the Strategy

• Diversified financing strategy: Combination of banking and non-banking financing tools; • Large and diversified access to short term liquidity: Belgian Commercial Paper programme combined

with a short term credit line of EUR 3.25bn; • Conservative Risk management:

• Conservative interest rate risk management : indexation linked to fixed rates or simple floating rates in the Euro zone (Euribor…); distribution fixed rate / floating rate adjusted depending on the long term economic trends; 82% of the outstanding debt at fixed rate as of 31/12/2015

• Complete hedging of currency risk: no currency risk incurred by the Flemish Community; • Systematic hedging at the issuance via swaps in EUR; • Conservative approach on derivatives: No structured products;

• Issuance of bonds as main medium and long term financing tool: Flanders is a recognized issuer in the

capital markets. Purpose is to build a reference benchmark curve;

• Diversification of the investor base;

29

Consolidated Debt Consolidated Debt position

The last years the National Accounts Institute (NAI) reclassified a large number of public entities as a consequence of the new rules of ESA2010. The incorporation of the social housing companies (VMSW and VWF) in 2014 was the most important factor in the increase of the consolidated debt. The most of these debts were previously reported as guaranteed debt.

in mio EUR 2014 2015

Direct debt 4.614,14 4.106,94

VMSW (social housing) 5.968,84 6.313,15

VWF (social housing) 3.041,30 3.005,41

EKM's (social housing) 729,55 596,90

VIPA (infrastructure hospitals and rest homes) 2.130,45 1.846,55

PPP debt 711,33 1.097,76

Rest 1.717,79 1.914,48

TOTAL 18.813,40 18.881,20

30

Consolidated Debt Direct Debt position

By the end of 2015 almost 78% of direct debt was financed with the EMTN programme.

At the end of 2015 there were also a positive current account and short term investments outstanding for 1.5 billion euro.

in Mio EUR 31/12/2012 31/12/2013 31/12/2014 31/12/2015

EMTN 4.670,00 3.620,00 2.370,00 3.201,50

Private loans 115,00 115,00 115,00

Bank loans 223,45 220,83 218,21 150,44

BCP 363,41 755,00

Current account 1.049,30 428,28 1.910,92

TOTAL 6.421,16 4.384,11 4.614,14 4.106,94 77.95%

3.66%

18.38%

Direct debt instruments 2015

EMTN

Private loans

Bank loans

BCP

Current account

82% Fixed 18% Floating

Average duration (end 2015): 4 years and 8 months

31

Consolidated Debt Bond Financings

In 2015, the Flemish Community tapped the Capital Markets for the first time since 2012

Change in way of financing due to consolidation

Mainly for financing of Social housing and VIPA (infrastructure of hospitals and rest homes)

Private placements on EMTN program (new issues and taps)

Maturities between 7 years and 30 years

Issuer ISSUE DATE MATURITY DATE MATURITY AMOUNT (in EUR) COUPON (%)

1 FLEMISH COMMUNITY 10/03/2010 10/03/2020 10 30,000,000 3.650








32

Consolidated Debt Financing needs 2016 - 2018

Benchmark issues under EMTN: 750 mio – 1,250 mio 7 y – 15 y (or longer)

Private placements EMTN or Schuldschein 5 y – 30 y

Commercial Paper Current account

Repayment of KBC at the end of 2015

in Mio EUR 2016 2017 2018

VMSW 1,047.07 1,340.00 1,076.14

VWF 270.00 350.00 300.00

VIPA 36.20 135.44

PPP Schools 663.97 432.71 130.37

BAM 681.90

TOTAL 2,017.23 2,258.15 2,188.41

Debt redemptions 1,302.43 2.65 752.65

33

Debt Redemption Schedule

Consolidated Debt

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

EMTN Private loans Bank loans

In t

ho

usa

nd

eu

ro

34

Consolidated Debt Financial instruments

EMTN (updated 5th September 2016)

Flanders has a EUR10 bn EMTN programme, with public issues and/or a series of private

placements

Currently only fixed interest issues

Programme allows flexibility on rates, currencies, redemptions, etc…

Currently outstanding: EUR 3,201.5 mln

Arranger: ING

Dealers: ING, BNP Paribas Fortis, KBC, Belfius, HSBC, Société Générale, LBBW

ECB-eligible

PSPP eligible

Commercial Paper

Flanders has a EUR 1.5 bn BCP-programme

Arranger: KBC

Dealers: KBC, Belfius

Currently outstanding: EUR1,138 mln

STEP-compliant

Cashier : ING creditline of EUR 3.25 bn

35



III. Key Strengths




36

Flanders in a nutshell Credit rating

Long term credit rating • Moody’s: Aa2 stable (Belgium: Aa3 stable) Short term credit rating • Moody’s: P-1

ISSUER MOODY'S FITCH STANDARD & POORS

FLEMISH COMMUNITY Aa2 Stable

BELGIUM FEDERAL STATE Aa3 Stable AA Neg AA Stable

FRENCH COMMUNITY OF BELGIUM Aa3 Stable

WALLOON REGION A1 Neg

BRUSSELS CAPITAL REGION AA Stable

37

Flanders in a nutshell Key Points and Major Strengths

A wealthy, diversified and strong economy, with one of highest European GDP per capita combined with low and stable unemployment rate. Flanders is considered as Belgian economic engine;

Strong track record of Budgetary discipline and continued commitment to fiscal consolidation;

Strong credit rating of Aa2 Stable by Moody’s; above the rating of the Belgian federal state;

Very strong & prudent Financial management with greater use of direct debt and sufficient liquidity;

Light debt burden relative to revenues and increased fiscal power through Sixth state Reform (increased fiscal basis);

Moderate direct debt levels

38

Appendix –

Flemish export sector with regard to UK: overview

(source: G Gielens – Belfius Chief Economist)

38

39

Export market for Flanders: trade in goods

Source: NBB, national concept

Total value in Bn euro exports 2015 imports 2015

World 186,11 197,08

UK 15,08 11,83

Share of trade with UK

8,1% 6,0%

The “national” concept as calculated by the NBB has been used. The more frequently used concept used by the Eurostat and the international institutions, but also Vlastat and FIT, contains also flows in which Belgian corporations are not involved.

For a small country with many ports this leads to an important overstatement of the actual trade flows. Therefore we report on the national concept to focus on the flows where Belgian corporations have been involved. This permits better to assess impacts on value added and employment.

40

Export market for Flanders: trade in goods

Export Products ranked by value

product value share cumulative share

Vehicles, aircraft, vessels and associated transport equipment 3,46 23,0% 23,0%

Products of the chemical or allied industries 1,54 10,2% 33,2%

Machinery and mechanical appliances; electrical equipment; parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles 1,39 9,2% 42,4%

Plastics and articles thereof; rubber and articles thereof 1,37 9,1% 51,5%

Mineral products 1,29 8,6% 60,0%

Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes 1,27 8,4% 68,5%

Base metals and articles of base metal 1,01 6,7% 75,1%

41

Value added in exports: goods

Source: OECD, Belfius

1% 0%

29%

3%

2% 59%

6%

value added split acc. sector: Belgium

Agriculture, hunting, forestry andfishing

Mining and quarrying

Total Manufactures

Electricity, gas and water supply

Construction

Total Business Sector Services

value added in Flemish exports of goods 2011

value added embedded in final UK demand

2,265 bn euro

share in Flemish GDP 1,04%

42

Appendix –

Regional Statistics

42

43

Regional forecasts (Federal planbureau – june 2016)

Growth rate Average

2014 2015 2016 2017 2018-2021 2001-2007 2008-2014 2015-2021

Belgium 1,3 1,4 1,2 1,5 1,5 2,1 0,6 1,5

Brussels region 1,0 0,9 0,8 1,4 1,4 1,8 0,1 1,2

Flemish region 1,5 1,6 1,4 1,7 1,6 2,3 0,9 1,6

Walloon region 1,3 1,1 1,1 1,3 1,4 2,0 0,5 1,3

Sectoral evolution Average yearly growth

1996 2006 2014 2021 1996-2007 2008-2014 2015-2021

1. Agriculture 1,8 1,3 0,9 0,5 2,8 -1,5 1,2

2. Energy 4,1 2,9 2,9 2,6 1,5 5,5 1,1

3. Manufacturing 24,8 20,0 16,5 15,6 2,8 -0,3 1,2

4. Construction 5,8 6,0 6,5 6,1 3,2 1,6 1,7

5. Services 51,9 58,4 61,2 63,6 2,8 1,2 1,9

6. None market services 11,7 11,4 12,0 11,5 0,8 0,3 0,4

7. Total 100,0 100,0 100,0 100,0 2,6 1,0 1,6

Employment rate Average

2014 2015 2016 2017 2018-2021 2001-2007 2008-2014 2015-2021

Belgium 67,3 67,2 67,5 67,7 70,0 65,9 67,4 68,3

Brussels region 58,7 58,7 58,9 58,7 59,8 58,6 58,7 58,9

Flemish region 71,9 71,9 72,3 72,6 75,3 69,8 71,9 73,3

Walloon region 61,8 61,5 61,8 62,0 64,0 61,1 62,2 62,5

44

An increase in the level of education

31.7

21.1

51.1

54.6

17.2

24.3

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

30-34-year-olds in 2002

30-34-year-olds in 2012

Graduating age <20 years old Graduating age 20-24 years old Graduating age >24 years old

45

Evolution of employment rate

80.5

75.6

40.3

68.2 60.5

71.9

52.8

65.0

30

40

50

60

70

80

90

(%)

Men Women Total EU-15 - Women

46

Evolution of employment rate (25 – 65 y) according to education level

49.8

51.0

76.4 76.6

86.8 87.1

64.7

0

45

50

55

60

65

70

75

80

85

90

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

(%)

Lower Secondary Education Upper Secondary Education Tertiary Education Total

47

Evolution of employment rate by age category (Flanders – Sweden – EU 15)

55.4

84.6

77.0

34.5

11.2

47.7

82.1

86.4

64.9

23.4

0

10

20

30

40

50

60

70

80

90

1002

0-2

4

25

-29

30

-34

35

-39

40

-44

45

-49

50

-54

55

-59

60

-64

20

-24

25

-29

30

-34

35

-39

40

-44

45

-49

50

-54

55

-59

60

-64

1995 2013

(%)

Flemish Region EU-15 Sweden

48

Contacts

Koen Algoed

Secretary – general

Flemish Community, Department of Finance and Budget

+32 493 31 63 02

[email protected]

Hugues Mommens

Senior advisor, head of financial operations


+32 493 51 22 29

[email protected]

Luc Keereman

Senior advisor


+32 493 31 63 07

[email protected]

Kristien Hantson

Advisor


+32 493 31 63 08

[email protected]

For more information please also consult:

http://www.financeflanders.be

49

Disclaimer

This presentation has been prepared by Flanders for informational purposes only. Although the information in this presentation has been obtained from sources which Flanders believes to be reliable, we do not represent or warrant its accuracy, and such information may be incomplete or condensed. This presentation report is not intended to provide the sole basis for any evaluation of the transactions discussed herein. All estimates and opinions included in this presentation constitute our judgment as of the date of the presentation and may be subject to change without notice. Changes to assumptions may have a material impact on any recommendations made herein. Flanders will not accept any liability whatsoever for any loss howsoever arising, directly or indirectly, from the use of this presentation or the information provided for in this presentation or otherwise arising in connection with this presentation. This presentation is confidential and is provided to you for information purposes only and does not constitute a public offering or an investment service in Belgium. This presentation is being submitted to selected recipients only and neither this presentation nor any other offering materials may be distributed, published or made available to the public in Belgium. This presentation may not be reproduced or passed on (in whole or in part) to any other person than the selected recipients. Neither this presentation nor any offering materials may be used in relation to any investment service in Belgium unless all conditions of directive 2004/39/EC, as implemented in Belgium, are satisfied. Neither this document nor any offering materials can be used to publicly solicit, provide advice or information to, or otherwise provoke requests from, the public in Belgium in relation to the offering. Any offering in Belgium is made exclusively on a private basis in accordance with article 3 of the Belgian law of 16 June 2006 on the public offering of investment instruments and the admission of investment instruments to the trading on a regulated market. © September 2016 Flanders. All rights reserved.

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Investor Presentation September 2016 - Finance Flanders · Investor Presentation September 2016 . 2 Flanders in a Nutshell Key Investment Highlights ... Extensive inland waterway