Claire Hack discovers
that while woodworking assets may be unspectacular, they are
stable.
Go deeper with GlobalData
Woodworking machinery
represents a solid investment for funders, with steady demand even
during the economic crisis. Residual values are relatively stable
and levels of bad debt have not been especially high.
So why is this not a more
prominent asset class? One reason, among others, is that end users
do not need to update their equipment as frequently. Penetration
rates remain fairly low as demand, though steady, is small, and
funders do not receive high volumes of enquiries.
Indeed, in some cases, it may
not be necessary to refresh for several decades, as, on an
industrial scale at least, the technology does not change rapidly
and many assets within the class are designed with exceptionally
long life spans.
Iain Crockatt, director of
Hemel Hempstead-based AH Corporate Finance, says: “Each case is
considered on its merits but the asset has a considerable impact on
the underwriters as the profitability in this sector is
low.
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By GlobalData“Given that we are a new
business-driven company, the main problem with this sector is
getting the customers to think in terms of acquiring new
equipment.”
The problem is compounded by
the fact that, in the UK especially, end users such as furniture
makers are competing with manufacturers in countries where
technology may be more advanced and therefore may not be looking to
reinvest in machinery.
Funders are therefore in the
position of having to wait for potential clients to choose to
expand operations or replace machinery, meaning deals may be made
on a purely ad hoc basis, rather than forming a major part of the
lessor’s business.
Several companies write
business in the sector in the UK, offering both leasing and hire
purchase options, a significant number of these being smaller,
independent and local companies.
Woodworking is common among
hobbyists and small-scale or artisan producers, meaning the
majority of workshops are small, local operations.
European
view
Across Europe, few of the
larger funders are involved, because the majority of the bigger end
users, such as furniture producers, are based outside the
continent.
European companies involved
in the broader machine tools segment, like Italian bank-owned
lessor UniCredit Leasing, may offer some solutions for woodworking
assets.
In Russia, where forestry is
a significant contributor to the economy, Siemens Financial
Services has established a leasing operation.
And agricultural equipment
manufacturer Deere & Co also recently launched a Russian
leasing unit, as well as doubling its manufacturing space there.
The move was part of a bid to expand its product line in the
country, including the addition of log forwarders, which load and
haul logs.
UK
market
In the UK, deals for
woodworking assets range from £50,000 (€60,000) to £2m, and can be
up to five-year contracts.
Those who do write business
in the sector regard it as safe, if not remarkably lucrative, and
are happy to fund assets where opportunities arise.
Barry Hutchings, sales and
marketing director at State Securities, a supplier of sub-prime
finance, says: “They continue to value pretty well and it is one of
our top 10 asset categories.
“They are quite durable and
they are not short-term rollover purchases. Their features are
identifiable and there’s a ready resale market for used
equipment.”
Other issues exist, however,
which may cause some funders to remain hesitant about entering the
segment.
“The main thing that people
aren’t aware of when they are looking to finance these assets is
that we have to consider landlord’s waivers,” says Nik Cooper,
Nationwide Business Finance managing director.
“If a client is renting a
factory, sometimes landlords will look at the machines as part of
the fixtures and fittings even if they haven’t supplied
them.
“If the worst happens and a
finance company has to repossess them, a landlord could try to
block them. You have to get a waiver to prevent that.”
The reputation of the
machinery supplier is also an important factor in terms of
preventing fraud.
“We check to make sure
they’re legitimate and to make sure what they’re selling is
correct,” Cooper continues.
“We also check that the asset
they are selling isn’t already on contract elsewhere,” .
There is also a market for
supplying finance to end users in credit-challenged
situations.
Hutchings concludes:
“Woodworking and forestry have been quite strong over the
years.
“We are comfortable lending
in this class. We lent more in 2010 than in 2009 and we anticipate
further growth in 2011.
“Demand has stayed reasonably buoyant and
strong.”
