Metal working assets are
worth funding if you know how, writes Claire
Hack.
Go deeper with GlobalData
Metal working
assets can be difficult to fund. Mostly large machine tools such as
such as drills, laser cutters and CNC machines, they are often
immobile and have residuals that can be hard to determine and to
realise.
However for those with
specialist knowledge, the sector offers high-ticket deals with
potentially good returns.
“In general, machinery
leasing starts with an acquisition value of about €10,000 and can
go up to €40m or 50m. The average acquisition value is €200,000,”
says Deutsche Leasing CEO Kai Ostermann.
Deutsche Leasing has been
operating in the sector, its largest, for almost 50
years.
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By GlobalDataWhile the high ticket price
may be attractive, a lack of market knowledge can result in a
tendency to avoid these complex assets.
“Funders tend to lend against
things that have an established value,” says Jim McGovern, a
director of Asset Lifecycle Management (ALM), the UK asset
management consultancy.
“They don’t like machine
tools because they don’t understand them. That is one of the
biggest issues.
“A number of people in the
market have pulled away. With the bank-based leasing companies,
because they just don’t understand the asset, they go for the
softer option.”
McGovern continues: “The
problem is they mix up the value of the machine with the cost of
installation, so if somebody goes under, they are left with
tremendous installation costs that they have funded.”
Customer
appetite
The lack of leasing solutions
for these assets in Europe may also be explained by concerns over
the creditworthiness of customers, whose ability to pay was hit, in
some cases severely, during the crisis.
Manufacturer Trumpf, based in
Ditzingen, Germany, is one of the dominant funders in the sector.
In Germany, Switzerland and Spain, where it has a financing
subsidiary, market share is between 25 and 30%.
The company
experienced a sharp downturn in new business during the financial
crisis, as well as an impact on lease payments.
Hans-Joachim Dörr, head of
group sales financing, says: “Our customers’ incoming orders fell
by between 25 and 75%. There was therefore a great impact on their
ability to meet financial obligations.”
About a third of leasing
clients suffered a minor impact, another third were more seriously
affected, and the rest were severely hit.
Trumpf’s product lines are
about 10% standalone lasers and 90% machine tools. Customers
include Bosch, Volkswagen and Mercedes.
Collection and
resale
The challenge of collecting
and re-selling the assets is also a turn-off for some
funders.
John Evans, a joint director
of ALM, says: “Access may be restricted an d might require walls to
be demolished and reinstated, or doors and windows to be removed
and replaced. Lifting equipment might also be required, and
transportation and storage costs can be high.”
Customised machines are
particularly difficult to dispose of profitably.
“If the equipment is being
used to manufacture bespoke items, then parts of it will be
specially adapted for the specific process and will have value only
to a manufacturer of the bespoke item,” says Malcolm Ogle, EMEA
chairman of lease consultancy The Alta Group.
Fresh
appetite
However despite such
challenges, the market is emerging from recession with a fresh
appetite for asset finance.
Dörr says: “With leasing,
there are cancellation options – it is completely different to
long-term credit with local banks. There has been a permanent
change in the market.”
“As a consequence of the
economic downturn and the reaction of many banks, customers will
work on having diversified relationships with finance
institutions.
“It doesn’t make sense to
have a lot of machines and no flexibility. Strong competition with
local banks will bring more and more lease structures.”
“Vendor finance is also more
important now. People learned in the crisis that it is the best way
to split up financing,” Dörr adds.
For the year ahead, increased
penetration in Europe is expected.
“We are not able to cover all
markets alone,” Dörr says.
“We have to cooperate with
partners – we’ve learned in the last few years that understanding
of the market is really important. Our partners from Deutsche
Leasing and SGEF are bankers, and at Trumpf they are engineers. We
need something in between that. Our job is to bring both mindsets
together.”
Trumpf works in partnership
with SG Equipment Finance and Deutsche Leasing in Austria, China,
Czech Republic, France, Hungary, Italy, the Netherlands, Poland,
Slovakia, Sweden, the UK and US. Market share ranges from 20 to
45%, and deals average at €500,000.
Markets further afield are
also firmly in Trompf’s sights.
“Asia is now getting close
the size of America,” he says.
“We plan to expand our
business in China, Taiwan, Korea, Vietnam, and Singapore. We are
looking to introduce more and more of our own staff in important
markets as a kind of mediator between our cooperation partners and
our sales organisation, and perhaps to establish our own entities
in key markets.”
Dörr concludes: “We have been through very strong cost
reduction, but now we are in a good position and we see really big
growth for the group.”
