GE Capital
Commercial Distribution Finance (CDF) entered the European
agricultural equipment finance market two years ago and is on track
for 50% growth through 2012. Grant Collinson spoke
to Bruno Braure, head of Agriculture and Industrial about what’s
affecting leasing in the sector
Having signed some
lucrative deals with some of Europe’s biggest agriculture equipment
manufacturers over the past two years – including Kverneland,
Berthoud, Grimme and Vaderstad, it is clear GE Capital CDF, the
floor plan finance arm of industrial conglomerate General Electric,
intends to plough a deep furrow in the field of agricultural
finance.
Go deeper with GlobalData
Grant Collinson: How is the agricultural equipment sector
at the moment and what factors are affecting
it?
BB:
Rising food prices, particularly for cereals, have given a boost to
certain segments of the agricultural equipment market, leading to
increased demand from end-users looking to invest in
production.
Rising global
consumption is a factor, coupled with predictions about poor
harvests in some parts of the world this year. With 4% falls in
global wheat production expected by the International Grain
Council, there are likely to be even greater incentives for farmers
to invest for the future.
After declines
during recession, European markets such as France have seen a
strong recovery in the past 18 months, with a 2011 total market
valuation of €4.5bn in France.
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By GlobalDataFrench exports of
agricultural equipment were up 20% during 2011, while exports of
new tractors, one of the best barometers for cereal production,
increased by 38.4%
GC: Which
geographical areas in Europe are performing best in this sector and
which are lagging behind? Why?
BB:
In general, the performance of individual markets closely reflects
national economic performance. In 2011, France, the Netherlands and
Germany showed over 20% growth, followed by the UK, Ireland and the
Scandinavian countries with moderate growth, while Greece, Italy,
Spain and Portugal experienced market deterioration.
GC: What
are the advantages and disadvantages of GE Capital’s distribution
finance business model in this sector?
BB:
Our Commercial Distribution Finance (CDF) team’s approach is to
create a true partnership for growth between the manufacturer,
dealer and GE Capital. The aim is to align CDF’s capabilities to
the manufacturer and dealer requirements. This requires having a
deep understanding of the business strategy before formalising a
partnership. Time spent at this stage is critical.
We are uniquely
positioned in that GE has a strong industrial and manufacturing
heritage, which is a strong differentiator when it comes to
ensuring that the finance company understands the challenges of
production and distribution across a pan-European
business.
In terms of our
model, simply put, CDF advances 100% of the invoice value against a
finished piece of agricultural inventory, which is then distributed
across Western Europe.
While the
manufacturer continues to focus on its core capabilities of
manufacturing, distribution and marketing, CDF manages the
portfolio performance, ensuring there is sufficient credit capacity
to cater for the seasonal needs and production flows. In parallel,
there is a constant flow of information both in electronic format
(via CDF’s proprietary on line system – ‘COMS’) and qualitatively
to show the trending in collateral ageing, sell-out, financial
performance etc. to ensure product can get to the right place at
the right time.
Ultimately, the
objective is to ensure that all inventories are sold within the
total financing period, a portion of which is always subsidised by
the manufacturer. Therefore it is important that manufacturer and
finance company are communicating regularly.
Holding more than
20 years of data helps predictability but averages are rarely
remembered so we try to ensure there are no exceptions. As a
result, despite the challenging economic environment, CDF is
performing well, with 50% planned growth for 2012 on
target.
GC: How
much finance business is GE Capital doing in
agriculture?
BB:
In terms of distribution finance, GE Capital is well positioned in
all of the largest agricultural markets such as France, Germany,
Italy and the UK. Having entered the agricultural sector in 2010
CDF has grown a particularly strong wholesale footprint in the UK,
Benelux and the Nordics, with many market-leading customers using
our services. We are well positioned for growth across
Europe.
GC: What
are your expectations for agriculture distribution Finance in
Europe over the next 12 months and why?
BB:
The CDF business has performed above expectations so far this year,
and there is a confidence that plans for controlled growth will
continue, particularly given the strong presence in key markets and
the sector expertise across Europe.”
grant.collinson@vrlfinancialnews.com
