CAF’s print arms on hunt for
acquisitions following £6 million profit posting, reports Fred
Crawley.
Go deeper with GlobalData
As he prepares to move on from the leadership of Close
Asset Finance after 11 years, CEO Mike Barley has left his parent
bank a formidable parting gift, by way of his division’s
contribution to a better-than-expected interim result.
Merchant bank Close Brothers Group (CBG)
reported a pre-tax profit of £62.3m (€69m) for the six months
leading to 31 January 2010, 50% greater than last year’s interim
profit figure of £41.5m.
The interim results, which prompted an
immediate 8% rise in CBG’s share value, were driven largely by the
performance of the banking division’s specialist lending element,
of which asset finance and invoice discounting are a major
part.
According to Barley, business volumes at CAF
increased between 30% and 35% over the year. When set against the
backdrop of FLA statistics showing national leasing business down
in the region of 30% year-on-year, this means a market share
increase for CAF of around 75% to 80%.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataHelping CAF in this regard was a rapid
expansion of its sales force, and a continued reluctance from most
banking competitors to regain ground lost in the last two
years.
Within the wider commercial finance arena,
competition has been more intense – CBG’s invoice discounting
business, for example, could not make the same organic market share
push as asset finance, instead buying the £94m book of GMAC to
build up a base for growth.
This was due to the maintenance of a presence
in the sector by high street banks such as Lloyds Banking Group,
which holds 22% of the ID market through subsidiary Lloyds TSB
Commercial Finance.
Nevertheless, Barley said, progress was not
effortless. A difficult half-year for business failures saw bad
debt increase, reaching 2.5% of the overall banking division
balance sheet compared to 2.1% in January this year. High margins
on new business, however, more than offset this to ensure
profitablility.
CAF’s overall portfolio increased by 10%, from
£712m at half-year 2009 to £781 in 2010. Within this total is the
£100m book of Close Leasing (CL), which has grown significantly and
is expected by director Neil Davies to put on another £120m to
£150m over the next 12 months.
Davies says that his business, founded in 2007,
is ahead of volume and profit targets for the year so far, but
still has a lower-than-hoped-for average deal term – a reflection
of conservative underwriting habits picked up during the
recession.
He and fellow director Paul Bartley are now
looking for several new staff in the sales and credit functions of
CL, with the latter being needed to cope with the “inundation” of
proposals encountered monthly, rather than to deal with bad debt
issues. Currently, CL’s trio of credit staff can underwrite deals
of up to £20m in value.
In its last set of financial reports, covering
the year to July 2009, CL reported a £635,000 profit, and a loan
book of £72m. Davies is confident that by end of year 2010, this
profit figure will be surpassed.
Another relatively new Close subsidiary, Close Commercial
Vehicle Solutions, had a profitable half year. The heavy vehicle
rental business is “intent on growing quickly”, Barley said.
CAF’s various trading styles brought in success
too, most notably through solid profits at Close Print Finance and
Surrey Asset Finance (SAF), two businesses aimed at the print
sector.
SAF head Basil Bannayi says that the business
is having a “very exciting time”, and is on target for a similar
performance to 2009, when the business posted a £6m trading
profit.
Bannayi says SAF is lending in excess of £7m
each month, a figure up around 20% year-on-year, and this new
business is of significantly better quality than that written in
2009.
SAF and CPF are both looking to make portfolio
acquisitions in the months ahead, and are considering options for
the establishment of a business along the lines of the SAF/CPF
model in Germany.
CBG’s results in the UK have demonstrating the
efficacy of aggressively pursuing market share into territory
vacated by overstretched banks. With the world of German asset
finance experiencing a similar top-down funding vacuum to the UK,
the potential for Close-style tactics to succeed there seems higher
than ever.
