With mature penetration rates and little by way of technological innovation, building business in the European print finance market can be a hard task for lessors. Peter Johnstone looks at the opportunities for growth, and how lessors are meeting the challenges.
While there is no dedicated print finance data available for the European leasing market as a whole, Audrey Joulia, office equipment market correspondent for BNP Paribas Leasing Solutions, told Leasing Life that the bank owned lessor observed a market decrease in 2012.
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This is supported by David Bunker, business development director at Close Brothers Asset Finance, who says the printing industry reflects a lack of confidence in other areas of the economy. "Until," he says, "there is an increase in firms’ expectations over the general economic outlook then the prospect for a wide-scale increase in investment activity in the print market is likely to be low."
He points out, however, that a number of firms have missed their natural investment cycles, and will now be looking to invest in new technology and replace equipment which is "older than they would have liked", a factor which may provide business opportunities within the sector.
Joulia also says the economic slowdown has affected the printer finance market, but instead of precipitating a downturn it has led to new approaches among manufacturers.
With customers wanting to reduce expenses and gain more control, there has been "an increase in requests for managed print services contracts", leading manufacturers to "adapt their sales cycle and their offering."
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By GlobalDataShe lists several trends in printer finance for 2013, although she notes that, with a mature market in Western Europe, none of them are new. With the migration from black and white to colour printing "well advanced", Joulia says, colour represents 56% of the multifunction printer market, compared to 14% in 2005, and the sector is "not expecting, short term, a further technological revolution".
There are also fewer operators in a field where printing finance and the office equipment market are converging and assets are more connected, allowing the automatic collection of meter readings.
Furthermore, Joulia states, "standardisation of the assets" is leading to "fierce competition and a reduction on the price of the hardware, compensated by increased inclusion of services like maintenance, workflow management, cloud computing" and software.
This means that service provision rather than hardware is becoming more important for driving profit margins.
Bunker says between 2007 and 2011, the commercial print market in Europe declined by 5%, while in the Americas business fell by 3.7% over the same period, and adds the market in the UK "faces continuing challenges" with weak pricing forcing firms to become more adaptable in order to "generate positive results".
As well as the general economic slowdown, he attributes the industry’s reduction to the advance of new media and "the fact that the equipment has become much more efficient", factors which have combined to create "a survival-of-the-fittest scenario."
It is not all negative, however. Bunker, citing market research, predicts the global print market will grow from 2013 to 2016 and adds Close Brothers’ sales department has been recruiting since 2012 due to "growing relationships with partners in the industry and general strong activity", as well as "a strong model and sound underwriting."
In fact, he says, "business in the UK has seen a wide variety of activity in both traditional commercial litho markets, industrial web offset markets and an increasing level of interest in the digital market".
Looking forward to the coming year, Bunker says obtaining working capital will be an issue, with high street banks "keen to control their liquidity". Combined with printing firms need to "invest to keep up with shorter make-ready times, the demand for digitally produced products along with the demand for variable data printing", their ability to fund new technology will "certainly be a challenge in 2013."
Digital drive
Both BNP and Close have clear plans for the coming year. Capitalising on the scarcity of high street lending and the rising demand for digital technology is an important step for Bunker.
He says: "This area of digital funding has been of growing importance to us and that’s why we’re working with some of the manufacturers to find a solution that will support this much needed investment.
"Establishing what value can be attributed to the digital machines has always been a difficulty, from a traditional asset-based underwriting view.
"I suspect though that over time the second hand dealers and their network will play a greater role in buying and selling secondhand digital machinery and manufacturers will focus on this area as being a route to further receivables in consumables and other income."
While focusing on new investments, Bunker adds, the company will maintain its business mix by continuing "to support SMEs in improving their liquidity."
The main focus for BNP Paribas revolves around the increased importance of service provision over pure hardware financing. Joulia says the company wants to lead the field in terms of "service and innovation", and this means they will be developing more integrated packages to offer consumers.
She says: "beyond developing bundles of financing products with service for technological devices with flexible usage invoicing, BNP Paribas Leasing Solutions also provide a total cost of ownership approach with assets being composed of hardware – or copies of software only – or both, combined with soft costs on top; for example, shipping, installation and training."
Overall, she concludes, the market is expected to be stable at best, but one area that is expected to grow in Western Europe,is contracts for managed print services – integrated services that can include anything from maintenance to software provision, as well as device management and optimisation.
The French lessor’s customer base covers three key segments, large corporates, SMEs and the public sector, each with their own agendas and challenges.
Richard Gendreau, head of partnerships at BNP Paribas’ international leasing arm, says that while large corporates have been maintaining their purchases of printing goods "in order to update the devices at their disposal while keeping the costs under control", large projects, especially those with midterm return on investment, have been postponed in a number of cases.
The SME segment has different challenges, he adds, "facing more and more payment defaults and legal insolvencies", most notably in Southern Europe, while in the public sphere "pressure on spending and payment behaviour" has been an issue in some markets.
Gendreau says he expects a rise in the cost of risk in 2013 as a result.
Growth ambitions
BNP Paribas and Close Brothers vary widely in their active markets and business models, but both have been taking advantage of a shrinking pool of competitors in the printing finance market.
Bunker says Close Brothers is "occupying its own unique competing space" as well as the space left by the retreat of the other banks and finance companies, although the main focus is "on treating customers fairly and responsible lending."
The company, traditionally active in the UK print industry, is now active in Ireland as well, and Bunker says it would be "sensible" to leverage "industry relationships" which span across Europe when the opportunity presents itself, "especially as the appetite for funding the printing industry has fallen with other main stream finance houses."
He adds: "I think there are a number of European countries that offer Close a good opportunity. The benefit of printing machinery is that it’s a universal currency as machines sold around the world are generally generic apart from language changes.
"As with the UK, it’s about having local knowledge on the ground so that would have to be a primary focus in any possible new market if this becomes a strategic focus."
Joulia says BNP Paribas, which estimates its share of the European office equipment market at around 20%, with 10% of its leasing portfolio accounted for by printing, strengthened its presence in the printing market in 2012 by increasing new business volumes while the overall market detracted.
Gendreau outlines several key strategy points for achieving growth. Added value is key, with strong service delivery and improving client satisfaction through marketing initiatives such as incentives, product promotions and training.
Other important factors include balancing the model between manufacturers and resellers, innovating new products and the proactive management of the company portfolio.
Gendreau said that while the company already has "a leading office equipment market position" in France, the UK, Italy, Belgium, Netherlands and Portugal, it also has ambitions in Germany, Spain and Turkey – the latter especially due to recent regulation which permitted the use operating leases for the first time.
Overall, he says, satisfaction is high across the company’s client base, and most have indicated their interest in increasing the number of deals in 2013.
While print finance is suffering from volume decline, some companies are benefiting from a contracting marketplace.
Although there is no great technological leap-forward apparent in the future of this mature market, the increase in digital printing could provide new opportunities. As the economic outlook begins to look rosier, those firms with a toehold in the market could capitalise on their competitors lack of interest.
