In the first of a series of Leasing Life reports on French bank-owned lessors, Paul Golden speaks to the head of the UK arm of Societe General Equipment Finance about his future plans – and how he managed to grow volumes during the recession.
While he does his best to see the upside of the international recession, it is clear that
Giles Turner is not about to airbrush from history some of the factors that damaged the leasing market, especially when he refers to the potential re-emergence of bad habits.
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“The UK leasing market is still in a delicate state and I am concerned about the progress of the recovery because some poor practices may re-emerge in the market, such as
under-pricing or making terms skinnier than they should be,” says the managing director of SG Equipment Finance UK.
“Of course customers want more flexible terms and better prices, but I hope the industry has learned some lessons from its recent experiences.”
He acknowledges that delinquency has been a greater concern over the last 18-24 months, but does not believe that all the developments over this period have necessarily been damaging to the leasing industry.
“The market has been tough, but the upside of this turmoil is that it has removed some of the over-aggressive lending that caused problems and reduced the overall quality of the market,” he says.
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By GlobalData“There is more clarity in terms of pricing, although there are still some inexplicable pricing decisions from people who I suspect don’t really understand the business.”
For the year ending 31 December 2008, the most recent period for which the company’s UK accounts are available, SG Equipment Finance UK recorded a profit after tax of just over £1m (€1.15m) on turnover of £114m.
Returns on the total portfolio increased from 6.94% in 2007 to 7.3%.
Turner says the company has done better in the UK during a period of extreme volatility, with volumes increasing by 30% over the last year, than in markets where it has a larger presence, such as France and Germany.
He says: “This is partly because we are a smaller player in our market and can therefore move more quickly to take advantage of opportunities.
“The UK market from the beginning of the last decade up to 2008 was a very crowded space, and while there was a lot of money around in terms of lending, some of it we did not see as particularly good business so our growth was steady rather than
spectacular.”
Specialisation has been at the forefront of his business model over recent years.
“We are strong in the agricultural sector in the UK, which is not true in all our other geographies,” Turner remarks.
“We do not have a general banking network in the UK, unlike in France or the Czech Republic in particular, but we feel we have struck a good balance between the imperatives of SG Equipment Finance’s international direction and adapting that to
individual country markets.”
Subtle differences
There are some subtle differences in the way the company interacts with its customer base in the UK compared to other countries.
Its route to market is more selective and while it visits customers directly, this type of interaction takes place to a lesser extent than would be the case in Germany, for
example.
But despite this lower level of direct interaction, Turner says improving the level and quality of customer service is essential to the future success of SG Equipment
Finance in the UK and that the company has increased its commitment to employee training.
SG Equipment Finance has always been well-positioned in the international high-technology vendor market, especially in the mid-ticket area.
The company has targeted expansion in small-ticket business in this sector and has recently entered the corporate aviation market in the UK.
Turner said the company was looking at some new streams, although he was unwilling to be more specific about the actual sectors these potential opportunities may lie in.
One sector that SG Equipment Finance will not be exploiting is Microsoft’s large enterprise business in the UK.
Despite clinching a deal in mid-March to provide financing to the software giant’s enterprise and partner group clients in France, Germany, Italy and Switzerland, SGEF in
the UK was unsuccessful in its bid for this segment of the IT market.
There has been better news from the public sector, with the company securing a £220,000 multiple financial leasing services contract award from Bath and North East Somerset Council earlier this year.
Strong in public sector space
Turner is unsure of the impact local authority budget cutbacks might have on this part of the business, pointing out that the company has been strong in this space since the days of Hambros in the mid-1990s, and suggesting that local authorities may actually look to increase their leasing activity if budgets are squeezed.
He also admits the jury is out on whether SG Equipment Finance will be impacted by NHS Supply Chain taking responsibility for NHS leasing.
“We expect to grow our business this year, but the rate of growth will depend on a number of factors,” Turner says.
The company is currently one of 11 NHS leasing framework agreement lessors (see SG Equipment Finance tops UK public sector lease table).
