Despite Lombard’s partial withdrawal
from the print finance market as well as recent print insolvencies,
there are still opportunities for those willing to risk exposure.
Fred Crawley reports.
Go deeper with GlobalData
While the words “print sector” and “bonanza” are still
unlikely to be found within the same sentence in 2010, the big
uncertainty for print lessors is no longer how bad things will get
for their customers, but how long recovery will take.
Certainly, last year’s insolvency epidemic,
which began with trade journal printweek reporting the failure of
five companies with a combined turnover of over £50 million (€57
million) within the first week of January, seems to have
passed.
Needless to say, the year caused those with
print portfolios some collections pain, mitigated to some extent by
strong European demand for repossessed UK machinery, a result of
the pound’s continued weakness relative to its position in
2008.
In addition to this, a slowdown in the
production rates of major print manufacturers has seen asset
values, particularly for second hand machines, harden
considerably.
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By GlobalDataConsolidation
Industry-wide consolidation has also
provided sales opportunities for some lenders. Close Print Finance
(CPF), for example, has seen a rise in refinancing business as
customers have looked to release liquidity in the midst of business
restructuring.
It has also seen many printers change their
equipment requirements as a result of downsizing their operations.
Steve Price, managing director of brokerage Ilsley Finance,
reported a rising interest in direct image presses having sourced
funding for four in January alone. These allow better margins on
shorter print runs by cutting down on waste prints, thus reducing
overheads.
“A price correction would stop
the rot for many, and would go towards rebuilding the capital base
of UK Print plc”
In the view of CPF’s David Bunker, continued
consolidation will eventually reduce the print industry’s output to
the point where supply of printed material dips below demand,
putting an end to a recent history of chronic overcapacity and
allowing for more sensible pricing.
“Such a price correction would stop the rot
for many, and would go towards rebuilding the capital base of UK
Print plc,” Bunker said.
Indeed, the British Printing Industries
Federation’s Printing Outlook report for the fourth quarter of 2009
announced that two-thirds of respondents were operating at least 80
percent capacity, with half that number taking on new staff in the
period – an encouraging sign.
Where is the finance?
Yet, the same report identified lack of access
to finance as one of the greatest concerns for printing firms in
2010, at the same time as it revealed that more than one-third of
companies planned to invest in new equipment over the coming
year.
Ian Davies, head of print specialist broker
UCF, said that Lombard’s withdrawal from intermediary business has
had a particularly adverse effect on finance availability for
customers of print machinery dealers.
Formerly, Davies said, dealers could pass on a
package of customer finance applications to a broker, which could
then place them with funders depending on the profile of the
customer and the asset.
When Lombard operated a full broker desk, it
could take on a lot of the more “standard” deals – those that fell
in between the higher rates of non-prime funders and the pickier
appetites of risk-averse, low-interest lenders.
With the broker channel closed at the UK’s
largest lessor, however, these customers have often been left on
the search. As a result, lenders like CPF and State Securities have
picked up many customers with risk profiles far lower than their
business models are designed to price for.
Of the major bank-owned lessors, both HSBC
Equipment Finance and ING Lease remain active in the broker
market.
While HSBC has a fixed panel of eight print
introducers and tends to look for deals above £250,000 in value,
ING has a larger appetite, but tends generally to look for
opportunities below the £250,000 mark.
Bank-owned lessors without broker links will
most likely continue financing their own customers in the print
sector, albeit with much more in the way of securities taken out.
Director’s guarantees in particular are expected to become
increasingly common.
Meanwhile, Close Asset Finance (CAF) looks to
be making a serious push on the print sector through divisions CPF
and Surrey Asset Finance, and is on the acquisition trail for
portfolios exposed to the print sector.
Providing support
Bunker said: “Providing support for the
manufacturing sectors in the middle of downturns has always paid
dividends for the Close group.
“With news of other asset finance lenders in
our sector closing/reducing lending limits and staff restructuring,
our model of risk and reward is undoubtedly the right policy and
will continue for the future.”
Whereas other lenders such as State
Securities, Haydock Finance and European Corporate Finance have all
prospered with relatively high risk pricing in the current
environment, CAF’s nationwide direct sales network, as well as
long-standing broker relationships, has made it highly visible to
the print sector.
It may seem a difficult time to be growing a
customer base in print, but such an asset may become considerably
more profitable when the industry finally breaks the back of its
oversupply problem and begins to make healthier margins again.
