One of the issues Leasing Life is often told about is the struggle to attract new blood into the industry. Once someone starts working in asset finance, they generally stay put, but it’s the step prior to that which often proves difficult.
This wasn’t the case for Lombard’s managing director Richard Hemsley, who joined Lombard from his previous role as chief logistics officer for the Royal Bank of Scotland Group’s international banking division in August 2013, who says he was keen to enter the asset finance industry.
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Before this he had been, in his own words, a "career banker," having worked in retail banking, corporate banking, credit activities and other areas since he started his career at NatWest in the 1980s.
Hemsley tells Leasing Life it was his most recent role in international banking that peaked his interest in more commercial type of activities. "So when the opportunity came up at Lombard that was something very attractive to me," he says.
When asked how he is finding his new role, Hemsley describes it as "the most enjoyable thing I’ve done in the past 20 years."
Asked what he enjoys most about his new industry, Hemsley replies: "The best bit of what I’ve been doing is talking to SMEs and when they understand what is available and how it can improve their business."
He has certainly joined the industry at a good time, with the FLA’s figures for April showing a 10% growth in asset finance new business, with development coming from most areas, following the industry’s best quarterly performance for five years.
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By GlobalDataFrom Lombard’s perspective, Hemsley provided an ideal candidate thanks to his connection to RBS. The idea is that, thanks to his background, he will be able to make the connection between the two companies stronger. He adds: "There are lots of people who spent years and years in asset finance, but it’s important Lombard remain connected to RBS."
To this end, he’s begun looking at how Lombard and RBS can work together. On the Lombard side, Hemsley says "We’re making sure those teams are more directly aligned to how the bank supports its customers. This makes for an easier connection from the customer, to the bank, through to Lombard."
Although this process is still ongoing, Hemsley says the early signs are positive, adding: "There are more things we plan to do."
What this means in practical terms is that all RBS and Lombard relationship teams now go through a chartered banker-supported accreditation programme in order to understand better the correct product mixes for customers.
It also means a move away from hard targets at RBS, as this could lead to bankers subconsciously offering a loan or an overdraft in cases where asset finance might have been more appropriate.
One of the reasons RBS is pushing for this, according to Hemsley, is because "against an unsecured overdraft or any other type of lending other than property, asset finance is a much better option".
Beyond efficiency, the company is reacting to external pressure, and he notes: "The Financial Conduct Authority requires that whatever we deliver to a customer is appropriate and meets their needs. So everything is moving in that direction."
But Hemsley warns this will take time, for a number of reasons. For one, the use of bank loans or overdrafts is already heavily embedded in customer behaviour.
So while RBS may now inform a customer if Lombard products are more suitable, "customers may write cheques to buy an item off their overdraft, but the bank relationship manager may not be aware of this until after the event".
Additionally: "Among some of the older generation there’s still some scepticism about what asset finance offers. We deal with some of the UK’s most successful businesses, and it’s about getting the message to the smaller businesses that asset finance is available to businesses of any size.
"I think a key point that SMEs should know is that the security is in the asset, which makes it more attractive for them."
For those willing to play the long game, Hemsley says: "There’s so much opportunity and so much further to go; it will take a fair while, in my opinion."
When talking about attempts to increase asset finance usage, Hemsley is doing so in the context of one option alongside other products. This is demonstrated in one anecdote he tells about a company RBS approached with representatives from the bank, RBS Invoice Finance and Lombard and, together, put a complete finance package forward, with successful results.
Despite the struggles to get more SMEs working with Lombard, Hemsley says the commercial side is doing well.
He says: "Agriculture is doing very well. There’s no question agriculture is growing above double-digit growth. We’re seeing that in our own numbers.
"We’ve trained up a sector-specific relationship team in the agriculture sector, who work with the National Farmers’ Union in terms of the type of training they need. We’ve seen good growth from that point of view." Lombard now has a 34% market share in the agriculture sector.
Lombard’s plant and machinery sector is also seeing double-digit growth, which Hemsley describes as good relative to the UK’s history.
But he notes: "It’s still behind some of our European competitors. So if you look around capital expenditure as a percentage of turnover in places like France, Italy, Germany and the UK, we’re still in the bottom quartile of that list. It’s getting better, but it’s something that Germany continues to invest more and more capital in."
The situation is improving, and Hemsley brings up the National Manufacturing Conference in March this year, where one of the themes was the rise of reshoring going on in the UK.
Hemsley says this will be the key test to the sustainability of the UK recovery, and that it would be unhealthy if the recovery was based solely on financial services. "We want a more balanced recovery of the UK economy," he concludes.
Lombard’s IT business is also doing well, though it’s noted: "It can be quite volatile as there seems to be quarterly buying cycles. So month-on-month it looks quite volatile. But generally technology looks like it’s growing quite strongly."
In general, IT is dominated by captive companies, such as Dell, but Hemsley sees a space where independents such as Lombard are able to operate.
"When you’re with a captive, you’re going to get the manufacturer’s stuff. But what if you want something, particularly in the mid-range bracket if you are a multi-location business, with multiple suppliers coming together? Lombard is able to help with this."
So while Lombard doesn’t do much business with small, two-to-three PC businesses or massive conglomerates, it has been able to grow in the middle. And given that UK IT business market investment is forecast to grow to around £61bn by 2016, this middle ground is well worth competing for.
The challenge he says is talking to the right people at the right time: "When you’re talking about IT, you usually want to talk to the IT person, not the chief financial officer or operations manager, for example."
In order to make sure the company is able to achieve this, Lombard has a specialist IT team, many of whom have been recruited from IT captive lenders. Targeting medium companies and employing specialists has resulted in Lombard’s IT division revenue growing in 2012 and 2013, and it’s on track to grow again in 2014.
Overall, Hemsley describes IT as a specialist sector with similar challenges to those facing Lombard on a broader scale. "Can our bank relationship manager colleagues understand enough, through his relationships, about when the key time for purchasing the technology is coming up for that business?"
Leasing the intangible
Hemsley is quite open that he has learned a lot since starting at Lombard, as one would expect, and one of the things he says has surprised him most is the diversity of the asset finance business, which exceeded his expectations. He adds that Lombard leases items from plant and machinery to wheelie bins, as an example.
Previously Hemsley had told colleagues "as long as it’s tangible, we’ll finance it", however this has recently changed, as Lombard has moved into financing an intangible product.
Hemsley explains the product was designed to fund intellectual property. "In this instance, a computer games business has developed a product which is highly sought-after. It wanted to develop other products, but it’s all about long generation types, expensive people with lots of kit."
"So we’ve financed and bought the IP rights over the first success it had. As the royalties come in, it uses the royalties to pay the leasing cost. And then it can expand the business to do a new game development."
He describes this as a "major step" in the move into intangible.
While Lombard is a growing company, and Hemsley is enjoying his time in asset finance, there are a few areas he’s worried about, specifically the impact of the Financial Conduct Authority.
Talking about the smaller companies in the vendor broker channels, he says: "My main concern is how ready is the industry for the change? Do they understand the complexity that it brings? Do they understand the degree of evidence that will be required to prove they are operating within the requirements of the regulation? And does that run the risk of tainting the industry if they get it wrong?"
New entrants
Over recent months, a number of new entrants have appeared in the market, and Hemsley has noted this as a possible challenge, though he adds this is, in some ways, good news for all players, as it will keep them on their toes and lead to greater innovation.
He adds that trust needs to be restored in the financial sector. However, although Hemsley feels that Lombard needs to help rebuild trust in RBS as a part of the bank, as a standalone brand Lombard is held in high regard, and has found it is trusted in various surveys it has carried out.
Asked what he would like to see in the future for asset finance, Hemsley says he would hope for a greater awareness of asset finance, noting instances where Lombard has found Members of Parliament who were not even aware asset finance existed as an option. This could be improved if organisations such as the CBI promoted asset finance to their members.
Additionally, he says he would hope for greater and more appropriate usage of asset finance, something that seems representative of RBS’s and Lombard’s general move to encourage RBS customers to look to Lombard where appropriate, rather than just offer a bank loan.
