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July 1, 2010updated 12 Apr 2017 4:22pm

Smaller funders think big

UK leasing appears to be getting back on its feet with the news that three leasing companies are not just reporting healthy profits, but also showing a willingness to diversify and embark on exciting international projects

By Fred Crawley

Businessmen shaking hands

UK leasing appears to be getting back on its feet with the news that three leasing companies are not just reporting healthy profits, but also showing a willingness to diversify and embark on exciting international projects. Fred Crawley reports.

 

It seems this will be a good summer for diversification among the UK’s smaller funders. A new leasing business has been formed with the backing of invoice finance provider Ultimate Finance; State Securities is considering a return to the commercial property market after a major sales revival; and the ever-hungry Microlease has been ramping up business through an innovative sales-aid scheme.

AIM-listed Ultimate Finance’s new venture, Ultimate Asset Finance (UAF), is to be led by Andrew Ribbins, one of the key figures behind combined lender/broker Voss Finance.

Voss, incorporated in 1995, remains active in leasing to SMEs, with a focus on plant and machinery assets. It is a niche lender with a risk pricing model towards the higher end of the spectrum, and yet has suffered virtually no bad debt over the course of the recession. Write-offs only arose from the multiple finance controversy surrounding plastics manufacturer Global EPP – an issue that affected most of the UK’s lessors.

 

High level of control

Coming from this background, Ribbins will build a relatively small operation at UAF, lending in the single-digit millions within its first year and keeping a high level of control over quality of deals.

In the months to come, UAF will move into a new office, which will also house a new regional division of Ultimate’s mainstream business.

Deals will be sourced initially from Ribbins’ own contact book, and from Ultimate’s invoice finance customer base.

Yet, while Ultimate Finance accepts business from intermediaries in its mainstream invoice finance business, its new asset finance subsidiary will not be doing so until it has built up its funding base further.

Currently, UAF has secured funding lines with Siemens Financial Services and Singers Corporate Asset Finance.

Ultimate, which has offices in Manchester, Bristol and Tunbridge Wells, also launched a trade finance business in March – another example of the company’s holistic approach to commercial finance provision.

Furthermore, the future looks comfortable for the group, with the half-year leading up to 31 December 2009 seeing Ultimate make a pre-tax profit of £191,000 (€232,000, up from £140,000 a year earlier) despite a turnover reduced from £2.2m to £2.9m.

While UAF will not be rubbing shoulders with the giants of UK leasing any time in the near future, its foundation represents another point in favour of the school of thought which says that asset and invoice finance can work better when under the same roof.

Asked whether there had been any difficulties in providing leasing through Ultimate’s wider sales force, who have traditionally sold invoice finance, Ribbins said: “I don’t think it is too tough to cross train for hire purchase and leasing sales.

“This is a highly professional sales force, and they know how to look at a customer balance sheet, which is fundamental to both product sets.”

“Considering that our leasing product is not too complicated, I think it will be straightforward to spot opportunities for sale and leaseback, for example, with customers looking to acquire cash by factoring book debt”

Meanwhile, another lender with the ability to provide both invoice finance and leasing products is Southampton’s State Securities. The company celebrated the 30th anniversary of its incorporation last month and predicts a promising future in lending across multiple product lines.

 

Best first-quarter sales

According to sales director Barry Hutchings, who joined State in November 2009, the company has seen its best first-quarter sales total in two years, and during the first half of 2010 expects to double the amount of business it signed during the equivalent period in 2009.

By the end of the year, Hutchings says, annual new business volume is targeted to reach 250% of the 2009 total – a dramatic return to form for the subprime specialist.

Another return to form for State could be in property lending. Having withdrawn from the commercial mortgage market over two years ago, the company has only undertaken property loans to support other lending requirements, with standalone commercial mortgage opportunities avoided.

This situation is under review, however, with commercial mortgage products looking likely to once again form part of State’s core offering through brokers. Heavily involved in this discussion will be Graham Jacobs, the property expert who joined State in 2007 after helping the company to secure its new premises.

Hutchings also sees potential for State to grow through its invoice finance offerings.

“We do see a particularly strong opportunity to grow our factoring business,” he said.

Hutchings added: “We will continue to produce innovative financing solutions for customers with more challenged credits, including refinance and turnaround finance buy-outs, which a growing number of SMEs require and for which we are renowned.”

 

More good news

Finally, more good news has come from Microlease, the UK-based (but increasingly global) test equipment lessor with backing from LDC, the private equity arm of the Lloyds Banking Group

The company’s revenue for the year leading to 31 January totalled £30m, considerably up on last year’s figure of £23m, with earnings before interest, taxes, depreciation and amortisation up from £10.6m to £13.6m over the same period.

The results represent the fourth year in which Microlease has exhibited more than 30% growth, following the management buyout which saw current CEO Nigel Brown take control of the business in 2006.

Despite its name, Microlease is as much a dealer of high-precision test equipment as it is a lessor of such kit. However, according to Brown, it is the offering of financial products, including both long-term leasing and short-term rental, that has really powered growth in the last year.

To see how well the company integrates leasing into its general equipment sales, one only has to look at the authorised technology partner arrangement Microlease has had in place with manufacturer Agilent since November last year.

As a result of this programme, Microlease is now responsible for the lion’s share of Agilent’s sales volume within the territories of the UK, Ireland and Italy, and has been offering a full suite of financial products alongside the Agilent equipment range.

For the first half of the year, says Brown, leasing penetration rate in the Agilent ATP programme was only 8%. By the end of the year, however, 36% of programme sales were being conducted through leasing of one kind or another.

Microlease has also observed a significant shift in the sectoral uptake of leasing services, with the aerospace and defence industries growing much more receptive to acquiring assets on lease – a trend Brown thinks will continue as the government customers of defence contractors suffer budget cuts in the years to come.

In 2006, the telecoms and R&D industries provided 90% of Microlease’s financial services business – now, the defence sector contributes an equivalent volume.

According to Brown, LDC, Microlease’s private equity backer, is “very happy” with its investment in the company, having backed its acquisition of the European operations of US competitor Telogy in September last year. The financial support also helped put Microlease in a position to acquire long term funding lines with RBS and its asset finance subsidiary Lombard, Brown said.

 

Keen to invest further

He added “I am confident that, if we needed more funds to make further acquisitions, LDC would be keen to invest further”, but confirmed that there were no acquisitions currently being directly pursued.

Microlease recently attempted to acquire an American business that had filed for Chapter 11, but did not win the bid. The target company was eventually sold for $26m (€21m).

Looking forward, Microlease expects revenue to increase from £30m to £50m over the 2010 financial year, with earnings before interest, taxes, depreciation and amortisation rising from £13.6m to £18m.  

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