financing the print sector, is anyone keeping the cash flow into
the sector going? Also, how are brokers coping in this tough
market? Fred Crawley
investigates.
coming through.” So says Paul Holohan, CEO of print and packaging
industry M&A specialists Richmond Capital Partners, speaking of
the effect that the government’s £200 billion (€226 billion) bank
injection has had on the print sector.
The comment was spurred by discussion of
statistics from insolvency expert Begbies Traynor Group and
published in Printweek, which found that the number of
print firms with “critical problems” increased 84 percent during
2008.
According to the editor of Printweek,
Darryl Danielli, “Q1 is usually a quiet time for printers, with
profits from Q4 tiding the industry over. But with such a poor Q4
in 2008, many companies have little to fall back on.”
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One reason for the print industry’s current
plight is the demise of direct marketing, which had been “extremely
important” in keeping the industry healthy during the continued
rise of online publishing, in Holohan’s opinion.
Now, many companies have sought to cut costs
by moving advertising online and cutting their mailshot programs,
leaving the industry heavily out of pocket. But according to
Danielli, the biggest problem for printers is credit availability –
a story all too familiar to the UK’s print finance brokers.
The roster of funders willing to finance
printing equipment has been demolished in the last year, with
formerly dependable Hitachi Capital reportedly refusing
broker-introduced financing since the first quarter of 2008,
despite still placing broker business in other asset sectors.
Alliance and Leicester Asset Finance division
also allegedly closed doors to asset finance brokers of all kinds
in 2008, as has the Bank of Ireland, while HBOS, despite releasing
no official statement on the matter, is generally understood to be
refusing offers too. Barclays notably severed asset finance broker
links in November, and there have been reports of the banking giant
refusing direct print finance applications from banking customers,
despite good credit reports and solid deposit offers – although
such a policy is not thought to be limited to the print sector.
Most recently, Belgian bank KBC closed down
its UK broker desks in early December, with a decision on the long
term future of the division due in February. Now the decision has
been made, and the broker team has been dissolved – an eye-opening
U-turn, given the investment that KBC put into the team’s
development just 18 months previously.
And the cull is not over yet. Now Lombard,
historically a dependable print financier, is said to be in
preparations to shed a portion of its broker business team.
A narrowing market
After this slashing of the funding
market, it is presumed that only ING Lease, Deutsche Leasing and
HSBC Equipment Finance will remain as blue chip funders for the
print sector, with HSBC alone running a specialist print finance
division.
Simon France, head of print finance at HSBC,
was adamant that his company’s policy on lending to the sector was
relatively unchanged: “Very simply, we will continue to lend to
companies that can demonstrate they can afford repayments –
whatever their business.”
“Sector by sector we try to pick the best
deals available – and that includes the print market,” he added.
“Unfortunately however, many of the print companies we’d like to
lend to are struggling because of the market they’re in, and so
we’ll have to refuse them. The decision to lend is more difficult
because of the risk profile.”
Independent funder Close Print Finance’s
director David Bunker presented a lessor’s viewpoint on the print
finance freeze, agreeing with Holohan that government money had
done little to increase UK banks’ appetite for lending.
“No matter how keen the government is for
banks to lend, the bank’s major shareholders retain a powerful
vote,” he said.
One industry source went further on this
theme, explaining: “If banks retain rental stream income and don’t
lend that money out again, they’re developing much better, lower,
gearing by keeping the money in. The refusal to lend has nothing to
do with bad debt, but it’s still not helping the economy.”
Despite the position of the print economy,
there is certainly still business to be done, according to Ian
Davies, head of Chester-based UCF Print Finance, one of the
country’s biggest print brokers.
“We’re doing so much refinancing at the moment
for people who are really struggling with cashflow. That said, it
might put a plaster over the wound, but it won’t fix the illness.
The work just isn’t out there for a lot of these companies. In
another 18 months, a lot of dead wood will be cleared, and
hopefully the industry will be in a better position.”
Clearing the dead
wood
In Holohan’s view, this clearing of dead
wood is a painful necessity for an industry that has suffered from
chronic overcapacity due – ironically enough – to the rise of “easy
finance” and captive finance in the 1990s.
“Back when print used to be the UK’s
sixth-biggest industry, barriers of entry were very high, and
companies graduated to owning the most expensive equipment over
many years,” he explained. “As finance provision from manufacturers
lowered these barriers, many more companies – some of them quite
dubious – got access to high-value equipment and caused a major
overcapacity.”
To Holohan, the return to “responsible
lending” of the kind that HSBC claims to offer, even though it has
been forced by the banking liquidity crisis, may help to keep what
remains of the printing industry in good health once the present
decimation is over.
