John Bennett, chief executive at JB Associates, analyses the UK IT leasing figures.
FLA new business figures for the year to February 2016 confirm that the SME and middle market asset finance volume of £28.3bn has now exceeded the peak business volume of the pre-2008 financial crisis, which was £26.4bn for the year to September 2008.
IT assets accounted for £2.2bn (8%) of the 2016 volume figure, compared with £1.6bn (6%) in 2008. The IT finance market delivered impressive growth in 2015, but the early signs are that this will not be maintained this year. The quarter end bias of the market has remained unchanged for several years, with around 50% of annual business being written in March, June, September and December, and this trend will no doubt continue to feature in 2016.
December is always a very active month for IT lessors, accounting for 15-20% of the year’s business. The key driver of December volume is the year end stand-off between global IT vendors and their larger, enterprise customers who delay committing orders in order to negotiate better terms, including discount levels and the vendors finance offering. In view of the expected slowdown in global IT spending, driven by economic uncertainties in both developed and emerging markets, the annual December deal ritual will be more evident this year.
As in recent years, IT spending trends in the UK in 2016 will continue to vary significantly by both customer profile and asset category, although spending on cyber security and migration to cloud based services will be prominent.
SMEs and mid range businesses, particularly in the services sector (financial, professional, IT services) will continue to invest more aggressively in IT. Many large organisations, especially manufacturing based, will face restrictions in their IT budgets, and will be looking for efficiency gains as a priority in their spending on software and IT services.
On the supply side, the availability of asset finance to fund IT spending is greater than ever. Traditional ‘hard asset’ SME funders will fund computer hardware, and most now offer “soft asset” finance for IT software and services. New challenger funders will also need to consider financing soft assets in order to compete with the established players.
Lloyds Bank group has reported that in 2015, around 55% of their customer interactions were web based, using a variety of devices and platforms. This was the first time the figure has exceeded 50%, and is a prime example of the digital world we now inhabit.
IT assets may offer poor collateral value, but the long term future of IT asset finance is definitely secure!
John Bennett, JB Associates