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

Going through their partners

While print giant Heidelberg achieved sales of only 2.3bn in its 2009-10 financial year, some 23% down on previous figures, its finance division, Heidelberg Financial Services (HFS), has enjoyed a largely invisible success.

By Fred Crawley

Heidelberg FS plans for all sales to eventually go through all of its leasing partners.

 

Stephan Knuppertz, HFSWhile print giant Heidelberg achieved sales of only €2.3bn in its 2009-10 financial year, some 23% down on previous figures, its finance division, Heidelberg Financial Services (HFS), has enjoyed a largely invisible success.

On paper, HFS seems tiny, contributing just €19m (as opposed to €25m in 2009) to the company’s overall result.

However, this figure represents only interest earned from leases on HFS’s book, which itself only accounts for a small proportion of deals arranged by HFS.

For the most part, HFS’s business involves financing its parent’s equipment sales through a plethora of other lessors – something that does not show up on the company’s annual report.

As such, the reduction in income from the HFS book is good news, since it means less risk locked up on the balance sheet of the company, in accordance with the HFS’s aim to de-emphasise its role as a captive finance provider and do more and more work with third-party funders.

“My dream, eventually, is to have little or no book, and achieve more or less all finance sales – at least in developed markets – with our partners,” said HFS’ head Stephan Knuppertz, explaining his vision for the division.

Knuppertz began the push for more third-party deals when he took over the print giant’s finance division in 2006 and has done a lot to build relationships with global players such as SG Equipment Finance, Suedleasing and VR Leasing.

Currently, HFS handles around 50% of Heidelberg’s equipment sales, passing around 90% of this total to other lessors and writing the remainder on the book of HFS’ captive component, Print Finance.

In the sizable portfolio that HFS does retain (standing at €212m as of 31 March 2010), the numbers are looking better than they did a year ago due to a sharp programme of collections activity that saw 50% of HFS’ credit risk resource diverted from new business to collections work.

At the company’s year-end on 31 March, HFS had manage to reduced the proportion of overdue payments in its loan book considerably year-on-year – an impressive feat considering the spike in overdues observed by Knuppertz in June 2009.

As a result, loss provisions and write-offs remained at a stable level over the year – a solid success, compared to the general situation in the leasing sector.

 

A different way of working

The challenge that HFS has had in keeping write-offs at a stable level is emphasised by the risk profile of its book; rather than take on the cream of Heidelberg’s sales in terms of customer credit quality, HFS has a policy of allowing partners first refusal on prospective deals.

As a result, in developed markets at least, it largely takes on the deals which, while still reasonable from a risk perspective due to HFS’ intense asset value knowledge, fall below the underwriting standards of other generalist funders.

Given the tightening standards of underwriting seen across the industry, one would expect HFS’s proportion of own-book lending to have increased during the recession due to partners refusing a greater share of offered deals on credit quality grounds.

On the contrary, the percentage of business being transacted by other parties has remained at a constant high level in 2009, with the division’s book shrinking on an interannual basis according to plan.

Worth bearing in mind is the fact that some two-thirds of HFS’ direct finance portfolio is held in developing markets such as Brazil, Eastern Europe and Mexico – countries where sales are more inaccessible to major banking networks. Brazil in particular has provided a big portion of recent deals written to the Print Finance portfolio.

Even in these jurisdictions, however, HFS is beginning to do more and more deals with local financiers and global partners alike. Again, one particular example is Brazil, where a continental deal with German lessor Suedleasing has seen increasing numbers of cross-border deals done for Heidelberg machines in addition to some local business through SG Equipment Finance.

 

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