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May 1, 2008updated 12 Apr 2017 4:43pm

Claas sees greater financing opportunities for harvesters

Claas sees greater financing opportunities for harvesters Most equipment manufacturers may be bracing for lower demand as the global economy slows down But with the world on the brink of a food crisis and leaders pledging billions in support of agricultural development, the outlook for Claas KG aA mbH, the German producer of crop harvesters, looks bright, at least for the short term.

By Maryann Tan

Most equipment manufacturers may be bracing for lower demand as the global economy slows down. But with the world on the brink of a food crisis and leaders pledging billions in support of agricultural development, the outlook for Claas KG aA mbH, the German producer of crop harvesters, looks bright, at least for the short term.

“The horizon is looking very good when we look at signals from the market nevertheless, although we will never forget that it’s a cyclical industry,” said Claas’ head of Treasury and Sales Finance, Hans-Joerg Mast.

This buoyant outlook is a positive indicator for Claas Financial Services (CFS), the 40:60 joint venture between Claas and BNP Paribas Lease Group. In 2007, CFS reported an outstanding portfolio of €600m in finance deals for Claas’ core European markets. The bulk of these deals are secured lending agreements with payments structured to suit the seasonal nature of farming cash flows.

Above that total, Mast estimated a further €300m in financing transactions was originated through external agreements not involving CFS.

Risk averseLast year, the Claas group reported €175.8m in pre-tax income, up 35 per cent from the previous year. While it does not report on the financial performance of associate companies, its annual report notes that income contributions from units of CFS contributed significantly to profit growth. 

To provide further financial details for CFS, Mast hinted at greater financing opportunities as the profile of capital budgeting for agricultural equipment is beginning to change.

“There is a change of paradigm in the sense that agricultural equipment has moved from an extensive investment approach to an intensive investment approach,” he said.

“In the past people have tried to use the existing equipment longer than was technically predicted, [but] now they are using the equipment to the extent of their peak efficiency, usually for up to three to four years.”

Also, it is imperative today for farmers, in the context of high commodity prices, to harvest the most they can. Doing this requires having state-of-the-art equipment. If, however, equipment is inferior in quality then companies will lose the opportunity to make decent profits out of the current food price crisis, Mast explained.

Furthermore, there is still room to increase the penetration rate of finance for agricultural machinery, which is still low relative to other wheeled assets such as materials handling or construction equipment.

Claas is also tapping growth in emerging European markets, particularly in Russia where the market for harvesters and tractors has the potential to grow to become as large as the US. Claas has announced it will double the production capacity of its plant in Krasnodar, southern Russia.

Financing in Russia is provided through cooperation with Russian agricultural banks and some assistance from German and French export credit agencies, Mast said. 

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