Recession proof

This month Xerox Financial Services is, in effect, re-born. In
the words of its communications manager, Gabriele D’uva, July 3
marks the “end of the beginning”.As reported on page 17 of this
issue, this date is when the company goes live in a major new
operation covering Germany, and also completes its thorough revamp
of its front and back office capabilities.

This follows an interesting recent history for the company, not
least the decision by Xerox in 2001 to exit the finance business
which, in doing so, removed some $10bn of equipment
financing-related debt from the Xerox balance sheet, and reduced
its future cash requirements. Around that time it also sold part of
its business in the Netherlands to De Lage Landen International

Much has happened since then. Two things, however, are certain.
First, parents which have captive finance companies will find these
to be saleable assets during hard times. Xerox is an example of
this, as was GMAC, whose former parent General Motors sold a
controlling stake in the captive to private equity firm Cerberus in
2006, and also, potentially, Ford’s portfolio of Jaguar and Land
Rover leases which, it is understood, it might be planning to sell
over the next six months to Tata, which recently acquired these two
former Ford subsidiaries.

Second, captive finance, whether it is in the context of making
profits, finding ways of best serving both the customer and the
parent vendor, limiting one’s liability by way of hell and high
water clauses (which, in turn, in English law are subject to the
Unfair Contracts Terms Act 1977), or navigating complex accounting
rules (particularly when bundled deals are offered), is not an easy
business to be in. It is, however, a potentially remarkably
profitable one to be in.

Meanwhile, the news that Hitachi Capital UK (HCUK) has acquired
London Scottish Invoice Finance for £28.5m comes as no surprise.
First, it brings the lender back to its roots. HCUK’s formation in
the early 1980s was based on the block discounting of Hitachi
television sets for electrical retailers.

Also, as chief executive David Anthony told Leasing
some time ago, since the lender is not a bank it does not
enjoy access to captive business or parent bank funds. As a result
it has to work harder to retain a sound margin. HCUK’s business
model, therefore, comprises of a series of disparate divisions
depending for success upon strong divisional management.

Growth has often been by acquisition. It aims for niche markets
with a decent margin and cross sells its product range to existing
clients. The disparate nature of each division makes it unlikely
that all of them are in recession-mode at any given time. The
subsequent balanced portfolio makes for profitable trading – and
long term survival.

Brendan Malkin