How is Davenham faring in the downturn?

Results have been mixed. Fifty per cent of our business is financing SMEs, which is a challenging environment within which to work, with many UK businesses suffering in the current environment. Our leasing and hire purchase business meanwhile has been performing well, with continuing interest and suitable clients in the market.

Our factoring operations have been affected by the state of the wider economy, and although there is a good flow of business, there are rising risks in the portfolio. Banks have turned away increasing numbers of clients; many of whom have found their way to our door; but the problem is that not all such clients are suitable, and if they are, they often in need of a significant amount of assistance. We are looking to do the right thing by UK business in the crisis, but it is difficult to take on new business under present circumstances.

How is Davenham coping with funding its operations?

We find ourselves in an enviable position financially. We have considerable reserves of capital, institutional investors and lines of credit from the banks to the tune of £215 million. This was all reconfirmed recently, and Davenham has both the appetite and money to provide funding to UK business.

What is the secret of Davenham’s continuing success?

We have been providing financial products for the last eighteen years, which has helped to provide us with a host of experiences. The company was formed during the last recession back in 1991, and since then we have developed a clear perception of the marketplace within which we operate. We are there to provide funding over and beyond that offered by the banks, and by tailoring our offering to the needs of this niche, we maintain a competitive edge in the market. Banks and their factoring offerings have become increasingly formulaic, and it is our ability to adapt to the ever-changing needs of SME customers that has enabled us to be as successful as we have been. SMEs are a bit special, they may need funding to pay for a buy-out, to develop or expand their business or for other expenses, and we are in a position to work with them to provide them with the tailored financing that they might not find if they turn to the banks.

Having been in factoring for as long as we have, we also have the necessary platforms and institutional discipline to build on our strengths and provide the best customer offering possible. A major part of this has been investing in the skills and development of our staff, which has allowed us to respond and adapt to the needs of the industry and the customer. By doing this we work to provide both our customers and our staff with what they want, which has been an essential element of our success.     

How have independents fared, compared with bank-associated factors?

It is difficult to tell. Independents largely live off their own means. What is clear, is that in a recession no one does as well as they would otherwise and factors, whether independent or not, need to be more wary.

Has pricing become increasingly important as a USP?

No. Davenham has maintained the price of its offering despite the downturn. We emphasise the service that we provide, rather than price differentiation, and under present circumstances – with rising client failure, default and fraud – this kind of emphasis has shown itself to be sensible. 

What is Davenham’s USP and has it developed in the downturn?

Davenham offers its customers a range of financing alternatives that sets it apart from many of the other factors. Davenham offers not only factoring and other forms of receivables finance, but also offers letters of credit, leasing and ABL funding products. It is in the differentiation of our offering that we find our USP.

Which industries has Davenham and others in the UK market found are increasingly untenable as clients?

The engineering and construction industries are probably the worst hit. Perishables and products sold on sale or return – which have always traditionally been avoided by the industry – have also become increasingly untenable. The number of factors and factorable goods have both risen in recent years, but in the current downturn factors are going back to basics and those industries that represent a level of stability in these difficult circumstances.

How far have levels of bad and doubtful debt risen?

Levels of bad debt are twice that of two years ago. There is a high level of debt in the cycle and this looks unlikely to change as long as the recession persists.

How has Davenham sought to strengthen its due diligence and risk assessments?

We have had to look more carefully at the quality of book debts and at that of our clients. If there is anything doubtful in the portfolio then we avoid getting involved. Difficulties now will only become problems in the future.

Is the government supporting factoring as a financial product?

There has been no government support as of yet, but this is the kind of initiative that is really needed to support the economy. Factors are in the perfect position to act as a conduit for much needed finance to UK SMEs, and we are able to react more quickly than the banks.

What are your expectations for the recession and the factoring situation in the UK?

The situation will remain pretty severe for most of this year. Major initiatives undertaken by the government and lenders should ease the situation somewhat, with things starting to get better at the end of 2009. But then again I am an optimist. And no you don’t want to ask about the worst-case scenario.

Contributed by Factorscan: http://www.factorscan.com/

“Farming went through its own recession for a number of reasons between 1998 and 2004, but is historically an extremely resilient marketplace” he says, sharing the results of recent discussions with farming clients. “A weak pound has given us great meat export prices, people still need to eat, and the weather this season is promising a good return.”

To back this up he predicts that AGF, a group comprising 15 agricultural equipment finance brokers covering the length and breadth of the UK, is on target to process similar or improved levels of business to the €100 million it reported for its first full year of business in 2008.

The group was formed, with all members included as partners and shareholders, in response to a change in the agricultural finance market in early 2007. Virtually all funders in the sector except the captives of AGCO, Case New Holland, John Deere and Claas had withdrawn from direct finance sales, says McCarthy, leaving several manufacturers and dealers looking for finance providers that understood the sector.

AGF was quick to pool the resources of its members and fill the breach – but had the banks been right to leave?

McCarthy answers by quoting a well known statistic in his marketplace; that only around seven percent of the agricultural industry’s net worth is borrowed money. This, he explains, greatly reduced the impact of the credit crunch and subsequent bank paralysis on the industry compared to more credit-driven sectors such construction or haulage. Agriculture, he stresses, is a remarkably low risk area.

At the same time, he says, the credit appetite of the farm sector is constant and consistent, being mainly based on machinery which is highly specialised and in need of regular replacement – and thus well suited to finance and leasing.

In addition, he comments, there are ways in which the global recession has actually aided business. The slowdown in CEE and Asian markets has seen less demand for equipment in those regions, leading to a greater availability for British dealers and importers.

“The banks, however, hit by losses in other assets such as construction, property, and commercials, have tended to look at everyone in the same light and tightened things up across the board.” Says McCarthy. “We have repeatedly said: ‘look at this as a separate industry and a separate finance market, with a lower risk customer profile’, but to no avail.”

Looking forward to the rest of 2009, McCarthy notes that some new equipment prices have risen by as much as 20 percent recently – a good sign for residual values, if second-hand values manage to keep pace, he says.

As in the rest of the industry, it seems vendor partnerships are in favour in agriculture too – in the wake of agreements with baler maker Big Bale a year ago and Combine Harvester dealership Kevin Kirby in January, the group is on the verge of finalising a sales-aid venture with a leading milk equipment manufacturer.

AGF is also looking to expand the range of services it can arrange for farmers, by further strengthening a partnership with agricultural insurance specialist Farm & General.

Contributed by: Fred Crawley, Reporter – Leasing Life & Motor Finance

During 2008, the sector far exceeded expectations, and at the end of the year was advancing in excess of £17 billion to UK businesses.

End of year results from the ABFA show that the industry is worth £208,014 million, a growth of nine per cent on last year’s figure of £191,401 million. This form of finance, which allows companies to release liquidity tied up in assets, has undergone rapid growth recently and is growing faster than general lending.

While the majority of advances are against debt, such as sales invoices – the latest figures highlight that advances against stock are on the rise. Over £1,603 million, an increase of 168 per cent on 2007’s, was advanced to companies during 2008.

The falling pound also continues to effect UK businesses. The use of export invoice discounting jumped by 34 per cent during 2008 indicating that more businesses are looking overseas in order to find new contracts, perhaps in an effort to move away from the slowdown in the UK.

Kate Sharp, chief executive officer at the ABFA, said: “It is no surprise that as a result of the tightening credit market, more and more companies are using their assets to their advantage. Despite limited liquidity elsewhere, the asset based finance industry has proven its resilience and has shown that it can continue to grow in tough economic conditions. More importantly, our members have given UK companies who have experienced tightening lending conditions a lifeline.”
The sector split for clients using asset based finance is evenly split between manufacturing and services indicating its broad appeal to the business community.

Contributed by Factorscan
www.factorscan.com

and how can struggling companies and those in the market for new challenges survive in stormy times? Bonnie Yuill assesses the situation.

In all probability it’s not as bad as it seems. The finance industry, resilient and innovative as ever, is getting back to basics and swiftly taking stock of its position. Rebranding and redeployment will probably be the name of the game for some time to come as companies are increasingly finding it difficult to access trained and experienced staff. Recycling, another popular buzzword, makes good business sense in the current economic climate especially when it comes to recruitment. 

As the economy slows and insolvencies are on the rise, it makes sense to recycle proven workers by retraining them for recoveries, turnarounds and insolvency work. It’s no secret that we are in the midst of an insolvency epidemic, thus far largely confined to the retail, property and automotive sectors but, as with all epidemics, it is spreading rapidly. 

The goldrush is over 

Without a doubt, the changing need for certain types of skills means that the way business has been done recently will need to change, possibly forever. If it hasn’t already been swept away, cosy relationship-driven business development and the influx of sales-focused bankers is rapidly faltering in the cold light of dawn and an urgent need for other skills has become apparent. 

But there’s no need to panic. A steady hand, a steeling of nerves and some expert up-skilling will oil the wheels of the finance industry in its bid to rebuild once again. Now that the gold rush is over, professionals of whatever age are needed to roll up their sleeves and get stuck in as reinforcements in the risk, compliance, credit, collections, restructuring, turnarounds, recovery and insolvency job sectors are now needed more than ever. Of course, it may take a while for adjustments to be made. Even with the best will in the world, these vacancies cannot be filled by those currently being made redundant, as they are unlikely to have the right skills. A limited talent pipeline is therefore inevitable for some time to come, but the good news for clients and candidates alike is that these slots can be filled with the minimum fuss and delay. 

The banking and finance sector may be the hardest hit by the current global economic downturn, but with all of the aplomb expected of such venerable institutions, organisations such as large accountancy firms and banks are getting all hands on deck and redeploying where possible. 

In some of the larger mergers and acquisitions teams, for instance, the business has slowed considerably. In the past, that would have resulted in a round of redundancies. Now the firms are wisely using this time to develop their staff further and are giving them the opportunity to take secondments in other business areas or to work in more buoyant markets abroad. On the upside, they are developing their future business leaders in ways that would never have arisen without the current market conditions. 

Transferable skills 

The truth is that for many employees in the banking and finance industry, career stability is a thing of the past.  Most people in today’s workforce will have multiple careers across a number of organisations, and often several industries, throughout their working lives. As time goes on, it is likely that the financial organisations, accountants and recovery firms affected will also need to widen the net and reassess candidates’ transferable skills and marketable assets. (And, as has recently been demonstrated when certain bank bosses were grilled live on national TV, formal banking qualifications aren’t always necessary in order to secure a top job in banking…) 

By noting transferable skills such as project management, team building, and communications, while downplaying a specific industry focus, it’s always possible for candidates to be successful in other areas. Once transferable skills have been identified, running a critical eye over possible deficits in experience and/or knowledge is crucial and the right training will soon remedy the situation. 

Plenty of research into a prospective job is a good investment in order to avoid an unrealistic image of what working in a different sector involves. It is common for candidates to underestimate the value of their existing talents, so a week or so spent shadowing someone, if possible, is recommended. It’s all about matching current skill sets with current market needs. Marketing expertise, commercial acumen and sales experience are a good basis for many disciplines. Communication skills, team work, IT skills and evidence of problem solving also provide an excellent starting point for most careers. 

Article written by BONNIE YUILL (commissioned by Commercial Finance People)

For any information on recruitment issues contact Prue Heron on 0845 260 2525 

As the effects of the credit crunch continue to bite, redundancies are increasingly common, particularly across the property, construction and finance sectors.  But for clients, the current economic climate can be used as an opportunity to redeploy where necessary, saving costly redundancy fees and avoiding loss of morale and the leaching of valuable experience from the business. The culture has evolved: if a department doesn’t have enough work, a change is in order, and ensuring that the muscle is not cut in order to maintain corporate knowledge is vital. By identifying transferable skills and any training and development gaps, valuable staff can be retained, ensuring that the organisation will survive, grow and prosper.

Embracing change is a valuable skill in these challenging times and the willingness to cross sectors is essential for candidates. Top achievers may find it hard to accept that they can no longer dictate the terms of their employment. But now is the time to think creatively and to use that intelligence to reshape the future. Recruitment agencies or a professionally accredited career coach or mentor can help with plans to ‘recareer’. 

Gin and golf may have to wait 

Each move will have its own unique learning curves for candidate and client alike. Despite uncertain times, there is a silver lining for early retirees or consultants as well as for seasoned managers, hardened by boom and bust, who have experienced earlier recessions and who understand how to manage risk and work-outs. It’s a sad fact that in the current crisis, gin and golf may have to be put aside for just a few more years… 

Many current business difficulties stem from employees suffering from under-skilled managers. When businesses have not traded through a recession it follows that its managers haven’t either. The problem is compounded if most of those in the organisation who could have helped to fill in the gaps and rescue the situation have been forced (voluntarily or otherwise) to take early retirement. Bring back these retirees as consultants, part-time if necessary, but come back they should and as quickly as possible. 

Retraining as an insolvency practitioner, for instance, could take several years for someone from another discipline. So an increased demand for those who have experienced the insolvencies of a decade ago makes sense – they may just be able to hit the ground running and lead the country out of recession. 

It may not be easy to predict exactly what systems will be needed in this current climate and the available range of skills is often sadly lacking.

But one thing’s for sure, a decision to bring back some ‘grey hairs’ – like the recent wise decision by the Conservative Party to bring back Ken Clarke, can only be to the good. 

As the international financial services industry continues to evolve and grow, the UK economy is in a better position at this stage than in recessions seen before. Low interest rates and inflation give the UK strong economic foundations for recovery. 

Bouncing back bigger and stronger 

A bracing shake-out of the industry will continue as the economy slows. But the need for high calibre employees means that those who get it right will bounce back bigger and stronger. Once things pick up, more companies will be formed in a thriving economy which means more competition and vulnerability for existing companies who will look for professional advice on profit improvement and working capital review. So whatever the economic circumstances there is always room for corporate recovery jobs and an accompanying demand for qualified professionals. 

Once the storm has passed, the industry will be able to go forward on much firmer foundations. 

Article written by BONNIE YUILL (commissioned by Commercial Finance People)

For any information on recruitment issues contact Prue Heron on 0845 260 2525 

We have certainly seen more instances where Private Equity has used an ABL facility to provide funding when making an acquisition, as opposed to the more traditional forms of finance. This in itself was a learning process for both sectors but a relationship that I am sure will blossom over the next five years. 

Where we have seen a change in the marketplace, is that we, as the valuer, are being approached directly by the sponsor to provide the professional advice and valuations prior to going to the ABL marketplace. That’s where our knowledge and experience as Asset Based lenders, along with a strong history of asset valuations, assists the process. The more detailed knowledge and information about the assets we can give the sponsor, the smoother the process of structuring the facility is at the outset. 

By its very nature, an ABL will be a lot closer to the assets against which it has provided funding because they’re receiving daily or weekly information in respect of the performance of the assets, along with the financial performance of the company. This is, and should always be, supported by formal valuations on a regular basis, as the asset values can increase and decrease very quickly. In the last 12 months, the market has seen how much fixed asset values have slipped, primarily in the Plant & Machinery and Property sectors. 

Moving through 2009 and into 2010, mid–market companies will find traditional forms of finance more difficult to access, leading to a number of refinancing and acquisition opportunities. Private Equity will continue to play a pivotal role in this arena, leading to many new opportunities to work more closely with the Asset Based Lenders, now that they have a better understanding of how the offering works and is structured against the asset base. They will continue to be involved in acquisitions, which will involve a restructuring or reshaping of a business, and because of the revolving nature of an ABL facility, it’s a perfect match.

Edward Symmons has been providing financial institutions with asset valuations for over 60 years and, specifically, the Collateral Review and Valuation team provides valuations to the secured lender, including those in ABL and Private Equity markets to support the credit and risk management process.  Gary Quaife can be contacted on 020 7955 8454.

www.edwardsymmons.com