Roger Aust, Managing Director of Close Brothers Asset Finance’s Print division shares his thoughts on how C19 has affected the Print industry and the options available for recovery…
How have you seen print businesses affected by COVID19?
The most obvious and immediate impact was the drying up of orders for many printers as customers paused or cancelled activity.
From a printing perspective, there has been a decline in in-office printing with the rise of working-from-home schemes. This is also true for offline media where many are of the view that traditional print marketing material, while still relevant, will be optimised and used on a case-by-case basis with marketing budgets moving toward online and more focus placed on short-run on-demand printing.
The packaging and label industries witnessed a surge in demand due to the rise of e-commerce activity. On the other hand, wide format graphics, commercial printing as well as sheet-fed digital printing were areas heavily affected by COVID-19, but which we expect to bounce back quickly post COVID-19.
On a more positive note, we’ve witnessed a number of our customers diversifying their offering. In one case a customer successfully changed their focus from sustainable packaging manufacturing to mass production of face shields for the NHS! Market sector is key. Entertainment, leisure travel, have all be affected badly, but any businesses associated with pharmaceutical or online shopping have boomed. Printers that offer their services direct to the public on line, either via gifts, cards or publishing have fared much better
What have been the vulnerabilities in print businesses?
Print by its nature requires people in factories running machinery; home working is not an option. Printing machinery is expensive and the fixed costs associated do not disappear; just because the factory is closed does not mean cash is not required. The recent periods of total lockdown have caused major funding shortfalls in all businesses no matter how big.
In the medium to long term printers will have to assess the markets they are in and in many cases will have to diversify and will have to address customers’ requirements for a total online experience. Printing and allied trades must take seriously the current political imperative that is strongly in favour of all industries offering a greener approach. With environmental regulations being adopted globally, and the pandemic increasing the pressure on governments and businesses to follow sustainable business practices, print service providers will eventually need to invest in sustainable technology if they are to remain competitive.
We’ve seen that those who have been slow to transform their objectives and operational model, and to look toward new avenues to diversify their offerings, are the ones being left behind by their competitors.
The various options Close Brothers Asset Finance can offer a business in trouble and their pros and cons, where they are or are not appropriate?
At Close Brothers Asset Finance, we are proud of our heritage and our long-term support of our industry. We understand the assets, and we know their value; this enables us to structure safe and affordable propositions, even in dire times. This can be releasing cash or restructuring finance to fit more comfortably with a company’s future plans, or funding new assets as businesses adapt and diversify
We offer all the traditional types of finance, including Hire Purchase and Leasing; however, in conjunction with certain suppliers we are also able to offer Consumable Agreements, which - if structured properly - can help a customer match their equipment purchase repayments to cash flow and the consumables they use with it.
It's difficult to say when a product is – or isn’t – appropriate because we typically use a blend of solutions to suit a customer’s individual needs. Now, this may sound cliched, but it’s true – it’s why you won’t see funding or loan calculators (or similar) on our website.
Common examples of asset finance products:
- Hire Purchase (HP) allows the customer to buy the equipment on credit. The finance company purchases the asset on behalf of the customer and owns the asset until the final instalment is paid, at which point the customer is given the option to buy it
- Refinancing (Capital Release): The finance company purchases the asset and finances it back to you. Repayments are calculated in line with the income stream that will be generated by the asset; at the end of the refinance term, you own the asset
- Finance Lease: The full value of the equipment is repaid to the finance company, plus interest, over the lease period. At the end of the term, the company can choose to:
- continue to use the asset by entering a secondary rental period
- sell the asset and keep a portion of the income from the sale
- return it
- Operating Lease: Similar to a Finance Lease, an Operating Lease allows you to rent the asset from us while you need it. The key difference between the two is that an Operating Lease is only for part of the asset’s useful life. This means you pay a reduced rental because the cost is based on the difference between the asset’s original purchase price and its residual value at the end of the agreement.
Strategies for recovery through finance?
We are accredited by the British Business Bank to offer CBILS, and are actively working with them to assist our customers and the industry as it emerges from COVID-19.
We have many recent examples of how an understanding of assets, and a willingness to not just see the current situation, but also take note of businesses future plans and aspirations has enabled firms to see a brighter and sustainable future. For example, the restructuring of a press using the Coronavirus Business Interruption Loan Scheme (CBILS) and raising an additional £250k of working capital in the process. The restructure led to the customer consolidating its existing debt and freeing up the working capital necessary to help the firm trade through the current pandemic. By re-structuring long-term debt and raising working capital with CBILS assistance, it meant the business could manage overheads for the foreseeable future and have a strong strategy moving forward.
A second example allowed our customer to gain the time and cash headroom required as their focus changed to the production of PPE and associated products.