INTERNATIONAL ANDSPECIALIZED TRANSPORT
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JANUARY 2015
39
FINANCING
Effectiveuseof asset finance canhelp constructionplant hire companiesexpandandupdate
equipment fleetwithout puttingundue strainon their finances. BaldwinsCraneHireLtd, a
largeUK crane rental and industrial removal specialist company, updated its fleetwith the
acquisitionof aLiebherr LTM 1500-8.1wheeledmobile telescopic crane througha seven-
year finance lease. The £2.6million (US$3.9million) financingarrangement alignedmonthly
financepaymentswith the cash flowgeneratedby the crane,making the investment affordable
without exhausting the company’sown financial resources. The facility also took intoaccount a
significant residual valueof theasset at theendof the financingperiod.With theapplicationof
thisadvancedmobile crane ranging from liftingbridges intoposition, through industrial plan
installations to refurbishment of oil refineriesor power stations, theacquisitionhasallowed
BaldwinsCraneHire toexpandbusinessoperation,meet thediverseneedsof its customersas
well asmaintaina competitiveedge.
BYWAYOFEXAMPLE
Flexiblefinance
BRIANFOSTER, head
of industry finance
at SiemensFinancial
Services discusseshow
companies canmaximize
opportunities by upgrading
equipment
A
ccording to theOffice forNational
Statistics, theUK economygrew
3.2%between the secondquarter
of 2013 and the sameperiod2014.
Favourable economic conditions and
rising confidencehave also contributed to
anupswing in the construction industry,
a sector thatwas particularlyhardhit in
the aftermathof the 2008 financial crisis.
InSeptember 2014 theMarkit/CPIS
constructionpurchasingmanagers’ index
reached64.2,well above the 50mark that
separates expansion from contraction.
Positiveoutlook for the construction
sector is beingwitnessed further by the
ConstructionProductsAssociation in
theUK. It forecast that the industrywill
growby10% and add about £11billion
(US$16billion) to the economyover the
next twoyears. TheAssociation expects
constructionoutput togrow4.7% in
2014 and4.8% in2015,with total output
rising22.2%over thenext five years.
1
These figures suggest apromising future
for the sector, especially for crane rental
companies. The emergingopportunities,
however, canonlybe fully seized if
businesses areprepared tomake an
investment to service the risingdemand.
Bankborrowing
Thedrastic slump experiencedby the
construction industry in2008 and2009
discouragedmany rental firms from
expandingor upgrading their equipment
fleets.Now that the sector is showing
signs of renewedhealth, thesebusinesses
might finallybe contemplating capital
expenditure, but see their investment
intentions being thwartedby the continued
restricted access to traditional bank
borrowing. Latest data from theBankof
England shows that the annual rateof
growth in the stockof lending toboth
small andmedium-sized enterprises
(SMEs) and largebusinesses remained
negative in the threemonths toMay2014.
2
Tobenefit from the construction
industryuptick, rental companies serving
the sectorneed tobuildup their service
capacity to respond to the growing
demand.Highperformance equipment,
and thequickprovisionof additional
equipment capacity, alongwith in-depth
sector expertise and experience, is
crucial to securing lucrative large-scale
projects.Given that construction is a
capital-intensive industry, acquisitionof
construction equipment can represent
amajor financial challenge formany
rental companies (usuallymedium-
sized enterprises), especially since
affordablebank credit is harder to come
by for this segment of theUKbusiness
community. Forward-lookingbusinesses
are increasingly turning to specialist asset
financiers, inparticular, thosewith an
industrial background.
Finance specialists
Such specialist financiers often exhibit
a greaterwillingness toprovide funding
than traditional banks becauseof their
understandingof the equipment and
thebenefits it brings. Their industrial
expertise and sector knowledge allow
them to expertly evaluate thequalityof the
financed assets, businessmodels, projected
commercial return, and anypotential
risks involved.As a result, they can craft
customised financing arrangements for
customer requirements and cash flow
needs. These finance specialists can also
flex the financeperiod itself, finance set-
upperiods, andoffer other value-added
services. Since regular leasepayments can
be spreadover the fnancingperiod and
alignedwith the revenues generatedby the
asset, rental companies can comfortably
acquire andupgrade equipment to secure
competitive advantage.
Even though the construction industry
has yet to return to its pre-crisis level,with
the improving economy and increasing
business optimism, the sector is likely
to continue its upwardpath. Equipment
rental companieswishing to capitalise
on the industryupswingneed to ensure
that theyhave the capacity to takeon
morework and to further expand their
businesses. The smart applicationof asset
finance allows them tomake themuch-
needed investment spending to equip
andupgrade their fleetswithout tyingup
precious capital, thereby increasing the
financial efficiency that is indispensable for
every successfulmodernbusiness.
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1
TheConstructionProductsAssociation,
Summer Forecasts, 04August 2014.
2
Bank of England, Trends inLending, July
2014.
