Peter Johnstone discusses expansion and appointments with the people at the top of the London-based vehicle and asset finance provider
Private and Commercial Finance Group (PCFG) has £19m of funding ‘headroom’ and is looking to expand its portfolio to around £100m, according to managing director Robert Murray and chief executive Scott Maybury.
The private vehicle and business asset finance provider sold its portfolio of leasing receivables to Aldermore in March for £11m, reducing its total book value from £106m to £83m, in a move which Maybury described as "driven by tax planning". The sale allowed PCFG to benef it from a deferred tax benefit in the portfolio, allowing the company to reduce its effective tax rate from 92% to 37%.
Now PCFG has the "immediate objective" of returning its book to the £100m level, which it intends to pursue in threeways: by increasing the volume of new business using the broker-introduced model; by building and developing brand awareness and perception under new sales and marketing director Simon Wilkes, including direct contact with suppliers and finding new lending sectors; and by acquisitions of existing businesses.
The company is also looking to raise up to £10m in extra capital to create more investment opportunities, following 12 months in which it has already increased its funding by £20m. It has made an issue placing and open offer of 6% convertible loan notes, which
has so far raised £810,000, and the issue will also allow the company to redeem 8% and 10% loan notes in September 2013, providing £3m in repayment from Bermuda Commercial Bank.
The company has secured five new credit facilities and renewed its £55m facility with Barclays for three years, allowing it to escape the a cycle of annual renewals in which it had been stuck, and which Maybury says was "not a very comfortable place to be."
He describes the last three or four years as just "marking time" rather than writing business for growth, but says the latest developments will provide a "stronger capital base", a "steady foundation to start pushing forward."
This steady foundation has led to the introduction of Wilkes, who has been briefed to grow business both in terms of market presence and portfolio size. He has been tasked with finding new assets "where PCFG can be the preferred lender", while looking at brand awareness, the firm’s broker model and any potential acquisitions.
The company also wants to build a team around Wilkes working on niche and direct marketing; they want to use their existing database of customers to enable internet-based marketing.
While the firm has spent 20 years lending against tangible assets, where "when the deal goes wrong, we’ve got a getout", 90% of those assets have been a vehicle of some sort. The company wants to diversify, but will stick with hard assets – no IT, furniture, telecoms, catering or security systems. Aside from building the company’s current business, there is also space for PCFG to expand
In July 2011, it bought North Herts Credit Company for £6m, but following the recent portfolio sale there is plenty of room for more.
Another deal was lined up for September 2012, but it was not of "sufficient quality" and so PCFG pulled out. Now it is in the market for a leasing company, a hire purchase company or a consumer finance acquisition, priced at around £10m, and hopes the current
climate should help facilitate this.
The broker model, PCFG’s main business channel, has been "fascinating" to watch over the past four years, says Robert Murray, the firm’s managing director. In the wake of the recession in 2009 and 2010, there was a void created as players left the business, allowing PCFG to "take advantage" of good credit levels to write "a lot of business at good rates". But 12 to 15 months later, more players are back in the market, "ramping up the aggression".
The departure of ING Lease from the UK "throws all the balls back in the air", says Murray,although as yet PCFG "cannot say what the [benefits] will be", there is no natural successor to ING, leaving a funding shortfall for the first time in two years.
The company "doesn’t need a huge percentage" of ING’s estimated £100m a month business to make a difference, but the news "couldn’t come at a better time" with the loan note issue and Wilkes’s appointment. If the company gets "some immediate wins", taking advantage of its traditional broker channel and developing the new direct channel, it could be in "a much better place" in a year’s time.
PCFG is " entering a new phase", according to Murray, "dealing with the economic conditions".
Having squared off the balance sheet, and with the loan note issue and with secure funding in place, the company is aiming to receive a 2% return on assets, something which Maybury says has not been achievable in the past few years, "but we’re past that".
Since 2009, when PCFG invested in its back office systems, it has been three years ahead of the curve, with return on assets growing year on year.
The broker model is still a key part, with ING’s departure providing opportunities, and this is all backed up by a prudent lending model which has grown the company’s balance sheet.
Murray says: "Either you have to rely on the points-scoring model or visit and understand the requirements of the asset", which "fosters a lot of good will".
This means that service levels become PCFG’s unique selling point, with an appreciation of value between the lender and the consumer driving business volume. It won’t be based solely on a points scoring, or call centre model, but based on a greater understanding of the deal and the asset. But it all comes back to the initial funding.
Eventually, says Maybury, "we can keep these service levels thanks to the fundraising confidence [and] utilise our headroom".