One effect of the recession has been a reversion of lenders to their perceived “core” activities. A limitation of funds and a shortening of balance sheets have contrived to engender a reluctance to fund stock for vendors, dealers and retailers. This especially so where the investment is considered only secondary to retail support at the best - and risky at the worst – and where retail return has plunged during the recession.

So it is with stock/inventory finance at the present time. Several middle-ticket sectors are reportedly suffering from lack of stock funding, none more so than the print industry.

Simon Nias of Printweek.com reports that high-street banks are continuing to reduce their exposure to the print industry after Lombard confirmed that it is pulling out of stocking finance for the sector.

He explained: “Asset-backed lender Lombard, which is part of the RBS Group, was one of the few remaining high street banks involved in stocking finance for the print sector. The move will reduce the pool of lenders available to secondhand equipment dealers, who use stocking finance to bridge the gap between acquiring and selling a machine.”

A spokesman for Lombard confirmed that stocking finance for print machinery was "not an area of focus for the lender currently".

The rules have changed

Greg Handley, managing director of used equipment dealer West Park Graphic Equipment, said that his company still has a stocking line with Lombard but that the "rules had changed".

"They're making it very difficult to utilise the facility if we so desire," he told Nias. "You don't have to be Einstein to work out that they're not really interested in doing it anymore with the terms and conditions that they've put down now."

Handley added that equipment dealers who exclusively used Lombard could be hurt by the decision, depending on how financially secure their business is.

Rates were good

"Lombard's rates were very good compared with some of the other asset-based lenders, so obviously Lombard taking the stocking facility out of the market may affect some dealers, depending on what other lines they have available," he said.

"We've just moved on with another bank so it's not an issue for us, but it depends how financially secure you are as to what kind of deal you can get – we're on something now where we're not paying that much more than we were."

According to David Bunker, director of Close Print Finance, which is the largest provider of stocking finance for print equipment, Lombard's withdrawal does not come as a surprise.

Loss of appetite

He told Nias: "I think Lombard and other high street banks have for some time lost their appetite for asset finance and non-core business.

"In the last two years they have wanted to retain as much capital as possible because of the capital ratio requirements imposed on them by the government.

"They're looking to warehouse as much capital as possible and asset finance is quite capital intensive in terms of people and administration."

Lombard stressed that its decision only applied to stocking and that it had no impact on its general appetite to lend to the print sector.

However, Bunker described the move as a continuation of the mainstream banks' "trimming" of their asset finance provision.

"Lombard and Barclays are two businesses that have pulled back from the print industry and asset finance in general," he said.

"Since the crash they terminated many of their broker relationships and they're only accepting business from their core brokers, because asset finance was deemed to be too much trouble.

"And the problem with stocking finance in particular is that it is very difficult to administer. You've got to be absolutely certain of your values and certain of your relationships."

Heidelberg still struggling despite sales hike

One of the prime manufacturers of printing presses is Heidelberg Druckmaschinen AG, which has been sorely affected by the recession.

However, for the current financial year 2010/11, Heidelberg is projecting a modest growth in sales. The result of operating activities is likely to benefit from increasing profit contributions as well as from the already achieved cost-reduction measures. Assuming stable economic developments, the company is still striving for a break-even operating result for the current financial year.

Highlights of the Q1 2010 (to 30 June 2010) results were:

• incoming orders some 43% up on previous year at €786m;
• sales slightly higher at €563m;
• order backlog of €810m, the highest level for 18 months;
• operating result considerably improved but at €-35 million, excluding special items, still negative;
• positive free cash flow of €62m; and
• further increases in Asia and Latin America

The company's forecast of economic developments reflected in its financial year planning takes into account the respective product mix prevalent in the single markets. Nevertheless, the enormous growth in financing costs is likely to place a heavy burden on the financial result. During the current financial year, Heidelberg therefore anticipates a marked net loss again.

Simon Nias is news editor of Printweek.com