Inside Newsletter - Construction & Recycling

Business Sentiment Index

Diving into the surveyed statistics of the Construction industry

Refinance agreement releases funds for carpet recycling business

Close Brothers Asset Finance has helped the business release capital held in their existing assets

2023 Issue 1

I’m delighted to bring you the latest news from the Construction & Recycling business. As always, it focuses on the current issues affecting SMEs, whilst also showcasing how Close Brothers Asset Finance has supported businesses within the industry and will continue to do so.

We start this issue, on page 3 with a case study looking at Innovate Recycle Ltd. This carpet recycling business was able to release necessary funds through a refinance agreement provided by Close Brothers Asset Finance.

We pride ourselves on not only knowing about asset finance and being able to tailor suitable financial solutions, but our specialists have also worked within the industry themselves.

By working closely with businesses, our team of industry experts see the potential for growth and provide straightforward asset finance solutions to support this.

Asset finance is an alternative form of funding used by businesses to obtain the equipment they need to grow. In effect, it utilises the residual value in an asset to either pay for or put down a deposit on another piece of kit. Our experts consider all aspects of a customer’s business and then recommend asset finance solutions that best suit their cash flow and long-term goals.

Common examples of the asset finance products we offer are Hire Purchase, Refinancing (Capital Release), Finance Lease and Operating Lease.

To find out more about any of the finance options we have to offer and how they could work for your business, contact the team today by visiting closeasset.co.uk/enquiry-form

On pages 4 and 5 you’ll find our Business Sentiment Index; our confidence tracker based on business owners’ views and thoughts on the industry. This update will

look at how confidence has fallen across the Construction sector, in part due to the rising cost of doing business.

On page 6 we have a Q&A with Neil Davies, CEO of our Commercial Division. Neil talks about the year ahead given the headwinds many businesses are facing at the moment.

Finally, on page 7 we have our ‘Meet the Expert’ feature. Daniel Haynes is an Area Sales Manager within our Construction & Recycling team. In this edition you can find out about his work history and the favourite part of his role.

We hope you enjoy the read and as always, we look forward to working with you in the future.

Andy Sagar Managing Director, Construction & Recycling

Case Study: Refinance agreement releases funds for new carpet recycling business

Often, in order to grow your business and take it to that next stage, a cash injection is needed, this is where refinance can be useful – find out how Close Brothers Asset Finance helped a carpet recycling business to release funds held in their existing assets…

Customer background

Innovate Recycle Ltd was formed in early 2018, the business specialises in carpet recycling on a volume scale. This kind of recycling is required as the UK currently generates approximately 500,000 metric tonnes of post-consumer carpet waste every year. Currently there is no effective, at volume, recycling process, Innovate Recycle plan to change this.

After recycling carpets, the business is able to recapture a polypropylene fibre which can then be extruded into pellets. Demand for recycled plastic is increasing at the moment due to restrictions on the manufacturing of new plastic, this means Innovate Recycle is working hard to keep up with demand.

Opportunity

The business spent their initial three years carrying out market research, getting the right people on board with the project and raising capital. Innovate Recycle was then due to start trading in 2021 but due to the

ongoing pandemic delayed this to June 2022.

Before launching to the market, the business wanted to have a cash reserve for any unexpected costs within the first few months of trading. It was at this stage that Joseph Eccleston, CEO of Innovate Recycle Ltd got in touch with Liam Given, Regional Sales Manager with Close Brothers Asset Finance for a solution.

Solution

In order to release the necessary capital, Liam proposed a Sale and HP agreement. This is a form of refinance that can be used against most types of equipment. In a Sale and HP agreement Close Brothers Asset Finance purchase the asset and finance it back to the company.

Repayments are calculated in line with the income stream that will be generated by the asset and at the end of the refinance term, Innovate Recycle will own the asset.

In this agreement, the assets refinanced included three shredders and a pelletiser.

Outcome

Through the refinance of their assets using a Sale and HP agreement, Innovate Recycle was able to free up £1million of capital, giving them cash reserves during the often unpredictable initial months of business.

Liam commented: “Helping our customers release capital through refinance agreements is often necessary. A Sale and HP agreement can help provide much needed cash to fuel growth plans. I look forward to seeing Innovate Recycle grow further with Joseph at the helm.”

“Liam and the team at Close Brothers Asset Finance were a great help during our initial months of operations, the agreement they provided was executed quickly and we were pleased with the outcome. I would certainly work with Close Brothers Asset Finance again in the future.” Joseph

Eccleston, CEO of Innovate Recycle Ltd

confidence continues to fall across all sectors, including Construction

Business sentiment across all key sectors has continued to subside – although not as dramatically as was seen between March and April last year.

Our data reveals that over the past year, positivity has fallen significantly from record highs to levels not seen since the first lockdown – and what we are seeing for the first time is the sectors aligning around a smaller spread of figures than we usually see; it’s clear the pain of the rising cost of doing business, recession, interest rate rises, energy prices and inflation is being felt across all industries not only Construction.

According to our research, Construction business owners’ top five concerns were:

1: Energy costs 2: Inflation 3: Materials supply 4: Interest rates 5: Tax/VAT

Energy costs and material shortages were seen – by some distance - as the largest inhibitors of growth for the UK’s Construction SMEs; full list:

Business sentiment index – December 2022

How the sectors have fared

After the highs of 12 months ago, the Construction sector – as in July 2022 - again saw a fall in sentiment and an alignment with the other sectors tracked.

Appetite for investment

The one positive is that, overall, over two-thirds of Construction firms are still looking to seek funding for investment in the next 12 months, up from July’s 64%. This is reflected across all key sectors, with the most notable rise coming in Services, where the number of firms planning to seek funding has risen by 32%.

Q Does your business plan to seek funding for business investment in the next 12 months?

Missed opportunities

The number of Construction companies missing business opportunities due to a lack of available finance continues to rise, with 40% admitting to having lost out.

With pressure on cash flow, most ambitious businesses rely on additional finance to enable them to invest in growth

Q Have you missed a business opportunity in the last 12 months, due to lack of available finance?

Economic outlook

Business owners are, unsurprisingly, more negative than positive about the macro-economic outlook and it’s this indicator that has contributed most to the decline in the BSI; for example, in November 2021 80% of Construction respondents were positive about the economy – by December 2022 this had fallen to 36%.

Confident that the economy will grow

Concerned that the economy will slow down

I don't think there will be a significant change in the economy

Predicted business performance

Predictions about future business performance is largely unchanged, with the majority expecting their prospects to remain unchanged.

Q In general, how do you expect your business to perform over the next 12 months?

Score calculation

The BSI is based on the views of 900 business owners and senior members of the UK’s business community and calculated from data charting their:

• Appetite for investment in their business in the coming 12 months

• Access to finance and whether they’ve missed a business opportunity through lack of available finance

• Views about the UK’s economic outlook

• Thoughts on their likely performance in the coming 12 months

– the year ahead, according to Neil Davies…

As far as starts to the year go, it’s been a strong one. We’ve been confirmed in the latest Asset Finance Europe 50 report that we are – again - the third largest asset funder in the UK and that we are the only ‘traditional’ UK funder on the list to have grown.

To quote from the report: ‘In the UK, banks were responsible for much of the reduction in receivables, as four out of five recorded declines; only Close Brothers reported gains’. And, at 8.7% growth, we are the fastest growing asset finance company in the UK of those on the list, and 8th in Europe by % increase in receivables.

But, more than anything, what this demonstrates is our continued strong support for the UK and Ireland’s SMEs during what has – for many – been very difficult times.

A key message I want to communicate – and will be repeating throughout this year – is that our doors remain open to both new and existing customers – we are proud of backing businesses throughout all economic cycles, and will continue to do so.

Looking ahead

While we would like to focus on the positives, it would be remiss of me not to acknowledge that businesses face an almost unprecedented number of headwinds – our detailed research findings indicate:

Energy prices:

• 70% of firms have reported a rise in energy costs in the past six months

• 63% say their profitability has been impacted by rising energy costs

• 47% of businesses have taken additional finance to cover their increased energy costs

Cost of doing business:

• 48% of SMEs have experienced cashflow issues

• 83% of businesses have had to either fully or partially pass on additional costs to customers, fuelling inflation

• For 44% of respondents, rising business costs are the biggest concern about the future of their business

Inflation:

• 72% of firms have been negatively impacted by rising inflation

• 62% have raised staff wages to help employees keep pace with the cost of inflation

Knowing this helps us understand in detail the issues our customers are facing, and we can put in place plans to work with them to ensure they can continue to meet their commitments; however, we do anticipate arrears will inevitably increase.

One positive is we expect supply chain issues to ease, based on the feedback we’re getting from our research, where it’s fallen down the list of concerns business owners are facing. While we have a good handle on the current set of issues, recent events have highlighted just how difficult it is to predict – and plan –for the next challenge.

Financial outlook

As a division, we grew our loan book and profitability despite the backdrop of heightened market uncertainty, continuing to focus on delivering disciplined growth, and because of this we are well positioned to successfully navigate this challenging period. Our proven and resilient model, strong financial position and deep expertise enable us to continue supporting our customers and clients.

This is a key message for our nearly 32,000 customers - and one I cannot stress this strongly enough – we aren’t going to stop providing funding just at the time businesses need it most.

Equality and diversity

Inclusivity, diversity, equality and social mobility are issues very close to my heart because I know that with diversity (cultural, ethnic, racial, gender, sexual orientation, etc.) comes the gifts of creativity, new ideas and different ways of working. Creating an inclusive culture where all colleagues are supported to thrive is fundamental to the continued success of our business.

We rely on our people’s expertise in delivering excellent service and building long-lasting relationships with our customers, clients and partners, all based on trust and integrity.

We want our colleagues to feel as though Close Brothers is a great place to work and are signatories to a wide range of charters and commitments across a broad spectrum of inclusion themes and social enterprises, including:

• The Race at Work Charter (our target is to have at least 14% of our managers to identify from an ethnic minority background by 2025)

• The Social Mobility Pledge,

• Women in Finance Charter

• The Valuable 500

We also partner with leading diversity organisations, including Stonewall and the Business Disability Forum, to help inform our thinking and subsequent actions. We are committed to inclusive recruitment practices, using gender decoders to avoid the use of gender bias wording in adverts and job descriptions, and seeking balanced shortlists and diverse interview panels to alleviate bias in the process.

Meet the Expert:

Daniel Haynes Area Sales Manager

Daniel Haynes is an Area Sales Manager and industry specialist within our Construction & Recycling team. Here he shares his journey to Close Brothers and the favourite part of his role.

Tell us about your role and your current responsibilities…

As an Area Sales Manager for Close Brothers Asset Finance, I’m responsible for making sure that the business receives the best customer service possible, with an outcome that benefits the business. I find providing my clients with honest feedback with their funding options leads to conversations that help them and their businesses.

What was your journey to Close Brothers?

I originally started working in sales within the motor trade for a well-known franchise dealer. That is where I was drawn towards the financial services industry. I enjoyed putting together the right structured deal for the customers' current and forecasted expenditure while not putting them under any financial stress. I had heard of Close Brothers Motor Finance, but I didn’t realise just how big the company was until I was accepted into the Close Brothers Asset Finance Sales Academy.

What is it about working for Close Brothers that is different?

Working at Close Brothers is different because I am able to learn whilst on the job from true experienced leaders within the financial industry in a stress-free environment. These leaders are also highly thought of within the Construction and Recycling sectors which helps with credibility when meeting our customers.

What’s your favourite part of your role?

The best part of my role is meeting new people everyday. When I meet customers, I am able to help them grow their businesses with the purchases they need to take their operation to the next level.

Give us an example of how you’ve helped a customer…

Christmas is always a difficult time within the Construction and Recycling industries. Christmas 2022 was no different especially with the cost-of-living crisis and the high costs placed on businesses to keep offices

and yards open. I was contacted by a new customer who was looking for an equity release on one of his assets so that he could maintain a healthy cashflow over the Christmas break. We managed to get funding over to the customer within 48 hours from his enquiry, utilising a payment structure which took into consideration the quieter points of the year.

Tell us one thing people may not know about you…

Growing up, my favourite film was Enter the Dragon and because of this I started training in martial arts. This became a love of mine and led to me earning two black belts. Eventually I moved to training in MMA which is hard to believe if you’ve met me because I weigh 3 stone wet through!

Our teams are specialists in their fields and experts in asset finance. Contact Daniel and the team today by visiting closeasset.co.uk/enquiry-form