Asset management

less obvious, however, is that the more asset-heavy operators tend to have a higher operating profit margin.

But it is clear there is no “one size fits all” solution. As our table above shows, there is a wide range of CETRs in the Top 100, suggesting that each operator is finding the optimum balance between ownership and leasing for its particular operations.

Galliers points out that the key positive of an asset-light strategy is the flexibility it brings. “By not owning the asset you are not over-committed to a particular strategy and therefore, for SMEs in particular, they can pivot their decision-making should they be heading into a difficult or crowded market.

“The cons are that in terms of cost controls, when it comes to the end of rental periods you are slightly at the mercy of the market in terms of pricing to be able to rehire the assets you need to keep on operating.

Examples of companies with high CETRs include KNP Logistics Group, Abbey Logistics Group and GBA Services, which all tend to have above-average ROCE. However, all three have below-average operating profit margins.

Wincanton is a publicly quoted company, so you would expect investors to be very focused on how their money is being used and the return they are getting on it. Not surprisingly, it has an above-average CETR of 4.5 and its ROCE is also above average at 19.5%. However, its operating profit margin is slightly below average at 4.3%.

Turners of Soham, John G Russell and The Bartrum Group are all examples of operators with a lower-thanaverage CETR and ROCE but above-average operating profit margins.

However, there are plenty of operators in the Top 100 that buck these trends. For example, Meachers Global Logistics has an average CETR of 3.8. But ROCE is above average at 34% and it also has an above-average operating profit margin of 9%.

Given the changing state of the market, it is clearly important for operators to reassess their financial strategies to ensure they are prepared for the challenges ahead.

Galliers says: “Where we mainly work with SMEs and privately owned businesses, one thing we find is that owners/managers are so engrossed in the day to day, they don’t have the time to step back and think of what should be happening in one, two or five years’ time.

“Sometimes it takes that critical challenge from outside as to why things are done the way they are for people to realise that it’s not working as it should do, and through our advisory team, we have a number of businesses that we’ve helped pivot and achieve success.” n

According to Linde Material Handling, roughly 20% to 25% of customers prefer outright purchase.

Glyn Perkins, Linde’s director pricing and commercial support, says there is a mix of companies that choose to purchase for various reasons. “It usually comes down to cash availability or if they see more value in sweating the asset over its full life compared to having a five- to six-year replacement cycle,” he says. “Recently we have seen more companies switch to contract hire, perhaps due to low costs of borrowing or the desire to have more flexibility to change their equipment. It is uncertain if things will change with interest rate increases.”

Whether you are buying or contract hiring, getting hold of trucks is difficult at the moment. Industry supply chains are constrained and have been for some time, says Colin Melvin, commercial director of Fraikin.

“Orders placed 12 to 18 months ago are only now coming into the UK and this is putting pressure on bodybuilders.

“You can’t order a truck today and expect to take delivery in three months,” he says. “Lead times are now stretching into 2024.”

For Fraikin, contract hire is currently the most popular form of vehicle acquisition. Melvin reckons that only about 30% of operators choose outright purchase.

“We have seen an increasing shift to contract hire and leasing, particularly with the growth in alternative fuels. Operating electric vehicles is different to diesel and we can help by working with the customer,” he says.

At Scania, some 28% of deals are outright cash purchase. But Dave Hickman, marketing director of Scania Financial Services says: “If the question is around ownership versus lease the answer will be different, with around 65% preferring hire purchase, the remainder with a lease product of some description.

“There has been a change in preference, but not significantly. The change is driven by several factors, such as government Annual Investment Allowance and Coronavirus Business Interruption Loan Scheme (CBILS) and manufacturer appetite for certain product RVs.”