companies

St. Helen’s Finance

Background

St Helen’s Finance was established in June 2004 to exploit the £30 billion UK leasing and finance market. The company was founded by Managing Director Norman Kenvyn, with PLUS advisor St Helen’s Capital a founding investor, although it no longer has a stake and the two companies operate as completely inde­pendent entities.

Operations

St Helen’s Finance provides, typically asset backed, finance facilities for small and medium enterprises (SMEs) across a range of critical assets – from IT and telecommunications through to office equipment, plant, machinery and vehicles. The sector is dominated by the major banks and finance houses which tend to employ a rudimentary and inflexible scoring approach. St Helen’s takes a more structured ap­proach to credit approval yet maintains a strong focus on this area – an approach which has seen the company develop from a standing start little over three years ago to having a portfolio of gross receiva­bles totalling £6.75 million at 31st December 2007. With fixed overheads now covered, a ramp up of sales will lead to a dramatic growth in profitability in the next three years.

St Helen’s generates new business largely by using lease brokers but this is supplemented by a direct sales programme. Relationships are critical to generating business and with an experienced team of industry professionals behind it, new business opportunities for the company have continued to grow.

Crucially, the growth achieved historically in the size of the portfolio has not been at the expense of a strong credit policy. The company has built a broad client base and there is no particular sector in which it has an exceptional exposure or any particular asset category where it has an unacceptable concentra­tion of risk. Despite this, a conservative approach of including a bad debt provision of 3% of the net cost of all new transactions within the accounts is followed. This ensures the company’s P&L account is well protected should there be a very severe deterioration in the economic environment resulting in a slowing of payments by existing lessees.

Strategy

St Helen’s strategy for organic growth derives from the inherent scalability of the asset finance business. The company aims to continue increasing the size of its portfolio through continuing to develop its rela­tionships with existing introducers of business and through building new such relationships, although in order to achieve that growth it will in due course need to raise additional debt or equity. Other avenues of growth being actively considered by the company include strategic relationships with companies whose clients may benefit from asset finance facilities – for example corporate finance firms – and acquisitions of both portfolios of receivables and of smaller peer group companies themselves.

Opportunities and Risks

St Helen’s sees an opportunity emerging from the ‘credit crunch’ and resultant changing economic cir­cumstances as traditional funding lines for its customers, such as those provided by banks, are tightened, forcing more business the way of funders who are both prepared to lend and who can raise the new debt finance and capital needed to fund such business.

The clear inherent risk of lending to SMEs is that of incurring bad debts and in a weakening economy this risk must increase. However, St Helen’s credit acceptance policy is regularly and rigorously audited by its funders which should reduce the risk and the asset backing – and/or personal guarantees of the Directors – for most of the advances the company makes means that if the borrower defaults the sale of the under­lying assets and/or the enforcement of the guarantees should pay back all or part of the sum outstanding. Typically St Helen’s lends up to 80% of book value.

The other clear risk to this business strategy is the failure of the company to secure further funding to fuel its growth. St Helen’s has a strong track record of raising both capital and debt but in a severe credit crunch its ability to expand may be limited. While a severe economic slowdown might reduce the size of the total SME leasing market, St Helen’s currently has such a small market share that it can still grow its portfolio, especially if other lenders become too cautious.

Outlook

The focus remains heavily on the core business of developing the portfolio of receivables and in this respect real opportunities are emerging from the current economic climate as it is causing rival companies to contract. While such market conditions may also reduce the size of the total SME leasing market, St Helen’s presently has such a small share of the total market that its management can comfortably continue to grow the business as its funding allows.

Additionally, attractive acquisition and consolidation opportunities are now emerging and the new brokerage division was established in June. This division is focused on larger ticket transactions outside of St Helen’s core business and thus will put all of its deals out to lessors other than St Helen’s. This should enable the company to diversify earnings without jeopardising leasing relationships with existing and potential new introducers of business. The department is already generating fee income.