Offset Printing

In the current financial crisis, is leasing kit the solution?

In the print media industry, with its predominance of small and mid-sized businesses, leasing is increasingly replacing loans as a means of financing both web and sheetfed presses

Friday 03. April 2009 - Deutsche Leasing: providing liquidity and know-how

Flexible financing concepts for planned investments rank high on companies’ wish lists in the print media industry. One of the most advanced methods of funding such investments is leasing. Two of the many benefits of leasing are that it is a means of securing liquid-ity yet does not feature on the balance sheet. But what impact is the credit crunch having on this alternative to borrowing?

A global slide in demand on the one hand and, on the other, a marked reluctance among companies to invest in big-ticket production kit: these, in short, are the consequences of the recent meltdown in the world’s financial markets. The printing press sector anticipates a corresponding drop in turnover in 2009 as customers’ investment decisions become a matter of conjecture and uncertainty. Since advertising revenues are the first to suffer in an economic recession as companies slash their budgets, many printers whose income is generated largely by promotional literature will lose out on business and therefore have less money to spend on new equipment.
The German government has created a special fund (SoFFin) aimed at stabilising financial markets, and has also drawn up a rescue package for banks. One bank after another has sought the protection of SoFFin and aid from the state. But one of the government’s priorities should be to see that this aid is directed towards helping those that are most in need: the small and medium-sized enterprises (SMEs) that are the backbone of German industry. The government must make sure that the money is used to keep credit lines open and thus provide liquidity for such enterprises.
As one of the biggest investors in the German economy, the leasing sector, too, is experiencing fallout from the financial crisis, primarily in the form of a liquidity shortage. The funding base for many leasing companies has shrunk significantly, and this could well create bottlenecks when financing new business, because if no new money is made available from existing investments, no financing funds can flow to SMEs. The consequences could be dramatic, for example by constraining the flexibility with which the printing press industry can conduct its day-to-day business. And leasing companies which have neither a bank nor a banking group as their parent may find themselves in severe difficulties.

German savings banks considered trustworthy
It follows that if a major investment is necessary during the current economic recession, printers face a dilemma: in a challenging market environment such as this, who would be willing to provide funding with no knowledge of the company, the sector and the equipment required? They need a partner who has the ability to assess their financial standing properly, understands the issues involved and the need for new kit, and who can then provide the wherewithal. Here an in-depth knowledge of the industry and the capital goods in question is essential for assessing whether the proposed investment is feasible or not.
Deutsche Leasing, which is owned, funded and promoted by Germany’s savings banks (Sparkassen), is in a relatively comfortable position. The savings banks are considered to be sound institutions, particularly in times of crisis, which is why in the current financial meltdown they have reported a substantial inflow of funds from troubled investors.
Although the crisis has caused the banking sector to be judged much more critically, a fine distinction has been made in the public images of the individual types of bank: 70% of the Germans surveyed hold that the reputations of big banks have suffered, 55% consider that the Landesbanken (public sector banks) have tarnished their image, but fully half of those surveyed believe that the saving banks have experienced no loss of face, and 17% are of the opinion that the crisis has actually strengthened them. The savings banks’ sound business model, which is founded on sustainability, reliability and an optimum profit-to-risk ratio, has withstood the test of time. The same attributes also apply to the business model implemented by Deutsche Leasing.
Know your onions
For more than 45 years Deutsche Leasing has given its clients the benefits of its intimate knowledge of the industry. This is no longer restricted purely to financing but has been expanded into a com-plete package embracing the acquisition, servicing, resale and eventual disposal of plant and machinery. And a client’s extensive and longstanding association with their savings bank, whose as-sessment of their creditworthiness is founded not only on bald fi-nancial figures and accounts but on qualitative factors as well, is an excellent starting point for the joint implementation of proposed in-vestments by SMEs. Deutsche Leasing’s bellwether role in the sec-tor, and its strong focus on leasing plant and machinery to small and medium businesses, place it in a position of considerable strength.
Joint subsidiary KBA-Leasing

Deutsche Leasing has broadened and deepened its knowledge of the print media industry by maintaining excellent contacts with lead-ing press manufacturers and dealers, and through joint ventures. It enjoys an exceptionally close association with Koenig & Bauer via a joint subsidiary, KBA-Leasing GmbH, which was established over ten years ago. The range of services offered is not confined to sheetfed or web presses but also embraces special presses for printing banknotes, securities and metal. The association has since been expanded beyond Germany.
German printing presses in demand the world over
Since KBA exports over 80% of its output, financing projects both at home and abroad is crucial to press sales. Deutsche Leasing main-tains branches in eighteen countries beside Germany, from the USA and Canada to the whole of Europe and as far afield as China, and can thus provide valuable support abroad as well. Its knowledge of local markets and regional distinctions in business practices, laws and tax systems benefits KBA customers who are keen to invest abroad or move into international markets, by providing assistance and support in such activities. Discussions with clients also include such issues as IAS/IFRS accounting or US-GAAP standards. This helps to take the complexity out of leasing and ensures that clients are well aware of their tax position prior to opting for leasing as a means of procuring new kit.
In tandem with KBA, Deutsche Leasing has gained an intimate knowledge of the sector and its financing requirements. When it comes to assessing creditworthiness this expertise benefits clients because the recoverable value of the object leased is factored into the assessment. This gives us a major advantage over clients’ local banks, and helps both equipment suppliers and investors to exploit potential alternative financing tools to the full, even in challenging times like the present.