Analysis: New funding key to Zenith growth plan

At the BVRLA annual dinner earlier this year, outgoing chairman Kevin McNally took aim at the “short-sighted approach” taken by some banks who were either ignoring the vehicle finance sector or “treating it with an attitude that verges on contempt”.

Access to funding has been an issue since the recession for many contract hire companies outside of the global bank and manufacturer-owned organisations. Now one leasing company claims to have found a solution.

Zenith has announced a deal with banking giant HSBC for a ‘securitisation’ funding structure. In simple terms, the agreement means that for each vehicle, HSBC issues a commercial paper into the marketplace and that provides the loan facility. The vehicles – or assets – provide the security.

Because the asset brings a regular monthly fixed income from the leasing rental, it is seen of sufficient quality to sell to an investor.

Zenith chief financial officer Mark Phillips, the architect and driving force in creating the facility, told Fleet News that there was “tremendous funding available” from this type of arrangement, funding that was not diminished during the recent global economic crisis.

“Investors continued to invest in this type of paper,” he said. “So we have a stable structure that can fund all of our future growth requirements.”

Zenith is looking to double its fleet from 32,000 to 64,000 over the next four or five years, purely through organic means. Its target is the medium to large corporates, typically with 250-plus vehicles. It was this quality of customer base combined with current scale and future growth objectives that helped to unlock the new funding facility.

However, the new securitisation agreement will not replace the company’s traditional funding methods.

“We have a panel of five or six funders that we share our funding out to,” said Phillips. “That will continue to be the case going forward, although a significant element will now go down the securitisation route. It is important to have a basket of funders and not put all your eggs in one basket – you can’t rely on asset-backed funders for the future.”

He added: “There are some businesses that are facing challenges to access funding with the withdrawal of some lenders from the market both in terms of funding their business and, more crucially, in terms of cost of the finance to enable them to be competitive in their part of the market.”

Zenith, which recently rebranded by dropping the Provecta part of its name, has also launched a new reporting platform which it believes will create “clear differentiation” between its service and that offered by its competitors.

Pulse is a data-rich system that enables a company to manage its fleet across on nine key areas: fleet size, orders placed, extended fleet, contract fleet, contract deliveries, contract hire invoice, managed fleet, contract terminations, incidents recorded. Every transaction that passes through Zenith can now be analysed by the customer.

The project has been six months in development, the past two including trials with five fleets. Companies can access up to 10 years’ worth of data which shows how the fleet has changed in profile over that time.

“We will provide the customer with the tools they require to manage their fleet in the coming years. It is pro-active information at the touch of a key,” said Zenith chief executive Tim Buchan.

“The ultimate vision is to have a dashboard that brings together every transaction the customer has had – for example, every fine, every accident, every time they have gone over contracted mileage, every hire car re-fuelling – so they can see the exception drivers in order to target them with behavioural change.”

Pulse takes Zenith’s wholelife cost analysis to the next level. In addition to providing transparent figures which show the running cost of the fleet, it will enable fleets to compare their performance against other fleets. With around 90 customers sharing 32,000 vehicles and travelling 700 million miles a year, the sample size is considerable.

The system, which should be ready to launch by the start of next year, provides a pence per mile costing split down into accident repairs/insurance, early terminations, finance (lease and service), excess mileage, fines, maintenance and end of lease appraisal.

The calculations can be drilled down to individual driver, manufacturer and model. Fleets can also compare the SMR costs of franchised dealers versus independents.

“The system will highlight exception reporting on cost per mile. Then they can select each fleet to find out why and what they are doing differently,” said Buchan. “It’s all about making fleets cost-effective.”

Zenith intends to pursue a policy of organic growth to meet its goal of doubling its fleet to 64,000 within five years.

The company says its ‘end-to-end’ solution means not all growth will be from the traditional company car: cash takers, salary sacrifice and accident management will all help its expansion. It also plans to enter the HGV sector; a partner will be announced by the end of the year to deliver this proposition.

“The opportunity is bigger than the company car fleet,” says Tim Buchan. “It’s about cash takers coming back in, the salary sacrifice opportunity and accident management as well. This is part of the end-to-end business.”