Finance for Investment

15 November 2009

(l-r) Andrew Mapstone, Commercial Director, Brian Morris, Chairman, and Neil Pengilly, Chief Executive Relocity Ltd,

Relocity Ltd was well insulated from the recession with its focus on Government and military clients, but it was exposed to late-payments and cash-flow constraints. Help came from the Enterprise Finance Guarantee scheme and from their bank.

FOR PROPERTY SUPPORT SERVICES company Relocity Ltd, the world began to change in the Autumn of 2008. Since it was established in 2004 to design, build and maintain corporate workplaces and facilities on behalf of technically demanding Government, military and commercial clients, growth had been brisk. The company had reinvested profits and developed a wealth of experience in hard FM project delivery and built environment solutions. Strong repeat business meant that the outlook was rosy. But cash is king and investing in the future requires lots of it. The first sign of a sea-change in the industry was when payment terms from major total FM clients lengthened – and then stretched further.
Relocity is a service delivery partner to a number of big players supporting their hard FM project delivery. Operating through framework supplier contracts gave Relocity a degree of comfort but in certain cases aged debtor delinquency doubled. At the same time many product suppliers experienced a reduction or withdrawal of their credit insurance and so began requiring greater deposits and payment prior to delivery. These were terms which Relocity could not pass onto their client base. A double whammy which would have led many company directors to consider cut- backs. Relocity co-directors Neil Pengilly and Andrew Mapstone weren’t, however, interested in cut-backs – only the next stage of growth.
Andrew Mapstone, Relocity Commercial Director comments, “Relocity clients demand a one-stop shop breadth of very specialist property services. They also demand immediate attention for their urgent responsive works and contract mobilisations throughout the UK. As a result, cut backs would not just have been painful but would have damaged our ability to rise to our clients challenges as a dynamic supply-chain partner”.
Their experience unfortunately is not unique. The Federation of Small Businesses points to 4,000 business failures caused by late payments last year with one in three of its members waiting longer to be paid. Other research has shown SME’s are owed more than £10bn by suppliers or customers failing to pay within the standard 30-day invoice period. This is an increase of nearly 20 percent on last year.
Relocity approached the Royal Bank of Scotland (RBS) commercial banking team in Farnborough for assistance with expanding working capital and funding business growth plans. The experience was a refreshing change too, with the Relationship Manager, James Starr working closely with the management team to gain a full understanding of their business aspirations. He introduced opportunities to access funding through the Governments Enterprise Finance Guarantee (EFG).
Fund
Introduced in January 2009, EFG is a £1.3bn fund to support businesses up to £25m turnover with lending for business growth and development. Under the scheme the Government will guarantee 75 percent of any loans made. To date some £600m has been lent to businesses with loans ranging between £1,000 up to the £1m ceiling. However, the 5,000 loans made to date suggests a much lower average; about £120,000 over periods between one and ten years.
Not surprisingly there were a few hurdles to overcome before any EFG funding could be authorised. First Relocity had to submit a detailed three-year business plan and cash flow analysis to RBS. A key requirement of EFG is that funding could not be obtained from other sources which normally means invoice discounting or factoring. Relocity had investigated this route for finance through a number of providers, however, the technically sophisticated nature of its services, valuation-based invoicing and the obvious problems in third parties accessing security cleared military sites meant this was a ‘no-go’.
More mainstream companies in the FM market place might find this more of a hurdle to access EFG funding. Although EFG funding can be sought through 23 major high street banks it certainly takes a willing banking partner to overcome the paperwork. Relocity found the process with RBS surprisingly slick and the proactive approach to the business meant that the company was encouraged to transfer all banking arrangements to RBS which was achieved without a hiccup. The end result was a £400,000 funding package which will be a springboard for growth in the coming years.
Freed from the constraints of funding investment in the business from current cashflow, Relocity has been able to achieve a step-change in business activity. Relocity clients demand strict adherence to health and safety, quality and environmental processes so the appointment of a full time compliance manager is beginning to reap benefits with accreditation by Safe Contractor, Constructionline and Achillies / Link-up for rail-side projects. Compliance with ISO 9000 and ISO 14000 through the British Standards Institute are due for completion in early 2010. In addition, all project managers are undergoing Site Management Safety Training Scheme (SMSTS).
Relocity has also invested in a new operating division, Relocity Exterior, to deliver curtain walling, window and building envelope replacement and maintenance services.Refurbishing the building envelope delivers an immediate improvement in thermal efficiency regulating heat loss/gain and air leakage. As a result, HVAC load is minimised and CO2 reduced. The company is focusing upon refurbishment and live-office projects where the operational environment presents a real challenge for these works. Allowing internal access to the building perimeter for operatives whilst ensuring a safe working environment for staff and visitors can demand a complete office reconfiguration; decanting staff together with associated IT infrastructure, power distribution and workstation relocation. Relocity’s expertise in workplace environments allows a totally integrated project to be delivered with the minimum of business interruption.
As Neil Pengilly, Chief Executive Relocity Ltd explained, “Relocity has the opportunity to enjoy rapid growth as our clients mobilise new contracts with significant refurbishment, reconfiguration, relocation and responsive repairs requirements. We are grateful to RBS for providing this finance facility and responding to the particular needs of our business. We are looking to capitalise on this increased financial capacity to better respond to the needs of both existing and new clients.”
James Starr, Relationship Manager, RBS in Farnborough added, “We worked closely with the business in order to gain a full appreciation of its working capital requirements. Accordingly, we provided a funding package that will help it operate more effectively. I welcome Relocity to RBS and look forward to building our relationship”.
Solution
Relocity Exterior already has a pipeline of projects exceeding £1m whilst the company has posted accounts showing a 15 percent growth in turnover in a recession market. EFG funding could be a financial solution for a huge number of companies in the FM marketplace. However the underlying business must be sound and the management team must be prepared to rigorously support their investment proposals whilst exploring other potential sources of finance.
The clock is ticking. EFG funding is to be withdrawn on 31st March 2010 which leaves little time to make an application. Andrew Mapstone concludes, “EFG has given Relocity
the opportunity and confidence to invest to improve service quality and widen the scope of our activities and so give greater support to our clients. However the tight timescales to make an application makes choosing a proactive banking partner like RBS even more critical.”