Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Could you tell us about your background? We can start with you and then dig more into the UK market and Grenke’s positioning in it. 

{audio:0:05:18} I have been in office equipment or sales aid leasing since 1987. I started with a local British company called Anglo Leasing, who were ultimately bought by GE Capital and through that journey, from 13 or 14 years, we ended up with a joint venture with Dell. We originally set up the UK version of Dell Financial Services, which at the time operated out of Bray in Ireland where Dell had a large footprint. Ultimately, GE pulled out the market and CIT came in and bought the remnants of that relationship. 

{audio:0:06:12} I've been in office equipment and IT leasing for a long time, until June this year, when I decided and to leave Grenke and retire. I've loved it; it’s a really quirky market. There are three or four players in the sales aid. Specifically, the sales aid where your prime focus is to try and provide a service to a supplier of equipment and get as much of that that cake as you can get. When I talk about equipment finance, I'm talking specifically about companies like Grenke. Their prime relationship is with the supplier of the equipment. 

{audio:0:07:18} When you say supplier, do you mean the dealer?

{audio:0:07:22} Yes, the vendor or the dealer. They’re called different things in different places. Between the lessee, you've got the vendor of the supplier. It’s that typical three-way agreement between a lessee, a funder, and a supplier. I think Grenke are in a good position in the market. I ran Scotland and the Northeast of England out of the local branch here in East Kilbride, and I’m still in close contact with the team there. I won't bore you with reasons why I'm not still there. I didn’t have a problem with my guys; I had a problem with an individual in London and that’s all I want to say about it.

{audio:0:08:37} Let’s be honest, through the short sell attack and all the rest of it, Grenke have had their challenges over the last couple of years, Covid notwithstanding. If you take the UK, then that's all I have expertise in, with regards to Grenke. They never furloughed anybody; we worked all the way through it. Our vendor population recognized us as the guys that really fronted up and were on the front foot all the time, very proactive and honest. As soon as Covid happened, we knew that the financial markets were spooked, because everybody was looking forward to various doomsday scenarios. I'm sure it would have been no different in your world. The first thing we did was raise our prices by 2% across the board. We felt that in the money markets, certainly in the euro zone, there was a feeling that investors didn't value us, and saw the business as higher risk because of Covid. 

{audio:0:10:17} So we put our prices up, and that didn't go down well. However, it was the best decision because now, for example, Siemens have just put their prices up by 7% and gave the vendor population seven days’ notice they were going to do it. That has a massive knock-on effect with the supplier base. I know of one vendor that I'm close to; I have known the guy who runs the business for 40 years. He is sitting with £1.5 million worth of sales, written on Siemens paper, that they will not process for him because he hasn’t done them at the new rate.

{audio:0:11:11} The challenge is that he has machine orders that he has taken, say, a month ago, and the delivery time for machines, because of all the issues around supply chain, is maybe two and a half to three months. Now Siemens have said that the rates are going up by 7%, he either has to re-sign them, go back, and put them through another funder, or he has to bite the bullet and lose 7% of £1.5 million, and give it to Siemens. I know what he's done because he's given a goodly proportion of that to Grenke. We took the pain right at the beginning and are reaping the rewards of that now. 

{audio:0:12:08} When you say right the beginning, you mean back in April 2020? 

{audio:0:12:12} Yes. Covid hit us all really, really hard, so we took the view of, ‘let's put the prices up.’ 

{audio:0:12:20} Yes. When you said, ‘2%, 7%,’ do you mean the interest rate went up by two percentage points? What are you referring to? 

{audio:0:12:29} It’s difficult; this is a challenge for Grenke, because the way the Grenke’s profit is calculated is a bit of a dark art. It’s strange, I've never known a calculation like it. If you’re in the equity markets you’ll know that, depending on who you work for. For example, GE had an effective rate, CIT there was a yield, or there would be a ROI, Return on Investment. It was very easy to work out what that is. Grenke is not like that. At Grenke, you have this thing called PM2, which is profit margin two, or CP2 or CP1 and CP3. To give you an example, when I interviewed for the role three years ago, I was asking about how the bonus and profit margin were calculated, and the guy who was interviewing me said, ‘You're just going to have to trust me on this, but it will be fair.’ I said, ‘Really? That's the answer to how my team and my bonus are calculated on a quarterly basis?’ He said, ‘You just have to trust me on it because it's so complicated. I'm not even sure I understand it myself,’ and he'd been with the company for 15 or 20 years. 

{audio:0:14:15} Just to go back to the 2% you mentioned, what were you referring to there? Was that the CFP you were referring to, or the interest rate? 

{audio:0:14:23} For example, a five-year, straightforward lease rate, based on 20 quarters is £66 per thousand. We would have increased that by 2%. Grenke, as an organization, doesn't operate on yields, margins, or base rates, in the traditional sense, that, for example, RBS or a traditional funder would operate. If you went for a mortgage, for example – I know it’s a different product – your payments are based on an interest rate of X, but Grenke don’t work like that; they have a table of rates.

{audio:0:15:16} It’s quite normal in the equipment leasing business that people talk about a monthly instalment, because you have the residual value which plays a big role as well.

{audio:0:15:29} Except that Grenke don’t do residual values, which is a problem for them. For example, Peak who effectively took over the GE business when GE pulled out, they are out selling RVs, Residual Values. The reason it works for them is they’ve got a really good back-end process. You either flip into an extension rental that takes care of the RV with some upside, from the additional margin on the RV. For example, it’s a three-year contract for a multi-functional printer, and the RV is 15% of £10,000, so it’s £1500; that’s baked into that deal when you calculate the rates at the outset. When that trips, the customer decides to continue to use the machine, the extension period is not just about getting the £1500 back; it's probably going get £2000 to £2500 back, because there's a considerable upside baked into that deal as well.

{audio:0:16:50} In the event that the customer says, ‘Come and take it back, I've replaced it with another machine,’ with another funder or supplier, you've got to be able to do something with that machine, otherwise you're going to take a bath on the RV.

{audio:0:17:05} Is that something Grenke are strong at? 

{audio:0:17:08} No. I can only speak for the UK. In the UK, they have a relationship with a company called EBM. EBM are contracted to effectively go and uplift equipment that's coming out of an end user's premises. The company that benefits more out of it is EBM rather than Grenke. That's why it's a problem for them. Bear in mind that these are all full payout leases, in which, on the very rare occasion, will they bake in an RV. It would have to be a really special set of circumstances before they’d take an RV. The reason there's a problem for them is it locks them out of that type of business, especially if you are competing with IT equipment. Now that now the copiers and printers are all pretty much part of one thing, you're not a copier salesman, you’re a multi-functional device, IT network. That’s where that job has evolved to. 

{audio:0:18:30} When you're competing against companies like HP, Dell Financial Services, Peak and Novo Financial Services, all who have their own branded solution, and you don't have an RV, you're not going to be at the table, unless you are really good at selling against an RV. In the current climate, where businesses are under pressure and cash flow is king, if a guy is going to save £500 per quarter on his rental, and worry about it three years down the line, he might just do that. 

{audio:0:19:15} Yes. So, effectively, the instalment is less because the lease company is baking a residual value into the instalment plan? 

{audio:0:19:26} Yes. It depends on what country you're in, but in some situations, if your RV is big enough and the total sum of your rentals over the primary period are less than the capital value, you can take it off the balance sheet. It becomes like an operating lease; you just take it off the balance sheet completely. It doesn't show up on the balance sheet; it’s a financial commitment in that respect. That might change, because there’s talk about changing the IAS, International Accounting Standards. There’s a view that it's technically more than the capital value. You can take off the balance sheet, but it's still a financial commitment, and you have to fund it; it needs to be there somewhere because you're still paying it. But RVs are important.

{audio:0:20:23} We’ve jumped right into the nitty gritty. Let’s take it a few steps back to understand exactly what your role was. You said you managed the Scotland and Northern England business; can you tell us what that involved, and then some of the high-level background on the UK market, and who the main players are?

{audio:0:20:49} In Grenke’s branch network, they have a branch leader. I would be responsible for Scotland and Northeast England. I had a regional sales manager and four internal salespeople, but internal salespeople who also have an underwriting authority. I had an underwriting authority up to €200,000, before Covid. Then during Covid, we were very careful about the kind of businesses that we’d look at, and the creditworthiness of businesses. We would put a different structure in there which meant that if it was over €100,000, it would be sent to the Managing Director. He would have a quick look at it based on my recommendation, then he would back me or not back me. They also have a central credit function which is a centralized email address, but the individual looking at the deal could be in Portugal, Italy, Germany; they could be anywhere. 

{audio:0:22:01} How many branches were you responsible for? 

{audio:0:22:06} I was responsible for one branch. My branch was all of Scotland and the Northeast of England, and that covered down to Newcastle, and that neck of the woods. 

{audio:0:22:19} How many salespeople did you have? 

{audio:0:22:22} There was me; my role was still to sell. I had the branch responsibility, four internal salespeople, so, five salespeople in total. One external, four internal, but the internal people were also underwriters. To be honest, that's a scenario that I've never felt comfortable with, because these people have targets, I have targets, and yet I can underwrite my own business. I've never worked for an organisation that had that. When I was National Sales Manager at GE, my role was fundamentally sales. I would go out, find us vendors, and bring in the business, and somebody else underwrote it, and somebody else paid it out, because then you have audit. However, at Grenke, that doesn't happen. I could bring a deal in from a supplier, I could organize the paperwork, I could approve it and I could pay it out, without anybody else seeing it. 

{audio:0:23:41} How automated was the underwriting? There's obviously a lot of scoring and it’s not based off of any individual’s opinion. 

{audio:0:23:51} They have a sliding scale, based on somebody's Experian score and accounts. If it was a limited company or a PLC, you could pull up to date accounts from Companies House. That would go into a system, which would give you a score of one to six. A score of one would be auto accepted, and a six would be, ‘We really don’t fancy this at all.’ Then scores varying from two to five were notional, based on a variety of variables. By that I mean, I might have a relationship with a supplier that’s really solid, he might give me half a million pounds a month, he's got this deal, it’s borderline creditworthy, and the score is a four or a five. I might go back to that supplier and say, ‘Look, this is going to fall one way or the other. It is not a solid credit; there are issues.’ I wouldn't go into detail of the issues. However, Grenke would give me the authority to say, if I uplift the rate by 5% to cover me for what might be an eventual failure, I can do the deal. 

{audio:0:25:24} Was that done by you or one of the other underwriters? 

{audio:0:25:29} If the internal people got a marginal one like that, they would have to come to me and I'd look at it, and then make a call and say ‘I’m not doing that deal; it’s not happening.’

{audio:0:25:41} What was the turnaround time on getting deals approved? It sounds like there's quite a few manual steps involved.

{audio:0:25:47} The target time for giving a decision – we need more information, it’s approved, or it’s declined – is 15 minutes and, in most cases, we hit that. 

{audio:0:26:06} How much of the time was it a yes or no as opposed to, we need more information?

{audio:0:26:11} Our approval rate was about 65% inside 15 minutes. Then there is sometimes the case is that the vendor sales guys give you half a story. They don't give you all the information you need. They don't give you a company registration number. You get lazy guys, and you know who they are, and as soon as the deal comes in, you know you'll have to do more work, because the guys are a pain in the backside, frankly. That slows the process, though. But that's the nature of the industry.

{audio:0:26:55} Of the 65% approved, how many were turned down and how many were requesting more information?

{audio:0:27:02} I would say the decline rate was about 30% to 35%. That would give you 70% approval, 65% within 15 minutes. For and 5% to 10%, you'd have to do more donkey work to get it approved. 

{audio:0:27:25} Most that were going to be approved were approved within 15 minutes? 

{audio:0:27:30} Yes. If you went back to the suppliers – the guys that you have strong relationships with – and said, I can't get your decision in this, because your guy has not given me this, this and this, they will understand, and say, leave it with me, and I will go and sort it out. It’s all about communication, at the end of the day. 

{audio:0:27:52} How much data needed to decide on a lease is provided electronically, as opposed to by fax or handwritten notes? 

{audio:0:28:03} It’s all electronically. The supplier has a front door to Grenke’s systems. We have a tool called GFS; it’s an online portal and every supplier and sales guy gets his own login in the vendor’s space. They would go in and there are default questions that they must complete. If they don't complete default questions, they get a message saying, sorry, you haven't given us an email address or a phone number or whatever it happens to be. It’s an electronic front door. We pushed back on somebody giving us an email for us to go and do it. As soon as they submit it, they get a message to say, this is with Grenke Credit, and we will come back to you within 15 minutes. Then it comes into the girls’ work queue in the office. They just pick them off as they come in, underwrite them, and go back with a decision which goes back to the supplier via the supplier’s portal. He gets an email, and can go in, print the documents, amend the equipment, he can change the term; there's a lot of flexibility around what they can do. Then they can send the document to the end user, and get it electronically signed and sent back.

{audio:0:29:42} How much real sales work was done by the five people, and how much is blocking and tackling, and making sure everything gets processed properly?

{audio:0:29:53} I regard sales work as relationship development, client development, and finding new opportunities. That’s sales to me. From my point of view, the internal people are exactly that; they are internal people. They'll manage relationships over the telephone or by email. They tend to be discussions around something in their work queue at that time; it's more of an admin role. I don't know why they call it internal sales, because it’s not internal sales. It’s more about internal relationship management or internal admin management. For example, let’s say you’re the sales guy and you're chasing for payment or something, and you've emailed somebody in the office, and they’ve got back to you and said, ‘Hi Rob, you've got all your paperwork, everything's fine. It'll be paid tomorrow.’ That’s not sales. 

{audio:0:31:03} No, of course not. So, it was you and one external sales guy who's out there developing new prospects? 

{audio:0:31:12} How many new prospects would you visit a in a typical quarter, and how much was visiting existing clients to keep the relationship warm?

{audio:0:31:27} I'm going to talk about new markets and new opportunities separately, if you don't mind. The bulk of what I was doing was about existing supplier relationships; the way that Grenke do this is around postcodes. Being in my part of the world, my territory was anything with a G postcode. That’s the Glasgow area, and the Greater Glasgow area. My regional sales manager, the other external guy, he had every other post code in Scotland and the Northeast of England. I never understood that, because given where I am based, there are many other places locally that are not G postcodes, but the way the systems are set up meant they all had to be dealt with by somebody else. The system was dictating where your activity needed to be focused, rather than looking at the region as a whole. If I had relationships in Aberdeen from a previous life, why can't I go and deal with these guys in Aberdeen? I would try and open the doors for the regional sales manager and let him pursue these relationships.

{audio:0:32:53} Let me talk about new business or new markets. Not long before I left, we had a long discussion about dependency on printers, copiers, and telephony. Some other branches have managed to break into industrial cleaning equipment, or vending machines, as you would see in a call center. In Scotland, there is a large marine industry, by that I mean equipment manufacturers and suppliers for the fish processing industry. We had discussions with a company up here. My challenge or frustration was that Grenke wanted to take the photocopier model and try and put it into other industries, and it doesn't work. 

{audio:0:34:24} After CIT, I worked for four and a half years in the agriculture industry, for a company up here in Scotland. I was a Managing Director there. I didn't have any experience; I fell into the job by accident through someone I knew. I was helping the guy out and I ended up staying. It became very obvious to me in the first two months, how much I didn't know about that industry. That experience, when I was at Grenke, what I was trying to get the guys to understand that if you want to crack into a new market, was you either spend a significant amount of time researching the big players in that market or that industry, to get a real understanding for it, which takes time, money, and resources, or you go and find somebody from that market place that can bring that knowledge in. 

{audio:0:35:25} You go and find a really good copier guy and teach him about leasing. Go and find a really good agriculture equipment guy, and teach him about leasing, and pay him. Because you're going to have to invest in that guy for six months to do what he needs to do, to start bringing the business in. We don't know who the good guys are and, more importantly, we don’t know who the bad guys are. But that's not the way they wanted to do it. However, they wanted to take the photocopier model to the agriculture guy or the industrial cleaning guy or vendor machine guy. That frustrated the life out me. 

{audio:0:36:11} You were saying most of the time you spent visiting and talking with existing clients as opposed to you new ones. 

{audio:0:36:20} There are two ways to increase your volumes. When I went in there four years ago, our revenues in Scotland and in the Northeast of England were £12.6 million. In that first year, I took it to £18 million. It was £22 million when I left. For me, it wasn't necessarily about finding new suppliers. From my background and because of the relationships that Grenke used, I knew where and how their business was being split. I knew there was significant upside that we could gain from the supplier base just by changing the way things work. By that I mean it was about call planning, and almost integrating us, making our relationship with the supplier much more joined up, rather than somebody outside the business and waiting for business to come. I made a conscious effort to ensure that we understood when the supplier sales meetings were, whether leasing was on the agenda, and what the challenges they faced. Whether it's leasing related or not, I wanted to get under the skin of the supplier. It was only by doing that we learned what the competition was doing by incentives, to encourage business in a particular direction. We knew what markets the supplier was trying to get into. We helped fine tune the way we underwrote certain markets. 

{audio:0:39:06} Schools, education, colleges, and universities all have very different ways of working. Once we understood that, we were in a much better place and that's how we grew the business. I didn't go out and find 30% more new suppliers; I just made sure that we were a valued partner within our existing base. 

{audio:0:39:29} Yes. Makes total sense. How often would you typically visit the existing clients? 

{audio:0:39:41} The way Grenke works is that the regional sales manager needs 10 face-to-face appointments a week. I had five face-to-face appointments. That's captured on a system. On top of that, I said, it's all well having a face-to-face appointment, but it could end up in a cup of coffee that actually doesn't do anything. When I was at GE, part of my role was to be the European Learning and Development Manager; we did a lot of work around accounting and account development strategies. We put every sales guy at GE on three-day account development strategy and professional negotiation skills courses. We spent a lot of money on it, and it was worth it. I’ve still got a lot of that in my head. It wasn't about the telephone call or the face-to-face meeting. I wanted bullet points of what they discussed, a recording, and a date for the follow-up for that meeting and what the outcome was. So, we started to track some activities. 

{audio:0:41:11} Across the country, some people had an issue with that because they think it's ‘Big Brother,’ somebody is watching over what you're doing, but it’s not. If a supplier throws something back at you, that's when it becomes invaluable. If you've recorded something, and it's an action on their part and they don't deliver, at the next meeting you can ask them for the information and let them know you can’t move forward until you get that piece of information. It becomes a business discussion that’s way more valuable. 

{audio:0:41:45} In those 10 meetings a week, would you be able to see all of the suppliers, every month, or quarter? What would be the cadence roughly?

{audio:0:41:53} We had 78 active suppliers. When I say active suppliers, I mean suppliers who were giving us regular business. Then there were another 20 to 25 that would only give you leasing if a customer asked for it. Some suppliers would push back and say, I need to see you once a month. I know you want to come and see me more often, but I’m happy with what you guys are doing. If you don't hear from me, that is a good thing. If you hear from me, I've got a problem. Some companies like to work like that, other guys are more demanding. Some suppliers have five branches, and even though the head office was in Glasgow, they might have a branch in the Midlands in England. Where the branch or head office is based, is how Grenke operates from a territorial perspective. I would still be expected to go to the Midlands branch, which might be a three or four-hour drive, because I'm committed to supporting, not just the head office, but all the satellite offices of a particular supplier.

{audio:0:43:21} In that case, it might be several times a month that you’re visiting existing clients? 

{audio:0:43:26} Yes. There will be some times when there might be a week where I’m not in the branch at all. I tried not to make that happen, because inevitably there would always be something that I need to look at. But then you come home at night, you log on, deal with the things that you need to deal with and that's fine. 

{audio:0:43:47} Who are the main competitors? 

{audio:0:43:50} The main competitors to Grenke are Siemens. In the UK, Siemens are the biggest one. Then you've got a Peak. Siemens will do a residual value solution. I’m not sure what their back-end process is like, or whether it says sophisticated or slick as peak. Peak focus very much on the IT side of things; they will fund telephony, IT, and multi-functional printers. They tend not to get involved in vending machines, and that kind of thing. 

{audio:0:44:41} Is that because of the former GE business?

{audio:0:44:44} Peak formed when GE pulled out the marketplace, and a good proportion of those guys are former GE employees, some of whom I still know. The other one would be BNP. To give you an example of the kind of things BNP Paribas will do, I had a supplier up here, and I had trained the Managing Director of this business, when he was a trainee for another vendor. I've known him since he was a young man. He's now done very well and got his own business and doing really well for himself. I went to see him on the basis that I’d joined Grenke and wanted to do some stuff with him and have a chat, and he just couldn't do it. The reason it couldn't do it was, he was expanding his business and needed some capital to do that.

{audio:0:45:57} They said they would give him the capital; I think it was £90,000. They said, we’ll you lend you the money, but we will contra the payments of that business loan against the volume of business that you give, in terms of leasing, back over the next three years. They effectively handcuffed him using that tool. It meant everything he had went to BNP. No matter how hard I tried, I couldn’t get any business out of him. It was the right thing for him at the time. 

{audio:0:46:38} A bit like the pubs and brewers; they give them money so you can only buy from them. What are the strengths and weaknesses of Grenke versus those three players you mentioned? 

{audio:0:46:54} The first one, for me is RVs. If they want to do something properly with RVs, they need to decide what they want to do. The strength that Grenke has is, for me, their branch network is by far the biggest benefit. It’s not uncommon for a supplier to say, I'm out on business; I've got some documents; I'm going to bring them in with my invoices. They will come in and meet the staff. That’s a real relationship strength for me. While we have an electronic portal to our suppliers, it’s limited in its functionality. Bearing in mind I haven’t been there for six months, I don't know what they’ve developed since I've left, so I caveat that with a small degree of caution. However, for example, if you are using the Siemens system, you can go in and look at existing agreements that a customer has, and you will get early settlement or upgrade figures. 

{audio:0:48:27} In other words, if you’re looking to knock a deal out and there are some payments left, you can capture that information. Whereas with us, they've got to write to us, and give us information. We then have to go and do it, work it out and go back to them. That clunkiness still exists from that point of view. I think their product range is limited. Basically, I think this is the same in the UK marketplace. We have a classic lease – they call it a classic lease – which is a full pay out finance lease over agreed term, at the end of which, effectively you go into secondary rental, or you hand the equipment back, but it's not sophisticated. 

{audio:0:49:16} You can take multiple payments upfront, but there's no purchase option. Some suppliers, companies or end users say, I’d like to be able to buy it at the end of three years, because I know I'll get another two years out of it. We don't do that. Other leasing companies will do that. We don't do RVs, as we've already discussed. Other companies will include maintenance as part of the lease payment. Or if it's a copier contract, they can base it on the number of clicks per month, so it's based on a cost per click rather than just the traditional monthly or quarterly payment. 

{audio:0:50:06} Out of curiosity, is the copier business a sustainable business? 

{audio:0:50:12} No; the copier industry has already migrated, probably about four or five years ago. As soon as copiers became digital, as soon as it moved from analogue to digital and became networkable, the copier became a multi-functional device. Yes, it copied, but actually it morphed to being a printer. The guys that are selling that equipment now, are much more multi-disciplined. When you go and talk to a customer, you'll not just be talking about a copier, you’re actual probably talking about his network printers, you're talking about telephony, mobile communications, and a whole gamut of other connected technologies. 

{audio:0:51:03} Would that be for a basket of equipment, including the copier or would it be the copier?

{audio:0:51:08} A bit of both. If you take a supplier that does print, telephony and mobile comms; that tends to be the top three. If you're in this industry, you’ll be doing all three of those things. I'm thinking of a big supplier that we have up here. He has guys that have been there for 25 years. They have virtually no sales turn over, they are paid well, they are treated well by the management, and they don't move. Whereas if you are in a call center environment, working for Lenovo, HP, or Dell, the attrition rate and turnover is high. In terms of the average age of those people, some of them are just students doing this, three nights a week, trying to earn cash while they’re studying. These guys have been in the industry for 25 or 30 years. Within that supplier, you've got guys that want to talk print, all they know is print. They don’t want to talk laptops or servers because they don't know them, and they don't understand them. You’ve got telephony guys and server infrastructure guys, and if there's a solution that needs to be multi, you’ll get a lease that says, it's five servers, 25 laptops and three printers. 

{audio:0:52:49} What does a copier typically cost? Because the average lease size is £7,000 or £8,000.

{audio:0:52:56} The average lease size is about, £8,000. I’ve got an HP printer here and it's probably £1,500. You can go up to £25,000. When I worked at Close Brothers, you had one massive printer in the middle of the office, and everybody just fed it from the laptop. It was £25,000. It just varies. The bulk of the stuff, if you're in this small SMB space, your average value is going to be £3,000 to £5,000 for a printer and a couple of laptops at £1,200 each. 

{audio:0:53:45} A couple of years ago, there was this viewable media scandal; did that impact you at all and what was your view on it? 

{audio:0:54:04} I didn't know about it at the time, then eventually it came out. I couldn't believe it when I first heard about it. Because the first thing you do, with any new supplier, is you absolutely physically confirm that the equipment has been delivered. It's almost defensive to suppliers when they say, I need this, I need that, I need the next thing. When Covid happened, I had a situation where a supplier that we did the odd deal with, we started getting more business in and I couldn’t put my finger on why this guy had switched on to us all of a sudden. I said to the team, every deal that comes in from that guy, I want you to phone the customer, speak to whoever signed the lease agreement and confirm that it's physically been delivered. In first two calls we made, we found out they hadn’t got the equipment, and it was not coming for another month. I went back to the supplier and said, I’m not dealing with you; you tried to fleece me for £3,000 or £4,000. I couldn’t believe it because it’s so basic and fundamental that you just don’t do it.

{audio:0:55:48} Do you think there was internal corruption involved? 

{audio:0:55:51} I don't know. The Belfast set up was always strange. I also felt that it was difficult for the UK management team to manage because it was a brokerage; it wasn't a wholly owned branch. The managing director and sales director, we would have the guy that headed up that business, Steven, he would be on calls and at branch, where we’d have meetings. I was thinking, why is that guy here? He contributes nothing, doesn't do anything that the rest of the branches have been asked to do, so he actually takes the energy out the room. I wouldn't have him at any meeting, frankly. It was a real odd ball situation, and the history shows that. 

{audio:0:56:56} It was, effectively, a third-party broker doing business for Grenke. That sounds like something Grenke shouldn't have been doing, but I guess it's fixed now.

{audio:0:57:06} In fairness, I think the whole process, the audits that they had off the back of the short selling attack, clearly pointed out that how their third-party arrangement setups were far from ideal. 

{audio:0:57:23} What other ones you thinking of? 

{audio:0:57:26} I'm recollecting the audit reports that came out from Mazars and KPMG on the back of the short selling attack, but I think there was some concerns in the way that they operated as Grenke, but they actually weren’t, it was messy. I think the first thing they had to do is revisit how all that worked. 

{audio:0:58:02} Obviously, the business went down a lot, firstly because of Covid and then because of the short attack. How much of that you think that was due to the external market and how much of that was due to conscious decisions by Grenke? 

{audio:0:58:22} I think there were two things; when a short sell attack happened, we were very badly restricted on how much we could payout. There was a lot of debate around that time, as to how we should handle it. I’m talking about the UK; I can’t speak for other countries. For example, we would normally pay out £22 million a year, £2 million a month and, across the UK as a whole, the most we could payout was £110,000 a day, across 10 branches. We had 70 active suppliers giving us – even then – about a million pounds; the business dropped by about half. I would have a call like this with 10 other branch leaders and the sales director, and we're having a discussion around who should get my £20,000 today. I'm sitting with a pipeline of a million pounds, and I've got £20,000.

{audio:0:59:52} The crazy thing about it was – I still can't believe I'm saying this – the sales director at that time was clear that, in May, we’ve got two bank holidays, and then suppliers will start to think about the summer holidays, and the volumes to start to tail off and, ‘Let's just not tell them about the short fall attack and the financial this and that.’ I said, guys, hold it. You’ve got to stop this. This is fairytale land. You cannot think that in this day and age, with everything on the internet that we can just keep our heads below the parapet, and nobody will notice that they’re not getting paid. I said, why is marketing not on this call? We’ve got to get somebody from marketing on this call, come up with a communication, and let's be honest, open and upfront with the suppliers. They’ll thank us for it. If we don’t do it, and stop paying them, we are putting their business in jeopardy. Long story short, that’s what they did. 

{audio:1:01:02} The other reason that the volumes dropped was Covid, microchip shortages, China, big problems; it’s still a problem. It’s still a three-month lead time for some pieces of equipment, and China has gone back into huge lockdowns this week because of Covid outbreaks. It is a real problem still. 

{audio:1:01:28} Finally, how much damage was done to supplier relationships through this period? And where do you stand today, having emerged from it?

{audio:1:01:42} I think, by getting on the front foot and being very honest with suppliers, they respected that. Many of them, when they actually looked at it and see what Perring was saying about us, they were very sympathetic towards us. We got a lot of goodwill from our suppliers on the back of that. The reason we got goodwill was, at the very beginning, I got on the phone to the guys that I valued most and said, you are not going to believe this. This is what's happened. There's a link, go and read it. We are fighting it like mad. We've got all sorts of resources at our disposal. But you have got to do the right thing for your business. If you can’t wait three weeks to get paid, go and re-sign Siemens’ paperwork and take it somewhere else. I’ve been in this industry since 1987, and everybody up here knows me. I said, I will not be the guy that’s been in this industry for that long, that will be responsible for something detrimental happening to your business. I told them it would take us a while, but we’d be okay, and that worked. 

{audio:1:03:04} One of the criticisms was that the dealers didn’t exist, so the dealers were probably well placed to see the veracity of that. 

{audio:1:03:12} Yes, I think dealers are smart. I think if you’ve got an integrity in this industry, or longevity, you have to be honest, upfront, and tell them what the world is really like. As hard as that was for us, that’s what we tried to manage on the vendors’ side. Also, you’re trying to manage how unnerving it is for your staff, because you don’t want people jumping ship when you don’t need to. 

{audio:1:03:45} Are the dealers back now or is there any hesitancy?

{audio:1:03:51} Yes, absolutely. I don’t think we lost a dealer through it all. They respected what we did and the position that we took. There was one guy who said, I’ll never deal with you again. But actually, he was a dealer with a target on his back because he was so difficult to work with, and I had already made the decision that I wasn’t going to work with him, and I got the backing of the management team to do that. He’s now back, incidentally. 

{audio:1:04:40} Thanks for taking the time to speak with me, and good luck with retirement. 

Grenke: UK Equipment Leasing Market

Former Branch Manager at Grenke

inpractise.com/articles/grenke-leasing-in-the-uk-market

Grenke: UK Equipment Leasing Market(December 16, 2022)

Former Branch Manager at Grenke

Interview Transcript

How much of the time was it a yes or no as opposed to, we need more information?

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Grenke: UK Equipment Leasing Market(December 16, 2022)

Key Quotes

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