25.06.2016

Enabling makers of engineering tool to fund early orders

With its chequered history, the automotive manufacturing sector in the UK has provided grist to the mill of academic researchers, and accounts for a disproportionate number of MBA dissertations. What rapidly emerges from even the most cursory examination of the industry is the extent to which success depends on the close integration of a spectrum of sub-contractors, many of them SMEs, each contributing to the final product, no matter how insignificant their individual role might appear to be.

Maximising engine efficiency, for example, involves a process of micro-finishing moving parts in a vehicle engine. While a modern lathe can finish a component to a smoothness within 20 microns of ‘true’, it takes more specialised technology to achieve a level of finish such that there are effectively no microscopic undulations which could impede oil flow.

A UK company based in Bristol would claim to be a master of that particular process; one of only a handful of players in this field, and a renowned specialist in finishing engine components for both the automotive and aero engine sectors. Founded in the late 1990s, the company had undergone a number of structural re-organisations including partial disposals and changes of management. Its location had been determined at least in part by proximity to the major UK aircraft systems builders. Throughout its often turbulent history – itself providing a footnote in the annals of the automotive sector – the company has continued to supply manufacturers with its extreme precision finishing machines.

Manufacture of systems overseas but tested in the UK

Without compromising quality, the UK company has outsourced the manufacture of its multi-patented designs for micro-finishing systems internationally. For the most recent round, the UK designers contracted the work to a company in Sri Lanka, having used its services previously for building other sub-systems which it supplied to vehicle builders in a former ‘existence’. Once shipped back to the UK and tested to specification, the order for four micro-finishers is being shipped out to a high-profile vehicle builder in Latin America.

Potential difficulties in financing the deal threatened to lose an order for the UK exporter. It fell into the usual SME rut of having an order with a creditworthy customer, but on terms that its up-front payments would not cover the cost of manufacturing and air freight back to Britain, let alone the expense of transport to the customer.

A lender in the region where the company is based had provided term loans to assist in re-equipping its factory but it was not empowered to provide the trade finance needed to bridge the stages of the order. One of that institution’s directors was aware of the Trade & Export Finance organisation from past experience and introduced its clients.

For TAEFL, the deal was straightforward. Its UK EXIM finance arm contracted to pay the Asian manufacturer for building the machine and covered the associated transport costs. The fact that the purchaser was well established, profitable and could be insured, made the deal viable for UK EXIM. The surface conditioning machinery has been delivered to the UK, undergone all the tests required, and been despatched to South America.

TAEFL can reasonably take credit for having assisted a UK SME play its part in enhancing vehicle and aircraft manufacturing on an international stage. But because it has made a positive contribution and encountered no problems along the way, the chances are that it will never appear in the pages of a degree-level case study on the sector.

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