Hitachi expands into Europe
Hitachi Capital Vehicle Solutions (HCVS) is the UK-based leasing and contract hire division of the Japanese Hitachi company, probably best known for its consumer electronics, but with many other interests including health care, rail systems and defence systems.
HCVS is part of the company’s financial services division – Hitachi Capital Corporation – based in Japan and representing around 5% of the parent company’s annual turnover of approximately €152bn. Hitachi Capital has had
a presence in other markets for a number of years. This has added offices in Singapore, Hong Kong, the UK and the USA. The largest overseas subsidiary is in the UK, split into four principal businesses: asset finance, consumer finance, factoring and HCVS.
According to HCVS CEO Simon Oliphant, Hitachi’s expansion has principally been driven from Japan. ‘The language started changing a few years ago,’ he says, when the company started to suggest that it might need to think differently, that it didn’t have all the resources it might need in Japan and might need to rely more on its local management teams. This led to the establishment of new regions and structures two years ago. The US business now covers North and South America. Europe is covered from the office in the UK. Asia has been split into China and associated countries and South East Asia, i.e. Singapore and Hong Kong.
The UK office was tasked with expanding business into Europe. ‘There are two principal parts to the expansion strategy,’ says Simon, ‘One is to support Hitachi Group business – providing asset finance to Hitachi Group businesses and their customers and expanding the HCVS business. A team was formed from Japan and the UK and carried out research into pretty much all the countries in Europe.’
As a result, the team decided that it wanted to start business in a country where leasing and contract hire was a mature business, one where development was already under way and one where the business was still in its early stages. The chosen countries were France, for mature business, Poland where business development was already under way and Turkey, where business was in the early stages.
Simon’s view of expanding into Poland is that the business is still growing, ‘Even in the recession, GDP growth remained positive, it just slowed down. There’s lot’s of support from the EU, so there is money to invest in infrastructure. It’s a well-educated society, where the people like both the British and the Japanese.
‘We have three principal strands of our strategy to enter a country: buy, build from scratch, or find a partner. We are carrying out a country-by country analysis to decide which one of those applies. I decided in Poland that buying was the best route. The market has matured; you’ve got all the big players there so to establish a start-up would take a long time. We looked at about four companies altogether, found Corpo Flota and we completed on 3 April.’
Corpo Flota was a privately owned company and the owner also operates a Toyota dealership. ‘He wanted to focus on growing the dealer business, so was open to selling the company,’ says Simon, ‘It was a very friendly acquisition.’ The company founder has been retained as an advisor, ‘The relationship between the business we bought and his Toyota dealership and other businesses is still an important one, so it’s in both our interests to make that work,’ Simon believes.
The Corpo Flota operation covers mostly business-tobusiness dealings. ‘The portfolio is principally what we would call contract hire and fleet management,’ says Simon, ‘There’s not a lot of straightforward finance lease in it. Their customers fall into two categories really. All want a full service leasing product. There are those that are cash rich and choose to buy – they take a fleet management package, then those that prefer contract hire.
‘There’s a mixture of business, with large customers – well known brand names, such as Coca Cola and quite a few small and medium sized companies. Poland is a smaller market. That same segmentation in the UK would translate into a customer running 3-4,000 vehicles, another customer running 500-1,000 vehicles, then 100 or 50 below that. It’s just that model scaled down to where that’s 10 or 15 cars, 50-150 cars and a large fleet would be a customer running 100 vehicles or more.’
Simon expects growth from the Polish business, ‘That expansion will come from general growth in the market place, as people become wealthier and also penetration because it’s a full-service leasing product, or contract hire and there’s still room for growth as customers move away from the more traditional financing methods. The opportunity for us is that we can help accelerate their growth. Partly by providing funding but also by sharing knowledge and expertise.
‘Hitachi Europe has assisted with the Corpo Flota acquisition. This is a division of the company that was established to support Hitachi companies around Europe. The company has a number of offices around Europe including Poland. One of the research team that studied the European expansion chose to re-locate to Poland and operates from the Hitachi Europe office there.’
Knowing that a due diligence process would be required before acquisition, HCVS recruited locally, hiring someone with a banking and leasing background with experience of the local fleet market. He recruited a second team member with a similar background, making the Polish-based team three-strong. With Simon leading the operation from the UK, he used the UK-based team to form an acquisition team used to the process, to liaise with the team in Poland. This has evolved into a supervisory board in the UK and management board in Poland.
Different business cultures tend to present different challenges and Simon says that he learned an interesting lesson during the Corpo Flota acquisition. Companies below a certain size in Poland are not required to submit audited accounts. Corpo Flota had just reached the size where accounts were required. ‘The difficulty in the due diligence was that we had no historic financial information that had been audited,’ says Simon. ‘So they were having to actually construct it for our purposes, which made it longer and more complicated for us and put a strain on them. We got there in the end but I would say the process was extended for that reason. So there is a lesson there.’
Currently, the Corpo Flota fleet runs to some 3,500 vehicles. ‘Our plan is to get inside the top 10 in the next three years,’ says Simon. ‘There are synergy opportunities. We can share customers and suppliers where there are European suppliers and potentially we can share systems, as well as knowledge and knowhow. They have very good knowledge in Poland and they are experts in their own market. What I think we can do is to help their growth and development by taking things that we perhaps take for granted in the UK and see how much of that can be applied there. Things like on-line authorisation, which is standard in the UK. Systems in Poland tend still to be manually based.
‘There’s a very big IT community in Poland in a low-cost area of development around Cracow. Tapping into that, with expertise that is English speaking and not too far away, I can see some opportunity there.’ Poland could also open up business in other Eastern European States.
Moving into Turkey is HCVS next move. Simon believes that the company could use one of two strategies for the market, ‘We could do a start-up there because growth is so rapid. You could start from scratch and have a reasonable sized company in three or four years time. I think acquisition is a good opportunity as well. I don’t think we need to partner there.
‘The exchange rate is recovering, interest rates have started to fall and the stock market has improved, so the signs are that they are through the difficulties.’
HCVS is not planning to stop after it has established its operations in the current target countries, but will adopt a progressive country-by country approach.
Expansion brings opportunities for economies of scale. IT is one area, where a core system accessible through the ‘Cloud’ and adapted to each country’s needs, could be developed. ‘There are global and European tyres suppliers,’ adds Simon, ‘A Michelin tyre will be the same in any European country. Then things like on-line authorisation. There are opportunities with systems or associated systems to share those across Europe and share the suppliers as well.
‘I like to do our own ‘Due Diligence’, which makes it onerous from a workload point of view, but you actually get to know the company yourself,’ says Simon. ‘Assuming things are going in the right direction, you start to form relationships – get to know people, which is a great help for the post-acquisition period. There are at least eight to 10 people from my office in the UK that know the team in Poland now and they can carry on that co-operation.’ The acquisition in Poland has given Simon and his team an understanding of what additional resources might be needed for the next time. Simon likens the recent process to the acquisition of the Lombard business in the UK in April 2013, ‘In some ways that was a much bigger deal in terms of value and vehicle size and it was UK based, but the same principals apply. You know what assets you are buying, you know which customers you are dealing with, you know the strengths of the people that you’re hoping to acquire with the business and data quality, how you plan to integrate it post acquisition and get the benefit out of the acquisition subsequently.
‘I always say to people about that post acquisition period, that the due diligence is really important, just for understanding what you are buying. I think that one of the reasons that a lot of acquisitions fail is because people focus too much on the financial side, when in fact the people side is probably equally, if not more important. The post-acquisition strategy is probably just as important if not more important than the due diligence.’