Clydesdale & Yorkshire Banking Group’s growth finance team may have just celebrated its second record-breaking year on the trot, but David Hayers explains why he and his colleagues aren’t resting on their laurels.
David Hayers could be forgiven for celebrating. As head of growth finance at Clydesdale & Yorkshire Banking Group (CYBG), he and his team have lent a record amount to their customers for the second year in a row, taking the total number of companies to which the team has lent to more than 40.
But Hayers and his colleagues aren’t sitting back and relaxing. Instead, they’re continuing to spread the word about how their customers can borrow money based on the extent of their intellectual property (IP).
“IP is notoriously difficult to value,” explains Hayers. “But if more entrepreneurs hear about the deals that we’re doing, then more of them will start to consider whether it’s an option for them and their business.”
Two of the sectors in which CYBG’s growth finance is proving most popular are software and advanced manufacturing. Technology companies often have developed proprietary software platforms, which allow the bank to lend money based on their revenue generating capability, while manufacturers will usually hold patents or have patents pending, again giving the team something slightly more tangible over which to run their slide-rules.
“We’re seeing good growth across the whole of the multi-faceted software sector,” says Hayers. “We’re looking at a lot of businesses that operate a software-as-a-service (SaaS) model.
“It’s a similar story across the advanced manufacturing sector too. There is such a broad spread of businesses interested in growth finance. In reality, the specific sector is not as important as the strength and depth of the IP.”
A great example of how CYBG has supported innovative companies in this record-breaking year is P2i, a business based in Oxford that makes liquid-repellent coatings for smartphone components.
The firm’s technology operates at the nanometre scale; a single sheet of A4 paper is about 100,000 nanometres thick, illustrating the minute scale on which P2i’s technology works. A longstanding CYBG customer, P2i leveraged its substantial IP to secure a significant increase in its borrowing from the bank, taking its total debt facilities to £10m in May 2017. The company was spun-out from the Ministry of Defence in 2014 and turned its maiden profit in 2016.
The company had previously raised £70m of equity funding from investors including ADV Partners, Ombu and Unilever Ventures. It already has more than 120 patents to its name and its technology has been used to protect in excess of 175 million mobile phones.
Hayers points to the broad range of companies that have secured investment from the growth finance team. Two of the best-known are Scottish duo Aircraft Medical and Touch Bionics, both of which went on to attract the attention of international suitors in takeover deals.
Aircraft Medical, which designs devices to help medics slide breathing tubes down patients’ throats, borrowed £2.1m to help it fulfil its export orders. The Fife-based business was sold in November 2015 to Medtronic for US$110m (at the time £72m).
Touch Bionics, which is based in Livingston, developed artificial hands that have helped scores of amputees throughout the world, with one of its arms even featuring on the music video that accompanied Will.i.am and Britney Spears’ hit Scream and Shout. The company, which secured a £2.5m loan from Clydesdale Bank to help it expand overseas, was sold to Icelandic peer Össur in April 2016 in a deal worth £27.5m.
“It’s great that we’re seeing such a spread of businesses approaching us from throughout the country,” adds Hayers. “We are a truly national team, so it’s great to see that being reflected in our figures.
“During the past year, we’ve seen an increase in interest coming from the North-West of England. We’ve also been busy in the Thames Valley and in the Central Belt of Scotland too.” The growth finance team has bases in Glasgow, London and Newcastle. Staff in the wider CYBG network can also recommend suitable clients to the team, widening the net even further.
CYBG’s focus on entrepreneurs has come into sharper focus since the business was spun-off from former parent National Australia Bank (NAB) in February 2016. The bank floated on the London Stock Exchange and the Australian Securities Exchange (ASX).
After floating at 180p, CYBG’s share price is currently around the 300p mark, reflecting the value investors have attached to the stock. The group’s market capitalisation has risen from £1.6bn during the initial public offering (IPO) to about £2.7bn today.
Investors were buoyed by the lender’s first quarter trading update at the end of January, with its mortgage book growing by 7.4% on an annualised basis to £23.9bn and its deposit balances up by an annualised 14.8% to £28.7bn.
Unsecured personal loans also rose by 6.5% on an annualised basis to £1.2bn. The group also made further strides with its business customers. Its core lending to small and medium-sized enterprises (SMEs) increased by 1.4% on an annualised basis to £6.8bn in the quarter, with £567m of loans and facilities written during the three-month period.
“We’re winning recognition now for our business bank’s focus on British SMEs,” says Hayers. “and that is resonating with both entrepreneurs and equity investors.
“We’re often described as a ‘challenger bank of scale’ – we’re not as big as the largest banks, but we’re larger than the rest, and have the ability to provide a full set of banking products and services across the country. People are really seeing the value of that.”
The same innovation and entrepreneurship that’s displayed by the growth finance team’s clients is also part of Clydesdale Bank’s DNA. While all lenders are now issuing plastic bank notes, Clydesdale was the first to switch to polymer when it introduced its design during March 2015, with engineering innovator Sir William Arrol on the front and his Forth Bridge and Titan Crane on the rear. More recently, in November 2017, the bank was one of the first in the UK to accept cheques scanned by mobile phone.
Celebrating the lives of inventors has been a key theme on the firm’s bank notes over the years. Sir Alexander Fleming and his penicillin discovery featured on the former £5 paper note, while images of Lord Kelvin and his mariner’s compass rest proudly on the £100 note.
In fact, the bank has been backing entrepreneurs since it was founded in 1838. They included Margaret Gemmel, one of the first women to borrow from the institution, whose solid business plan convinced Clydesdale Bank to lend her £100 in the middle of the 19th century to enter the rag trade.
Yorkshire Bank, Clydesdale Bank’s sister company, has a similarly proud heritage when it comes to backing entrepreneurs. Founded in 1859 by successful businessman Colonel Edward Akroyd, innovation was also at the centre of his vision.
He let labourers open savings accounts with as little as a penny and he quickly introduced “school banks”, which got young people into the habit of saving. CYBG’s app-based bank “B” continues that innovative thinking today.
One of the next innovations to transform the sector will be “Open Banking”, a UK Government-led programme that will allow small businesses and private customers to share their bank details safely and securely with financial technology or “fintech” companies using application programming interfaces (APIs), a form of online communication. By allowing customers to share their data, the initiative is designed to lead to more tailored products and services being created, ultimately driving down the cost of banking.
“The goal of the UK’s ‘Open Banking’ initiative is to allow consumers and small businesses the option to securely and safely make the most of their financial data,” said Imran Gulamhuseinwala, a trustee at the Open Banking Implementation Entity (OBIE), when the roll out of the initiative began in January 2018. “In time, ‘Open Banking’ will give consumers and small businesses more choice, better services and cheaper products.
“The work we are doing here is genuinely world-leading. The UK is the first nation to implement a standardised ‘Open Banking’ solution.
“In the UK we are creating a single technology standard enabling new services to be easily built and offered to consumers and small businesses. ‘Open Banking’ will help make Britain one of the best places in the world to bank and will, in time, stimulate the digital economy.”
CYBG is at the forefront of the initiative, using computer technology to give its customers access to the full range of benefits that the programme will bring. The group is again demonstrating its credentials as a true challenger to the larger banks.
“We continue to take major strides in transforming CYBG into the UK’s leading digitally-enabled challenger bank, positioning us strongly for the future banking landscape,” explained chief executive David Duffy during his first-quarter trading update.
“Our ‘iB’ technology platform is ready for ‘Open Banking’ today with full ‘plug and play’ fintech capability, meaning we can offer real time, integrated services for our 2.8 million customers.”
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