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Category: Blog

Types of Finance Agreements

Posted on by Theo

A lot of our customers ask us how equipment finance works in the industry and the difference between the various finance options.

There are quite a lot of myths and misunderstanding, below is a simple guide which we hope will help you better understand the terms that finance companies use, and importantly the difference between them.

There are three main finance options offered in the United Kingdom, we have listed them below.

 

Operating Lease

With an operating lease, the lease will normally run for less than the economic life of the asset, as such the finance company (the lessor) will continue to have an economic interest in the asset. It is therefore expected that the asset will have a significant residual value at the end of the primary lease period.

The customer (lessee) gets to use the asset over the agreed lease/rental period, but the payments made do not cover the full economic life of the asset. As opposed to a finance lease where the full cost of the asset is charged over the life of the agreement.

An Operating lease is likely to also include other additional services, some examples of which would be realising procurement risks, the stocking of goods ‘off the shelf’, delivery/installation of items, insurance and replacing faulty goods from stock.

At the end of the lease period the lessee may have all/any of the following options:

  • Return the asset to the finance company
  • Continue to rent the asset in terms agreed in an extension period
  • Negotiate a custom deal with the finance company

With an Operating lease the assets remain on the lessor’s balance sheet and the rental is treated as a cost item in the lessee’s profit and loss.

A rental agreement is a form of Operating Lease.

 

Finance Lease

With a finance lease the finance provider (the lessor) buys a specific asset and rents it to the hirer (the lessee) for an agreed period.

The finance lease commits the lessee to make payments for the cost of the asset. As the asset is still owned by the finance company, the lessor manages the VAT and accounting principles for the agreement.

At the end of this period of leasing (usually called the primary hire period) there will normally be several possible options open to the hirer.

  • The hirer can sell the asset to a third party on behalf of the finance provider.
  • The asset can be returned to the finance provider
  • The hirer may enter a secondary hire period, typically for a “peppercorn” amount

Note – A lessor cannot give the lessee a documented right to purchase the asset at the end of the lease for a pre-determined value. This would change the lease into a hire purchase agreement changing the VAT and accounting treatment with negative cash flow implications for the lessee.

For more information about end of term options on a finance lease, please see this article.

 

Hire Purchase (sometimes called lease purchase)

The point of a hire purchase agreement is that the asset is on hire from the finance provider until the final payment, at which time the title passes to the hirer. As it is understood between both parties that title will pass to the hirer at the end of the initial agreement, a hire purchase agreement is treated as a purchase for tax purposes, accountancy, etc.

With a hire purchase agreement, the hirer is therefore required to pay all the VAT due on the asset purchase up front, in addition to any deposit required by the finance company.

The hirer must treat the asset as owned, so it must be shown on its balance sheet and depreciated in line with its usual accounting standards. Of course, this this has implications in terms of other borrowing or covenants that the bank may have on the business.

 

We hope that you found this article useful, and as always if you have any questions, please just speak to us.

 

James, Paul, Theo, George, Oli and Liam

The Ninkasi Team

 

You can read more about different finance products by following any of the links below:

https://www2.deloitte.com/uk/en/pages/audit/articles/ifrs-16-leases.html/

https://www.ukbusinessforums.co.uk/threads/finance-lease-for-van-ending-what-do-do.345456/

https://www.advanceleasing.co.uk/services/end-of-lease-services/

https://www.addleshawgoddard.com/en/insights/insights-briefings/2019/tax-and-structuring/vat-update-fmv-leases/

https://app.croneri.co.uk/feature-articles/buy-hp-finance-lease-or-operating-lease-introduction-accounting-and-taxhttps://maxxia.co.uk/asset-finance/finance-lease/

https://www.bermans.co.uk/asset-finance-publications/article1/

Please note that all information contained within these articles is produced as summary of our experiences and does not constitute financial advice. Any information contained within third parties’ documents are not attributable to Ninaksi Rentals and must be read at your own discretion. Ninkasi rentals always advise that independent financial advice should be taken before signing any financial documents.

Case Study – SALT

Posted on by Theo

Ninkasi Rentals and Finance have just helped SALT complete their new tank farm project. SALT (who are part of the Ossett Brewery Group) are currently in high demand among their customer base, and several large orders have meant that they needed in increase their production capacity swiftly and cost effectively.

SALT approached Ninkasi for a financially viable solution to increase their production capacity with minimal capital outlay while still having the ability to determine how they wish to handle any future transactions with Ninkasi. This meant that Ninkasi provided the upfront capital for the project while SALT received the tanks that they required to their exact specification.

Dr. Nadir Zairi, Managing Director at SALT said:

“It was a pleasure to work with Ninkasi on this project for our business. SALT is always looking to work with professional and supportive suppliers and found that the ethos and customer service within Ninkasi really matched our own.

We are currently going through a significant growth phase and as such needed to increase our capacity, with the current economic climate and uncertainty in the market we felt that a rental solution provided the best possible capital advantages while also protecting the business from any unknown market forces which could impact and would be beyond our control.

We are very happy with our choice and the service and value provided by Ninaksi”.

James Lewis, Managing Director at Ninkasi Rentals said:

“The tank farm project at Salt has been smooth sailing since day one. The vision that Nadir and his team have for the business is very clear and having known the business for many years, providing the capital for their expansion was something that we were always happy to support.

We have found that many of our customers have moved into expanded small pack production during the recent pandemic, and as such Ninkasi have been able to provide additional tank capacity for them quickly and at a time to really help their business thrive in uncertain times. The flexibility of our rental offering is also very attractive to our customers during these uncertain times as it allows customers to grow with demand, but not necessarily risk the upfront capital of outright purchase.

The 9 x 60hl tank farm at Salt is representative of how we can work alongside a customer to ensure that their ambition and ability to meet their customer demand is done both cost effectively and smoothly”.

CASE STUDY – Bristol Distilling Co

Posted on by James Lewis

Bristol Distillery choose Ninkasi Tanks

Founded in early 2017 Bristol Distilling Co was created with the intention to set itself apart from an industry bloated with ‘on-topic’ acronyms and hyperbole created by a team of marketers in fancy offices. Bristol Distilling Co wanted to show from the drinks it creates, to the way it thinks and how it expresses itself – they were a different type of company.

In 2018 the distillery was borne using a 500L copper pot still custom built for the business in Nebraska. The first gin ‘77’ was bottled in May 2018 and was quickly awarded in the International Wine and Sprits competition, followed up by another award in the same competition in 2020 for the 77 Black, a cold brew coffee and vanilla liqueur.

Refusing to accept conventional wisdom that large retailer listings can only come after years of slow and painful growth, the business now has contracts with Europe’s largest grocer.

With the business continuing to support and grow locally as well as through retail, expansion and strategy became more and more prevalent to the business leaders. The directors of the company wanted to bring more of the production in house, however recognised that growing the business through traditional methods was both capital intensive and slow.

So Bristol Distilling Co. reached out to Ninkasi rentals, and started to rent Fermentation Tanks to allow for their kegged Gin and Tonic to be blended under their expert tutelage.

From then it has been a match made in heaven with Ninkasi able to provide the equipment and support which allows Bristol Distilling Co. the room to grow organically without the worry of capital being tied up in assets which don’t drive a return.

What Bristol Distilling Say:

“Excellent service from the team at Ninkasi. They were able to understand our needs, support us through the decision-making process, no hard sell, no hassle, just an honest company trying to help another. When the tank arrived they had it installed where we wanted it, no mess, no fuss – just great service – and then when we noticed a small leak on one of the valves, they were down the next day and sorted everything out. We judge businesses on the way they are after a sale not before it, and Ninkasi have been great to us. We are also a small company with big ambitions and I think that entrepreneurial attitude and willingness to support and help your customers shines through everything that Ninkasi does – all, in all, very very happy to recommend them and their service to anyone out there that is thinking of tanks for their business.”

Jake Black – Director – Bristol Distilling Co.

“As Jake says the guys at Ninkasi have just been great, they always respond when you ask a question and when we needed support during the Covid pandemic, they didn’t hesitate. They are easy to talk if you have a question on invoicing or something similar – but to be honest the best thing about them is that you don’t even know that they are there. They don’t constantly email you or push like other companies, they just sit in the background, and if we need them, they are always there to help.”

Clare Neath – Director – Bristol Distilling Co.

 

 

Pilot Brew Kit – Our Thoughts

Posted on by James Lewis

We asked George (our resident brewer), why he choose the Sabco pilot Kit to work with.

This is what he had to say:

“The Ninkasi Pilot kit is a fusion of Sabco’s excellent BrewMagic, and Ninkasi’s knowledge of the UK craft brewing sector. Here are some of my favourite things about the equipment;

  1. The brewhouse is built upon a series of ¾” Tri clamp stainless pipes. Consigning poor-quality hoses to a thing of the past.
  2. The Brewmagic pilot kit can be run on different power feed inputs, making it a suitable for a wide range of breweries.
  3. The built-in heat exchanger allows you to re-use your hot water for your next brew. So it allows you to complete multiple brews back to back.
  4. The whole system is controlled by a handy touch screen.
  5. You can manage the heat and pump on each vessel, and easily set the controller to manage recipe times. This gives you the flexibility to brew how you brew, whether that’s step mashing through the RIMS system, hitting the perfect strike and sparge temperature or getting the perfect rolling boil.
  6. This gives you true repeatability whether your prototyping new styles or recreating a winning formula.
  7. Ninkasi have added flexibility to the system, allowing wort to circulate through the mash resulting in a good vorlauf.
  8. By adding a back plate and places for your brewing equipment to be stored, Ninkasi have made the brewers life slightly easier.

When I’ve brewed on the kit I have found it to be very user friendly. I enjoy the control that I get, and the fact that everything I need is easily accessible. My favourite thing about brewing on this kit is the temperature control elements, this is a game changer for pilot breweries.

Would I have one? Hell yes! But you’ll have to find me room to store it!”

So there you have it straight from our brewer himself, what the Pilot Kit is, what it does…. and importantly, why he likes it.

Keeeeeeeep brewing

The Ninaksi Team

Case Study – Big Smoke Brew Co.

Posted on by Theo

Big Smoke Brew Co are a true Craft brewery, founded in the back of a pub (The Antelope) in Surbiton. Rich and James had the vision and belief to create something extraordinary, but needed additional capacity to continue to grow the business, this is their story;

Firstly, Rich and James needed a Head Brewer, Nick was literally stopped on the tarmac before boarding a flight back to New Zealand (think any good Rom/Com), and the rest of the team soon followed. Together they all started creating not only amazing beers but a loyal and dedicated customer base – growth followed swiftly and sizeably.

To meet demand the team at Big Smoke decided to contract brew two of their beers, however they knew that what they really wanted was a bigger brewery. In December 2018 they took delivery of a new 30HL kit, increasing capacity four-fold, and allowing them to bring all of the control and functionality back in house. Importantly for the team at Big Smoke, it enabled much more control of the process and they were able to achieve greater consistency across their range.

Big Smoke soon found themselves in the enviable position whereby they had grown exponentially in a short space of time and were running out of capacity again for their core range. Recognising the quality control, they had when they brewed the beer inhouse, they needed to find a solution which increased capacity, while at the same time protecting their cash flow and capital reserves.

They spoke to Ninkasi, who agreed to purchase Uni Tanks for them and install them into their brewery. Big Smoke agreed to rent the tanks while they decided their next growth phase.  The team at Big Smoke loved the Ninkasi experience, not only was the service professional but they could brew into the vessels within 24hrs from completed delivery.

Watch the video below to hear their thoughts on working with Ninkasi

 

Hiring a Tank can be Cheaper than Purchase!

Posted on by Theo

Crazy statement! How can hiring a product possibly generate more long-term value for your company than the cost of buying it outright?

Well…… the reality is that most breweries look at a tank purchase as the cost of the tank itself, and completely ignore all of the sundry costs associated with actually getting the tank from the manufacturer to their business and also the cost of the install.

Typically, if buying from China (considered the cheapest option), there is the shipping cost, import taxes, pressure certificates, UK destination delivery, unloading of the container on site and the positioning of the tank in the brewery – as well as the valves and adaptors which, of course, are needed to operate the tank. On a typical 40hl tank this will add anywhere between 45-60% on to the initial “cost” of the tank.

Yes, having multiple tanks delivered in one go will obviously affect that percentage but the principle is still valid – “tank cost” is only a fraction of the true cost of having a new tank installed.

Compare the above with the Ninkasi Rental option.

Ninkasi reduces the import costs by always buying in bulk which not only benefits the shipping rates as container space utilisation is always maximised, but also allows the negotiation of preferential rates across all the other aspects of the ancillary costs. As this is Ninkasi’s main activity all unloading, delivery and positioning is carried out in house rather than incurring a secondary cost – all of which means that Ninkasi pricing reflects the savings it makes and pass these directly onto its customers.

Great you think, but it’s still a Ninkasi tank, and “I want to own it”.

My first thought is why? A businesses value is seldom in its asset base as this is always a depreciating factor. Particularly with Breweries, business value is always in the revenue generation, branding and growth potential i.e.  it’s the marketing and sales presence which is attractive to a buyer. I can’t think of a brewery that has been sold at a multiple of its brewery plant value, it’s always a multiple of revenue/profit, the value of the brew plant often does not even factor in the calculation.

However, in the UK we just like to own things – it’s in our nature and heritage – so if a brewery wants to own the tank no problem, and it will still cost less to do it through Ninkasi! Why not harness Ninkasi buying power and technical expertise, use our ability to remove costly barriers and we will happily work with clients to enable ownership in the future.

Still not sure? OK, well what if Ninkasi were able to sweeten the deal? One of the main benefits of using Ninaksi is the flexibility; if a brewery buys a tank – that’s the tank it has. If beer volumes increase and capacity is reached more quickly than forecast, the only option is to buy another tank. Not with Ninaksi, on just a call Ninkasi will swap a customer’s hired tank out for a larger one, it’s a very quick and simple process, often done in just one week.

Have you also considered, when a brewery buys a tank the impact on the business is always negative to cash flow immediately, and with a  wait of 4 months (or more) for the tank to arrive (compared to from 1 week with Ninkasi), the brewery is having to pay out between £25-£30k per tank without any revenue being generated to cover all the additional costs to deliver and install. None of that happens with Ninaksi as we smooth all the cash flow concerns. Initial payments are minimal with customers hire costs largely in line with tank usage/cash generation.

So, the brewery can keep £25k in the business and still have a tank generating an extra £10k per month revenue (based on 40hl). Therefore instead of having cash flow challenges, it is cash buoyant and can use this money to facilitate further higher margin ventures  e.g. increase tap room scale, invest in direct/additional marketing, employ a new sales manager that will take the business on to the next level etc.

Very simply, with Ninkasi the £25k tank now costs a brewery £260pcm, giving all the benefits detailed above, and leaving the option open to take ownership in the future for less than if the brewery had funded it through traditional asset finance.

Ninaksi was created to support the brewing community. We are passionate about the industry and as a small business have over 65years experience within the trade. If you would like to understand more about how hiring a tank can be cheaper than purchase, please get in touch, we look forward to hearing from you and supporting your business.