Coffee Planet

Coffee Planet (CPL), a Dubai SME 100 company, engaged Lynwood Consultancy to assist with raising long term finance with the specific objective of changing the debt profile of the company. CPL had relied on short term finance from banks to fund assets, predominantly coffee machines, which have a useful operating life of 5-10 years. These machines were places in hotels, offices and convenience stores under long term contracts. The result was tight cash flow and a reliance on short term expensive debt finance from Banks and Finance houses. As CPL was growing and diversifying its revenue streams there was also a need for a greater quantum of facilities which had to be negotiated against a challenging economic environment. Furthermore, bank’s were adopting a very cautious approach to the SME segment of the market and generally funding on a fully secured basis.

Lynwood’s approach was to help the company negotiate with its existing relationship banks to increase the size and tenor of their facilities. By helping the Bank’s to better understand CPL’s business model it was successful in increasing the amount and tenor of the existing banking lines. This was challenging as coffee machines are a weak form of security for banks.

The second stage of the process was to increase the absolute quantum of the facilities by introducing new banking relationships on better terms: lower finance rates and lower cash margins. This helped with freeing up free cash flow. New lines of AED 7.5 million were negotiated with two leading commercial banks thus reducing the reliance on CPL’s main relationship banker and diversifying its source of finances.

Thirdly alternative sources of funding were introduced. This included crowd funding in the form of a short term debt facility and an invoice discounting product that could be used as a liquid source of short term finance on a needs basis.

Finally, a finance lease facility was introduced through a multi-national leasing company which really met Coffee planet’s needs. Under a Master Lease Arrangement, finance of up to 60 months was arranged. Under this structure, the leasing company would buy the coffee machines from the supplier and then lease them to CPL under a 60 months term. CPL’s cash flow was enhanced in two ways: 1) lower monthly lease payments and 2) no need to tie up cash in form of margins for Letters of Credit or bank supplier payments. This facility was negotiated at AED 2 Million initially but the potential to grow and replace some of CPL’s short term bank funding lines. Funding sources were further diversified away from traditional banking lines.