The Overall Economic Picture

Transcription

1 Market Report Leasing Business Remains Stable Weak Investment Climate On account of the uncertain macroeconomic situation, the investment climate deteriorated in There was a sharp drop in capital investment. Leasing Extends Its Market Share Companies in Germany invested less overall in 2012, but made greater use of leasing as a financing tool. Consequently, the leasing sector s share of investments in equipment rose to 23.1 percent. The Overall Economic Picture The recovery of the German economy from the deep recession that followed the global financial crisis in the autumn of 2008 and the winter of 2009 was significantly slowed down in 2012 by the troubled states of the euro zone, the weakening in economic growth in China, and uncertainties over the direction of the U.S. monetary policy. Thus, there was a perceptible decline in economic activity over the course of the year. But in spite of the deteriorating foreign-trade environment, the export sector made the largest single contribution to economic growth. The development of domestic demand was uneven. While private and state consumption increased, there was a sharp drop in capital investment. According to the Federal Statistics Office, Germany s gross domestic product increased nominally by 2.0 percent (0.7 percent in real terms). There was a continuous decline in capital investment over the course of the year. Even though financing conditions were favourable, falling sales-and-profit expectations had an adverse effect on investments in equipment and on the construction of commercial properties. Public-sector construction investment declined as economic-stimulus programmes were wound down. The only area of the construction sector to record an increase in investment was residential construction, which benefited from an increasing demand for housing, favourable financing conditions, and a lack of safe investment alternatives for savers. Compared with 2011, investments in machinery and equipment (including investments in so- Overall Investment in Germany in billions of euro Overall investments (not including housebuilding) Source: Ifo Institute for Economic Research, Federal Statistical Office (06/2013)

2 Penetration Rates in percentages Equipment leasing Leasing in total Real-estate leasing Source: Ifo Institute for Economic Research, Federal Statistical Office (06/2013) called other products) fell in nominal terms by 3.6 percent. Building investment (not including housebuilding) contracted nominally by 2.4 percent. Overall investment activity in Germany (not counting investment in housing construction) was down in nominal terms by 3.1 percent. The Leasing Sector Ifo Survey of the Overall Leasing Market The leasing sector managed to escape the worst effects of the downturn in investment activity, and in so doing increased its share of the investment market. So while German companies invested less overall, they made greater use of leasing as a financing tool. This trend was particularly evident in the leased-vehicle segment, which was not affected by the downturn in demand so evident in the markets for other types of asset. As it has been the case for some considerable time, leased vehicles accounted for a high percentage of new vehicle registrations. According to the survey of German leasing companies conducted by the Ifo Institute for Economic Research, new leasing business acquired in 2012 remained at much the same level as in In both years, the total volume of new leasing investments came to 49.0 billion euros. And by maintaining new business acquisition at the levels achieved in 2011, the leasing industry increased its share of aggregate investment in Germany. Thus, the leasing penetration rate rose year-on-year from 15.1 percent in 2011 to 15.6 percent in The volume of business transacted in the equipment leasing segment rose by 0.6 percent to 47.2 billion euros. Since this rise bucked the overall downward trend in investment in equipment, there was a significant increase in the leasing penetration rate in this segment (from 22.2 percent in 2011 to 23.1 percent in 2012). The volume of business achieved in 2012 through real-estate leasing fell by 14.4 percent to 1.8 billion euros. Year-on-year, the leasing penetration rate in the aggregate non-residential construction sector declined from 1.9 percent to 1.7 percent. The striking difference in the leasing penetration rates in the equipment segment and the real-estate segment may be explained, first, by the fact that equipment is inherently more leasable, and, second, by differences Leasing Market 2012 at a Glance Leasing Investment: 49.0 billion euros Penetration Rate: 15.6 percent Penetration Rate Equipment: 23.1 percent Contracts: 1.7 million Share of External Financing: 51 percent

3 Leasing Investment in billions of euro Equipment leasing Real-estate leasing Source: Ifo Institute for Economic Research, Federal Statistical Office (06/2013) in the competitive structures in the two respective market environments. While leasing has established itself as a tool for the financing of equipment, it is rarely used to finance building projects for a variety of legal, fiscal and commercial reasons. Furthermore, other forms of structured financing have gained considerable ground in the real-estate segment in recent years. Member Companies of the BDL The new leasing business generated by the member companies of the BDL last year accounted for around 90 percent of the value of the German leasing market as measured by the Ifo Institute. The BDL s data on its members leasing activities are included in the Ifo Institute s statistics. In addition, the BDL The German leasing market is dominated by road vehicles. In 2012, more than a third (38 percent) of all newly registered cars were leased. Since top-end family vehicles and executive vehicles found particular favour among lessees, the leasing sector s share of the car segment as measured in terms of vehicleacquisition costs was a resounding 65 percent. conducts its own independent annual survey of the business performances recorded in its members balance sheets; this study delivers detailed information about all of the business transacted by its member companies. The BDL includes hire-purchase contracts as well as leasing agreements in its statistics on equipment transactions, whereas the Ifo Institute reports exclusively on leasing. The volume of new equipment business acquired by BDL members last year rose by 1.0 percent to 46.0 billion euros. (This figure includes 6.0 billion euros worth of new hire-purchase business.) New real-estate leasing business fell to 1.8 billion euros. Figures for the real-estate segment tend to be largely determined by small numbers of large-scale transactions, which explains why the decline in the volume of real-estate business transacted (-15.4 percent) was so much more pronounced than the contraction in the number of new real-estate leasing contracts concluded (-8.3 percent). In 2012, the ownership backgrounds of the various leasing companies continued to play a determining role in their performance over the year. The amount of new business acquired by bank-owned leasing companies and by the independents fell (by 3.3 percent and 0.4 percent, respectively), while the companies with close ties to manufacturers (the captives) saw their new business increase (by 3.9 percent). Road Vehicles out in Front Road vehicles were once again the most important group of leased assets. Cars & Estate

4 Vehicles (54 percent) together with Buses, Transporters, Trailers & Trucks (16 percent) accounted for the lion s share (70 percent) of all new equipment leased in The second-largest group of capital goods in the equipment leasing sector was Production Machinery (13 percent). Next in the rankings came Office Equipment & IT Systems (8 percent), followed by so-called Other Products (5 percent), and then Aircraft, Watercraft & Rail Vehicles (2 percent). In joint last place came Medical Technology and Intangible Assets, each of which accounted for 1 percent of all new business. In overall terms, these rankings remained the same as in However, there were differences in the rates at which demand for the various categories of asset grew or contracted. There was significant growth in 2012 in the following asset groups: Aircraft, Watercraft & Rail Vehicles (+20 percent), Cars & Estate Vehicles (+3.8 percent), Medical Technology (+3.3 percent), and Production Machinery (+0.2 percent). Intangible Assets, however, contracted (-12.3 percent), as did Other Products (-10.9 percent), Office Equipment & IT systems (-2.6 percent), and Buses, Transporters, Trailers & Trucks (-2.5 percent). As noted above, road vehicles again constituted the largest group of leasable investment assets. Measured in terms of acquisition costs, the leasing penetration rate in the road-vehicle segment last year stood at 65 percent. The number of newly registered leased cars fell last year by 0.3 percent, but there was a sharper drop in the overall number of new cars registered (-2.9 percent). Accordingly, the leasing penetration rate, measured in terms of new vehicles registered, rose to 38 percent. The car leasing segment profited in 2012 from the high percentage of motorists who use vehicles for business purposes. While just 62 percent of all new cars coming onto the roads were registered by their owners as company cars, some 81 percent of all newly leased cars were registered as company vehicles. New company car registrations fell less sharply than the number of new private cars registered. The fall in the number of new commercial vehicles leased (-1 percent) was not nearly as steep as the overall fall in new commercial vehicle registrations (-7 percent). Figures for new commercial vehicle registrations are a reliable indicator of the overall state of a national economy. A drop in the number of new vehicles being registered is generally a sign of falling demand and lower levels of production, and, consequently, of a reduced requirement for means of transport. After Road Vehicles, the next most important investment-asset category for the leasing industry is Production Machinery. The leasing penetration rate in this segment stood at 10 percent. Although this was higher than in 2011, the actual volume of new leasing business acquired did no more than remain stable. The Production Machinery segment reflected the weak state of the overall economy. Office Equipment & IT Systems constitute the third-largest group of leasable assets. Year-on-year, both the penetration rate (13 Breakdown by Asset Type of New Equipment Leasing Business in Germany Trends in [C] 54 % Passenger Cars [A] 16 % Commercial Vehicles [B] 2 % Aircraft, watercraft & Rail Vehicles [C] [A] +4 % [B] - 3 % +20 % [D] 0 % [E] - 3 % [F] +3 % [G] [H] -12 % -11 % 13 % Production Machinery [D] 8 % Office & IT Equipment [E] 1 % Medical Technology [F] 1 % Intangible Assets [G] Quelle: BDL 5 % Other Equipment [H]

5 Since the mid-1990s, German service companies have been the powerhouse of the national economy, and Services generates more equipment-leasing business than any other customer group. In 2012, it accounted for 35 percent of all new business transacted, which was up on the figure for the precedpercent) and the volume of new business in this asset category fell. At the beginning of the 1980s, the penetration rate for Office Equipment & IT Systems was still around the 50 percent mark, thereafter it declined sharply before stabilising at a lower level in recent years. Technical developments continue to dictate the pace of business in this segment. Hardware has become more efficient and less expensive, and companies are spending increasingly large portions of their budgets on software. For the leasing industry, this has meant concentrating on the supply of smaller quantities of hardware at competitive rates, and offering separate software-leasing agreements. There was strong growth in the volume of new leasing business acquired in the Aircraft, Watercraft & Rail Vehicles segment in This area of the leasing market tends to be dominated by small numbers of big-ticket transactions, and the upturn in 2012 was thrown into sharper relief by the higher-than-average decline in new business in Investments in medical technology continue to account for only a very small fraction of all new leasing business. However, the value of this market segment increased to just under 0.5 billion euros in 2012, and was 3 percent higher than in The leasing penetration rate in the health-care sector is still low, so there is still plenty of growth potential for the leasing industry in hospitals, medical centres and specialist practices. Keeping up with the latest technological developments is particularly important in the field of medicine, and it is to be hoped that health practitioners will eventually come to recognise the advantages leasing can offer. Intangible Assets, which covers software, patents and brands, has always been a low-volume segment, and last year was no exception. The problem with assessing developments in this niche market is that small numbers of high-value transactions tend to determine the amount of new business acquired in any given year. Other Products is a hold-all category for items that do not fit in any of the other investment groups. Examples of such products are information and signalling systems, electrical equipment, optical goods, and shop fittings. Services Sector Still the Leasing Industry s Main Customer Group Demand for leasable equipment in 2012 increased in the Services sector (+7.7 percent), in the Construction Industry (+3.2 percent), among Private Households (+0.4 percent), and in the Agriculture, Mining & Public Utilities (+6.0 percent) sector. Negative growth was recorded for the following customer groups: Public Authorities (-19.7 percent), Transport & Telecoms (-14.2 percent), Manufacturing (-5.8 percent), and Trade & Commerce (-6.9 percent). Breakdown by Customer Type of New Equipment Leasing Business in Germany Trends in % Services (banks, insurance companies etc.) [A] 20 % Manufacturing [B] 12 % Private Households [C] [A] +8 % [B] - 6 % [G] [C] [D] [E] [F] [H] 0 % +3 % -7 % -14 % +6 % -20 % 11 % Trade and Commerce [D] 10 % Transport & Telecoms [E] 7 % Construction Industry [F] 3 % Agriculture, Mining & Public Utilities [G] 2 % Government [H] Source: BDL

6 ing year. This heterogeneous sector includes credit institutes, insurance companies, the hospitality industry, business consultancies and IT service providers. The leasing penetration rate in Services remains relatively low (12 percent), which means it still offers potential for growth. Cars and office equipment (including IT systems) are the commodities most frequently leased by service companies. business declined (to around 11 percent), its relative importance as a customer group was also slightly diminished. However, leasing penetration in this sector remained relatively high (36 percent). A Business-Cycle-Sensitive Sector New business transacted with the Transport & Telecoms sector fell sharply. This customer group managed just fifth place in the 2012 customer rankings, and contributed no more than 10 percent of all new business transacted over the year (one percentage point Over a third of all new equipment-leasing business is transacted with service companies. As just 12 percent of the Services sector s overall investment in equipment is made through leasing, this customer group clearly offers further potential for growth. amount of new business transacted with state-run bodies in Only a very small portion of their overall investment in equipment (7 percent) was made through leasing. However, the leasing penetration rate in this customer group would be significantly higher if the assets leased by state-owned enterprises, state-funded research institutes and charitable organisations were also take into account alongside the leasing business transacted by regional authorities and social services (i.e. by public authorities in the narrow sense of the term). Types of Agreement for the Leasing of Equipment The number of new equipment-leasing agreements of the BDL member companies concluded in 2012 (1.4 million) was 1 percent down on the figure for But the average value of a new agreement was 32,900 euros, which represented a nominal year-on-year increase of 2 percent. Demand from manufacturing companies, the equipment leasing industry s second most important customer group, fell in 2012, accounting for just 20 percent of all new business transacted. Nevertheless, the leasing penetration rate in Manufacturing was 17 percent, which was slightly higher than the across-the-board average. Private Households last year constituted the equipment-leasing sector s third most important customer group. 12 percent of all new equipment-leasing business transacted came from Private Households, so compared with 2011, demand in this sector remained stable. Cars and estate vehicles remained the most sought-after items, and accounted for over 90 percent of the value of new contracts concluded with this customer group. The leasing of cars and estate vehicles is very much in the hands of captive leasing companies, who since the mid-1980s have been successfully targeting Private Households with innovative leasing agreements accompanied by attractive supplementary service packages. Trade & Commerce came fourth in the customer rankings. As its share of new leasing less than in 2011). The Transport & Telecoms sector is known to be particularly sensitive to developments in the macroeconomy. The Construction Industry remained the sixth-largest customer group in It was responsible for 7 percent of all new equipment-leasing business transacted, which was an improvement on the figure for The leasing penetration rate in this sector (55 percent at the end of 2012) has always been very high, and construction companies willingness to lease equipment has of late been increased by healthy levels of demand for their services. The Agriculture, Mining & Public Utilities sector came seventh in the rankings, and maintained its 3 percent share of new business acquired. Agricultural and forestry equipment were the types of asset most frequently leased out to this customer group. In eighth and final place came Public Authorities. There was a sharp drop in the The total value of new equipment procured by the member companies of the BDL in 2012 rose by 1.0 percent to 46 billion euros. 87 percent of this equipment (i.e. 40 billion euros Breakdown by Agreement Type of New Equipment Leasing Business in Germany 48 % Finance-leasing Agreements Operating-leasing Agreements Hire Purchase 13 % 39 %

7 Channels for the Acquisition of New Equipment-Leasing Business in Germany Trends in % In Cooperation with Manufacturers / Retailers [A] [A] +2 % 29 % Business Acquired Directly [B] [B] +1 % [C] -3 % [D] +5 % 11 % At Bank Counters [C] Quelle: BDL 5 % Freelance Sales Consultants [D] worth) was leased, the remaining 13 percent (worth 6.0 billion euros) was supplied on hire purchase. The growth rate for hire-purchase transactions was +5.2 percent, whereas the value of leasing agreements rose by just 0.5 percent. Leaving aside hire-purchase transactions, it can be said that over half of all German leasing business (56 percent) was transacted in accordance with the so-called Leasing-Erlasse (leasing-edicts). These are the legal guidelines that govern all medium- and long-term agreements whose basic lifetimes are shorter than the ordinary useful life of the items being leased (in other words, leasing agreements in their classical form). The remaining 44 percent of business transacted in Germany last year was acquired through operating leasing agreements. With this type of agreement, the financial/investment risk is borne by the lessor, for the leasing company can only recover the residual value of the asset it has leased by selling it on after the agreement expires, or by persuading the lessee to sign up to a new leasing agreement. Operating leasing agreements have become the standard instrument for the leasing of IT equipment and motor cars, particularly when service components form part of the package on offer. Equipment Leasing Sales Channels Leasing companies reach their customers in a variety of ways: Manufacturers and dealers play a central role in the acquisition of most new business. In manufacturer leasing, manufacturers offer the end customer leasing facilities either through their own subsidiary leasing companies or through a captive leasing partner. A variant of this approach is so-called vendor leasing, where the manufacturer relies on a dealer to set up contact between the customer and the leasing company. The volume of business acquired in this way increased by 2 percent in 2012; the proportion of leased-equipment business acquired through vendors remained at 55 percent. In direct selling, the leasing companies own sales teams establish direct contact with the customer. The volume of business acquired by such teams grew by 1 percent in 2012, which means that the proportion of new business acquired through direct selling agreements remained stable at 29 percent. Leasing facilities are frequently offered by banks as an alternative to normal bank loans.

8 New business generated at bank counters last year contracted by 3 percent, and banks saw their share of the leasing market fall to 11 percent. Freelance sales consultants find customers, negotiate leasing agreements with them, and then call in the leasing company. Business acquired by freelancers was up 5 percent in 2012, and their share of the market increased to 5 percent. In e-commerce, potential customers bypass vendors and sales consultants by seeking out companies internet portals for themselves. In theory, the internet offers an efficient medium for the marketing of small-ticket items. However, it has yet to make any real impact in the marketplace, and the volume of business transacted online in 2012 was at much the same low level as in the preceding year. Internet transactions still account for less than 1 percent of the value of all equipment leased in Germany, and are therefore not represented in the graphic. International Leasing Business Foreign leasing business can be conducted by means of cross-border agreements, or in the form of operations directed by leasing providers based in the country in question (domestic leasing). German leasing companies started to grow their foreign businesses in the early eighties by means of cross-border leasing. In this type of operation, the leasing agreement is concluded directly between the German leasing company and the foreign lessee. In domestic leasing, the agreement is concluded between a local subsidiary of the German parent leasing company and the foreign lessee. The setting up of foreign subsidiaries with local expertise offers a number of clear advantages: on-the-ground representation increases service efficiency and also makes it easier to assess customers creditworthiness, the state of the local financial markets, and the demand that exists for specific types of goods. German leasing companies operating abroad once again had to contend with difficult economic conditions in various national markets. The value of cross-border leasing transactions actually increased last year (+4.0 percent), but the volume of business acquired still came to no more than 0.1 billion euro. The domestic leasing market also grew in 2012 (+10.0 percent) and generated 2.6 billion euros worth of new business. Cross-border leasing is characterised by small numbers of high-value transactions, whereas in domestic leasing standardised transactions tend to predominate. Domestic leasing outside Germany is not covered separately in the BDL s new-business statistics for its member companies. Instead, it is included in the investment volumes calculated for the respective foreign countries. Around a third of the member companies of the BDL were active in foreign markets in The Outlook for 2013 In their spring 2013 Joint Economic Forecast, Germany s leading economic research institutes predicted that in the current year the country s gross domestic product would grow at a nominal rate of 2.5 percent (0.8 percent in inflation-adjusted terms). They believe that from the first quarter of 2014 onwards, the economy will begin to recover from the loss of momentum that took hold in the fourth quarter of Foreign trade is expected to pick up albeit slowly and consumption is also expected to gather pace. The research institutes predict that investments in machinery and so-called other products will continue to fall (by 1.0 percent in nominal terms), but that investments in non-residential buildings will increase by 3.5 percent. Since leasing has, historically speaking, played a fairly constant role in the German investment landscape, the leasing sector s ability to attract new business will no doubt continue to be largely determined by the overall state of the German economy. According to the BDL s Trend Report for the first half of 2013, the volume of new business acquired through equipment leasing (including hire-purchase transactions) fell by 2.0 percent, compared with the corresponding period in However, the leasing industry expects new business to pick up in the second half-year, and is hoping that the figure for the year as a whole will be in line with the volume of new business transacted in A further increase in the proportion of aggregate investment financed by means of leasing is predicted.