An evolving market. Financing. Putting vehicles on the road in several countries always comes up against numerous administrative obstacles

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1 SUPPLY Dossier Financing An evolving market Clients are demanding more and more flexibility from their transporters. Where multinationals are concerned, factory openings, relocations and closures are commonplace nowadays, and it is the interests of transport companies to keep up. How many vehicles, which countries, for how long these are just some of the questions which they have to ask of themselves. They therefore have to be able to call on solutions which are just as flexible and effective from their own suppliers. Juggling price and security, it is often necessary to compromise. Putting vehicles on the road in several countries always comes up against numerous administrative obstacles The finance solutions market is still, nevertheless, very fragmented in Europe. None of the HGV manufacturers covers the whole of Europe with a complete offering in terms of finance solutions, and some captive finance houses even have a relatively reduced sphere of activity. The banks leasing companies are extending their European presence without necessarily calling on the support of their parent-banks in all countries. Multi-brand renters, finally, are expanding geographically, but with prudence, so high are the financial stakes. Transporters do not always demonstrate the same prudence, for fear of losing important markets. But they still have to go and buy the vehicles and register them. Yet even if pan- European transport is a reality, there is still a long way to go in harmonising legal and fiscal conditions surrounding the putting into service of a utility vehicle While waiting for this hypothetical evolution, the question of the choice of a finance partner is therefore more than ever vital. Should you remain faithful to your own bank, or negotiate with a local bank? Opt for a purely financial formula, or subcontract the management of the fleet further? Go for a captive renter, or a multi-brand? Although this dossier does not claim to supply the answers to all the questions, at least it gives an overview of the principal players with a pan-european presence of one degree or another. And on this subject, the following pages will show that the landscape is slowly starting to structure itself around a few suppliers covering almost all of Europe. Claude Yvens, Editor in Chief. SUMMARY Leasing companies put forward their advantages p.34 The principal leasing numbers in Europe p.37 The evolution of captive and multi-brand renters p.38 The European presence of renters p.39 Truckeurope 09-33

2 A step further than t SUPPLY Dossier Financing Finance companies Where the choice of a finance partner to assist in the international development of a transport company is concerned, the captive and multi-brand renters (who are the subject of an article further on in this dossier) are confronted by numerous financial establishments. A mixture between several finance formulas enables more precise management of the fleet of a new subsidiary. Is it better to centralise all the dossiers in the company s country of origin, or to turn to the local subsidiaries of the financial organisms? This is a question of accountancy organisation which is relevant both to the transport company which The networks of the banks finance companies are now wider than those of the banks themselves wishes to keep its financial management at headquarters, and to that which prefers to give it an independent entity in the newly acquired market. But in both cases, the presence in the new market of a subsidiary of the home country financial establishment is an advantage. Extent of networks We will get involved from 20,000 EUR. If a Western European client wishes to buy a semi-trailer in Poland or the Czech Republic, I contact my colleague in this country and give him all the information in my possession, indicates Olivier Caudron, director of Fortis Lease France. We then set up the dossier which we can follow up together thanks to our computer systems. The banks have well understood the evolution of the market, those at least whose finance subsidiaries now cover a wider and wider geographical area: 14 countries in the case of BNP Paribas Lease Group, 17 for ING Lease, 20 for SG Equipment (a subsidiary of Société Générale) and 22 in the case of Fortis Lease. Much wider, in many cases, than the networks of the banks themselves. The advantage offered by these groups of such a size, of course, is a financial base which enables any dossier to be handled provided the company is solvent, as well as a certain comfort factor for the transport client. It is a much appreciated service to be able to finance a truck in a third party country. The head of finance of the transport company is able to keep his normal contacts, explains Benoît Chenu of SG Equipment. But for others, however, the trend is rather to look for local solutions, with a high degree of liberty given to local subsidiaries who know the market better and who are therefore able to react. A reduced headquarters team (5 persons out of 2,355 at BNP Paribas Lease Group) therefore has to encourage syner Truckeurope 09

3 he banks Philippe Sénac (BNP Paribas Lease group): In those countries where we do not have a direct presence, we turn to partner establishments. The creation of credit lines over a full year is sometimes offered to clients who need regular finance. gies between each member of the network. And finally, there are partnerships concluded by certain financiers in order to complete their existing network, as in the case of BNP Paribas Lease Group. In those countries where we do not have a direct presence, we call upon partner establishments. So, for example, the four Nordic countries are covered by Nordania Leasing, a subsidiary of Danske Bank, our partner in northern Europe, explains Philippe Sénac, responsible for European transport and industrial markets. Communication The extent of a network is one thing, but the degree of internal communication within this network is quite another, and just as important, according to Yves Gérard, head of marketing at ING Lease in Belgium. We transfer the information about a transport company client from one country to another. A company is known in its country of origin, but not necessarily in the country in which it wishes to set up. Depending on the studies we have at hand, the dossier goes much more quickly. Of course, each country has its own criteria, he points out. In Russia, for example, demand is very high. Our teams are first and foremost interested in the highest potential, which means the large companies. Taking account of our structure, we can t call upon the support of a banking network, except in Turkey where the purchase of a local bank is going to enable us to gain in efficiency. So it is our teams on the ground which have to show their dynamism. The strategies for setting up new installations of the finance companies and the banks which control them are not always in tune, therefore, although this is not prejudicial to the transport client. Companies which borrow do not necessarily have to be clients of the corresponding banking network. Inspection of the dossier is generally confided to the teams within the country where the vehicles will be operating. Even where financing companies of very different sizes are concerned, tariffs are, apparently, very similar. In the majority of cases, conditions for access to finance relate to certain norms, and tariffs are set at headquarters, which avoids nasty cross-border surprises. But in general terms, transporters will obtain better conditions once they have put several operators into competition. Solid finance houses For those financial establishments which wish to take a substantial market share, outstanding credits represent a decisive element. SG Equipment finances 3 billion EUR of transport vehicles per year, or around 30,000 units. And for those groups which have regular finance needs and no time to lose, the negotiation and setting up of credit lines at the beginning of the year are offered, according to investment plans set out by the client. According to the spread per country, it is therefore not necessary to set up a new dossier for each new purchase, and Truckeurope 09-35

4 Geo-location is one of the supplementary services which can make the difference. ADDITIONAL SERVICES The choice of a financial services provider is also determined by the extent of the services on offer. Extra services are therefore also proposed, such as insurance (mutualising the risk gives strength to the finance houses where the insurance companies are concerned), or geo-location. Some think of these things, including Olivier Caudron at Fortis Lease: As we more and more often have equipment which travels a long way away from the country where it is financed, we think about installing geo-location systems which have a dual advantage for us, and also for our client who can use it in his fleet management. in line with the agreed volume, financed asset transfers can be carried out. Another HGV does not originate from the banking sector, but from an industrialist who knows how to manage financial flows. GE Capital Solutions, the financial branch of American conglomerate GE Capital Solutions, comprises several sectors including the financing of industrial assets. One of the TOP 5, it employs 3,000 persons in Europe. Its organisation into industrial sectors includes road transport. Today, the growth of GE Capital in Europe is achieved through buying banks, which is used in Germany and the countries of the East. Several aspects differentiate us from the banking establishments, however, believes Thomas Zink, marketing director at GE Capital Solutions France. GE is above all an industrial group which has developed into finance. We have expertise in the issues which affect our clients, which we experience every day in our own company. The availability of our teams and the finance processes make the difference. Our expert system is capable of responding in five minutes and the acceptance rate is above 80%. Risk taking GE Capital Solutions, present on this market for thirty years, has defined risks by establishing precise rules for accepting a dossier. This allows for increased development within a road transport sector which is both dynamic and exhibiting great demand, and which represents a well-controlled risk because the vehicle remains the property of the finance house. The amount of risk taken by the finance house depends on the brand and type of vehicle. It is on this basis that the standard residual value is established, which is included in the contract. By contrast, a valuation is essential in order to establish a definitive price which will trigger the invoicing of the last rental payment. Taking the equipment back is therefore an art which every finance establishment has had to develop, because it is in its interest that endof-contract equipment is re-sold as quickly as possible. However, the current pressure on factories and the delivery times which ensue for new vehicles, mean that the re-sale of end-of-contract vehicles does not really pose any problem. In order to further shorten used vehicle negotiations, Fortis Lease has an Asset Management department in Brussels for the whole of Europe, which takes charge of optimising ends of contracts and re-sale. With other finance houses, including SG Equipment, the re-sale service is personalised. The asset is re-sold through a network of professionals, or by auction. Working closely with the manufacturers networks But don t conflicting relationships with the manufacturers networks, which all have their own captive rental companies, then arise? Within the competition between the captive renters, the manufacturers finance establishments and the finance houses, the captive renters have an advantage, because they are very familiar with the product. Small and medium transport companies tend to turn to these, admits Yves Gérard (ING Lease). The current growth in the road transport market, and the general progress being made in finance formulas, to the detriment of bank finance or own funds, mean, however, that we can now talk more of complementarity than simple crude competition. The cake is getting bigger by itself, and everyone can take a slice. As we also work directly with dealers, we consider them as partners. Their captive renters can t absorb everything, is the analysis of Benoît Chenu, Head of International Business Development at SG Equipment. A captive renter will have between 30 and 50% penetration, and so there is room left for the others. We obtain almost 70% of our business volume from the networks. Working closely with the manufacturers networks has another advantage. The specific characteristics of vehicles to be financed can very quickly become a real headache. The piling up of envi Truckeurope 09

5 Olivier Caudron (Fortis Lease France): Operational renting is the formula of the future. EXPERIENCE GAINED Depending on the company, the finance modes may be structured differently. So it is that Antoine Boyer (TAB), with installations in France, Spain and Hungary, prefers in most cases to turn to local banks. But of his fleet of 9 trucks located in Budapest, 6 are financed by the bank and 3 by the Renault dealership in France. The advantage for the company is that they can be driven on Hungarian plates for a while and then operated in France for a second lease of life. The fiscal regulations are not so different from one country to the other, he asserts. Charles Prévost, STRI (France) has also set up a branch in Hungary, and has also decided to work with local banks which offer him a mixture of classic credit and lease-credit. Putting vehicles onto the market at the end of their contracts is an important facet of the know-how of finance houses, which take advantage of their close relationships with the manufacturers networks. FINANCE VOLUMES ronmental norms and the EGR and SCR anti-pollution systems don t help either. Euro-2 vehicles are not permitted in some countries, and Euro-3 will follow suit one day. As for Euro-4 SCR, some specialists predict that they will be difficult to re-sell. Which formula to choose? As for finance formulas, they have evolved greatly, from simple financial leasing to operational renting (or long term renting). This off-balance-sheet formula is particularly well suited to new installations. If a company has, for example, a need for 20 semi-trailers for a three year period, the financial establishment calculates the repayments on 50% of the value of the equipment and the risk on the rest is borne by the renter. Monthly repayments are therefore lower, and at the end of the contract, there is either restitution of the equipment to the renter or a new rental period. The company has the advantage of regularly having new equipment available. In Europe, this is still a marginal formula, but for us, it represents the future, asserts Olivier Caudron (Fortis Lease). It is a real advantage for companies in drawing up their balance sheets, because it doesn t show up as a debt. It is doubtless for this reason that the Americans select this formula for financing industrial assets to the tune of 80%. Operational renting is easily applicable in the majority of European countries with the exception of Spain, where setting it up is very complicated and, to a lesser extent, Italy. It is also true that operational leasing is more favoured by large companies. But in complex cases (making vehicles available in a large number of different countries), a mixture of different finance solutions may prove to be useful. But only to be attempted with a solid, substantial partner Jean-Yves Kerbrat 2006 FR Association française des Sociétés Financières - ASF 7 549,00 GB Finance and Leasing Association - FLA 6 729,94 DE Bundesverband Deutscher Leasing-Unternehmen e.v ,00 IT Associazione Italiana Leasing - ASSILEA 4 412,00 ES Asociacion Española de Leasing - AEL 3 858,80 PL Association of Leasing Companies in Poland 3 103,26 CZ Czech Leasing and Finance Association - CLFA 1 748,54 DK Finans og Leasing 1 416,71 AT Verband Österreichischer Leasing-Gesellschaften - VÖL 1 375,93 NL Nederlandse Vereniging van Leasemaatschappijen - NVL 1 366,00 NO Finansieringsselskapenes Forening 1 180,91 BE Association Belge des Entreprises de Leasing 965,63 RU Russian Association of Leasing Companies - Rosleasing 901,92 FI FKL 829,00 SK Association of Leasing Companies of the Slovak Republic 723,35 RO Romanian Leasing Association (ASLR) 719,06 PT Associacao Portuguesa de Leasing e Factoring - ALF 714,00 SE Finansbolagens Förening 689,29 HU Hungarian Leasing Association 554,77 LT Lithuanian Leasing Association 543,33 CH Schweizerischer Leasingverband - SLV 510,81 SI Slovenian Leasing Association 286,95 EE Estonian Leasing Association 279,61 LV Latvian Leasing and Factoring Association 272,91 BG Bulgarian Leasing Association 219,06 UA Ukrainian Association of Lessors - UKRLEASING 44,12 Leaseurope ,82 Source: Leaseurope (in millions of Euros) Truckeurope 09-37

6 SUPPLY Dossier Financing Financing solutions Renting in favour One after the other, a manufacturer announces that he has new ambitions in the rentals sector, a new player appears with new European ambitions, and German rental companies openly play the international card. The European market for financing solutions is taking shape The centre of gravity of the European Market is nowadays situated in Germany. In one year, at least two significant developments are worthy of note: the growing interest of manufacturers in full service renting, and the geographical expansion of players who were previously national only. Germany, a central market In April, Paccar Financial Services acquired the German company Truck Center Hauser (TCH) which is to serve as a base for developing full service leasing solutions in Europe, under the brand name of PacLease. From Germany, many European development strategies are being established Christian Sonneville, the new director general of TCH-PacLease, explains his strategy: First of all we are going to integrate TCH into PFS, and in particular we will make TCH a single brand renter, but our ambition is clearly to develop PacLease throughout Europe from its base in Germany. These observations have to be put within the context of the interview we gave to Bob Bengsten (PFS) a few months ago (Truck Europe 7). At the same time, GE TIP is extending to tractor units a product offer which up until now has only involved semi-trailers. From Germany, the offensive will start in the Benelux countries at the end of 2007, and will be extended to the Scandinavian countries at the beginning of For the time being, therefore, Germany represents the centre of gravity for the European market. The large German renters, long closeted in their national market, (a vast market it is true), are now signalling their ambitions for Central Europe, following or anticipating in this way demand from their clients. PEMA had already shown the way, rapidly to be followed by VR Leasing, Euro Leasing and soon Hama Trucks and Hertz. VR Leasing, controlled by DZ Bank and WGZ Bank, now has subsidiaries or representations in 10 Central European countries. Euro Leasing has a subsidiary in the north west of Poland, and is planning others in Central Europe and Scandinavia. Hama trucks (see inset) has similar plans. And Hertz, finally, has been nurturing ambitions since it came under the control of a group of investors in 2005, including Merrill Lynch and the Carlyle Group. We started our offensive in 2004 with LUV s, but the next part of our growth plans includes HGV s. We are already present in Germany, we are launching our product in Switzerland, and our development plan should be com Truckeurope 09

7 EUROPEAN PRESENCE OF CAPTIVE RENTERS DAF Iveco MAN Mercedes Renault Trucks Scania Volvo Trucks A B BG CH CZ CRO D DK E EE F FI GB GR H I L LT LV N NL P PL RO RU S SK SI TR UA Market served via another country Projected, or with limited services Presence via joint venture or partner Presence via branch Clovis Euro Leasing Fraikin GE TIP Hama Trucks Hertz Pema Petit Forestier VR Leasing EUROPEAN PRESENCE OF MULTI-BRAND RENTERS A B BG CH CZ CRO D DK E F FI GB GR H I L NL P PL RO RU S SK SI Projected Agency or subsidiary Parent company Other multi-brand renters: Renting Car WTS (B/L/SK), Turbo s Hoet (B/BG), Via Location (F/B/NL), Walter Trailer Rent (A), Ryder (GB), Penske Truck Leasing (GB), BAS Truck Verhuur (NL), as well as many exclusively local renters plete in two years, explains Thomas Pfisterer, Director, Vans and Trucks. Faced with the strategies for conquering new markets coming out of Germany, the other multi-brand renters, mostly of French origin, are continuing to spread their nets. At the beginning of 2007, Fraikin registered its first vehicles in Slovakia before doing the same in Poland. During this time, Petit Forestier, specialising in the rental of refrigerated vehicles, was developing mostly in Western Europe, with installations in Switzerland and Portugal. Geographical expansion Although certain of the multi-brand renters are offering other financial products, long term renting remains their principal weapon. Their development in Central Europe therefore depends upon the overall progress made by the rental sector in these markets. To listen to most of the heads of captive rentals, we are still a long way from saturation. The markets of Central Europe and of the East are principally interested by financial leasing, whereas the most mature markets of Western Europe are more and more wanting long term rental contracts, explains Claes Jacobsson, Senior Vice President of Scania in charge of Scania Financial Services. In these countries, apart from the local transporters, we are mostly in contact with the large international shippers who are looking for financial partners offering framework agreements on an international scale, goes on Christopher Weinig, head of Sales and Marketing at DaimlerChrysler Financial Services. In southern Europe Italy, Spain and Portugal transport companies prefer bank finance, he adds. Long term renting and fleet management services are developing in those countries where vehicles are looked at purely from a practical point of view, such as the UK, France, Germany and the Benelux countries. There is therefore still a lot to do before finance companies allied to manufacturers are able to cover the whole of Europe with a full range of financial services. Scania, for example, offers financial leasing solutions throughout Europe, but limits long term renting to Western Europe and short term renting to the Benelux. Two focal points for development are therefore on the agenda, as Rainer Laber, CEO of MAN Finance International, explains: We currently cover 25% of MAN sales in countries where MAN Finance has a presence, but we are not yet present in all the markets of MAN Nutzfahrzeuge, which is our objective. On the product side, we are launching new initiatives, and in particular in order to further develop our full service leasing solutions. So what is missing in Europe in order to further accentuate the development of a European financing offer? The most commonly heard response is better harmonisation of the legal and fiscal environment. But the slowness with which manufacturers are extending their finance services demonstrates one thing above all: these services are not a tool for making new conquests, in their eyes, but an important lever towards profitability. Claude Yvens Truckeurope 09-39