REPORT BDL ANNUAL REPORT EXCERPT FACTS AND FIGURES ON THE GERMAN LEASING MARKET 2014 BUNDESVERBAND DEUTSCHER LEASING-UNTERNEHMEN Leasing 2015 Annual Jahresbericht Report 2015
Market Report 2014 LEASING INCREASES ITS SHARE OF THE INVESTMENT MARKET Growth of Investment 2014 Economic growth was largely driven by domestic demand: There was a renewed increase in private- and state-sector consumption, and demand for capital goods was up after having been in decline for two years. Acquisition of Market Shares The leasing industry punched above its weight in the contribution it made to the increase in investment activity in Germany. In the fields of investment in equipment and construction, it performed better than the national economy as a whole. The Overall Economic Picture The German economy got off to a bright start in 2014. And although it lost momentum for a time in the second and third quarters, stability returned in the final three months of the year. The drop in the price of oil and the value of the euro had a positive effect, and in spite of the difficult conditions prevailing beyond Germany s borders, economic activity increased. Even so, the structural fault lines in the eurozone, the sanctions against Russia, and the continuing economic downturn in a number of emerging national markets took their toll. Economic growth was largely driven by domestic demand: There was a renewed increase in private- and state-sector consumption, and demand for capital goods was up after having been in decline for two years. Exports increased significantly, but as there was an almost equally pronounced increase in imports, external trade contributed relatively little to overall economic growth in Germany last year. According to the Federal Statistics Office, the nation s gross domestic product increased nominally by 3.4 percent (or by 1.6 percent in real terms). Following brisk investment activity at the start of 2014, demand cooled off in the middle of the year, but picked up somewhat as December approached. This upturn was supported by full order books, an increase in consumer demand, above-average utilization of capacity, and favorable financing conditions. Expansion and replacement were the dominating investment motives; only seldom was investment triggered by Overall Investment in Germany in billions of euro Overall investments (not including housebuilding) 291.8 273.5 267.0 271.0 276.3 297.1 322.1 334.6 287.0 304.9 327.0 323.6 320.6 334.4 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Ifo Institute for Economic Research, Federal Statistical Office (06/2015)
Penetration Rates in percentages Equipment leasing Leasing in total 20.6 21.7 22.4 23.5 23.9 21.7 22.0 22.2 21.9 20.6 Real-estate leasing 21.8 22.0 22.3 22.7 16.3 17.6 17.6 17.7 18.5 17.6 17.0 16.3 14.8 15.0 14.9 14.9 14.8 15.0 9.8 7.6 8.4 8.3 5.8 6.8 5.6 3.4 1.9 4.0 1.9 1.7 1.2 1.3 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Ifo Institute for Economic Research, Federal Statistical Office (06/2015) new projects. Year on year, investment in equipment (including investments in socalled Other Products) increased in nominal terms by 4.1 percent. Building investment (not including homebuilding) grew at a nominal rate of 4.6 percent. Aggregate investment activity in Germany (not including investments in residential construction) increased nominally by 4.3 percent. The Ifo Institute s Survey of the Overall Leasing Market in Germany The leasing industry punched above its weight in the contribution it made to the increase in investment activity in Germany. In the fields of investment in equipment and construction, it performed better than the national economy as a whole. According to the Ifo Institute s survey, which covered all companies operating in the leasing sector, the volume of new leasing business acquired in 2014 was 6.1 percent higher than in 2013. The value of new investment financed by the leasing sector was 50.2 billion euro, as compared with 47.3 billion euro in 2013. The leasing industry s share of aggregate investment in Germany (i.e. the overall leasing penetration rate) rose year-on-year from 14.8 percent to 15.0 percent. The volume of equipment leasing was 48.6 billion euro, which was 6.0 percent higher than in 2013. And since equipment leasing grew at a stronger rate than overall investment in equipment, the leasing penetration rate in this sector (i.e. the across-the-board volume of investment in equipment accounted for by leasing) increased from 22.3 percent in 2013 to 22.7 percent in 2014. The leasing penetration rate in the real-estate sector (i.e. the proportion of overall investment in the construction of non-residential buildings accounted for by leasing) rose year-on-year from to 1.2 percent to 1.3 percent. The striking disparity between the leasing penetration rates in the equipment and real-estate sectors may be explained, first, by the fact that equipment is inherently more leasable, and, second, by differences in the competitive structures in the two respective market environments. While leasing has established itself as a tool for the The German Leasing Market in 2014 at a Glance Investments made through leasing: 50.2 billion euro Overall leasing penetration rate: 15.0 percent Leasing penetration rate in the equipment sector: 22.7 percent Number of leasing agreements concluded: 1.7 million Percentage of externally financed investments made through leasing: 51 percent
Equipment leasing Real-estate leasing 39.8 38.3 38.5 41.8 44.3 44.9 49.5 51.1 40.7 41.4 46.4 46.2 45.9 48.6 7.5 2001 9.0 7.5 5.0 5.7 7.5 5.4 3.5 1.9 4.2 2.2 1.9 1.4 1.6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Ifo Institute for Economic Research, Federal Statistical Office (06/2015) financing of equipment, it is rarely used to finance building projects for a variety of legal, fiscal and commercial reasons. In addition, other forms of structured financing have in recent years gained considerable ground in the real-estate sector. The leasing business in the segment Production Machinery grew by 10 percent, more than the overall investment in machinery. Therefore, the leasing rate increased and was around nine percent in 2014. in the value of new business, the number of real-estate transactions fell by 17.2 percent compared with 2013. The performance of the various leasing companies in 2014 varied in accordance with their ownership backgrounds. The amount of new business acquired by bank-owned leasing companies and by the independents grew by 7.1 percent and by 8.2 percent respectively, while the captives recorded a 9.3 percent increase in new business. Road Vehicles are Still the Most Sought-After Product Category Member Companies of the BDL The member companies of the BDL generate approximately 90 percent of the value of the German leasing market as measured by the Ifo Institute. The Ifo Institute incorporates the data it collects about their leasing activities in the statistics it publishes. The BDL also conducts its own independent annual survey of the business performances of its members as recorded in their balance sheets. This BDL survey delivers more detailed information about the accumulated value of new business transacted by its member companies. It covers hire-purchase contracts as well as leasing agreements, whereas the Ifo Institute s survey deals only with leasing. The BDL s member companies acquired 48.2 billion euro s worth of new equipment business in 2014, which was 8.4 percent more than in 2013. (Included in this figure is the 5.9 billion euro s worth of new business acquired last year through hire-purchase agreements.) New real-estate leasing business increased by 22.7 percent to 1.55 billion euro. The real-estate sector tends to be dominated by small numbers of high-value transactions, and although there was an increase Last year, road vehicles once again constituted the most important segment of the leasing market. Passenger Cars (54 percent) together with Commercial vehicles, such as, e.g., buses, transporters, trailers & trucks (16 percent), accounted for the lion s share (70 percent) of all new equipment leased in 2014. The second-largest category of capital goods in the equipment leasing sector was Production Machinery (13 percent). In third place came Office Equipment & IT Systems (7 percent), followed by so-called Other
Products (6 percent). Next in the rankings were Aircraft, Watercraft & Rail Vehicles (2 percent) and in joint last place came Medical Technology and Intangible Assets (each with a 1 percent share of the market). The rankings for the types of asset being leased were thus the same as in 2013. However, there were differences in the rates at which demand for the various categories of asset grew or contracted. Levels of Demand for the Various Types of Asset There was significant growth in demand in 2014 for the following types of asset: Aircraft, Watercraft & Rail Vehicles (+75.6 percent), Commercial Vehicles (+11.7 percent), Production Machinery (+9.9 percent), Passenger Cars (+9.9 percent), and Other Products (+5.9 percent). However, levels of demand for Office Equipment & IT Systems (-11.2 percent), Intangible Assets (-7.4 percent), and Medical Technology (-5.1 percent) were all down. As already mentioned, road vehicles again constituted the most sought-after category of new leasing business. Measured in terms of acquisition costs, the leasing penetration rate in the road-vehicle sector last year stood at 68 percent. There was a year-on-year increase of 8.2 percent in the number of new vehicles leased, whereas new car registrations overall gained just 3.1 percent. So in terms of vehicle numbers, the leasing penetration rate in the Passenger Cars segment grew 39 percent. Most vehicles leased are used for business purposes, and car leasing in 2014 profited from the relatively high percentage of motorists using company cars. Although just 65 percent of all new cars coming onto the roads were registered as company cars, some 82 percent of these were leased. And the increase in new company cars registered exceeded the increase in new private-car registrations. The number of newly leased Commercial Vehicles (i.e. vans, trucks, etc.) leased also increased (by 9.0 percent), even though the overall figure for the registration of new vehicles of this class was up by just 4.8 percent. It should further be noted that new Commercial Vehicle registrations are a reliable indicator of the overall state of a nation s economy. After Road Vehicles, the next most important asset category for the leasing industry is Production Machinery. The increase in new business acquired through the leasing of production machinery was greater than the overall increase in investment in machinery. The leasing penetration rate for the year in this sector lay at around nine percent, which was slightly higher than in 2013. Office Equipment & IT Systems constitute the third-largest group of leasable assets. Leasing penetration in this market segment was 12 percent, which a lower rate than in 2013. The penetration rate for Office Equipment & IT Systems was still at around the 50 percent mark as late as Breakdown by Asset Type of New Equipment Leasing Business in Germany Trends in 2013 2014 [E] 54 % Passenger Cars [A] 16 % Commercial Vehicles [B] 13 % Production Machinery [C] [A] [B] [C] [D] [F] [G] [H] +10 % +12 % +10 % -11 % +76 % -5 % -7 % +6 % 7 % Office & IT Equipment [D] 2 % Aircraft, Watercraft & Rail Vehicles [E] 1 % Medical Technology [F] 1 % Intangible Assets [G] Source: BDL 6 % Other Equipment [H]
the early 1980s, but thereafter fell sharply before eventually stabilizing at a significantly lower level. Technical developments continue to dictate the pace of business in this sector. Hardware has become more efficient and less expensive, and companies are spending increasingly large proportions of their IT budgets on software. For the leasing industry, this has meant concentrating on the supply of smaller equipment packages at competitive rates, and offering separate software-leasing agreements. In 2014, there was a sharp increase in the volume of new leasing business acquired in the Aircraft, Watercraft & Rail Vehicles segment. But it should be noted that this area of the leasing market tends to be dominated by small numbers of big-ticket transactions, and the upturn in 2014 came after a year that had seen an above-average decline in new business. Developments in the Intangible Assets segment, which covers software, patents and brand names, are also determined in large measure by small numbers of high-value transactions. Up until now, the volume of new business acquired in this segment has always fallen just short of one billion euro, which means that any big-ticket business acquired or lost makes a considerable impact. In 2014, new business was down by 7.4 percent. Like the Intangible Assets segment, Medical Technology still accounts for only a very small fraction of all new leasing business. In 2014, the value of new business acquired in this market segment was 0.5 billion euro, which was 5.1 percent less than in the preceding year. The leasing penetration rate in the health-care sector is still low; however, viewed positively, this means that hospitals, medical centers and specialist practices offer the leasing industry considerable potential for further growth. In the field of medicine, keeping up with the latest technological developments is essential, and health practitioners will eventually come to recognize the advantages leasing has to offer. Other Products is a hold-all category for items that do not fit in any of the other asset groups. Examples of such products are information and signalling systems, electrical equipment, optical goods and shop fittings. Services Sector is Still the Top Customer Demand for leased equipment in 2014 increased in the following customer sectors: Transport & Telecoms (+44.1 percent), Public Authorities (+13.9 percent), the Construction Industry (+12.7 percent), Services (+9.7 percent), Manufacturing (+4.6 percent), and Private Households (+3.0 percent). Negative growth was recorded for the following sectors: Trade & Commerce (-6.3 percent) and Agriculture, Mining & Public Utilities (-1.1 percent). Since the mid-1990s, German service companies have been the powerhouse of the national economy, and Services generates more equipment leasing business Breakdown by Customer Type of New Equipment Leasing Business in Germany [C] Trends in 2013 2014 19 % Manufacturing [B] 37 % Services (banks, insurance companies, etc.) [A] 11 % Transport & Telecoms [C] 11 % Private Households [D] [A] [B] [D] +10 % +5 % +44 % +3 % +13 % -1 % +14 % -6 % [E] [F] [G] [H] 10 % Trade and Commerce [E] 7 % Construction Industry [F] 3 % Agriculture, Mining & Public Utilities [G] Source: BDL 2 % Government [H]
group. The leasing of cars and estate vehicles is very much in the hands of captive leasing companies. Since the mid-1980s they have been successfully tapping into the Private Households sector s demand for innovative leasing agreements that are accompanied by attractive supplementary service packages. Together with Transport & Telecoms, Private Households were the third most important customer group in 2014 for equipment leasing companies. The leasing of passenger cars remained the most sought-after item, and accounted for over 90 percent of the value of new contracts concluded with this customer group. The Agriculture, Mining & Public Utilities sector came seventh in the customer rankings in 2014, and, as in the preceding year, accounted for 3 percent of all new business transacted. Agricultural and forestry equipment were the types of asset most frequently leased to this customer group. In eighth and final place came Public Authorities, which were responsible for two percent of all new business acquired. Staterun bodies proved rather more willing to use leasing as an investment tool in 2014 than in the preceding year, though in terms of the public sector s overall investment in equipment, leasing remained an underused financing tool, and accounted for just two percent of the overall volume of Public Authorities investment spending. However, if the public sector were defined as including state-owned enterprises, state-funded research institutes and charitable organizations as well as public bodies in the narrow sense of the term (i.e. regional authorities and social services bodies), Public Authorities would account for a much larger proportion of the new business acquired by the leasing industry. than any other customer group. In 2014, this sector accounted for around 37 percent of all new business transacted - which was more than in 2013. This heterogeneous sector includes credit institutes, insurance companies, the hospitality industry, business consultancies and IT service providers. The leasing penetration rate in Services is relatively low (14 percent), so the sector continues to offer potential for growth. Cars and office equipment (including IT systems) are the commodities most frequently leased by service companies. Although the demand from manufacturing companies, the equipment leasing industry s second most important customer group, grew in 2014, this sector accounted for just 19 percent of all new business transacted (2013: 20 percent). However, the leasing penetration rate in Manufacturing (16 percent) remained slightly higher than the across-the-board average. Together with Transport & Telecoms, Private Households were the third most important customer group for equipment leasing companies in 2014. Private Households generated 11 percent of all new business transacted, which was a little more than in 2013. Passenger Cars remained the most sought-after items, and accounted for over 90 percent of the value of new contracts concluded with this customer 2014 saw strong growth in the Transport & Telecoms sector, which increased its contribution to the overall value of the leasing market by two percentage points to 11 percent. It is worth noting that this sector is a particularly sensitive indicator of macroeconomic trends. Trade & Commerce came fifth in the customer rankings, and provided 10 percent of all new business transacted. This was slightly less than in the preceding year. However, the leasing penetration rate in this sector (29 percent) remained relatively high. The Construction Industry finished the year in sixth place in the rankings. It contributed 7 percent of all new business transacted, which was more than in 2013. The leasing penetration rate in this sector has been very high for years, and the figure for 2014 was 52 percent. In recent years, construction companies have profited from buoyant levels of demand for new residential buildings. Breakdown by Agreement Type of New Equipment Leasing Business in Germany 12 % 40 % 48 % Finance-leasing Agreements Operating-leasing Agreements Hire Purchase
Channels for the Acquisition of New Equipment-Leasing Business in Germany Trends in 2013 2014 [A] [B] [D] 55 % In Cooperation with Manufacturers/Retailers [A] 29 % Business Acquired Directly [B] [C] +10 % +9 % -2 % +15 % 10 % At Bank Counters [C] 6 % Freelance Sales Consultants [D] Source: BDL The Various Types of Equipment Leasing Agreements The number of new equipment leasing agreements of the BDL member companies concluded in 2014 rose by 6.7 percent, and stood at 1.4 million. The average value of a new agreement was 33,700 euro, which represented a nominal year-on-year increase in value of 1.6 percent. The total value of new equipment procured by the member companies of the BDL in 2014 was 48.2 billion euro, which was 8.4 percent more than in the preceding year. In terms of value, 88 percent of this amount (i.e. 42.3 billion euro s worth) was obtained through leasing agreements, and the remaining 12 percent (worth 5.9 billion euro) through hire-purchase transactions. Compared with 2013, the volume of new business was up by a healthy 9.9 percent. Hire purchase transactions, on the other hand, slipped back by 1.5 percent. If the hire-purchase component is disregarded, and leasing considered on its own, well over half (55 percent) of all German leasing business was conducted in accordance with the so-called Leas- ing-erlasse. These are the legal guidelines that govern all medium- and longterm agreements whose basic lifecycle are shorter than the ordinary useful life of the items being leased (in other words, leasing agreements in their classical form). Items leased under the terms of such agreements are generally amortized in full by the lessee. The remaining 45 percent of leasing 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 out by selling it on after the agreement expires, or by persuading the original lessee (or a new client) 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: Most new business is acquired through agreements concluded with manufacturers and dealers. 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 the 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 in 2014 increased by 10.2 percent, and around 55 percent of leased-equipment business was acquired through vendor lessors. In direct selling, the leasing companies own sales teams establish direct contact with the customer. The volume of business acquired by such teams in 2014 was 9.0 percent higher than in the preceding year, and accounted for 29 percent of all new equipment leasing business transacted. Leasing facilities are frequently offered by banks as an alternative to normal bank loans. New business generated at bank counters fell last year by 1.6 percent. Some 10 percent of all new leasing business was acquired through this channel. Freelance sales consultants find customers, negotiate leasing agreements with them, and then call in the leasing company. Freelancers last year acquired 14.7 percent more business than in 2013, and their share of the leasing market for new equipment increased to around six 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. But it has yet to make any real impact in the marketplace, and the volume of business transacted online in 2014 was at much the same low level as in the preceding year. Internet transactions still account for less than one percent of the value of all equipment leased in Germany. International Leasing Business Foreign leasing business can be conducted by means of cross-border agreements, or through 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 1980s 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 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 suffered under the difficult economic conditions prevailing in various foreign marketplaces, and in 2014 the volume of cross-border leasing transactions declined by 9.4 percent. The total value of business acquired came to just 0.2 billion euro. There was also a slight contraction (-0.8 percent) in the volume of domestic leasing in foreign markets, which generated no more than 2.8 billion euro s worth of new business. Cross-border leasing is characterized by small numbers of high-value transactions, whereas in domestic leasing, standardized transactions predominate. Domestic leasing outside Germany is not included in the statistics compiled by the BDL about its members acquisition of new business. Instead, domestic-leasing transactions are included in the volumes of investment recorded for the respective foreign countries. Around a third of the member companies of the BDL were active in foreign markets in 2014. The Outlook for 2015 In their spring report the leading economic research institutes predicted that the upturn in the German economy would continue. The current improvement in economic performance is being sustained by the drop in the price of oil, the decline in the value of the euro, and an improvement in economic conditions in the rest of the eurozone. Domestic demand is expected to remain the primary driver of the upturn. As real incomes increase, so too will private consumption. And as the global economy brightens, export activity will also pick up, albeit moderately. This year, Germany s gross domestic product is expected to grow at a nominal rate of 4.0 percent (or by 2.1 percent in real terms). At the present time, companies are still reluctant to invest. However, if the upturn in the economy is sustained, a new trend may emerge. Estimates suggest that investments in the Equipment and Other Products segments will increase in nominal terms by 3.5 percent, and investments in non-residential construction by 2.7 percent. Past experience has shown that the proportion of overall investment accounted for by leasing is fairly constant, so growth in the volume of new business acquired by leasing companies can be expected to remain in line with the overall rate of economic growth. According to the BDL s Trend Report for the first quarter of 2015, the volume of new equipment leased out or supplied on hire purchase terms in the first three months of this year was 7.2 percent up on the figure for the corresponding period in 2014. The leasing industry expects new business to continue to recover in the coming quarters, and over the year as a whole to exceed the volume achieved in 2014 by between five and eight percent. And the proportion of overall investment in equipment accounted for by leasing is also expected to increase. Underlying this expectation is the assumption that world economy remains stable. a