Focusing on the customer, whether end-users or partners, and examining ways the industry can collectively grow were two major themes at the Conference in Berlin. Mike Cobb reports
The call to delegates from those speaking at the Leasing Life Conference in Berlin was to spread the word about leasing to help grow the European economy.
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To reinforce the point, a number of customers and vendor partners joined professionals from the industry on stage and in discussions to give their views on the benefits of leasing.
Opening the conference, Grant Collinson, editor of Leasing Life, greeted the delegates and spoke of the events and news of the year. Lessors, he said, had taken stock over the past year and "refocused, restructured and realigned themselves".
A lot of doubt and uncertainty had evaporated over the past year to be replaced by a focus and determination to create a brighter future.
Collinson took time to introduce one of the major themes of the day’s Conference -the use of leasing to help grow Europe’s economy and spread prosperity.
There had been some growth in the leasing economy, he told delegates, but said the growth had been ‘patchy’ and had been impacted by declines in other markets. To achieve growth, he suggested, there was perhaps a need for a true collaborative spirit.
Diversity, philanthropy and education had been some of drivers of collaborative industry projects across Europe last year.
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By GlobalData2013 had seen the launch of Leaseurope’s Future Group to develop young talent across the industry and the complementary Future Leaders programmes from the Leasing Foundation.
It was also first full year of the Leasing Foundation, in which it held its first conference and set ambitious plans for future industry-wide collaborative projects.
Collaboration was also evident, Collinson said, in the united front the industry had shown to the second lease accounting exposure draft, and before introducing the first speaker he called for the industry to continue working together with a united front to help tackle the challenges it still faces.
Customer-centric
The customer – whether an end-user or partner – was at the heart of this year’s Conference with customers present on stage in two sessions and also central to many of the presentations.
For delegates the message was a simple one – without increasing understanding of the asset finance market among end-users the growth of the market will stall.
In the first session, the subject was touched upon by Lars Bang, commercial director of Nordea, when he addressed the problem of attracting outside investment in leasing companies.
The customer, according to Bang, was both part of the solution and part of the problem when it came to attracting new investment from outside the industry. The pace of change in the way clients’ needs had changed or how they looked for new finance options had been rapid.
These developments, he said, are calling for agility, adaptability and innovation of the leasing environment. Without this, Bang said, firms will not be able to keep up with client demands and therefore will lose out on market share and external investment from the likes of pension funds and private equity.
At the same time, he said, the very pace of that change was opening up new markets for the leasing product – again for those that could innovate quickly enough and increase their penetration rates.
Innovation and a need to be able to react quickly to a client’s needs was a reason technology provider Dell has gone down the captive route, according to Richard O’Donohue, director of business development at Dell Financial Services, who followed Bang on the stage.
O’Donohue spoke about the challenges Dell faced in moving from a vendor partner to a captive finance house. One of those difficulties was the way the IT market had developed rapidly into one where, along with hardware, customers were seeking finance for services and other intangible products.
"A lot of you guys don’t like financing those," O’Donohue told the audience, "and that was probably the primary reason we went captive." In the modern tech leasing market, O’Donohue said, a company like Dell couldn’t ask its customers to pay upfront for things that could be leased to them.
Adaptable and flexible
In addition, O’Donohue found that speed was important to technology customers. Putting a deal together through a vendor partnership could be too slow sometimes, which is one reason Dell moved to a captive finance model.
This wasn’t easy said O’Donohue, but after an investment of 400m the Dell Financial Services captive was given an Irish bank licence in July. This has given it the ability to operate in 16 countries and only a lack of scale in Europe has prevented it from covering clients in others.
Among the benefits of being a captive were the services Dell could provide potential customers in terms of added-value products. Ideas such as an innovators credit fund, which provides capital to help key clients develop ideas were easier to implement under the Dell umbrella said O’Donohue.
Rafael Chacon, regional sales leader at Cisco Capital, echoed the need for companies to be more adaptive to customers’ needs and also reinforced a point raised by O’Donohue – to do this in some circumstances and markets, a captive could not work without a partner.
Chacon also said, with leasing, the customer has the ability to be more flexible in its business, something which had to be reflected in the leasing plans offered, not just by captives, but by others.
These plans, he said, should be driven by the early decision companies make on how to fund their expansion. To this end, Cisco has developed a number of products which cater for a growing company.
More local, more aware
Lombard’s take on customers did not focus on a high-speed market, but on a level of understanding with, and of, its clients.
The firm brought two customer representatives to Berlin for a discussion of the benefits of leasing to the manufacturing sector.
Ian Issac, managing director of business and commercial at Lombard, was joined by Christopher Simpson, chairman of the Manufacturing Excellence Awards and representative of the Institute of Mechanical Engineers (IMechE) and Colin Spencer Halsey, chairman of Hymid Multi Shot, a UK-based manufacturer. "There is a huge demand to increase investment, and clearly the availability of finance is an essential ingredient in that," said Simpson of the European market.
For SMEs, however, "finance is difficult to access" said Spencer Halsey, and when it comes to finance many smaller firms are "confused and ignorant" about how to access funding. Isaac said many manufacturing business were totally unaware of leasing as a product. The challenge for both manufacturers and finance firms is, therefore, educating the finance market, in particular on the benefits of asset finance.
Part of this education returned to a need to build strong vendor and captive platforms with manufacturers, said Isaac. This was how the end-user would be able to see the advantages of asset finance at the point of purchase.
Thomas Stahl, country manager for Germany at De Lage Landen, picked up the theme later in the day when he was joined by vendor partner, Günther Binder of Wacker Neuson.
In Wacker Neuson’s case, its own knowledge of what asset finance could do for the end-user had allowed the yellow metal manufacturer to reach over 70% penetration rates on its larger products. Binder explained this was largely through addressing his firm’s customers’ primary concern: getting the equipment they needed without having to worry about where to obtain the funds.
Education in this case was down to the dealers being able to inform the end-users about their options.
Spencer Halsey noted, for asset finance to be truly effective for growth, the manufacturer had to know about the finance option before a purchase decision was made.
This was something Chacon highlighted later in the day when he used a joint Cisco Capital and Forrester consulting survey which demonstrated that without an early solution to a funding question the process would slow or even stall.
One option was to work with industry bodies such as the IMechE and local enterprise bodies. Simpson highlighted the seminar programme that IMechE will be holding in workplaces to do just this in 2014.
Simpson also urged the bank financiers to think less centrally and more locally in an effort to break down the barriers to asset finance and understanding of what was available to end-users. One of those barriers was the way a centralised banking system made it difficult to form a partnership between manufacturer and financier.
Spencer Halsey believed that was why Lombard had been so good for his business. Its localised efforts had created a partnership that had led to an ability to advise based on real needs rather than generalities.
Isaac believed that if these suggestions were taken on board the demand was sufficient in the market for penetration rates of 70-80% among captive and vendor finance companies, the sort of figures already being achieved by Wacker Neuson, among others. He said the current rate of 30% would rise to anything over 40%, or even 50%.
Adapt to survive
If the customer was a central theme, an overriding concern of other sessions was how finance companies were organised and financed.
Coming up with an alternative to Lars Bang’s proposal of third-party investors was Ian Dennis, director of consultancy at LPM Outsourcing, who said the market could be more active in pursuing securitisation deals to gain capital. Securitisation, he outlined, had been growing again as a source of funding after the poor reputation it received during the credit crunch.
The primary benefit, he said, was the reduced funding costs it could offer by using existing revenues and their inherit credit-worthiness.
Leaseplan, he outlined, had one of the most successful securitisation programmes. Called Bumper, it’s been one of the more successful, with the latest securitisation netting the company 744m in 2012.
But cheap money did not mean a cheap route to capital, he warned. There were risks inherent in using your portfolio of loans and taking them out of your asset column. Plus, the expenses involved in setting up the required legal and administrative systems for a securitisation did not make it a product for all. Dennis highlighted for scale the recent Investec securitisation, which at less than 300m, was at the lower limit of what made a deal efficient.
With sources of external funding less accessible for smaller or less efficient finance companies, others suggested that a restructuring of the business was essential to free up the capital required to achieve greater penetration.
The crisis is over, beware of the crisis
Eric Frachon, executive vice-president and head of international at Société Générale Equipment Finance (SGEF) spoke of how SGEF had ridden through the tough times.
The "peak of the crisis is over", he assured the audience, but pointed out that without change many firms would still face tough times. The spectre of regulation, an almost otherwise untouched subject at the conference, had been present in the early part of the year but had now faded he said. This didn’t prevent firms who wanted to succeed to be more focused on risk management and optimise their costs. To this end SGEF had taken the difficult decision to cut out some sectors from its portfolio, a plan that was leading it back to recovery.
Pascal Martinez of technology provider Linedata was proposing a new approach to the systems used by finance firms in the leasing process, in an effort to reduce costs. His proposal centred around exploiting the synergies between leasing and lending and to do away with a dual system. His remarks were met with some resistance from the audience who believed that some aspects he mentioned were potentially unworkable based upon past experience. Martinez stood by his argument however and said the savings were there.
It was a different aspect of reorganisation that had Diwakar Singhal, senior vice-president of Genpact, speaking at the Conference. His idea was to look at what was driving costs up across the industry and solve that problem.
To do this he believed a number of firms had to outsource elements of their internal processes. These would include elements of the leasing business which could be standardised, for example, the invoicing function.
Though this was a service adopted in a number of industries, the asset finance industry was not yet a user, and the question and answer session afterwards gave an impression of scepticism as to how useful it would be to those present.
Like Martinez, Singhal stood his ground on the point and his answers to some probing questions left some of the delegates with much to think about.
In the final session of the day, improvement in processes and education was again addressed when Andrew Denton, chief operating officer of CHP Consulting, chaired a session featuring contributions from Chris Sullivan, chief executive of RBS’s corporate banking division, and Peter Thomas, chief operating officer of The Leasing Foundation. The session was to address "the future, in terms of bringing in sustained diverse talent", said Denton.
Thomas took to the podium to address the findings of 70% of the delegates at the recent Leasing Foundation Conference in London which found that diversity and education were areas that "needed to be tackled" according to Denton.
As a first step Thomas said the Foundation was assembling data on what were the core competencies in the industry. That data would be used to create a career enhancing and learning programme. "We want to do something for those professionals at the very top-end of their professional development," Thomas said, adding that this would be a masters programme or doctorate open to professionals based upon their current work.
A large part of the skills and education would also be put online in a learning platform, Thomas said, a platform for which he welcomed input and content as it developed. He also asked for guest speakers for the various seminars the Foundation will run to improve skills.
Thomas also launched the Leasing 360 website, designed to offer insight by professionals, to professionals, about the industry, which Thomas hopes will further knowledge and skills within the industry.
Where Thomas left off, Sullivan picked up, with how to educate people in the industry on the importance of diversity.
Using his past experience as a diversity champion within RBS, Sullivan highlighted examples where a more diverse group was more capable of coming up with innovation than groups from similar backgrounds.
Diversity he said would lead to a "better bank" and he set out to crate a set of interventions to remove the barriers to progress for women and minorities. His first step was to create an internal women’s network which has grown from 200 to 11,000.
He has moved that diversity programme up and out of the RBS organisation using the network of 15,000 top UK companies that RBS deals with, so RBS has promoted diversity across the UK.
A women’s network is not enough however to change the industry, he said. There was a need to change the unconscious bias that was a big factor in the lack of progression for women and minorities.
Part of this is being addressed in general society where bias is already fading, he said, but other aspects of it are dealt with by making sure people are included not excluded from all parts of their working life, whether that be a golf day or a meeting.
Doing so should be seen as an opportunity for the team and company and not a threat, he believes.
Imposing quotas, such as those suggested by a 2013 UK government report, were seen as counter to this culture, said Sullivan and he hopes that they do not come to pass.
He left the conference with a word of advice; by his estimation the leasing industry is about 10 years behind the rest of banking in regards to diversity, but it was possible to catch up. It just takes the will to do so.
See also – Industry winners – the Leasing Life Awards
