Volumes have stabilised in a
market dominated by car leasing. Antonio Fabrizio
writes.
Go deeper with GlobalData
The wounds of the Czech leasing
market are slowly healing. After a blood-letting in 2009, when
volumes recorded a massive 53.3% decline, 2010 revealed a much less
dramatic picture as the months progressed.
A decrease in new business of 6.7%
in the first nine months of 2010 leads the Czech Leasing and
Finance Association (CLFA) to anticipate zero growth for the full
year.
“Exact figures will only be
published in early 2011, but we can see that the decrease has been
milder and milder every quarter,” said Jiri Pulz, CLFA secretary
general.
“Historically the last quarter is
always the best in terms of volumes, and we expect the same for
2010.”
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By GlobalDataThe Czech macroeconomic picture is
multifaceted, mirroring the uncertainty within leasing. Economic
recovery is taking off, with a GDP increase of 1.1% in the first
quarter and 2.4% in the second quarter of 2010; and there has been
an increase in industrial production, with a peak of 13% growth in
August.
However, the demand for leasing is
affected by a continuing stagnation in investments. Investments
grew only 1.3% in the second quarter of 2010, compared to the same
period one year before.
Additionally, the low interest
rates – which the Czech National Bank left at a record low of 0.75%
in June – seemed to have no direct influence on the price of
non-bank financial products, including leasing.
Volumes written by CLFA members for
the first three quarters of 2010 were CZK28.4bn (€1.13bn) – and
because the members of the association account for around 97% of
the country’s leasing business, total volumes are not expected to
have exceeded CZK30bn. With a zero% growth forecast for 2010, total
volumes should be just above CZK40bn.
Real estate leasing, not
significant for most CLFA members, reached CZK5bn in 2009, and the
figure for 2010 is expected to be below that. Alongside less
business being written in 2009, the volume decrease has also
reflected the fact that some companies have stopped writing new
business.
Run-off
strategy
French lessor BNP Paribas Leasing
Solutions decided to cease all new business activities in the Czech
Republic, putting the existing portfolio in run-off, following the
acquisition of the Fortis Lease business.
A spokesperson said: “The existing
team under the same management are handling the steady run-down of
the Fortis Lease Czech Republic portfolio.
“It is not planned to start
re-opening to new business enquiries as this territory is not core
to the strategic objectives of BNP Paribas Leasing Solutions.”
There were 6,000 fewer leasing
contracts in the total market in the first nine months of 2010
compared with the same period in 2009. Overall, 36,409 contracts
were signed – of which 20,273 were finance leases and 16,136
operating leases.
In addition, 1,031 vehicles were
signed on fleet management contracts, a segment now taking off in
the Czech market as international operators move in.
As in previous years, almost half
of leasing of movable assets went to the services sector, and more
than a third to construction and manufacturing.
CLFA recorded an increase in
operating lease penetration to 29.5%, up from 26.9% in 2009.
“Due to companies using outsourcing
of operational and administrative work more and more frequently,
the interest in operational leasing keeps growing,” said Pulz.
In passenger cars and light
commercial vehicles, the share of operating leasing reached 54.7%
for the first nine months of 2010.
Car leasing dominates the Czech
market. Passenger cars grew as a proportion of the total market in
the first three quarters of 2010, to 32.6%, up from 25.6% for the
same period in 2009. At the same time, commercial vehicles’ share
decreased.
For light commercials, it went from
12.8 to 5.2%; for trucks, it fell from 20.1 to 19.9%. The share of
machinery and equipment also went down to 25.3%, from 33.3%.
The majority of CLFA members offer
car leasing as their main product. Of the country’s ten largest
lessors, four are specialised in car leasing only, with ŠkoFin, the
Volkswagen Financial Services subsidiary, which promotes sales of
Volkswagen, Skoda, Seat and Audi, leading the segment.
The other three are the local
subsidiary of Mercedes Benz Financial Services, and fleet
management specialists LeasePlan and SG-owned ALD Automotive.
Car leasing
UniCredit Leasing CZ, the country’s
largest leasing company since 2009, had a 20% increase in volumes
in 2010 (alongside a 19% increase in profit), with more than half
of new business coming from vehicles, and one third from machinery
and equipment.
To reflect this big focus on car
leasing, the company appointed Jaroslav Jaromerský as CEO in
September 2010. He has extensive experience of the car financing
segment, having held a senior manager position at ŠkoFin and, after
that, heading UniCredit’s Autoleasing division.
The lessor, however, recorded the
strongest growth in real estate financing, which had a fivefold
increase last year compared to 2009.
Jaromerský said: “Real estate is
now representing 10% of our total outstanding. In this sector, we
were successful in leveraging the opportunity offered by the
slowdown in the mortgage market, where conditions for applicants
have tightened.”
In VB Leasing’s portfolio, cars and
light commercial vehicles accounted for 30.9% in the first 10
months of 2010, trucks and building machines for 30.2%, and other
equipment for the remaining 38.9%.
VB Leasing Czech Republic roughly
accounts for one fifth of the overall business of VB Leasing
International, the holding company jointly owned by Österreichische
Volksbanken AG and by Germany’s leasing giant VR Leasing.
The company posted a 7.9% increase
in volumes to €184.5m for the January to October 2010 period. In
the same period, the number of contracts was 3.9% up to 6,200.
“We have seen
a stabilisation in business in 2010,” said VB Leasing MD Radek
Fucik.
The company has posted an
uninterrupted profit for the past 10 years, including a small
€64,000 in a challenging 2009. A similar performance is expected
for the whole of 2010, and Fucik expects 2011 to be “quite a good
year for us in terms of profit”.
Cost-cutting measures and an
improved portfolio have contributed to VB Leasing’s resilience. The
lessor achieved a 20% decrease in costs and improved margins;
cost-cutting measures included reducing headcount from 171 three
years ago to the current 146.
The nature of business written has
also changed.
Fucik said: “We had a completely
different portfolio in 2009-2010 compared to 2006-2007, because
business from the last two years was done under different
conditions in terms of down payments and additional guarantee
increases.
“We have had a decrease in the
number of early-terminated contracts, and we can now see that the
losses from the new business are very strongly reduced.”
CSOB Leasing, a subsidiary of the
country’s largest bank CSOB, owned by Belgium’s KBC Group, has more
focus on cars and less focus on equipment than VB Leasing. Cars
account for 40%, trucks for 30% and equipment for 30%.
The lessor, with 11% market share,
has experienced the impact of the crisis particularly in its truck
and yellow good segments.
Ota Mandys,
business development and sales support director at CSOB Leasing,
said: “The Czech transportation industry has been badly hit by
crisis, so we had a difficult time last year with customer
bankruptcies and repossessions. The crisis in the sector came
during 2008, when the overall volume of transport went down 25 or
even 30%.”
The lessor had to reschedule a
significant number of payment calendars and try to find alternative
solutions for struggling customers.
“In our portfolio, the crisis has
mainly impacted small and middle transportation companies,” Mandys
added.
“Larger companies have survived and
have kept prices very low to keep their customers. Luckily, the
market is now starting to recover.”
The Czech construction industry has
also been heavily impacted. Sale financing of yellow goods and
construction machinery halved in 2009, and the drop continued in
2010. As the market for construction machinery relies heavily on
infrastructure projects, the cuts in the state budget for 2011 have
meant that plans for new motorways and railways have been shelved,
resulting in continued uncertainty for construction companies.
Strong sectors for CSOB Leasing
have been agriculture, which has generally benefitted from state
subsidies, healthcare and the food processing industry.
Vendor
partnerships
CSOB Leasing has a strong vendor
business, historically its primary channel. Most vendor partners
are local dealers and, because of CSOB Bank’s presence in Slovakia,
a number of vendor partnerships cover both countries.
The company works with global
manufacturer John Deere and local tractor manufacturers in the
agricultural sector; and with Linde in the forklift market. It has
vendor programmes with dealers of MAN and Iveco. In cars, it has
cooperation with Kia, Hyundai and Mitsubishi.
Vendor finance is also the main
business for VB Leasing and Deutsche Leasing.
For VB Leasing, it represents 57%
of its business, while the direct channel accounts for 48%. The
bank channel is less relevant. Fucik said: “The bank is important
for us for the funding and for general cooperation in the market,
but not directly for our business.”
VB Leasing has partnerships with
local dealers, as well as international players such as Amada, DAF
Trucks, JCB, John Deere, MAN, Schmitz Cargobull.
Agriculture
upbeat
At Deutsche Leasing, vendor finance
continues to be the biggest focus, in line with the company’s
strategy at international level. The company doesn’t fund cars and
has little truck financing business.
Deutsche Leasing general manager
Uta Reichel said: “We established our Czech subsidiary in 1994, and
have built a longstanding relationship with a large number of
vendors and customers. We have achieved a very wide customer range
and are continuing to do business in this way.”
Over the past few months, Deutsche
Leasing has seen a change in the type of assets in demand. The
lessor has always been strongly focused on tool machines, followed
by printing and construction equipment.
With the crisis, demand for tool
machines has dropped while demand for other assets, including
agricultural equipment, increased. Farm machinery and tool
machinery now account for the same percentage of the company’s
portfolio. This compares with around 50% of tool machines only a
few years ago, and almost nothing in the agricultural market.
Reichel said: “Two years ago we
decided to enter the agricultural market, and have been gaining
market share since. We plan to continue this growth.
“Historically, we’ve been really
strong in tool machinery, but in 2009 there were virtually no
investments in sectors connected to tool machines. The same thing
happened in construction, where our market share was smaller.
“In tool machines, we found new
vendors and customers, but not enough to compensate what we
lost.”
UniCredit Leasing is also trying to
make its make in agricultural equipment. It recently launched a
product called CreditAgro Sezónní splátky (CreditAgro Seasonal
Repayments), intended primarily for agricultural businesses.
Jaromerský said the structure of
repayments “enables farmers to repay loans only when they have
received the revenue for their harvest or subsidies.
“We can adapt the payment schedule
to their revenue cycles”.
Among its vendor partners, Deutsche
Leasing lists laser machinery manufacturer Trumpf and Case New
Holland, and a number of other international and German-based
vendors with dealers in the Czech Republic.
The company is further extending
its array of partnerships, and is now close to signing a contract
with a large vendor in material handling.
Deutsche Leasing has no plans to
enter new segments, but instead wants to extend its business in the
agricultural market, “where we see a little bit of space for
expansion”, said Reichel. The company plans to target specific
vendors it is not working with at present.
The lessor’s other strategic aim
for 2011 is to increase business through its direct channel. It has
set up a German desk to give special offers to customers with a
German account, or customers of the saving banks in Germany.
This division currently represents
10-15% of the business.
Reichel said: “We plan to improve
our German desk business, going from what we did before – a focus
on referral business from Germany – to approaching more direct
German businesses here in the Czech Republic, getting in touch with
German companies with a direct subsidiary here.”
UniCredit Leasing has a
multi-channel structure with more than half of its business
originated by dealers, while 31% comes from its direct sales
network and the remaining 14% from the bank.
The company’s strategic goal for
2011 is to strengthen cooperation with its sister company UniCredit
Bank, increasing both volumes and market share, and to launch a new
Prague machinery branch exclusively for direct business.
In vendor finance, UniCredit has
agreements with major car brands including BMW, Honda, Kia and
Volvo. It is the exclusive partner to Renault Group, and has
recently added Hyundai and Suzuki to its range of partners.
Vendor business and banking channel
activity are also high on CSOB Leasing’s agenda.
“The crisis brought an increase of
business through the bank,” said Mandys.
“CSOB is one of the largest banks
in the Czech Republic, and we plan to continue to use it as a means
for our front office proposition.”
In particular the company aims to
boost big ticket business. In 2010, it launched a specialised
corporate finance unit, and signed deals with Czech Railways, the
country’s main railway operator.
“We want to do more and more in big
ticket and corporate business,” said Mandys.
The truck market is also predicted
to recover with CSOB poised to take advantage.
Mandys said: “After two years of falling truck sales, we expect
that sales will return in 2011 and we are getting ready to catch
this trend to gain back our share of the truck market.”
See also:
Credit, factoring and CCD dent
leasing
