Both bank-owned and captive lessors have
found it difficult to make profits, as the latest figures show
Go deeper with GlobalData
HSBC Asset Finance (UK) Limited
Reporting a pre-tax loss of £128.4
million (€142.1 million), compared to a profit of £87.6 million in
the previous year, HSBC Asset Finance (UK) Limited had a mixed year
ending 31 December 2008.
The company’s directors attributed the fall to
losses made on derivative contracts – primarily interest rate swaps
– which were ineligible for hedge accounting.
HSBC Asset Finance (UK) – which acts as a
holding company across the HSBC Asset Finance Group, including HSBC
Equipment Finance (UK) Limited, HSBC Invoice Finance (UK) Limited,
HSBC Rail (UK) Limited and European Rail Finance Limited – saw
losses from interest rate swaps grow from £8.6 million in 2007 to
£157.9 million in 2008.
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By GlobalData“The increased loss is due to the sharp fall
in interest rates during 2008 and is matched by a corresponding
increase in the value of leases in subsidiaries for which the
derivative contracts are an economic hedge,” they said.
“The loss will reverse over the life of the
contracts.”
An analysis of the lessor’s credit quality
shows the onslaught of the economic crisis. Compared to 2007, when
HSBC Equipment Finance impaired £1.6 million, the lessor impaired
£18.7 million worth of finance receivables last year.
The amount of sub-standard, but not impaired,
receivables also grew significantly, moving from £300,000 to £10.8
million.
But the business also reported growth in total
assets in 2008, increasing by 4 percent to £6.4 billion at
year-end. Revenue from finance leases was also up, by 7 percent
year-on-year, to £20.6 million.
HSBC Equipment Finance (UK) Limited
One of HSBC Asset Finance (UK)
Limited’s subsidiaries, HSBC Equipment Finance (UK) Limited, also
reported results last month for the year ending 31 December
2008.
2008 was a year of strong growth at HSBC
Equipment Finance, with the business seeing finance lease income
increase by 28 percent to £49.6 million, and operating lease income
nearly double to £832,955.
Due to higher administrative expenses, pre-tax
profit fell, however, to £1.5 million, compared with £2.5 million
the previous year.
While total assets at the equipment lessor
grew to £867.1 million – a 33 percent rise – the lessor’s credit
portfolio also saw impairments grow significantly.
Indeed, while the lessor impaired £7 million
worth of receivables in 2007, this tripled to £23.5 million last
year.
Non-impaired, but sub-standard receivables
also tripled to £19 million, while an additional £30 million was
added to the lessor’s £53 million ‘watch list’.
Investec Asset Finance plc
At Investec Asset Finance plc,
another bank-owned equipment lessor, the year ending 31 March 2009
proved a challenge, with the company reporting a pre-tax loss of
£330,000 compared to the previous year’s £3.4 million profit.
Investec, which specialises in small ticket
broker-introduced leases, also saw turnover fall last year, by some
75 percent, to £45.5 million, with the result that the volume of
new assets let under finance leases reduced from £153 million in
2008 to £114 million in 2009. As a result of this decline, cost of
sales also fell dramatically – by 81 percent – to £31.3
million.
The lessor attributed the decline in turnover
to the “prevailing economic conditions”, but remained positive
about next year.
“We believe the outlook for the company is
positive,” the directors said.
“It is planned to seek growth in the book,
primarily through the small ticket vendor finance division in
organic growth and the purchase of existing portfolios.”
De Lage Landen Leasing Limited
Meanwhile, De Lage Landen Leasing
Limited (DLL) continued to make losses in 2008, reporting a pre-tax
loss of £6.4 million, compared to the loss of £1.1 million in the
previous year.
“The year under review shows significant
losses due to an increase in risk costs and provisions due to the
recession and weakness in sterling against euros in the latter half
of the year,” DLL’s directors said.
Turnover and operating profit were both up by
68 percent and 60 percent, however, to £35.6 million and £19.5
million respectively, although this was brought down by higher
administrative expenses, which increased by £12.7 million, to a
total of £25.9 million for the year.
Scania Finance Great Britain Limited
It wasn’t only the bank-owned
lessors who felt the effects of the economic turmoil – captives’
profits were also hit.
Despite turnover growing by 5 percent
year-on-year to £48.9 million, Scania Finance Great Britain, saw
its pre-tax profit nearly halve in the year ending December 31 2008
to £1.8 million.
The captive, which provides finance for Scania
commercial vehicles, saw its penetration rate grow by 5.8 percent
last year, to 34.2 percent of all new Scania registered vehicles –
a good result in a bear market.
Scania Finance’s product mix also evolved,
with hire purchase contracts gaining 5 percentage points compared
to the previous year.
Indeed, hire purchase contracts made up 57.9
percent of total receivables (52.3 percent in 2007); finance
leasing contracts totalled 4.5 percent (5.6 percent); and operating
leases 37.5 percent (42 percent).
Snap-On Finance UK Limited
Finally, at Snap-On Finance Limited,
the captive for industrial tool-maker Snap-On, 2008 was a strong
year, with both turnover and pre-tax profit increasing.
While turnover grew 17 percent to £5 million,
pre-tax profit increased by 38 percent to £4.4 million.
“We increased our turnover and interest income
in the year to record levels, and continue to trade profitably to
date in 2009,” the captive’s directors said.
