Equipment Finance News European leasing key performance indicators on the rise for first time in two years Published: 5th July 2014 Share Leaseurope reports that the weighted average ratios for Q1 2014 in its Leaseurope Index have reached the highest levels seen since early 2012. All ratios show a significant improvement compared to the quarterly results of 2013, particularly when compared with Q4 2013. Total new leasing volumes reported by the sample of firms increased by 9.5% in comparison to the same quarter a year ago, reaching just over €16 billion. The portfolio of outstanding contracts declined by -2.4% while risk-weighted assets decreased by a much larger amount (-11.4%). Profit & profitability Total pre-tax profit of all the companies increased substantially by 16% for Q1 2014 in comparison to Q1 2013 (see table 1), despite continued losses for some firms. The average profitability ratio increased from 31.6% in Q1 2013 to 32.7% in Q1 2014 (see table 3), a higher level than seen throughout 2013. Nevertheless, it is important to note that the quartile values of the profitability ratio are widely dispersed within the firm sample for the reporting period (see table 4). Income, expenses & cost/income Compared to the same period a year ago, operating income increased (3.2%), while operating expenses decreased by -0.8%. This resulted in a substantial improvement of the average cost/income ratio in Q1 2014 to 45.3%, which is amongst the lowest levels of this indicator seen since the inception of the Index. Loan loss provision & cost of risk Loan loss provisions decreased in Q1 2014 compared to the same period of the previous year (-7.3%), the first decline we have seen since 2012. The average annualized cost of risk remained the same in Q1 2014 compared to Q1 2013, at the relatively low level of 0.7%. RoA and RoE indicators RoA and RoE increased significantly in Q1 2014 compared to Q1 2013, reaching 1.2% and 151, respectively. An RoA figure of this level hasn’t been seen since Q2 2011, while RoE has reached the highest level ever recorded in the survey. Corrado Piazzalunga, CEO of UniCredit Leasing (pictured), commented: “For the first time in recent years we are seeing significant recovery across the board, in all indicators. Q1 2014 has proven to be a very strong quarter for the European leasing industry, with substantial improvements on 2013. Return on equity is particularly positive; clearly reflecting leasing’s high degree of capital efficiency. This is underscored by the reported decrease in risk weighted assets. Although improvements are definitely being seen, new business volumes have yet to recover as fully as the financial key performance indicators. As EU economic conditions continue to improve, and domestic demand recovers, I expect leasing will continue to go from strength to strength.” Aggregate Data, Q1 2013 – Q1 2014 Aggregated data provided by companies (all figures in millions of euro for the relevant period) 2014 Q1 2013 Q4 2013 Q3 Sum of values (€ m) % change vs Q1 2013 Sum of values (€ m) % change vs Q4 2012 Sum of values (€ m) % change vs Q3 2012 1. Operating income 1,905 3.2 1,889 4.3 1,841 4.5 2. Operating expenses 870 -0.8 978 1.8 884 -0.6 3. Loan loss provision 381 -7.3 1,580 210.3 395 6.9 4. Pre-Tax Profit 648 16.0 -697 -312.0 561 12.6 5. RWA at end of period 150,204 -11.4 161,405 -4.1 164,210 -2.0 6. Portfolio at end of period 218,065 -2.7 216,018 -4.0 218,015 -2.7 7. New business volumes 16,039 9.5 18,408 6.8 15,820 0.7 Aggregated data provided by companies (all figures in millions of euro for the relevant period) 2013 Q2 2013 Q1 Sum of values (€ m) % change vs Q1 2013 Sum of values (€ m) % change vs Q4 2012 1. Operating income 1,953 7.5 1,847 3.8 2. Operating expenses 918 3.3 877 0.5 3. Loan loss provision 491 9.7 412 33.2 4. Pre-Tax Profit 559 19.1 558 -6.6 5. RWA at end of period 166,566 -1.3 169,455 -0.8 6. Portfolio at end of period 223,081 -0.9 223,335 -0.9 7. New business volumes 17,437 -1.1 14,646 -8.9 Historical figures have been revised slightly since the results were last published due to re-statements by some reporting companies. Aggregate Data, 2010 – 2013 Annual Aggregated data provided by companies (all figures in millions of euro for the relevant period) 2013 2012 2011 2010 Sum of values (€ m) % change vs 2012 Sum of values (€ m) % change vs 2011 Sum of values (€ m) % change vs 2010 Sum of values (€ m) % change vs 2009 1. Operating income 7,457 3.6 7,199 -4.8 7,564 2.1 7,405 12.3 2. Operating expenses 3,617 -0.3 3,627 -2.5 3,721 5.6 3,523 6.7 3. Loan loss provision 1,524 -5.8 1,617 7.0 1,511 -19.7 1,882 -9.2 4. Pre-Tax Profit 972 -49.3 1,915 -18.3 2,345 19.0 1,970 64.6 5. RWA at end of period 161,405 -3.9 168,000 -6.6 179,925 3.9 173,191 n/a 6. Portfolio at end of period 216,018 -4.0 225,082 -4.0 234,563 1.6 230,978 0.4 7. New business volumes 66,079 -1.0 66,764 -14.5 78,073 3.0 75,793 7.3 Weighted Average Ratios, 2013 – Q1 2014 Weighted Average Ratios 2014 2013 Average Q1 2014 Average 2013 full year Average Q4 2013 Average Q3 2013 Average Q2 2013 Average Q1 2013 Profitability (%) – average of all companies’ pre-tax profit as a % of total operating income 32.7 11.7 -48.4 29.4 27.7 31.6 Cost/Income (%) – average of all companies’ operating expenses as a % of operating income 45.3 47.2 50.3 47.0 46.1 46.7 Cost of Risk (%)* – average of all companies’ loan loss provision (annualised) as a percentage of average portfolio over the period 0.7 0.7 2.9 0.7 0.9 0.7 Return on Assets (%)* – average of all companies’ net profit before tax (annualised) as a percentage of average portfolio over the period 1.2 0.4 -1.3 1.0 1.0 1.0 Return on Equity (2010=100)* – index of all companies’ net profit before tax (annualised) as a percentage of 8% of total risk weighted assets over the period 151 58 -139 124 119 120 * denotes that the quarterly numerator (either loan loss provision or net profit) has been annualised in order to calculate the relevant ratio for each individual quarter. The aggregate annual data are shown here as reported in the Q4 2013 survey. Leaseurope calculates weighted average ratios based on the data provided by participating companies. The profitability and cost/income ratios are weighted by new business volumes over the relevant period. For example, each company’s individual profitability ratio is weighted by its new business over the period Q1 2014 to arrive at the weighted average ratio of 32.7% shown in the table. The cost of risk, RoA and RoE ratios are weighted by the average portfolio over the relevant period. Growth Rates of Financial Indicators, 2013 – Q1 2014 New Business Volumes, Q1 2013 – Q1 2014 A thick border around an individual bar in the chart is illustrative of a negative development in the indicator. The large negative developments seen in loan loss provision (and hence pre-tax profit) in Q4 2013 (and hence to a lesser extent in 2013) are not an error, but are the result of extraordinarily high figures in a very isolated part of the sample. These figures, while showing averages, are not a good representation of the general condition of the whole sample. Profitability Ratio, 2013 – Q1 2014 Cost / Income Ratio, 2013 – Q1 2014 Please refer to the trend in the median value for a more accurate representation of Q4 2013 figures. The weighted average for Q4 2013 is heavily influenced by extreme outlier values. Cost of Risk Ratio, 2013 – Q1 2014 Return on Assets Ratio, 2013 – Q1 2014 Please refer to the trend in the median value for a more accurate representation of Q4 2013 figures. The weighted average for Q4 2013 is heavily influenced by extreme outlier values. Return on Equity Index, 2013 – Q1 2014 Quartiles for Ratios in Q1 2014 Quartiles Q1 2014 Profitability Ratio Cost / Income Ratio Cost of Risk Ratio RoA Ratio Minimum -83.3 20.1 0.1 -0.8 Quartile 1 (25%) 23.1 33.3 0.2 0.6 Quartile 2 (50%)i.e. median 41.2 45.0 0.4 1.4 Quartile 3 (75%) 51.6 50.8 1.0 2.1 Maximum 66.7 60.0 1.9 5.8 Weighted Average 32.7 45.3 0.70 1.19 The weighted average index for Q4 2013 is heavily influenced by extreme outlier values and is thus not an accurate representation of the overall sample. Quartiles show the value of the boundary at the 25th, 50th, or 75th percentiles of a frequency distribution divided into four parts, each containing a quarter of the values in the dataset. In the table, Quartile 3 (75th percentile or upper quartile) identifies that 3/4 of the population members have a value below this quartile figure. The median value shows the middle value of the 17 observations in the data set. The median is not influenced by outliers at either end of the dataset and can therefore be a useful metric of the ratio of the “typical “company in the sample. Asset Finance Connect Asset Finance Connect brings you news and updates about UK and European auto, equipment and asset finance providers. Sign up to our newsletter Featured Stories NewsNew joint venture, Daiwa Airborne, launched in Japan NewsGrenke surpasses €3bn in leasing new business for 2024 NewsMoody’s assigns Deutsche Leasing A2 rating Equipment Finance
