Profitability remains in question for European lessors in latest Leaseurope Segment Survey

The results of the 2013 Leaseurope Index Segment Survey represent a bit of a mixed bag, with improvements for some assets in some indicators between 2012 and 2013, but a deterioration in others.

The Survey tracks key performance indicators of a sample of 17 European lessors on a quarterly basis. Of the total outstanding portfolio reported, 40% is attributed to equipment, 31% to real estate, 23% to passenger cars and 6% to commercial vehicles.

Profitability (Figure 1 below)

Equipment and passenger cars saw improvements in profitability between 2012 and 2013, while real estate and trucks experienced declines.

Despite this annual increase, equipment leasing saw profitability ratios deteriorating over the course of 2013, whereas trucks experienced slight growth towards the end of the year. Passenger cars remained stable at over 35% median profitability in 2013, with a slight dip in Q3.

Real estate saw a lot of volatility in profitability over the course of 2013, culminating in a median loss exceeding -30% in the fourth quarter.

Cost/income (Figure 2 below)

Equipment and trucks experienced a decrease in the cost/income ratio between 2012 and 2013, while passenger cars and real estate showed deterioration in this metric. Cost/income remained relatively stable over 2013 for equipment (around 47%), whereas all other assets saw an escalation over the course of the year. Both vehicle categories exhibited the highest cost/income ratios, exceeding 50% in the second half of 2013.

Cost of risk (Figure 3 below)

Almost all asset types saw decreases in cost of risk between 2012 and 2013, with the exception of real estate which increased sharply, and passenger cars which remained stable. Across all asset classes, loan loss provision appears to peak in the middle and the end of the year. Disregarding these peaks, equipment and passenger car cost of risk appears relatively stable over 2013, with passenger cars enjoying the lowest levels of all the assets.

Real estate suffered an escalation in cost of risk over 2013, while truck figures seemed to experience some volatility.

Return on assets (Figure 4 below)

All asset categories faced a decrease in return on assets between 2012 and 2013, even the two automotive categories, which had enjoyed increases in previous years. Return on real estate assets has suffered the largest declines, reaching a low of 0.1% in 2013. Real estate and passenger cars saw a decline in this metric over the course of 2013 with new lows in Q4.

Commercial vehicles remained stable at a new lower level from Q2 onwards, while equipment experienced a large degree of variation over the quarters.

Figure 1 – Median Profitability Ratio by asset type, 2013

Figure 2 – Median Cost/Income Ratio by asset type, 2013

Figure 3 – Median Cost of Risk Ratio by asset type, 2013

Figure 4 – Median Return on Assets Ratio by asset type, 2013

Both weighted average ratios and median ratios are reported. The weighted average ratios are useful as they take into account the size of the firms, so that bigger firms contribute more to the final value than smaller firms, but they can be heavily influenced by extremely positive or negative values (outliers).

The median ratio reports the value of the mid-point or ‘typical’ firm and therefore is not influenced by these outliers. However, it does not take into account the firm size. Taking into account both of these ratios should give a better picture of the market trends.

Leaseurope presents graphs showing the quarterly trends in 2013, followed by the annual trends from 2010 to 2013. The quarterly results are a lot more volatile than the annual figures, therefore the annual results are a more reliable indicator of changes in the relevant asset segment markets.

Please note that the results of the Segment Survey may not be directly comparable to the Leaseurope Index Quarterly Survey. Various assets that are included in the Quarterly Survey results and which do not fit into one of the four categories used in the Segment Survey, such as renewable energy or big ticket assets, may not be taken into account in the Segment Survey results. Various costs and incomes related to international co-ordination of the business may also not be included, as they can be difficult to allocate to different asset types. In some cases the company figures for each asset type are estimates. For instance, if financial indicators split by assets include a variety of products, then the portion attributable to leasing needed to be estimated. Equally, if asset splits were only available for the total automotive portfolio, then the split by passenger cars and commercial vehicles had to be estimated in some cases.

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