There are few places the eurozone’s economic turmoil exacted a greater toll than in Italy. But while lease industry participants are reluctant to herald a recovery, there’s a sense the worst might just be over, as Paul Golden reports.
For the Italian leasing industry, 2012 was truly an annus horribilis.
Leaseurope’s survey of the year’s business volumes reported a significant drop in new leasing volumes for equipment and vehicles, down 24% from 14.7bn in 2011 to 11.2bn. Only Portugal and Greece experienced larger reductions in leasing volumes in 2012.
The drop in vehicle lease activity of just under 26% was higher than for the rest of the equipment market (22%) with the value of the equipment and vehicles markets at 6.4bn and 4.9bn respectively, compared to 8.2bn and 6.6bn for the previous 12 months. Outstandings declined by 6.6% in 2012 to 21bn for equipment and 13.6bn for vehicles.
White Clark Group’s latest Global Leasing Report found that, of the top 10 countries (representing 80% of total world leasing volumes), Italy was the only one to experience decline. While it was ranked the sixth-largest market, Italy was close to being overtaken by both Russia and Canada.
When leasing and hire purchase were taken into account, Italy fell one place to seventh. When annual leasing volume was calculated as a percentage of gross domestic product, Italy ranked 32nd at 1.12%, down from 1.26% during the previous 12 months.
Italian market penetration was pegged at 12.3%, on which basis it would rank well outside the top 10 markets globally by penetration of fixed-capital investments.
As the final quarter of 2013 approaches, Gianluca De Candia, director general of Associazione Italiana Leasing (Assilea) admits conditions remain tough.
This admission comes on the back of the International Monetary Fund’s (IMF) latest estimates of a 1.8% fall in Italy’s GDP this year.
The IMF described the country’s growth prospects as weak following a recent mission.
It observed that unemployment is "unacceptably high" and market sentiment is still fragile, underscoring the task of economic recovery is far from complete.
It accepted that the new government had started to build on the steps taken to tackle Italy’s structural problems, but warned that accelerating the momentum for reform would be essential to jump-start growth and create jobs.
According to the IMF, Europe will also need to play its part with actions to address financial fragmentation and further strengthen the currency union.
"Although some good results came from the manufacturer-owned lessors and from the equipment sector, as well as from some segments of the renewable energy sector (wind farms and other renewable energy plants such as biomass power plants), market performance in 2012 was generally very poor and conditions are still hard," says De Candia.
He puts the market share of banks and bank-owned lessors at around 83% of total new leasing business volumes, with manufacturer-owned lessors accounting for just over 15%.
"However, this balance has changed in recent years," De Candia continues.
"Market share of manufacturer-owned lessors, in particular, has increased by around seven percentage points since 2010, while at the same time market share of bank-owned lessors decreased."
De Candia says the association’s data shows that in the first half of 2013 new leasing volumes have continued to decline, but at a slower pace than in the previous year, both in terms of number of contracts and business volumes.
"Positive signs have come, once again, from the equipment sector, which represents undoubtedly the most important segment of the leasing industry.
"In 2012, this result had been made possible mainly thanks to the good results achieved by a well-defined number of operators, specialised in the equipment sector, who took advantage of their role as essential financial partners of enterprises, while in the first half of 2013 a wider number of lessors have increased their business volumes."
De Candia explains Assilea is working hard to encourage growth in the business activity of its members.
In the last few months, the association promoted a legislative initiative intended to boost small business investments with around 20bn of new leasing.
The new rule would shorten the period currently allowed by Italian tax law for the leasing rental payment deduction of small businesses and would therefore be an indirect incentive to new investment.
Tentative signs of growth
Corrado Piazzalunga, chief executive of UniCredit Leasing refers to tentative signs of a possible economic recovery driven primarily by exports.
He says the fact that leasing market contraction has slowed down "remarkably" in 2013 compared to 2012, and that the best-performing segments are those characterised by a less speculative approach (such as automotive and equipment), justifies cautious optimism for the future.
"The shared hope is for a further slowdown of the decline in the latter part of this year and a positive turn in 2014," Piazzalunga says.
"Furthermore, in the next year the process of deep restructuring and reorganisation of the entire industry should almost reach completion, in order to fit with a market worth about a third of its peak at the end of 2007 and to optimise the management of non-performing loans and recovered assets, which are the biggest challenge that leasing companies had to face in recent years."
Piazzalunga expects manufacturer-owned companies to increase their market share further to 17% this year, although he credits independents with a much higher share of the market than Assilea.
"This phenomenon [increased market share of manufacturer-owned lessors] has been partly favoured on one hand by the more cautious lending regime of the banking sector and on the other by the rise of more specialised and ‘asset-centric’ business models in Italy.
"Bank-owned companies are still getting the lion’s share with a market share of about 74%, while independent companies account for nearly 9% of the market."
In late August, the Decreto del Fare (legislative decree), aimed at supporting the revival of the Italian productive sector, was converted by the parliament into law.
Piazzalunga says: "Among the numerous interventions, it provides micro, small and medium-sized enterprises with access to facilitated financing – including leasing – to invest in machinery, equipment, plant, hardware, software and digital technologies.
"The facilitations are mainly interest subsidies and state guarantees up to 80% of the required funds. This may contribute in a relevant way to facilitate credit granting, mitigating cost to beneficiaries and risk to lenders, leasing companies included."
The head of UniCredit Leasing says business volumes in the first half of 2013 showed stronger resilience than in the previous year (falling by 17%, almost half the rate of decline experienced between January and June 2012), allowing the industry to hope that the decline could slow down further in the second half of the year and turn into growth in 2014.
"Some segments, due to their internal structure, might still show a negative trend. For instance, renewable energy, mainly photovoltaic plants, which in the latter part of 2012 benefited from government incentives that are no longer available."
When asked whether some sectors are performing better than others – and if so, why – Piazzalunga acknowledges that in the current market climate, the sectors that could be said to be performing better are actually those doing ‘less worse’.
"The leasing industry is rediscovering and enhancing its role as a key funding source to pursue the core activities of firms.
"According to this market tendency, segments such as production equipment and automotive are performing better than average and the expectation is that they will keep up this pace.
Piazzalunga says operating leases in particular were performing well with positive volume growth due to the product "combining the need to meet customers’ requirements – mainly to plan their financial needs better and link them to asset utilisation – with the needs of the leasing companies, primarily around risk coverage, such as short duration and asset and supplier knowledge".
"Additionally, there are niche sectors such as renewable energy, driven by recent technological developments and by challenging national objectives in terms of energy savings."
Piazzalunga is keen to stress his company is outperforming the market, recording growth of approximately 14% year-on-year in June, compared to an overall market decline of 17%.
"The UniCredit group strongly believes in the need to support the entrepreneurial environment at this critical moment and considers lease financing the best choice for medium-term financing of productive investments," he says.
"Additionally, we constantly seek to innovate our products and to adapt our offer to what we believe to be the new demand arising from customers."
He says the firm is also actively involved within Assilea to help spread the "leasing culture" and promote the industry’s objectives at a political level.
Stable at a low level
On the vehicle side of the market, LeasePlan, the independent fleet lessor, categorises the current situation in the Italian leasing market as "stable at a low level" with most businesses continuing to suffer from the economic crisis.
According to LeasePlan, it is one of the three leading players in the Italian fleet leasing market and the largest independent operator alongside bank-owned Arval and ALD, having gained market share as a result of the acquisition of the Italian fleet and vehicle leasing activities of the Spanish Banco Bilbao Vizcaya Argentaria (BBVA), adding some 20,000 vehicles to its portfolio.
This top three is followed by Leasys, which is owned by manufacturer Fiat, and smaller players such as BMW-owned Alphabet, CarServer and Volkswagen Leasing.
The company has not witnessed any specific government efforts to support the leasing industry in Italy but accepts that any action to mitigate the negative effects of the current economic climate will in due course indirectly support the industry.
The promotion of the vehicle leasing market is primarily managed by Associazione Nazionale Industria dell’Autonoleggio e Servizi Automobilistici (Aniasa).
In particular, this body focuses on lobbying the government for changes in the fiscal treatment of operational leases in Italy which is not in line with other EU countries and penalises Italian businesses, according to LeasePlan.
Alfonso Martínez Cordero, managing director of LeasePlan Italy says: "The recent acquisition of BBVA’s fleet and vehicle leasing business in Italy allows us to expand further into the Italian small and medium enterprise sector, in which we see opportunities for future growth."
When asked how challenging it has been to manage the acquisition of BBVA, Cordero says LeasePlan Italy viewed the acquisition as a catalyst to reinforce its position locally, representing one of the few growth opportunities available in the highly competitive Italian leasing market.
"We have leveraged our experience with two previous local acquisitions [Dial in 2000 and Europcar Fleet Services in 2005] to ensure a robust and timely integration plan. "Many of the key milestones of the integration plan have now been completed and we are on track to complete the integration by the end of this year."
Better next year
Looking a little further ahead, both Assilea’s De Candia and UniCredit Leasing’s Piazza-lunga hope to see a return to growth next year."The performance of the leasing industry is strongly influenced by general economic conditions," De Candia says.
"We therefore expect the market to come back to growth again, not before 2014, following the rebound of other European markets.
"Growth, however, will need to be stimulated by more favourable business rules and by the adoption of appropriate fiscal policies.
"Incentives for small business investments, as well as a general loosening of credit conditions and even direct public intervention could help not only the leasing market but also general business activity to recover."
Piazzalunga says he expects growth to return to the Italian leasing market next year "based on some small but tangible signs".
He adds: "Of course, it will mostly depend on the general economic trend, which financial institutions – banks and leasing companies – must support in this crucial moment and on how the political environment will foster the expected recovery."