Elmar Lukas, MD of equipment
financing for GE Capital in EMEA, talks to Grant Collinson about
past successes – including the 2011 Leasing Life European Innovator
of Year award – and future plans for the finance division of
industrial behemoth GE.
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For GE Capital, 2011 was good year.
The asset finance division of US industrial conglomerate GE, GE
Capital Commercial Lending and Leasing, just posted a 75% increase
in profit, earning $2.7bn (€2.1bn) for the year.
With a stated intention of growth
in Europe, Grant Collinson spoke to Elmar Lukas, managing director
of equipment financing for GE Capital in EMEA, to see what 2012 has
in store for the Leasing Life European Innovator of the
Year.
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Grant Collinson (GC): Where
does leasing sit within GE Capital in Europe and how important is
it?
Elmar Lukas (EL): Let me start one step before
that – GE Capital within GE itself is well-positioned and
well-appreciated as a valuable part of the industrial conglomerate.
There have been questions asked consistently since the first
financial crisis in 2008, and our chairman has always been very
straight on this – GE Capital is a valuable part of GE.
That will remain the case as much
as we can be certain in the current environment. Equipment finance
within GE Capital is well-positioned, strategic and a focus for GE
Capital.
There was an exercise done in
the
last financial crisis, where the board of GE Capital went through
the businesses we had and colour-coded them if you like – deciding
which products were strategic and which were not – and equipment
finance was selected as strategic.
GE Capital has managed to grow, but
at the same time the board has made a commitment to the
shareholders, and also to the analysts on the stock exchange, to
shrink the overall balance sheet of GE Capital. Within that,
however, Equipment Finance is positioned for growth.
GE Capital is about 30-40% of GE
revenue and commercial lending and leasing is the core of what GE
Capital does on a global basis.
GC: What is your position in
Europe?
EL: We remain a
pan-European player in equipment leasing, covering almost every
country, certainly in Western Europe. Talking of positioning and
growth, we are pleased to say we grew north of 25% each year in the
last two years.
We have more than 250,000 leasing
customers and around 400,000 leasing contracts in Europe. Also,
just last year we signed between 130-150 new vendor partners in
Western Europe.
We are a vendor business so if you
want to grow you need to sign new vendors and grow those you have,
and that is going to continue. We consider ourselves as being
serious and scaleable. Some domestic European players may show
bigger numbers, but those numbers often apply not just to Europe
but to business in other places as well. Our figures are just
within equipment finance in Europe.
We have about 1,000 employees in
the big four countries (Germany, UK, France and Italy) but we do
cover other countries as well.
GC: Four big countries. Are
those the markets you are targeting for growth or are you looking
to expand into other areas in Europe?
EL: We are
concentrating on what we are good at – servicing our customers in
the markets where we play. We are always open to expand
geographically if we believe an opportunity is worth the
effort.
The thing for us is, being around
more than 20 years, we feel we should focus on what we are good at
and gain share and growth within those established markets.
GC: How do you anticipate 2012
will go for GE Capital Equipment Finance?
EL: You would
probably get a different answer from me every week.
GC: What is this week’s
answer?
EL: The reality is
it is tough to foresee. We still want to grow and we are very
optimistic we will continue our growth but really, in the current
environment, we can’t be certain.
In November last year, for
instance, we lost two prime ministers within two days in Europe. In
the current climate, everyday you open The Financial Times
and what you see is the world has changed again.
What I can confirm is that we are
going to invest further in equipment finance and further in
innovation. We invested heavily last year – but you probably know
about that because you guys gave us an award for it. We invested in
our extranet [iManageleasing], which is all about serviceability
and customer experience and we are going to continue to invest in
that.
We are going to roll out very soon
an app for smartphones and tablets for the extranet so our partners
don’t need to sit in the office use iManageleasing. They can sit
with their customers and get the same service level just on their
phone. That is the kind of thing I can say for sure. It is already
rolled out in the UK, the Nordics and the Benelux region.
GC: You mentioned earlier the
uncertainty in Europe. Is there anything in place at GE Capital to
mitigate that uncertainty?
EL: Nothing other
than our normal business practice. We watch the environment
carefully. The environment has impact on new volume figures and the
quality of your portfolio, on the ability of your customers to pay
you back and we watch that carefully. The benefit is we’ve had a
crisis in 2007 so this is not new.
Whatever happens, we got out of the
last crisis with a lot of lessons learned and have set up our
company in the right way to respond to these challenges. One
example is GE Capital has $83bn (€64bn) cash on its balance sheet
and that is a ‘just in case’ to avoid the liquidity issue.
GE has changed its funding model in
terms of its reliance on wholesale funding, short-term funding, and
commercial paper. GE chairman and CEO Jeff Immelt’s plan was to
shrink GE Capital from $600bn of assets to $440bn; we are close to
that already.
There were two phases to that, one
was to shrink the assets and focus on things we consider core –
things like equipment finance and commercial lending and leasing –
and the other thing was to diversify our funding model. A good
example of that was GE Capital’s recent acquisition of MetLife’s
deposit business in the US, adding consumer deposits to the funding
mix.
We believe, especially in Europe,
that being part of an industrial company in this environment is a
strong benefit. The debt crisis in Europe is not really hitting
industrial companies, so we think it is a big benefit to us. Our
strategy is to partner with other leasing companies and banks to
service their customers where they value the customers, but leasing
is not a core activity.
We have partnerships already
running and are very open to them. For example, the factoring
partnership we have with Commerzbank in Frankfurt. We help banks to
protect their core customers with a product line they don’t
consider core.
GC: Moving beyond the finance,
are there any particular equipment markets you will be focusing on
over the next few years in Europe?
EL: We have always
had a strong footprint in the office equipment and IT market and
there is no strategic discussion to change the asset classes we
service.
As I said at the beginning, we
stick to what we are good at. We do service different asset classes
in different countries because the markets are quite different, but
we focus on the assets we are good at. In office and IT equipment
we are quite scaleable in all geographical areas.
GC: Are there any geographical
areas where you think you will become stronger in the next few
years or any you see contracting in terms of asset
finance?
EL: If I knew I
would buy up bonds. Seriously, I had expectations in the last
quarter of last year which ended up being wrong so I think it’s a
question I really can’t answer.
We consider where we play today and
each country is going to have its upsides and downsides but my
experience is the equipment finance market follows GDP. In general,
our equipment finance assumptions don’t differ from our GDP
assumptions and generally we operate in the stronger economies.
Our exposure to the challenged
countries is extremely limited and we mainly focus on those
countries which, so far, have got through the debt crisis okay.
GC: You have said you expect
growth. Do see any expansion in terms of personnel and
locations?
EL: What we have
done last year, which is a strong commitment to the market, we
hired about 100 salespeople across Europe.
If there is anything which confirms
your focus and commitment it is if you hire salespeople. We need to
see how that works out. What normally happens is you hire new
salespeople and see how they perform – is the market what we think
it is? Do they generate the volume we think they can generate? If
it is successful, we will consistently invest because there is no
reason to stop. If you consider our whole workforce [in equipment
finance in Europe] is 1,000, then 100 salespeople is a heavy
investment and commitment. If it pays off, we will consider the
next step.
GC: GE Capital was linked to a
few acquisitions in 2011. Is acquisition a possible strategy in
2012?
EL: Without
disclosing anything, we have always been open to this and will
continue to be open to this, absolutely.
GC: GE Capital does not
breakdown figures for Europe or equipment finance beyond the global
commercial lending and leasing level. How far can you break down
divisional performance for us?
EL:: It is fair to
say that in all key metrics and financial parameters for equipment
finance in Europe the trend was positive. This was not just a
revenue increase but a positive trend across the business.
GC: Should all things remain
steady in Europe, do you expect that trend to
continue?
EL: We are
planning for everything but in this volatile market we will just
have to see what comes.
We are planning for every scenario,
including worst-case and best-case scenarios. Hopefully it will be
the best case, or somewhere in the middle. Let’s wait and see.
