Results from international leasing company DLL have shown a year-on-year fall in net profits from €606m (£520m) to €380m.

The DLL results also showed a year-on-year fall in profit before tax in continued operations from €517m (£444m) to €495m. Total net income showed a nominal fall from 2017 to 2018 financial year, from €1.38bn to €1.33bn.

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New business volume grew to €25bn, representing 6% growth over the prior year, when excluding currency movements. The company also realized growth in its portfolio, which increased by 8% to €33.5bn.

A statement from DLL highlighted context for the  €380m net profit figure for 2018, where its return on assets (ROA) amounted to 1% (2017: 1.8%). The lessor said four issues had mainly affected the result.

  • The 2017 reform of the U.S. federal tax law required an adjustment in the deferred tax liability DLL has in the U.S. This adjustment has resulted in a gain of €204m that is recognized in the income taxes line in our statement of profit or loss in the previous year.
  • In the financial statements of 2017, DLL classified its operations in China as held for sale and through that classification recognized an impairment of €40m. However, during the course of 2018, it was concluded a sale was no longer probable. Therefore, DLL has decided to discontinue accepting new business in China and let the portfolio run-off. By the end of 2018, there was still €300m (2017: €435m) of portfolio in China, which will run off in the coming years. The net profit for 2018 was positively impacted by the reversal of the impairment, partly offset by some negative income effects. The net impact is a gain of €25m, reflected on various income and cost lines.
  • Next to that, the 2017 results include three months of results of Financial Solutions (€18m), which was transferred to Rabobank on April 1, 2017. These results are presented as results from discontinued operations.
  • Finally, DLL uses derivatives to hedge its interest rate risk position. These derivatives are measured at fair value and may result in fluctuations in the income statement due to interest rate movements. To mitigate these fluctuations, DLL applies hedge accounting. In 2018, the impact of derivatives and hedge accounting was a loss of €3m (2017: gain of €49m).

A spokesperson for the lessor wrote: “When ignoring the above effects, our profit before taxes has decreased by 7% compared to last year. This decrease is caused by several factors, all adjusted for currency movements. Additionally, our net income is negatively impacted by decreasing yields on new business, as well as residual value and inventory adjustments recognized; costs have increased, due to organizational investments made, as well as higher costs required for compliance activities; and a slight increase of credit impairments.”

Marc Dierckx, chief financial officer at DLL, said: “The continued downward pressure on pricing and margins had an expected dilutive effect on our profit performance, but the fundamentals remain sound. We continue to closely monitor and manage our pricing in key markets and seek further process efficiencies in our service delivery in order to offset these risks.”

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Bill Stephenson, chief executive officer and chairman of the executive board, said: “The 2018 business year was one of growth and progress for DLL. Our achievements not only spanned across financial and commercial targets, but also touched on improvements in customer satisfaction and employee engagement.  In an increasingly competitive market, we continued to differentiate and grow our market share.”

Operating costs decreased by 5% on a year over year basis, according to DLL due to movements in currency exchange rates and other exceptional items.  When adjusted for these items, operating costs growth was according to the company generally in line with portfolio growth.

The company recently completed two securitization transactions in the U.S., attracting almost €1.6bn of external funding.  “These successful transactions represent an endorsement by the investment community and rating agencies regarding the stable and consistent performance of our business”, said Dierckx.

At the end of the financial year DLL had more than 5,000 employees, an 8.5% year-on-year increase. DLL is a subsidiary of Dutch banking service Rabobank. DLL were not early adopters of IFRS 16 and as such this regulation does not affect the 2018 results.