After several years of negligible growth, the Dutch leasing market took a significant step forward last year on the back of rising business confidence, reports Paul Golden
Data from the Dutch Association of Leasing Companies (NVL) reveals that the equipment leasing market realised in 2015 a total volume of new business of €5.2bn, up by a sizeable 21.8% compared to 2014.
Every quarter experienced production volume of at least €1bn, and the traditionally busy three months at the end of the year generated business of almost €1.5bn – the highest single-quarter figure ever recorded.
Businesses invested in a broad range of equipment and assets including machinery (+10%), trucks and trailers (+20%) but also ICT (+56%) as well as other assets related to energy efficiency and cost-saving equipment.
The construction sector and agriculture were, again, the largest investors, while the food industry also recorded high growth levels.
On the other hand, the professional printing industry continued to go down in terms of investments in equipment, and the volume of copier and office printing equipment remained at the same level as 2014.
The latter is likely to be related to the downward trend of prices of new equipment, since the number of contracts grew 25%.
Bank-owned leasing companies are the largest distribution channel for leasing in the Netherlands, with 46% of all volumes distributed by bank branches and offices, 12% by the sales force and direct channels of leasing companies, 30% by vendors and 12% by captives – percentages that are little changed over the last five years.
SMEs account for over 82% of total leasing volume, and the average ticket size was around €90,000.
“This market growth has been supported by the strong recovery and intrinsic health of the Dutch economy,” explains Peter-Jan Bentein, NVL secretary general.
“The growth of investments by companies (especially SMEs) may well be the main driver for volume growth in the leasing market since the volume of equipment leasing is directly related to the investment level of businesses.”
Robert Peterson, ABN Amro Lease director of strategy and business development, also observes that an improvement in the wider economy has boosted demand for leasing in the Netherlands by encouraging businesses to invest in new equipment.
“The figures for the first three months of 2016 illustrate the positive state of the lease market, with business showing its strongest growth since 2011, and we expect this positive trend to continue through the rest of the year,” he adds.
Peterson refers to particularly strong expansion in transport and IT leasing, noting that while IT leasing volumes are modest compared to other segments, they have risen by more than 50% since January 2015.
The market continues to be quite competitive, which is placing downward pressure on pricing (interest margins), but DLL has continued to grow its share and has also recorded strong double-digit growth during the first half of 2016, according to Peter Dijks, DLL’s vice-president of vendor finance, Netherlands.
He describes the healthcare sector as a particularly interesting growth market, with most medical devices expected to exhibit 5% or higher compound annual growth rates between now and 2019. This has led to an uptick in leasing activity in diagnostic imaging, dental and ophthalmic devices.
In most cases, the leasing growth rate is outpacing market growth, which is a promising trend in a market where leasing is becoming a more relevant method of acquisition for domestic buyers.
The technology leasing sector has also provided opportunities for growth, but not in the traditional IT hardware sectors, which have been relatively flat. DLL continues to see growth in demand for leasing and finance solutions in the software and services sectors, driven by the ongoing emergence of cloud computing and managed data and storage services.
The food and agriculture market has faced challenging conditions recently due to continued low commodity prices, which has impacted farm incomes and investment decisions, particularly in the mechanised farming sector – such as tractors and harvesters.
The dairy sector in the Netherlands is still recovering from the elimination of EU milk quotas in 2015, which resulted in overproduction and steep price declines, in many cases driving prices lower than the cost of production.
This has significantly impacted confidence levels and investment activity in the sector, although the European Commission (EC) recently announced another round of subsidy (€500m) in an attempt to stabilise the market.
Aside from increased demand for leasing and financing solutions in the software and services sectors, the most significant development in this market over the last 12 months has been the emergence of new equipment markets – such as smart robotics and 3D printing – where leasing is a viable method of acquisition for many buyers.
“Other interesting movements in the market have been an increase in the leasing of refurbished equipment and the continued emergence of ‘pay per use’ lease products such as cost per copy, cost per scan, etc.,” says Dijks.
“In the case of second-life or used equipment leasing and finance, DLL continues to support the growth of this sector as an enabler for the circular economy,” he continues.
“On a global basis, this business represented 5% of our originations in 2015, and we aspire to have this grow to 20% by 2020.
“Earlier this year, we became the first financial institution to receive the Circular Economy Investor Award at the World Economic Forum in Davos.”
He says DLL is satisfied with market growth in the Netherlands over the last 12 months.
“The leasing market continues to provide a number of opportunities for growth and is outpacing the growth levels seen in the general macroeconomic environment,” he explains, adding that he expects the market to grow this year compared to 2015: “We continue to see strong double-digit growth in the domestic equipment leasing market.”
Stef Klijn, CEO of BNP Paribas Leasing Solutions Netherlands, observes that the national institute of statistics reported an increase of investments in tangible assets of 11.9% last year, illustrating strong growth in lease penetration.
He accepts that some attention should be paid to the details of these figures, although they are not easy to analyse.
“Some members include the fleet financing of cars in their reports, while others report their car leasing activities separately. For instance, the substantial car leasing activities of Arval are not included in the figures of BNP Paribas Leasing Solutions, and therefore not included in the reporting of the Dutch association of leasing companies.”
The most important categories are machines for industry, construction and agriculture (31%) and transport equipment (30%), with the former recording 10% growth last year and the latter expanding by 20%. Financial leases account for 81% of business by volume and 68% of transactions.
“The most important development within the leasing industry is the strategic split in the Dutch market between vendor lease companies and companies that have a strategy of direct lease,” explains Klijn.
“Lease companies that have a focus on direct lease are often bank-owned, and in term of new business they rely upon their network of bank branches. Their product offering is interest driven and does not include servicing elements – the leasing product is one part of the total package of product the bank provides to their clients.”
He says that in contrast, a vendor lease company has a partner-driven strategy where leasing products are provided to customers of international manufacturers and national importers and dealers.
“We are a strong leader in this segment, helping our partners realise their growth ambitions and solving equipment investment challenges for businesses of all sizes. To achieve this, we specialise in certain markets and assets.”
According to Klijn, operational excellence and rapid processing of transactions from application to pay out are the key factors to be successful in the vendor lease market.
“We are able to process maintenance and servicing products, including price indexation as well as insurance-related products. Full-service rental is one of our key products.”
Bentein describes increased interest in equipment leasing as a source of finance for SMEs, next to bank lending and other finance sources like crowdfunding and private equity, as the most significant developments in the market over the last 12 months. He notes that leasing is the second-largest external finance source for companies, after bank loans.
According to the secretary general of the NVL, the government pays a lot of attention to the issues that SMEs face to attract sufficient finance, supporting the promotion of alternative finance sources such as leasing.
“There are many initiatives, such as Finance Days organised by the Chamber of Commerce, and the Week of the Entrepreneur, a private initiative supported by the Ministry of Economic Affairs,” he says.
“These initiatives are meant to better inform the entrepreneur of the benefits of alternative finance sources. However, there is no specific focus on leasing, since the parties involved believe in a finance mix adapted to the needs of each company, rather than a one-size-fits-all approach.”
The NVL supports these initiatives with its presence and input in workshops, presentations and other promotional material. It has produced a leasing app in which entrepreneurs can find all relevant information about leasing and also publishes information through social media.
“Our members are optimistic about the prospects for the lease market in 2016 given the sound situation of the Dutch economy and the fact that asset-based finance is to be promoted,” concludes Bentein.
“The recent biannual Dutch Investment Monitor, which gives some insight into the intention of businesses to invest as well as their intention to finance the intended investment, shows that Dutch entrepreneurs and business leaders are eager to invest in the near future, but that they remain rather conservative as far as financing is concerned, since a large number of respondents plan to finance the investment with own money instead of borrowed money. This means there is still room to grow.”
According to Peterson, the outlook for 2016 and beyond is positive.
“Investment in all sectors of the economy is expected to grow further and research into the investment plans of Dutch businesses reveals that around four in five companies expect to increase investment over the next 12 months, with leasing continuing to play a crucial role in equipment financing.”
While leasing penetration in the Netherlands is relatively low, Peterson says the leasing association and member firms are working hard to increase the use of leasing by Dutch businesses.
“Leasing is a significant product for ABN Amro, and the bank expects to do more business of this type by improving distribution through both the physical bank network and digitally, making it easier for relationship managers to access our products and recommend them to clients,” he says.
“Our website has moved from solely being an information channel to a sales channel, and we are very pleased with the volume of business generated online.”
Asked whether the Dutch government has taken any direct or indirect action to support the lease finance industry, Dijks notes that on an indirect basis via the EC, the government is supportive of the leasing industry.
“For example, the European Investment Bank makes funding available to spur growth in the mid-sized business sector, offering subsidies to lessors and enabling lower payments for the lessees themselves.”
DLL’s most recent customer surveys showed a net promoter score – a measure of customer loyalty – of +26, which he says is well above benchmark for firms in the financial services and banking industry.
“In the local market, 90% of our customers indicated they are satisfied or very satisfied with the products and services they receive from DLL,” adds Dijks.
“In addition, we focus on developing thought leadership by providing forums where information on trends and developments within the local market can be shared between customers.
For example, we are hosting a panel with CFOs of 10 top companies within the IT sector in September.”