The Portuguese economy is not expected to perform up to scratch this year, but Carlo van Kemanade, executive vice president and COO of De Lage Landen (DLL), is unperturbed as the Dutch-based specialist in vendor finance forges ahead with the set up of its newest European office, based in Lisbon.
Instead, van Kemanade shrugs off talk of a downturn as something that will affect everyone, but says it is De Lage Landen’s business model that will keep the group resilient.
As with all its expansion strategies in the past, DLL’s assault on the Portuguese leasing market was partly driven by demand from its vendor partners.
“In the past we’ve always applied the concept of ‘follow the vendor’. Today we don’t just follow. In many cases we lead vendors into new territories where they are or will be active in,” van Kemanade says. “As part of our global expansion strategy, besides a heavy focus on the CEE and Asian region, we identified the need for entering into Portugal as this country is considered important for many of our vendors.”
After obtaining permission from the Portuguese Central Bank, the Lisbon office opened for business on April 1 with seven staff. The team is also supported by resources in DLL’s Madrid office, although van Kemanade says Lisbon is scaling up its sales force rapidly and will likely house some 15 staff within the first year.
Meanwhile, deals are flowing in quite smoothly. Van Kemanade says DLL is receiving plenty of requests and applications and having some fruitful discussions with its vendor partners.
Within the first 12 months of starting up, DLL expects to have written some €50m to €60m in new business in its specialist areas of transport, food and agriculture, technology, materials handling and healthcare.
DLL’s confidence in achieving that target is partly reinforced by the presence of Cargobull Finance, a joint venture with trailer manufacturer, Schmitz Cargobull in which DLL has a majority stake.
A fifth of its new business target for Portugal may come from Cargobull. DLL expects to write roughly €10m to €11m in finance deals for trucks and trailers. This is expected to grow rapidly within three years.
In recent weeks Cargobull Finance, in tandem with DLL, entered the Russian market following the move there by Schmitz Cargobull in 1999. For DLL it is an important strategic move as it is seeking to ramp-up its CEE capability. Schmitz Cargobull UK announced a sales increase of 40 per cent for the first nine months of the 2007/2008 financial year, and the pan-European contingent experienced strong double digit growth in trailer sales ahead of the previous year. Notwithstanding this, Anne Smith, a sales support manager at Cargobull Finance, says that the truck leasing market, particularly in the UK, is competing against an increasingly “tough climate”. “It’s a funny market, a lot of haulers have closed their doors; it’s a tough time, particularly with the rising cost of fuel,” she adds.
According to van Kemanade, one of the performance benchmarks for vendor finance is the penetration rate, that is, the proportion of vendor sales closed with a finance deal. Thus, a 50 per cent penetration rate means that for every €1 of vendor sales, €0.50 is financed by DLL
In Portugal, DLL will aim to progressively achieve the penetration benchmark of between 40 per cent and 50 per cent for all sectors within the first three years of operations although, it can be quite common for penetration in the wheeled assets sector to be higher than in the technology finance sector.
“In certain regions we have seen that for example, the financing of assets on wheels seems more common than for instance the financing of technology finance related assets,” van Kemanade says.
Given the small size of the Portugese economy, deals originating there aren’t likely to match its much larger neighbour, Spain, which wrote some €500m in new business in 2007. Portugal’s market for leasing is about a quarter of the size of Spain’s, by DLL’s estimate.
Still, Portugal did report a healthy rate of investment and there’s even more infrastructure spending to come. In Lisbon, for instance, plans are afoot to build more hospitals, while a €3.6bn airport 50km north of the capital, linked by high-speed rail to be completed in 2018, has been placed under the Government Priority Infrastructure Investment Programme.
That at least, should keep capital spending robust for a while.