“UPDATE ON LEASING IN EUROPE” LEASEUROPE ANNUAL CONFERENCE 2005 PRESENTED BY DEREK SOPER

“UPDATE ON LEASING IN EUROPE” LEASEUROPE ANNUAL CONFERENCE 2005 PRESENTED BY DEREK SOPER THE ALTA GROUP

LEASEUROPE SURVEY • Over 360 members of the Industry notified of Survey • Speedy response from CEE Countries, excellent co-operation from Italy and Germany. • Some Associations controlled the process. • 28% Response – Greater than expected. • Sample size should be statistically sound.

ALTA’S FIRST REACTIONS • Some marked differences to the 2003 Survey. • Some countries and companies still believe their business is “unique”. • Activities and subjects of concern are common across all countries. • Generally companies are optimistic about themselves but not about their economies. • Very few feel regulation is bad – we wonder if companies feel safe from competition if everyone is “regulated”.

TODAYS PRESENTATION • An overview of the results • The critical areas of interest • Some comment from Alta

RESULTS Ownership of European Lessors • Mainly Bank owned. • Some Captives and Independents, but demonstrating very different “attitudes”. • Many references to “Parent Bank” and “Servicing the Bank customers”, “the Bank want us to do this”, etc. Giving the impression that the Bank parents are very much in control.

Results • Big Ticket…………………………………….37% • Medium Ticket……………………………….94% • Small Ticket………………………………….73% • Direct Business……………………………..74% • Vendor Leasing……………………………..82% • Consumer Credit……………………………32% • Floor plan / Stocking……………………….7%

RESULTS Spread of Countries for Subsidiaries • CEE / Austria – 5/6 countries quite usual. • Very few have International Coverage. • More with European Coverage, but limited. • Mainly domestic only. • Not much overseas expansion planned.

RESULTS Regulation / Supervision • Many believe ‘Regulation’ or ‘Supervision’ is an advantage for their business. The only concern expressed was cost. A strong feeling came from the comments that companies like the protection “Supervision” gives them from the outside world.

RESULTS Basle II • Almost universal support. • See asset quality increasing. • Some concerns about cost. • A few comments about “small ticket” leasing becoming closer to Consumer business.

RESULTS Growth or Decline in the Market • Overwhelming number said the Market would grow over the next three years. • A small number said growth this year and then decline. • No company said decline for the next three years.

RESULTS Where will Growth come from? Domestic 87% Europe 67% Outside Europe 19% Change in Direction 13% Other new services 21% Acquisitions 24%

RESULTS Margins. • Most see a reduction in the short to medium term – only a very small number expect an improvement. • Over two thirds feel that leasing produces an unsatisfactory return on capital. • One third see longer term margins improving. Interesting that none were advocating better margins from increased services – or perhaps this is secret!!

RESULTS Do You favour Centralisation or Decentralisation? Centralisation…………………………………..27% Decentralisation………………………………..73% Do you do leasing for Central or local Government? 71% said yes they do. Do you enter into Joint Ventures with Vendors? 52% said yes they do.

RESULTS Human Resources. • Many expect a shortage of quality staff for the next three years, but a small number of companies say they will be OK but the rest of the industry will have a problem. • A very strong trend to decrease the back office and increase the sales and customer facing support staff. • A significant number said they were moving staff from the Bank into the Leasing Company.

RESULTS Training Use in-house training Team…………………………….84% Use External Trainers…………………………………….72% Public Seminars / Conferences…………………………53% Web based training……………………………………….None Management Development (INSEAD, IMD, etc)………7%

RESULTS Training - continued Top three subjects for training :- • Basic Leasing Skills – New Staff • Selling and Marketing / Training the Vendor • Asset Management.

RESULTS The three most Concerning Issues. ( What keeps you awake at nights) • Profitability / volumes and ROC • How to increase turnover – the hunt for business • Maintaining good quality Staff.

RESULTS IAS17 - accounting for leases. • Overwhelmingly little or no concern. • A very strong feeling that many did not know what effect it would have on their business. • Recognition that customers would still want Off Balance Sheet products. • No evidence of much “new product” activity.

RESULTS Is good quality credit information available in your domestic market? Most thought the information available was good quality and received it from:- • Parent Bank Data. • Central Bank Data. • Rating agencies.

RESULTS Are you experiencing any changes in credit quality in your existing portfolio? • The majority said – mainly stable, very little change expected and not expecting to change strategy on lending criteria. • One indicated a very steep decline – lets wish him Goodbye – he may not be here next year.!

RESULTS Are your systems E Commerce enabled and do you plan to use E Commerce delivery of product.? • Very few indicated they could deliver at this point in time • 25% said they were planning to do so. • A significant number said they had no intention of using this method of delivery.

RESULTS Is Software Support a major area for Investment? • The vast majority indicated that Software spend was a significantly increased number in their budgets. • Many very negative comments – “no good suppliers” – “mostly about Basle II” – “Takes too much management time” etc, etc.

RESULTS • Residual Value Insurance. Virtually none use it. • Involvement in Project Financing 35% said yes, in some form. • Involvement in Waste disposal or Renewable energy financing 42% said Yes.

RESULTS MARKETS. – Vehicles An overwhelming sector of the market – particularly in the CEE countries, where it is 60 / 80% of the business in many cases Most in operating leases of cars and commercials, but very few in trailers.

Vehicles - continued The Car Market……………………………………………….81% The Full Service car market……………………………..…74% Commercial Vehicles……………………………………..…67% Commercial Vehicle Operating Leases…………… ….…54% Trailer Leasing………………………………………… …….26% Trailer Operating Leasing……………………………….....19% Leasing of Vehicles to Private Individuals or Just Business? 80% was to Business only.

RESULTS MARKETS. – Operating Leasing • A great many who do operating leasing do not employ asset management specialists. • Very few residual positions are covered by RV Insurance. • Residual positions taken are mainly for one or two types of equipment only. • Many only do Operating leases where the residual position is covered by the supplier.

RESULTS MARKETS. – Real Estate Leasing • About 50% of the respondents do Real Estate Leasing • Most take residual positions. • Most will only lease to the end user. • Overwhelmingly Office or Industrial Buildings only. • Most see it as a growth sector.

CRITICAL CONCERNS • Where is growth coming from. • Profitability. • IT Strategy. • Compliance. • Evidence of Leasing being more integrated into the Banks.

SOME THOUGHTS FROM ALTA • European company earnings depressed. • Pressure on short term margins • All GDP forecasts for Europe are pessimistic And yet almost everyone expects growth year on year for the next three years !

SO WHERE WILL THE LEASING GROWTH COME FROM? • New products and services? Can leasing take an increased share of the market? • Investment in more technology? • Mergers and Acquisitions? • Banks exiting the business? • International Growth?

Thank you to Leaseurope for allowing us to conduct the survey and present the findings to this Meeting www.thealtagroup.com dsoper@thealtagroup.com

“UPDATE ON LEASING IN EUROPE” LEASEUROPE ANNUAL CONFERENCE 2005 PRESENTED BY DEREK SOPER