Leasing to European SMEs

ALB | November 2012

Tanguy van de WerveLeaseurope Director General

2

US

ELFA

154 bil€

Leaseurope

232 bil€

Japan

JLA

41 bil€

New equipment leasing volumes. ELFA figures do not include passenger car leasing

Source: Leaseurope 2011 Annual Survey, local leasing associations, Leaseurope estimates

Brazil

ABEL

7 bil€Australia

AELA & AFLA

16 bil€

Global Equipment Leasing Markets in 2011

Canada

CFLA

27 bil€

China

CLBA

106 bil€

11%

1%

-28%

13%

16%

100%

16%

3

Source: Leaseurope 2011 Annual Survey Annual growth rates based on a homogenous sample of members reporting in Leaseurope’s 2011 Annual Statistical Enquiry and are adjusted for exchange rate fluctuations

Evolution of new business by countryNew business, annual % change (2011/2010)

Non - members

20% to 30%

30% and higher

- 20% to -10%

10% to 20%

NA

-10% to 0%

- 20% and lower

0% to 10%

European Leasing Market in 2011

4

Regional performance by movable asset categoryNew business growth - annual % change (2011/2010)

Growth rates are calculated based on a homogenous sample of members reporting & are adjusted for exchange rate fluctuationsSource: Leaseurope 2011 Annual Survey* The category “Other” for IT includes some renewable energy assets

15%12%

15%

-10%

-36%

5%

18%26%

10%13%

4%

-25%

-13%

-24%

16%

4%

15%8%

14%

3%

-12%

16%13%

18%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Machines & Equip ICT Vehicles Big/Other

18%

-6% -2%

DE UK FR IT* MED. Benelux, AT,CH

CEE Nordic,Baltic

-30%

-40%

33%

64%

-29%

European Leasing Market in 2011

5

H1 2012New volumes*

119 bil€

Source: Leaseurope Member Associations

*28 member associations reporting; growth rates adjusted for exchange rate fluctuations

H1 2012/11 %

-1.0%

NA

0% to 10%

10% to 20%

-20% and lower

-10% to 0%

-20% to -10%

European Leasing Market in 2012

20 % to 30%

30% and higher

The use of leasing amongst European SMEs

With the support of A report prepared for

Leaseurope©

• Lack of data at European level on SME’s use of leasing:

Research on leasing to SMEs

- European Central Bank Finance Survey – covers SMEs but doesn’t focus on leasing on its own, and only covers Eurozone countries

- European Commission’s Flash Barometer – right scope but out-of-date (pre-crisis)

- Leaseurope Annual Statistical Enquiry – detailed information on European leasing market, however no split by firm size

- National data sources – few; not directly comparable

• This research establishes evidence at European level on the importance of leasing to SMEs as a source of financing their investment

• Based on a unique survey of ~3 000 firms by telephone in 8 countries (DE, FR, UK, IT, ES, NL, PL and SE), across 9 sectors

• The survey was carried out in July 2011

• Leasing defined in the broadest sense: right to use an asset for a period of time

Rationale for the research

Leaseurope©

• How important leasing is to European SMEs- How many SMEs use leasing?

- How intensively do they use leasing to finance investment?

- What is the size of the SME leasing market?

• What assets do SMEs lease and through which channels?

• Why do SMEs lease (or not lease more)?

• About the role leasing play in driving SME investment and growth

- Lessees invest more

- Leasing enables SMEs to expand

- Economic impact of more SME leasing

Details on how to obtain your copy can be found on the SME report page of www.leaseurope.org

What does the report tell us?

Leaseurope©

In comparison…

6 million SMEs used leasing in the

8 countries sampled

€100 billion of SME investment

in fixed assets was financed through

leasing

This represents 52% of the business leasing market

in Europe & 45% of the total leasing market

• the European Investment Bank provided €10 bn in direct SME loans through banks 63,000 SMEs supported

• SME Guarantee Facility of the European Investment Fund (EIF) supported €1.2 bn in direct loans to SMEs 20,000 SMEs supported

• EIF invested €930 mil in 42 equity and mezzanine funds as SME support

• Venture and enterprise capital helped finance 16,700 SMEs in Europe between 2007 and 2010, totalling €46.5 bn according to the European Venture Capital Association

2010

European SME investment through leasing

Leaseurope©

40%

0%5%

10%15%20%25%30%35%40%45%50%

Investment by funding type - all SMEsPercent of firms using finance type in 2010

Source : Oxford Economics/EFG

How many European SMEs use leasing?

• 40% of all SME firms used leasing in 2010 – more than any other individual form of external financing, and we expect more of them will in 2011 (43%)

- This equates to an estimated 6 million individual SMEs who rely on leasing in the 8 countries in our sample

- More SMEs use leasing than bank loans of > 3 years

- Use of leasing increases with SME size

- Micros generally make less use of all forms of external finance

Leaseurope©

31.2% 28.3%

15.5% 13.8%

36.7% 39.4%

18.6%16.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011

Cash Bank loansLeasing Other

Investment finance in 2010 and 2011 - all SMEs

Proportion of investment financed by:

Source : Oxford Economics/EFG

/Equity debt

Loans of < 3 years

Loans of > 3 years

Short term credit

(incl. overdrafts,

credit cards)

Leasing as a share of SME investment

• At EU level, leasing was responsible for financing just over €100 billion of SME investment in fixed assets in 2010 (€112.5 billion expected in 2011)

• The share of SME investment financed by leasing is set to increase from 16.7% in 2010 to 18.6% in 2011. By contrast the share of all forms of bank lending taken together (loans, overdrafts, etc.) was 31% in 2010 and is expected to decrease in 2011

Leaseurope©

Through which channels do SMEs access leasing?

0%

10%

20%

30%

40%

50%

60%

70%

80%

Micro Small Medium SME Average

Vendor BankLessor Brokers

Proportion of lessees using each channel by firm size, 2010

Source : Oxford Economics/EFG

• The most important channel for accessing leasing is the vendor or point of sale channel – providing clients with a one stop shop for assets and financing solutions:

- 67% of lessees used the vendor channel in 2010 - 58% accessed leasing through a banking channel - 36% accessed directly from the lessor

Leaseurope©

• Leasing is one of the funding sources that new firms are able to turn to most quickly

- The use of leasing increases from 26% for SMEs less than 2 years old to 50% for SMEs aged between 2 and 5 years

- The take-up of bank loans (> 3 years) increases from 29% to 38% for these age groups

0%

10%

20%

30%

40%

50%

60%

70%

80%

< 2 years 2-5 years 5-10 years >10 years

Retained earnings

Private equity

Equity Funding

Source: EFG

Firms using funding type by age

0%

10%

20%

30%

40%

50%

60%

70%

80%

< 2 years 2-5 years 5-10 years >10 years

ST bank creditTrade CreditLeasingLoan >3 yrsLoan <3 yrsPersonal fundsFactoring

Non-equity financingFirms using financing type by age

Source : Oxford Economics/EFG

Leasing enables firms to expand faster

Leaseurope©

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Min

ing

and

Util

ities

Man

ufac

turin

g

Rea

l Est

ate

Con

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n

Ave

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and

Res

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ants

Agr

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ture

Dis

trib

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Tra

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rt a

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tora

ge

Pro

fess

iona

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ervi

ces

Lessees

Non-users

SME investment by lessees and non-users€m

Source : Oxford Economics/EFG

0

100

200

300

400

500

600

700

800

900

1000

Mic

ro

Sm

all

Me

diu

m

All

firm

s

Lessees

Non-users

EU investment spending by enterprise size€ thousands, 2010

Source : Oxford Economics/EFG

Lessees invest more

• On average, lessees invest 53% more than non-users of leasing. This trend also holds across sectors (except agriculture) and countries.

- Difference between lessees & non-users especially pronounced amongst small firms - small firms who leased in 2010 reported investing an average of €302 000, i.e. over €100 000 more than non-users.

- Small lessees in particular may invest more than non-users because they are taking advantage of one of the few external financing options available to firms of that size.

Leaseurope©

• Leasing is attractive to SMEs in many different circumstances and can meet the needs of diverse businesses

Why do firms lease?

Reasons to use leasing:

1. Better price than other forms of finance

2. Tax benefits

3. Ability to finance up to 100% of the purchase price of an asset, without having to provide any supplementary guarantees or collateral

4. Enables better cash flow management

5. Ability to adapt the length of the contract according to your company’s needs

6. Accounting benefits

7. Predictability and transparency of rental payments

8. Ability to use assets without bearing the risks of ownership e.g. risks on second hand asset values or the disposal of the asset

9. Ability to upgrade and renew assets more frequently than purchasing would allow

10.Ability to bundle finance with optional services e.g. installation, insurance, maintenance repair of the leased asset

11.It is easier / faster to obtain leasing than other forms of finance

0.7

0.6

0=not at all important

Ran

k

1=very important

Leaseurope©

Macro-economic contribution: Baseline – Oxford Economics forecasts for GDP

growth from 2010 onwards, assuming PR kept at 2010 rates.

Scenario 1 – Impact of firms leasing at 2011 PR vs 2010 PR

What would the impact on potential output of a permanent shift to 2011 PR levels be?

Scenario 2 – micro firms increase leasing to small firm PR

Micro firms currently finance 10% of investment via leasing. What if they

increase this to 16.7% (small firms’ PR), but keep other investment constant?

Scenario 3 – “Leasing boom”

Assumes all categories of firm increase PR from 2011 levels by the same amount as

whole economy PR fell 2008-2010. This is the most ambitious scenario.

12.75

12.80

12.85

12.90

12.95

13.00

13.05

13.10

Baseline - 2010Penetration

rates

Scenario 1 -2011

penetrationrates

Scenario 2 -higher micro

leasing

Scenario 3 -leasing boom

Potential output under leasing scenarios€trn, 2010 prices, total for France, Germany, Italy, Netherlands, Poland, Spain, Sweden and UK

Source : Oxford Economics

Potential output under leasing scenarios in 2020€trn, 2010 prices, total for FR, DE, IT, NL, PL, ES, SE and UK

+1.5% on level of GDP

Or

+ €200bn+ 0.9 to 1.0% on level of GDP

or

+ €100bn each

Macro-economic contribution of increased leasing PR

Leasing to European SMEs

ALB | November 2012

Tanguy van de WerveLeaseurope Director General