It may seem odd that this year’s Asset Finance Europe 50 (AFE50) survey is published straight after the UK general election, after all doubt is finally removed that the UK will leave the European Union.
It’s easy to dismiss this as a quirk of timing. There’s plenty of evidence that Brexit shouldn’t have too much direct impact on the leasing industry. Yet the timing of the AFE50 might be more relevant to UK lessors than it appears.
There are grounds for saying that Brexit shouldn’t have too much direct impact. UK-based lessors have limited exposure to the rest of Europe. AFE50 firms with UK headquarters account for only 8% of the European industry. These UK-based AFE50 firms serve a mainly domestic market.
Meanwhile AFE50 firms with headquarters outside of the UK account for around 25% of the UK market. These AFE50 firms include, in order of size of their UK leasing books, BNP Paribas, DLL, LeasePlan, Alphabet, Santander, ALD, Societe Generale, Arval UK, VFS and Scania. This is based on the separate UK Asset Finance 50 survey (AF50) published earlier this year. It excludes a few European firms for which geographical data wasn’t available.
There’s no obvious reason why these AFE50 firms based outside of the UK will need to rethink their involvement here. Some procedures may need to change, for example around staffing or tax. But it’s hardly as if everything is fully aligned across Europe today, with VAT being a clear example. It’s why these businesses are already managed locally.
Approaching this from a customer perspective, as things stand, again the Brexit impact seems limited. The UK leasing industry serves predominantly small and medium-sized businesses, the majority of which will sell mainly in the domestic market. Only a small proportion of business equipment used by larger companies - which tend to be the firms most active across Europe - is currently leased.
If in doubt about this, take a look at the audited accounts of FTSE 250 firms. Either pick up the new IFRS 16 leases balance or add together the finance leases on balance sheet and operating leases from the notes to accounts. Leasing by the largest companies is predominantly property. Equipment and vehicle leases tend to be small as compared to the value of owned assets.
Some in the industry are optimistic that larger firms may increase their use of leasing for their equipment and vehicles. This is linked to the emergence of more flexible and environmentally-friendly leasing models that make leasing a more attractive option, both for larger firms’ own equipment needs and for vendor programmes. As that happens, it’s likely UK firms will be looking for lessors able to support their own equipment needs and those of their customers across Europe.
A question then for UK-based lessors is whether they are content for AFE50 firms based outside of the UK to pick up this business from prime customers? Or is now the time to prepare to meet large firms’ needs throughout Europe, either through opening their own offices or through partnerships?
On this basis, the new AFE50 survey might prompt some UK lessors to aim to strengthen contacts with the wider European leasing industry in 2020, whether that’s through attending European conventions to meet non-UK firms or renewing existing contacts. Not because of Brexit, but in parallel to it.