De Lage Landen – A Balanced Performance Across the Board
Monitor: In the latest news release on 2011 performance, De Lage Landen noted operating income was up 8.5% year-over-year. Net profit year-over-year was up 51% (201 euros versus 304 euros). We noticed that this increase was somewhat downplayed given the fact that your parent company, Rabobank, was glowing in its praise regarding leasing’s contribution to the bank’s 2011 performance. Would you care to comment on this?
Ronald Slaats: Downplayed? (laughs) Well, I don’t think so but it’s very simple. The results are nice of course and our portfolio did grow more than we thought. In fact, we experienced double-digit growth in 2011 and that growth started in January and that helped a great deal because as you know, that is extra income that you carry with you for the whole year. That of course helped the income line and our costs were under control as well. Our risk costs were far lower than our historical average. So, if your income is higher and your costs are under control and your risk costs are lower, then you have a pretty decent year.
Monitor: Is that the whole story?
RS: Well, that’s most of it… our portfolio wound up being bigger than we thought it would be. But digging down, we sold more products to existing customers, so we had less in sales costs. We also sold more contracts with insurance, which of course adds more to the income line, and our risks are much, much lower than anticipated. But as you know, risk costs can go up and then you’re on the other side of the fence. So to your first point about downplaying the results, I guess that’s why we stay a bit more modest and are careful not to speak out too loudly. And, 2011 is over and a new year has started. And you might be wondering how we’ve done in the first quarter. The answer again is much better than we anticipated. And while we don’t know how things will turn out, one thing is for sure: competition is fierce, especially in North America. The same is true in Europe but to a lesser extent. So while I think we will do better than we initially anticipated, I don’t think we’ll experience as much growth in 2012 as we did in 2011.
Monitor: In its annual report, Rabobank noted that the net profit was due to higher interest income, recovery of residual value gains and a decrease in bad debt costs. While we understand the first point stemming from portfolio growth and the third point stemming from improving portfolio quality, could you speak more to the point concerning recovery of residual value gains?
RS: Mostly this comes from our car leasing business where we experienced much higher residual value gains than we expected. With that business, De Lage Landen is in nine European countries and we’re a market leader in the Netherlands and rather large in Belgium as well. Now, those are two small countries, but we have a few hundred thousand cars there. Let’s say for example you get back 35,000 cars and you realize 100 euros more per car than you anticipated, that’s a pretty large amount.
But this was not only with the cars. This happened on other assets too and we’ve gotten smarter and smarter in the disposal of our equipment. We do much more online now both in Europe and in the United States. Sure, you can get rid of equipment in the warehouse, but if you do it online, you get better prices.
Monitor: You noted that within the Vendor Finance division, the portfolio growth of almost 17% was “achieved by an equal contribution of all business units within this division.” Could you elaborate on this?
RS: You know, this was remarkable and it was across the board in nearly all countries and in all business units. The results were very good. In my 26-year history at DLL, I’ve never seen it [portfolio growth] that equalizing in every sector, every country. It wasn’t as though one sector had to pull the whole group. It was a very balanced performance across the board.
Monitor: Can you speak more specifically with regard to the geographic regions?
RS: Sure. The U.S. is doing very well as are Germany, China and Brazil. We grew a bit less in the Netherlands against the weighted average, but we did grow here. Vendor Finance in the U.S. grew about 6% in 2011 and again, that was across all sectors. We’re already big in the U.S., and our growth was well on track, especially compared to the U.S. market average.
Monitor: In the release, you noted that De Lage Landen has increased focus on new divisions in Turkey, Chile and India. Could you elaborate on these new divisions?
RS: We opened up these new divisions because our vendor partners asked us to. If we have a vendor doing business in seven or eight countries and they propose a new country, we feel that we have an obligation to see if there’s a strong business case to do so. We recently hired a general manager in Turkey and we’re up but not running quite yet. The same is true in India. Chile came about when Rabobank acquired another bank and we are taking over the leasing operations there.
Monitor: Tell us more about the Clean Tech business.
RS: In That’s something we’ve been at work at for a few years now. It goes beyond the solar panel business we have in the U.S. It’s also with wind energy and water purification. Our efforts in water purification go hand in hand with Rabobank’s significant presence in agricultural and farming. We are paying a lot of attention to the Clean Tech business and committing a lot of resources to it, but it’s still hard to find the right vendors because there are so many emerging with many new initiatives. We are furthest along with LED lighting, where we’ve developed a business case with our vendor partner Philips Lighting to approach municipalities and schools. Here we can say, ‘Look, if you exchange your traditional lighting with LED lighting, we can make the case that within 12 to 19 months you can get your investment back.’ We’ve already accomplished that in some states in the U.S. and even though it’s taken some time, we’ve made some headway.
At De Lage Landen, we focus on having a less negative impact with our products when it comes to the environment. Here we work with our vendors to adopt a cradle-to-cradle approach in finding ways to use the equipment better and also for three, four and five times. We call it Life Cycle Asset Management, but it is all about making sure that as a company, we have less impact… less negative impact on our planet. For example, here in Europe most executives and sales professionals get a car allowance. We have a full-service leasing product where you get a car and with it comes services, maintenance and part exchange. Still we try and teach our drivers that you don’t always have to drive. We teach them through our Mobile Consultancy to use other transportation or share a ride. And it’s not just an abstract value. We bring this to DLL and also live by it and that goes for our executive board as well. We put a lot of effort into this to have our people think about how we can have less of an impact with the equipment that we lease to our customers. We’re also finding that our vendors are also getting into it more and more.
Monitor: Let’s talk about a topic on everyone’s mind these days… lease accounting. Can you provide our readers with a sense of how you think the lease accounting debate will play out and how it will impact the leasing business going forward?
RS: Oh yes, everyone’s favorite topic. We’ve been talking about this for such a long time… we had a first draft, then a second one. Of course, we try to talk to our vendors about what the potential impact will be, but one problem is that the draft is not yet final. We are trying to lobby, not only at the ELFA but also with Lease Europe, to impact the proposed legislation. While I think the most recent draft is less dangerous to the industry, it still puts a lot of administrative burden on the end user and that doesn’t help anyone. All we can try to do here is work together with the leasing associations. We have Bill Stephenson on the ELFA board and also we have done the same here in Europe. It’s about people serving as a way to give back to the industry. In the end, I think we will wind up with something that’s acceptable, but we are preparing our vendors that they are going to have to change the way they think.
Monitor: Is there anything you would like our readers to know or anything you would like to add?
RS: As I said, our parent company is one of the largest food and agricultural banks in the world and for us, our Iowa-based Food & Agricultural Vendor Finance business is important to us. We’re in the industry and we’re destined to remain in it. As an example, 25% of all tractors in Brazil are leased through De Lage Landen. That being said, our industry has to become more Earth friendly… we have to use fewer pesticides, less water and we have to learn to re-use water. In countries where there’s more sunlight, we try to finance solar panels to make sure this sector is more sustainable. The planet simply cannot sustain what we, as a generation, are doing. We need to be responsible in a way that we are using resources in a way that they are there in years to come.
I know it sounds a bit heavy but as a company, we’re trying to have a more positive impact on the world we are living in. Our vendor partners are thinking more about this much more than they did five years ago… and that’s a good thing. They understand that you have to leave things for the next generation and that can have a positive impact on your business case.