Monitor: In reporting De Lage Landen’s earnings release in mid-March, we noted that 2010’s net profit of $269 million was up 79% compared to net profit in 2009, which was reported at $150 million. We suspect that impairment losses, which were $407 million in 2009 as compared to $150 million in 2008, were most likely down in 2010. Can you comment on the impairment losses in 2010?

Ronald Slaats: Yes, one of the reasons for the improvement was that, as you mentioned, 2009 was a tough year in terms of impairment losses. They were rather high and, in 2010, they came down somewhere around 30 basis points. But what also helped us in 2010 — and maybe it’s outside of the Monitor’s scope — had to do with the residual value losses we had on cars in 2009. As you know, we have a full-service car leasing company here in Europe. And because of the recession, we couldn’t get rid of cars — nobody was interested in second-hand cars, so we had substantial losses there. Those losses literally ‘evaporated’ last year and we made a small profit again in 2010.

That helped us, so you see, our improvement wasn’t only because of credit impairment losses — they were certainly less than we had than the year before — but we also had no losses on the residual value on cars. We also worked very hard to contain costs. Because in a time of crisis, one way to effectively lead a company and influence results to a certain extent is with managing costs. And you’ll note that in 2008 and 2009, our costs remained stable. That had to do with tight cost control. You could ask, ‘Why have your operating costs gone up so much in 2010 after you had such tight cost control in 2009?’ That had to do with the exchange rates with the dollar against the euro.

Monitor: The release noted that the Vendor Finance Division grew both in portfolio size as well in new business volume irrespective of economic challenges. Can you clarify these economic challenges? Were they due to lack of demand or a shrinking credit box or both?

RS: Well, as you can imagine, it was both … but I will substantiate it a bit. The lack of demand occurred in some countries and not in others. For example, I think the demand came back in the second part of last year and the demand had been very strong outside of the traditional markets. By that I mean markets like Brazil as well as the Asian and Australian markets. There was still demand in those markets in 2009.

As far as the U.S., the demand was weak. Europe was a mixed picture — the demand in Spain, Ireland and France was weak … demand in both the UK and Germany was strong and Italy was so-so.

We may have opened the door a bit too much in 2007 and 2008, but we’ve fine-tuned it and we’ve not completely closed it … because if you do, no business can get back in. The ‘nice’ thing about all of this is that you never know if you were right or not at the time you are making decisions. You only find out a year or two later after you have everything in house. If you take Spain as an example, in 2008 we may have approved six out of seven deals. Today, we approve about four or five out of every seven. Is that enough? I don’t know, but we won’t cut back to two or three, because if you do something like that, you might as well close your business. And with residual rates, you have to make sure you’re not opening the door in times when things are going great and shutting it in a time of crisis, because you only wind up only with problems in your portfolio.

Monitor: Following up on that, when you look back over the past two years, what would you say was the most significant factor from a risk management perspective that will influence how De Lage Landen does business going forward?

RS: We haven’t changed our risk management perspective significantly, but the one thing we did do was take more of an overall view of what’s going on from a macro perspective so we can see when the clouds are coming. We’ll continue to be more proactive in that regard … but is that fundamental? We had one very tough year in 2009, but we still made a lot of profit … I don’t think we’ve changed anything on a fundamental level.

Having said that, when I was in the U.S. in 2006 and 2007, I noticed that the risk element in pricing was completely gone. You couldn’t ask a decent price for risk and it troubled me that our industry as a whole had stopped factoring risk in pricing deals. I wish we would learn something from this, but I have a bit of experience in this industry and people have short memories.

Monitor: There appears to be movement by some OEMs to rely less on their captive finance arm to support product sales by moving externally to sustain their sales-aid tool. This trend would seem to present significant opportunities on a global basis for De Lage Landen going forward. Do you think that the capital markets crisis accelerated the need for OEMs to look at these external financing relationships as a viable alternative?

RS: Well, I never think that one equation completely changes everything. Of course, the capital markets crisis did help and maybe some OEMs did think about that going forward. But I think there are more things influencing the decisions around investing more or less in a captive. For example, regulatory issues have an impact here — when the new lease regulations go into effect — that will influence those decisions. Another thing OEMs have to consider is the investment they have to make in a captive. For example, we are investing a lot of money making sure that we have one global system that is standardized throughout the main countries where we do business.

We’ve implemented this system in the U.S., and the Netherlands will follow this year. After that, we’ll roll out more countries every three to six months. My point in saying this is that you have to make substantial investments and, because of the capital markets crisis, OEMs are thinking even more, ‘I have to reserve capital to maintain my captive, and there are new leasing regulations coming up, and on top of that, I have to invest if I want to expand into new countries. Also, the IT systems are getting smarter and smarter…’ When you put all of that together, you have what we can call a perfect storm. But then vendors are asking, ‘What do I do with my captive?’ That’s more common question today than it was four or five years ago. But even then, vendors were saying they didn’t want to invest in their captives as a result of an acquisition. So you see, there is always a wave. On the other hand, Siemens is now creating a bank because it wants more independency from the capital markets. So not everyone is following the same trend. And that’s not a bad thing … there’s more to gain than there is to lose.

Monitor: The recent announcement that De Lage Landen and LiuGong Machinery have entered into a North American partnership to provide dealer support in the U.S. and Canada strikes us as a perfect example of seizing an opportunity with long-term implications for your company as China begins to grow. Could you comment about this program in terms of new opportunities going forward?

RS: We are in 35 countries, and I think we are one of the leasing companies with the broadest network after GE since they operate in more countries. Of course, we’re bank related and not related to a manufacturer. I can tell you that we are pretty well spread out as a result of all of the investments we’ve made in South America and Asia. While we saw that coming, it came a lot quicker than we thought. Now Asian vendors are asking us to go from east to west, whereas before it was west to east. Before it was from the U.S. to Europe and Asia, but now we are seeing manufacturers not only in China, but also in South Korea and they are looking for companies that can help them.

But there isn’t one Chinese, Japanese or Korean bank with leasing subsidiaries in 35 countries like we have. That’s what we’ve followed for six or seven years when we started to invest there. First it was west to east, but we know in time it would be east to west … but, as I said, it came a lot quicker than we thought.

LiuGong wasn’t the first one and it won’t be the last one … we are speaking with several manufacturers and while they all won’t sign up with us, some of them will. And it’s not only China to the U.S., but also Europe and Brazil. You know we are already big in Brazil, and the Chinese are exporting a lot to South America, mainly to Brazil. So you see, there is a lot happening.

Monitor: You mentioned that there isn’t an Asian bank with leasing subsidiaries in other countries. When do you expect that to occur?

RS: Yes, not yet … but when? That’s a tough question but it will be still some time before the Chinese are there. I have a great deal of respect for what’s happening there, every time I go there (every six or seven months) you can see the progress … it’s unbelievable.

Monitor: Over the course of the past year, De Lage Landen has announced a number of high-profile vendor relationships … for example, Blue Bird, Vermeer, MicroSoft and as we just mentioned LiuGong. Would you care to comment on that accomplishment? Also, how would you describe the competitive climate today versus two years ago prior to the recession?

RS: In the end, it comes down to hard work and having a lot of people. We know how to do it because it’s our bread and butter business. We’ve led a lot of relationships in the last two years and maybe because of the fact that there was a bit less competition … but the competition is coming back. It’s already there and you can see it in the pricing that’s out there, you see in it in the pursuit of our existing customers as well as the pursuit of the opportunities that are coming to the market.

I can only say that we were there in the market during the difficult times and while other companies can make the same claim, I can only speak for us. We helped our customers with the credit lines that we gave them and we’ve stood firmly on that. And I strongly believe that in the end, we will have secured all of the relationships that we want to have. This is an important sector and of course, when the sun shines, it’s easy to do business. But when it’s raining, you also have to be there. And that’s been one of the biggest advantages that we’ve gained over the past two years… that is to be known as reliable. That attracts a lot of companies.

In terms of the competitive climate in the U.S., the local banks are very aggressive as a lot of liquidity comes back into the market. It’s not like it was in 2007, but I’ve seen much more liquidity than last year and I see the margins … the competition is now competing on price.