Each month, Motor Finance analyses results posted by lessors
over the previous four weeks to discover the latest trends in the
industry. Jason T
Hesse
looks at those published in December 2009

Although boosted by higher revenue and
gross margin, Honda Finance Europe plc saw pre-tax profit decline
by over 90 percent in the year ending 31 March 2009.

Indeed, Honda Finance, which operates in both the
retail and wholesale markets, recorded a pre-tax profit of just
£389,000, compared with £5.6 million in 2008, with the decline
attributed to adverse interest rate swaps worth some £4.7
million.

However, the captive saw its retail business grow
overall, which helped see revenue increase by 2.4 percent, from
£54.8 million to £56.2 million for the year.

Finance penetration also increased, by an important
10.7 percentage points, to reach 32.7 percent of all Honda UK
retail sales.

“The increase in penetration is predominantly due
to higher levels of scheme business. Schemes are run to help
promote the sale of specific models within the Honda range,” the
company’s directors explained.

Despite increased revenue and penetration, Honda
Finance saw cost of sales fall by just over 10 percent, thanks to
“lower overall funding requirements” as well as favourable
borrowing rates experienced as a result of declining Bank of
England interest rates.

“The business environment was marked by severe
circumstances within the global financial services sector, heavily
impacting on funding availability and market rates of interest. We
have made it a priority to secure long-term funding where
available,” the directors said.

They added that the recession has had a
“significant impact” on Honda dealers, which saw the company
increase allowances for impairments by £3.4 million to £12.9
million in light of the greater risk.

Results at competitor RCI Financial Services
Limited (RCI FS), which provides retail and wholesale financing for
the Nissan and Renault network, were better, with pre-tax profit
rising by 179 percent.

This countercyclical increase was linked to a rise
in gross profit and a decrease in operating expenses. Indeed, gross
profit rose by over £1 million, to £33.2 million, while operating
expenses fell by £4 million, to £25.3 million.

Revenue at the captive lessor also grew
significantly – by 30.5 percent – to reach £161 million at the end
of 2008. Interestingly, however, the number of agreements signed by
RCI FS fell by 8.7 percent over the year: 41,505 new agreements for
Renault vehicles and 26,144 for Nissan.

Throughout 2009, the number of new contracts has
fallen even more. According to the company’s directors, by the end
of August 2009, the company had written 28,181 new agreements, down
41 percent against the equivalent period in 2008.

Penetration was up last year, however, thanks to
scheme campaigns, which helped RCI FS to grow penetration rates by
3.1 percent for Renault and 5.4 percent for Nissan vehicles, to a
total of 27.2 percent of all branded vehicles sold.

Meanwhile, the economic crisis has led Daimler
Fleet Management UK Limited, which provides vehicle financing and
fleet management services, to act as a captive only.

Although revenue grew by 22 percent to £69.7
million, the company saw its bottom line continue to fall in 2008,
recording pre-tax losses of £5.7 million at year-end, compared to
-£717,000 the previous year.

The company continued to grow its portfolio,
however, seeing this increase by around 2,000 contracts to 52,093.
The retail financing business financed 11,009 new vehicles, up 7
percent year-on-year; while the fleet business signed 374
deals.

“We continue to seek investment in the long-term
growth and development of our core fleet business channels, and are
working in partnership with Daimler brands to develop opportunities
and support for our customers,” the directors added.

Smaller captives faced similar challenges,
struggling with the “competitive” environment.

Proton Finance Limited’s income and pre-tax profit
was steady in the year ending 31 December 2008, with income at a
level £3.2 million, and pre-tax profit at £757,833; largely the
same amount as the previous year.

The captive, which provides hire purchase and
finance lease products for Proton cars, saw total assets fall,
however, by 8 percent over the year, to £29.9 million at
year-end.

At Lotus Finance Limited, a smaller business which
provides finance for Lotus cars, income fell by 13 percent to
£522,000; which had a direct impact on the company’s profit before
tax, which also fell, by 14 percent, to £386,000.

The directors of both Proton Finance and Lotus
Finance – which are both owned by the Lloyds Banking Group – all
said that they remained confident that current levels of
performance would be maintained in the future, however.

Non-captive fleet lessors also reported losses. BNP
Paribas Fleet Holdings Limited, the £420 million holding company
for Arval’s UK businesses, made a £4.8 million loss in the year
ending December 31 2008, compared to a loss of £1.8 million the
previous year.

This could mainly be attributed to write-offs on
its investments, which rose from £18.6 million in 2007 to £23.5
million last year; as income was seen to rise by over 10 percent,
to £18.8 million.

BNP Paribas Fleet Holdings was transferred to Arval
UK Limited in June 2009 however, as part of a restructure.

LeasePlan UK Limited also saw a significant fall in
its bottom line, recording a pre-tax loss of £7.9 million, compared
to a profit of £8.9 million the previous year.

“2008 was a challenging year that included the
onset of the credit crunch together with residual value and
liquidity challenges,” the directors said.

Indeed, LeasePlan reported an operating loss of £9
million, which the directors attributed to an £18 million
exceptional item – an increase in impairments related to the used
car market.

Turnover at the fleet lessor was up by 3 percent,
however, to £237.7 million; while the value of LeasePlan’s leased
assets also grew, by 4.4 percent, to £542 million.

“The market has improved significantly in 2009, and
as a result, we expect to reverse [the losses] in our 2009
financial statement,” the directors added. “We remain committed to
profitable growth and continue our programme of strategic
activities to help achieve this objective.”

Additionally, at the end of 2008, LeasePlan agreed
to acquire Automotive Leasing Limited, for £251 million. Automotive
Leasing, which provides cars and specialist vehicles to the public
sector, is the number one supplier to the NHS.

The Automotive Leasing business saw new business
volumes grow in 2008, with the total number of cars increase by 12
percent, and the value of leased assets grow to reach £282 million,
which has now been transferred to LeasePlan.