Dear clients and business partners of Deutsche Leasing,
Following long years of continuous growth and a record year, in the past financial year 2019/2020 we too were not spared the cross-sectoral effects of the COVID-19 pandemic.
While the first half of the past financial year was still largely in line with forecasts, in the second half of the year the COVID-19 crisis had a significant impact on the course of business in Germany and other countries. The outbreak of the pandemic and the resulting economic and operational challenges necessitated short- and medium-term measures. Despite the difficult external environment, we did not lose sight of our strategic future projects and market opportunities. With a change of priority and focus, we made further progress here.
Maintaining stability during the crisis and strengthening our future viability
Our economic situation in the financial year 2019/2020 was shaped, above all, by the COVID-19 crisis and the related deepest global recession since the Second World War, together with a challenging process of structural change for the German economy which affected the automotive sector in particular. The German SME sector also experienced increased urgency in terms of the need for action and change: in the areas of digitalisation and IT modernisation, mobility, infrastructure and sustainability as well as changing forms of cooperation. In the past year, these conditions were also shaped by a series of enduring political and economic uncertainties: the trade conflict between the USA and China, the US elections, the United Kingdom’s withdrawal from the EU and the ECB’s continued low interest-rate policy.
In this period of upheaval and new beginnings, many companies are focusing on stability and resilience while at the same time shoring up their own future viability. Cross-sectoral and needs-oriented solutions are called for which will be of relevance for the future: adaptive, hybrid and new products, processes, services and business models. This requires financing and investment models which will enable this process of change, both today and tomorrow, while safeguarding liquidity even in difficult times. That means reliable networks, partnerships and cooperative arrangements. As part of Sparkassen-Finanzgruppe and in cooperation with its partners in trade and industry, the Deutsche Leasing Group helped meet this need in the past financial year, particularly during the pandemic: as a stable and forward-looking partner of the SME sector, together identifying answers to financing issues and market changes and likewise exploiting market opportunities in a targeted fashion.
We would like to extend our heartfelt thanks to you – our customers, Sparkassen-Finanzgruppe and our partners – for the confidence which you have placed in us and for our strong working relationship during this challenging period. Above all, we would like to thank our employees in Germany and other countries for their contribution as a consistently effective and focused team in what was an unusual financial year.
Volume of EUR 9.2 billion achieved despitetense market environment
In view of the effects of the COVID-19 crisis, the Deutsche Leasing Group suffered a decline in its volume of new business in line with the trend for the leasing sector as a whole. However,
despite the very tense market environment we achieved a new business volume of EUR 9.2 billion – following a record year in the previous financial year, in which we broke through the EUR 10 billion barrier for the first time. We thus outperformed the overall asset finance and asset service market. In addition, we maintained our positive net asset value trend of the past few years, even if the rate of growth was weaker than in previous years. Our economic result was lower than in the previous year, after we made extensive provisions for future default risks and exchange-rate effects as of the reporting date. Financing reserves were maintained at a high level in the financial year 2019/2020, even in a market environment adversely affected by the pandemic.
Decline in SME business in Germany and other countries and increase in major projects
A glance at the distribution of new business by asset class in our various business segments shows that we suffered declines in almost all of our business segments following the outbreak of the pandemic. The exceptions included our major projects segment, which once again registered a successful business trend, particularly in the rail sector.
In the machinery and equipment segment, which represents the core focus of Deutsche Leasing’s asset finance business, the volume of new business reached a level of EUR 4.7 billion, which represents a 14 per cent decline on the previous year.
As well as the passenger car and fleet businesses, which were severely affected by the decline in the volume of new vehicle registrations, the road vehicles segment also includes commercial vehicles. Deutsche Leasing realised a volume of new business of EUR 2.1 billion in this segment, which registered a more moderate performance on account of large-scale transactions, with a decline of around 7 per cent on the previous year.
The result for the energy and transport segment was 14 per cent higher than in the previous year, thanks to several large-scale financing transactions and a new business volume of EUR 1.5 billion. Business in the rail segment was a key factor here.
The volume of business in the real estate segment was 32.5 per cent lower than in the previous year, with a new business volume of EUR 450 million. A volatile new-business trend is typical of this business segment, given the longer lead times and structuring requirements. A further factor in the past financial year was that several projects were postponed due to the COVID-19 situation.
New business in the information and communication technology segment amounted to EUR 395 million and was thus around 24 per cent lower than in the previous year. The pandemic is likely to accelerate companies’ process of technological change (digitalisation of processes and jobs), while the related IT requirements will provide strong impetus for new business.
Investments influenced by effects of pandemic in some cases
Deutsche Factoring Bank achieved factoring turnover of EUR 16.9 billion in 2020, a change of -6.9 per cent on the previous year. The decline in turnover with existing customers in particular, due to the pandemic, contrasted with significant growth through new factoring customers. 27.4 per cent of its turnover volume was generated in the areas of export and import factoring. With its S-Compact product, Deutsche Factoring Bank offers the savings banks’ smaller business and commercial customers specific corporate financing solutions – and from 2021 onwards, these solutions will also be available online. Around 85 per cent of the contracts signed in the past financial year were brokered by savings banks.
Bad Homburger Inkasso (BHI) gained new customers, in the housing and energy sectors especially, and has 1,187 clients – including 319 savings banks and other Sparkassen-Finanzgruppe companies. Bad Homburger Inkasso experienced a significant increase in its level of income. Above all, this was due to the acquisition of a major new customer with a package of around 50,000 bad debts, as well as an increase in the volume of business with an existing customer which has handed over more than 100,000 small-volume debts to the company for processing. As an associated company of the Deutsche Leasing Group, Bad Homburger Inkasso offers bad-loan collection solutions as well as the market-oriented resale of movable and real estate collateral on behalf of its shareholders, the savings banks and other companies and institutions.
In 2020, S-Kreditpartner once again registered a successful course of business despite the effects of the COVID-19 pandemic. With a EUR 8.5 billion volume of loans and 199 fully fledged partnerships with savings banks, Deutsche Leasing’s joint venture with Landesbank Berlin/Berliner Sparkasse further expanded its position within Sparkassen-Finanzgruppe as a product specialist for vehicle and consumer loans. More than 340 savings banks use the online product offering S Kredit-per-Klick.
COVID-19 crisis tackled through action plan
Deutsche Leasing implemented a series of measures in Germany and other countries in order to tackle head-on the economic and operational challenges resulting from the outbreak of the COVID-19 pandemic. Ad hoc measures such as protection of health in the workplace, switching to home-office working and handling of deferral measures were the initial areas of focus.
Moreover, in order to be able to react appropriately and actively to medium- and long-term economic and structural effects of the COVID-19 crisis, the Deutsche Leasing Group has initiated a Coronavirus Action Plan. In particular, this addresses distribution, risk, cost and digitalisation issues. Above all, this included a revised market exploitation and risk management strategy as well as close support for our customers by means of care calls, in order to identify their individual needs in good time and assess potential risk factors.
Targeted intensification of strategic initiativesand realisation of market opportunities
Despite the difficult operating environment, we continued to pursue our forward-looking development strategy for Deutsche Leasing and even intensified this strategy in some areas, such as digitalisation. We also exploited several market opportunities and successfully pushed ahead here.
In our cooperation with the savings banks, we expanded our range of services in the business and commercial customers segment, digitalised these services and made them available online. This close cooperation with the goal of developing digital products which are available online is particularly important in times of COVID-19 and social distancing. In the past financial year, we successfully established at further savings banks our digital S-Gewerbekredit product for financing of smaller plant and equipment expenditures. Its rollout will be intensified and executed through Germany in the current financial year.
We stepped up our international activities in 22 countries worldwide besides Germany, in cooperation with the savings banks and our partners in trade and industry. The Brenner Base Tunnel – which will be the world’s longest subterranean railway line – stands for our multiple-country networking approach, which extends to complex financing schemes for major projects and the specific investment asset requirements of our customers and partners.
In the past financial year, the Deutsche Leasing Group signed a cooperation agreement with UniCredit Bank which offers increased business opportunities in the Group’s core leasing/hire-purchase business as well as additional market development potential in general.
We expanded our international activities in the area of export financing through our purchase of interests in AKA Ausfuhrkredit-Gesellschaft mbH (AKA). This ECA (export credit agency) offering is particularly suitable for SME customers of the savings banks and Deutsche Leasing as well as German manufacturers in the trade and industry segments (vendor partners) and their customers outside Germany. Moreover, in the past financial year we expanded our international network in Germany, Austria and Switzerland (the “DACH” region) with the addition of a branch office in Switzerland which began to operate in the financial year 2020/2021. The Deutsche Leasing Group is thus present with locations in a total of 24 countries.
We also stepped up our digitalisation and IT modernisation projects on our path to becoming a “Digital Deutsche Leasing” and made important progress in terms of forward-looking solutions for our employees as well as our customers and partners/vendors. The COVID-19 pandemic was a further factor which encouraged us to increase our level of investment in digital products and processes. Despite all of the existing challenges, we prioritised the action and investment programme which we had initiated in the financial year 2019/2020. Besides the modernisation of our IT systems and increasing the efficiency of our products and processes, this programme focuses on the development and expansion of digital business solutions which are independent of interest rates as well as on a continuous partnership with the savings banks in our domestic and foreign business activities.
This includes the continuing expansion of vendor business by means of digital interfaces (virtual captive platform) which provide a digital framework for efficient handling of business transactions in multiple countries. Within Deutsche Leasing, processes were simplified through the use of the company’s first robot-controlled process automation (RPA) solutions. Our subsidiary DAL Deutsche Anlagen-Leasing (DAL) introduced a digital purchasing and financing portal for IT hardware business for employees, customers and partners. This is already being employed within Sparkassen-Finanzgruppe and is suitable as a blueprint for other Deutsche Leasing portal solutions.
Outlook for the financial year 2020/2021
In the new financial year 2020/2021, in view of the COVID-19 crisis and its effects we will continue to face a challenging environment in Germany and elsewhere.
We will continue to rigorously pursue our corporate strategy in order to succeed in this environment and to maintain our capacity to act: on the one hand, we are making important progress with our digitalisation strategy through our current projects. On the other hand, through the measures and initiatives which we have implemented we are laying down the long-term foundations so that Deutsche Leasing can continue to pursue a growth trajectory once the current COVID-19 situation has stabilised. We are thus also targeting growth areas which remain intact in the asset finance and asset service markets.
In the field of digitalisation, we are continuing to invest in products, processes and service offerings in order to meet the changing market requirements. A key area of focus is opening up online sales channels as well as developing web-based platforms in line with customers’ specific requirements. This entails an increased level of standardisation and modularisation of product structures as well as uniform execution processes. In the past three years, our Digital Innovation Unit (DIU) has provided significant momentum for our digitalisation strategy. To enable the Deutsche Leasing Group to make progress in further forward-looking digital areas, we have decided to expand the scope of our existing activities. We will set up a separate company for this purpose which will operate under the name “vent.io GmbH”.
We will further intensify our intra-Group business with the savings banks. As a partner of the German SME sector, in future we thus intend to exploit Sparkassen-Finanzgruppe’s market potential even more effectively, particularly in a digital world. In order to ensure a systematic and standardised approach for its business and commercial customers segment, the Deutsche Leasing Group established a new specialised sales unit at the start of the new financial year 2020/2021.
In our international business, with our international network we will focus on exploiting additional market potential. Supported by the German economy’s continuing export focus, this potential results from the central pillars of our international activities and partnerships: our cooperation with internationally active vendors (machinery and equipment manufacturers), our support for German companies’ direct investments and our partnership with the savings banks outside Germany. There are also solid revenue opportunities in the area of export financing, thanks to our close cooperation with AKA. Together with DAL, we see additional market opportunities in the field of structured financing for specialist transactions and project business – such as in the international rail and IT segments.
The Deutsche Leasing Group expects that its financial year 2020/2021 will be shaped by the continuing pandemic and the associated outline conditions. If the pandemic situation does not get any worse, the economic research institutes predict a significant increase in plant and equipment expenditures, driven by catch-up effects as well as China’s relatively strong economic performance. However, there are still two key sources of uncertainty: a possible (further) interruption of the economic recovery, and the insolvency trend once government aid for companies comes to an end. There are also further challenges such as trade conflicts not yet fully resolved, the “post-Brexit phase” and the ECB’s continuing low interest-rate policy. Overall, the Deutsche Leasing Group is seeking to achieve a new business volume which matches the level realised in the financial year 2019/2020 in view of the slower economic recovery.
In the asset finance and asset service markets especially, we are confident regarding the opportunities and growth areas, some of which will be buoyed by an increased pace of structural change. Even without the COVID-19 pandemic, key issues such as digitalisation, forward-looking infrastructure and sustainability are very much part of our reality. We are stepping up our activities to meet these market requirements in a responsible manner and in line with the expectations of our partners and SME customers in our company’s regions and worldwide.
We thus consider it an important signal that we were one of the first companies to sign Sparkassen-Finanzgruppe’s “Commitment to Climate-Friendly and Sustainable Business Activities”, which was published in December last year, and over the next few years as a member of Sparkassen-Finanzgruppe we will play our part in shaping the related objectives.
In these turbulent and uncertain times, we continue to face a tough environment. However, we are convinced that we have taken the right path with the measures and initiatives which we have adopted: pursuing a rigorous and forward-looking business strategy in the current crisis-laden economic situation, while exploiting opportunities and actively shaping the future. We will do so in the interests of our company and thus also our shareholders and employees, and likewise our customers and partners.