Chairman's review
On the global economic stage, 2011 began with guarded optimism about recovery and ended with considerable uncertainty. What started as a slow climb based on some positive growth in 2010 was quickly eroded by deepening concerns regarding the euro in the second half of the year. The level of uncertainty in the economic and regulatory environment remained high, yet we continued to be firmly focused on the principles that have guided us through the financial and economic crisis to this point: staying close to our clients and maintaining our strengths and strategic momentum.
Staying close to clients
The profitable growth we have experienced in recent years to return us to pre-crisis levels continued with a 13% increase in net profit to EUR 225 million. The positive result was fuelled by improvements in traditional interest margins and stable performance in other diversified income streams. This result was delivered against a backdrop of continued and often severe economic challenges in many of our principal markets. In light of these circumstances, much credit goes to the local management teams in our 30 countries and our 6,257 staff worldwide for their continued focus and commitment towards serving our clients.
Primarily we serve large and multinational companies, small and medium-sized businesses and public sector entities. Due to the nature of our clients, demand for our services is directly correlated with general economic conditions. Many of our clients continued to face pressures in 2011, and with economic growth slipping and government austerity measures starting to take hold the business environment remained very tough. In these conditions many of our clients experienced less demand for the products and services they provide which in turn made them rethink the size and structure of their fleet. Conversely, road transportation is essential, not a luxury, for many of our clients. Accordingly, the demand for cost-effective, hassle-free motoring continued to be high. Outsourcing operational fleet management to a dedicated leasing company was an attractive option for many and we were well placed to assume this role.
During the year, our client commitment and focus remained unchanged – to proactively work closely with our clients and continue to offer them value added leasing solutions. In recent years, we have also developed a range of tried and tested measures, such as contract extensions, to best serve our clients. Although we are still able to call upon these measures as and when required, it is our ability to develop innovative, tailored products and services covering the entire fleet management value chain that adds most value to our clients. Furthermore, we continued to capitalise on the size and scope of our business model, which enables us to bring many benefits to our clients, both domestically and internationally. Our healthy profit growth and stable income performance in recent years provide a good indication of the strength of our broad range of fleet services, our approach to risk management and the health of our client relationships.
Owing to the weak economic recovery and low consumer confidence, we did experience a negative trend throughout the year for terminated contracts. This resulted in an overall outcome for terminated contracts in 2011 that was worse than 2010. The results globally show that the picture is not a uniform one across all markets and there are quite distinct market dynamics at play. On average, vehicles terminated were sold with a loss, with a marked deterioration in the second half of the year. On a more positive note, we are able to compensate for the negative trend in terminated contracts with stronger performance in other areas due to our diverse income streams. We also benefit from our multi-brand fleet portfolio and our expertise in car remarketing.
At the forefront of our proactive thinking towards clients is our promise 'It’s easier to leaseplan'. With this client-focused mindset we set the bar high for ourselves in order to constantly find ways of doing business that take the complexity out of fleet management. Making it easier is in fact hard work, but it drove the decisions we made globally in our business in 2011 when dealing with our clients and in developing new products and services. This is evidenced in an increase globally in our client loyalty and satisfaction results. Looking for opportunities to consistently deliver our promise is an area where we will continue to develop our organisational capability. In 2012 one of our priorities will be focused on the rollout of the LeasePlan Identity Programme, our second successive global service-culture programme for employees.
Maintaining strategic momentum
Our strategic priorities are focused on leveraging our competitive strengths in order to target diversification of our business by geography, business line, client type and funding sources. Although broadly speaking our growth strategy has not changed in recent years it has been somewhat refined to focus on selective, profitable growth that can be funded in a sustainable way.
On that note, a strategic priority with solid performance in 2011 is in the area of funding diversification, which is essential for the future growth of our business. Our retail bank in the Netherlands, LeasePlan Bank, ended the year with very promising figures of almost EUR 2.8 billion in retail deposits. Added to the success of the retail bank, we built on the momentum of securitising lease assets with a combination of private and public placements yielding in excess of EUR 1.3 billion. We were not deterred by the volatile financial markets and regularly concluded issuances in the debt capital markets totalling EUR 1.3 billion. We ended 2011 with a healthy liquidity buffer amounting to EUR 4.7 billion, consisting of almost EUR 3.1 billion in facilities and EUR 1.6 billion in cash.
During the year we further strengthened our competitive position in terms of selective growth. The number of vehicles increased by 2.7%, chiefly owing to an acquisition in Portugal and supported by autonomous growth namely in our largest markets. In terms of geographical expansion, central to our selective growth strategy has always been ensuring that we have presence in countries that enable us to best serve and meet the demands of our clients. Geographical expansion of a LeasePlan company in Russia remains firmly on the agenda, but it is important that we enter when the conditions are right economically, financially and commercially.
Restoring trust - beyond regulation
LeasePlan is regulated as a Dutch bank and leasing is essentially a financial product. The regulatory reform agenda remains one of the prime considerations for financial institutions in terms of restoring trust after the financial crisis. In many areas we support meaningful regulation intended to build safe, secure and trustworthy financial systems. Accordingly, we continue to adapt and adhere to these new rules and have made significant preparations for the phasing in of the new Basel III and Solvency II requirements.
In terms of new capital and liquidity requirements, the strong profitability we have delivered in the last few years has contributed to us ending the year in a strong capital position. The Core tier 1 ratio of 14.9% is well above current and future (Basel III) requirements and risk-weighted assets stood at EUR 13.9 billion. A combination of our funding diversification strategy and strong liquidity buffers makes us well placed in 2012 to deal with the maturity of the bonds issued under the Dutch government credit guarantee scheme.
Additionally, as a Dutch bank, we have implemented the Dutch Banking Code into our organisation and continue to contribute to the work of the Monitoring Committee established by the Dutch Minister of Finance. A matter of significant importance in restoring trust is the call for banks and other institutions to adopt more moderate and sustainable remuneration policies. LeasePlan, and its Supervisory Board, are fully aware that remuneration continues to be subject to ongoing political and public debate. The general principles of moderation and long-term interest have long been applied to our remuneration. In terms of new regulations and guidelines, we have continued to take the necessary measures to balance our responsibility to be sensitive to the external environment with the commercial necessity of rewarding performance and attracting talent.
Our decisions have ensured that our new remuneration policy has been formulated to be compliant with the various forms of regulation in line with the deadlines that are imposed. While this work ensures that our remuneration policy is moderate and sustainable, we also acknowledge that the remuneration debate continues both internationally and domestically. In February 2012, the Second Chamber of the Dutch parliament has passed a bill to prohibit state-supported banks from awarding bonuses to executive board members for the time that the institution is under the various forms of state support. Consequently, we have adjusted our remuneration policy in line with the rules of this bill.
It is important to note that while a new regulatory framework is one aspect of restoring trust it will not be sufficient in itself. Moreover, the significant volume of work involved in preparing for such regulatory change should not be underestimated, much of which requires the attention of our most senior people. While we take our regulatory responsibilities seriously, it is important that the desired outcomes of new regulations are achieved. Furthermore, regulation should not come at the expense of companies taking action themselves to understand public concerns and build responsible, sustainable and profitable businesses that benefit society and the economy. Socially responsible behaviour and sustainability are matters that we have always taken seriously and exist within the values and culture of our business. As an international company, we will continue to expand our thinking and initiatives in this area to ensure we make a positive contribution to our employees, clients, service partners and society at large.
Community support
Investing in the communities in which we operate is something that has always been important to LeasePlan and our employees around the world. Our global community support programme, LeasePlan ChildPlan, helps disadvantaged children in less developed countries in terms of health and education. We are currently supporting projects for children’s aid in areas such as Pakistan, India, Cameroon and Nepal. Additionally, local community support programmes exist in the majority of our 30 countries, from assisting earthquake-affected families in New Zealand to supporting autistic children in Switzerland. In our home area of the Netherlands, we recently introduced LeasePlan InsideOut, which will see employees spend a Company sponsored day off at a local volunteer project of their choosing.
Board changes
Sven-Torsten Huster joined LeasePlan on 1 January 2011, and formally assumed the position of member of the Managing Board and Chief Operating Officer on 1 April 2011.
In conclusion, our resolve in 2012 will be focused on selective, profitable growth for the business and in continuing to proactively partner with our clients as we look to extend our promise of 'It’s easier to leaseplan’. Finally, I would like on behalf of the Managing Board to offer my appreciation to our employees, clients, service partners, investors and shareholders and look forward to their continued support in 2012.
Vahid Daemi
Chairman of the Managing Board and CEO