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Rising turnover is not matched by profits for many FN50 firms - FN50 2017 analysis

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The vast majority of the FN50 saw pre-tax profits fall year-on-year, according to the latest available figures. A deterioration in residual values was blamed by some, while increasing staff costs were held responsible by others.  

Just 13 companies reported a rise, with Fleet Financial achieving the highest year-on-year increase in percentage terms, with a 59% jump. 

Its pre-tax profits for 2016 were more than £1.1 million, compared to £705,000 the previous year, thanks, in part, to a change in vehicle mix.

The country’s biggest leasing company – Lex Autolease – also reported a big rise in pre-tax profits, up 36% year-on-year. Due to its size, its figures dwarf those achieved by most FN50 companies.

It reported pre-tax profits of £204.5m – a £54m increase on the £150m reported in 2015. The increase, it says, was primarily down to the acquisition of operating lease assets and associated balances from other group companies in 2015.  

However, it says that profits would have been some £75m higher still, if it had not faced costs during the year, previously borne by other group companies in respect of Lex Autolease business.

Revenue for the leasing giant also rose significantly, breaking through the £2 billion barrier for the first time, up 43% from £1.4bn in 2015.

Some £1.3bn came from rentals from operating lease contracts – almost twice as much as the £766m reported in 2015. Fleet management fees also showed an increase, up from £7.6m in 2015 to £10.4m, last year.

As it dominates the FN50 in terms of risk fleet, it is perhaps no surprise that Lex Autolease is therefore responsible for some 30% of the £668.4m* in pre-tax profits achieved by the FN50 as a whole.

In fact, the top five leasing companies – Lex Autolease, LeasePlan, Arval, Alphabet and Volkswagen Financial Services Fleet – were responsible for more than half (56%) of the pre-tax profits reported by the FN50, some £374m. That’s only marginally below their 61% risk fleet share.

Arval and Alphabet saw pre-tax profits fall year-on-year, while turnover for both increased significantly. 

Alphabet reported a pre-tax profit of £50m in 2015, but last year that fell to £24m as a result of a “realignment in residual values”. Turnover, nevertheless, was up £46m year-on-year, to £577m.

Arval, thanks to a 40%-plus increase in its risk fleet, reported a 23% increase in turnover in 2015, up from £749m to £918m, last year. However, its pre-tax profit fell from £47.3m in 2015 to £34.9m in 2016. 

The significant decrease, it said, was attributable to a “less robust used car market leading to a deterioration of disposal results and a consequential review of future resale values”.

Meanwhile, revenues were up pretty much across the board, with the combined turnover of the FN50 reaching £9.1bn* in 2016.

The top five were again responsible for more than half (56%) of the FN50’s revenues – some £5.1bn – driven, in part, by a growth in bolt-on services and another record-breaking new car and van market.

New car registrations climbed for the fifth year in a row to almost 2.7m in 2016. Fleet and business sales drove the growth, with 1.48m vehicles registered, up from 1.42m in 2015.

A record number of new vans and pick-ups also hit UK roads in 2016, with 375,687 new light commercial vehicles registered in the year. 

However, the industry faces some challenging times ahead, with the debate around diesel potentially threatening resale values and the terms of Brexit still to be agreed.

The Government has hinted at tax rises after Chancellor of the Exchequer, Philip Hammond, promised to look at the tax treatment of diesel vehicles in the budget. 

London has launched the T-charge, targeting the most polluting vehicles, which it will strengthen further with the introduction of the ultra-low emission zone, planned in 2019. Other cities are likely to follow suit, with clean air zones likely for the most polluted towns and cities.

However, the British Vehicle Rental and Leasing Association (BVRLA) has urged the Government to use the budget to support, not penalise, the company car market.

Government figures show the number of company car drivers has remained static for the past seven years while the UK economy has grown consistently. 

The BVRLA believes many potential company car drivers have chosen to finance their own vehicles in the face of a steep rise in company car benefit-in-kind (BIK) tax rates. The corresponding period has seen a significant increase in demand for personal contract hire.

The average new company car has lower carbon emissions than the average new car and the BVRLA believes that this tax hike-induced drain away from company-provided vehicles has contributed to the recent increase in average new car emissions. 

And, with 99% of the country’s 4.4 million commercial vehicles powered by diesel technology, the BVRLA’s chief executive, Gerry Keaney, believes that diesel still has an important role to play. 

He said: “For as long as there is no other suitable cost-effective and practical alternative on the market, diesel powertrains will continue to play a vital role for transporting goods and people around the UK.”

The BVRLA’s submission to the Chancellor makes clear that punishing employers and their employees for using or selecting a diesel car would be wholly inappropriate and grossly unfair.

As the introduction of the new WLTP (Worldwide harmonised Light vehicles Test Procedure) regime starts to roll out, Keaney has also called upon the Chancellor to give the industry time to transition its systems and processes before basing any CO2-related taxes on the new testing system.

“We would recommend that all CO2-related taxes continue to use the existing NEDC CO2 values until April 2021,” he said.

The fact is diesel is under attack and its market share has begun to fall across much of Europe. Analysts at Experteye have forecast a minimum of a 5-10% drop in residual values in the next two years and a 15-20% drop over the next five years.

Tim Porter, managing director of Lex Autolease, told Fleet News: “Some 80% of our fleet is diesel and if used values dip more than we anticipate, that will be a problem for the whole industry.”  

Brexit also looms large, with the threat of no deal being agreed, and the UK having to adopt World Trade Organisation (WTO) rules which could entail tariffs and impact leasing costs.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), wants interim arrangements in place if a deal cannot be secured by March 2019.

“Interim arrangements must retain membership of a customs union with the EU and full participation in the single market,” he said. 

“Any other arrangement risks additional administration, delays and costs, undermining the competitiveness of UK exporters and increasing the costs of imports. 

“We will continue to work with Government to try to avoid such an outcome.”

The sector will be hoping the Government has listened to its concerns when the Chancellor delivers the budget on Wednesday, November 22. It will have to wait a little longer to see what Brexit brings.    

* The combined pre-tax profit and total turnover figures are an estimate based on actual reported figures for companies responsible for 82% of the risk fleet.

READ MORE: The 2017 FN50 supplement

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  • Bob - 09/11/2017 08:19

    Re Profit versus Revenue - the key to this is the massive variable caused by RV performance. To get a better true measure of financial performance look at profit before RV disposal. I suspect the underlying trend will be somewhat different. This would remove the volatility as currently interpreted...

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