HOW TO CREATE ECONOMIC VALUE IN …...Savings: Competitive Sourcing Example 12 24 36 48...
Transcript of HOW TO CREATE ECONOMIC VALUE IN …...Savings: Competitive Sourcing Example 12 24 36 48...
www.leaseaccelerator.com
THE LEADER IN ENTERPRISE
LEASE ACCOUNTING SOFTWARE
© 2020 LeaseAccelerator Inc.
HOW TO CREATE ECONOMIC VALUE IN UNCERTAIN
WORLD MARKETS
Generate free cash flow benefits and PL bottom line
savings from an “orphaned” spend category
Ingemar LaneviVP & GM of Global Lease Sourcing Solutions
LeaseAccelerator
Page 2© 2020 LeaseAccelerator Inc.
Today’s Agenda
01
02
03
Introduction
Free cash flow and the “orphaned” spend category
Value of leasing explained
04
05
Understanding the lease rate factor
Q&A
© 2020 LeaseAccelerator Inc. Page 2
Page 3© 2020 LeaseAccelerator Inc.
Today’s Presenter
Ingemar Lanevi
VP & GM Global Lease Sourcing Solutions
Ingemar is Vice President & General Manager of
Global Lease Sourcing Solutions. He is responsible
for building out LeaseAccelerator’s Lease Sourcing
business and growing the Global Lessor Network,
LeaseAccelerator’s marketplace for competitive
sourcing equipment financing.
Prior to LeaseAccelerator, Ingemar gained over 25
years of experience leading finance, treasury,
leasing, and strategy functions, at companies
including NetApp. At NetApp, he founded a captive
lease program, called NetApp Capital Solutions, that
he grew into a $500 million plus business. In
addition, he started a lessee program within NetApp
to stop the large upfront capital outlay for acquiring
assets needed to run the company to accelerate the
free cash flow generation.
Page 4© 2020 LeaseAccelerator Inc.
Potential Savings
How about saving $1.7M in free cash flow?
How about adding $245K to Net Income?
Page 5© 2020 LeaseAccelerator Inc.
Introducing LeaseAccelerator
SaaS Platform
The Only Integrated Global Lease Services PlatformAutomated, end-to-end lease lifecycle management across equipment and real
estate, designed to help you optimize your cash flow.
Page 6© 2020 LeaseAccelerator Inc.
Management: Cash is King But We Must Invest
Cash flow from operations – capital expenditures = Free Cash Flow (FCF)
Free Cash Flow
+ Property + Plant + Equipment
Page 7© 2020 LeaseAccelerator Inc.
Management: Cash is King But We Must Invest
Cash flow from operations – capital expenditures = Free Cash Flow (FCF)
Equipment Leasing
Free Cash Flow
+ Property + Plant + Equipment
Page 8© 2020 LeaseAccelerator Inc.
New Accounting Standards: FCF Opportunity
Leasing
Data
Debits &
Credits
INPUTS OUTPUTS
We can now identify:
• Savings by asset type
• Consolidation opportunities
• Leases expiring
• Leases in evergreen
Cost
Centers
Leasing
Spend
Cube
Page 9© 2020 LeaseAccelerator Inc.
Equipment Leasing Problems: Overpayments
12 24 36 48
Example – 36 Month Lease
Can’t return equipment on time:
evergreen payments
Can’t find leased equipment:
forced buyout
Insufficient competitive bidding: monopoly rents
Use leasing company’s lease agreement:
performance penalties
Lack of automation: slow, complex manual process with high, hidden
administrative costs
Page 10© 2020 LeaseAccelerator Inc.
12 24 36 48
Return equipment on-time
Competitive bidding for all leases: lowest cost
Standardize lease agreement for all asset
classes by country
Automate the end-to-end global process using LeaseAccelerator SaaS &
Engage cross-functional expertise
How to Turn CapEx into Cash using Leasing
Track assets during term
Report on stakeholder performance
✓ Protect Cash
✓ More Free Cash Flow
✓ Fast
✓ Easy
✓ No Overpayments
Procurement teams don’t have the time, people, or money to do this on their own.
Page 11© 2020 LeaseAccelerator Inc.
Automated Lease Sourcing Process: LeaseAccelerator
GENERATE
RFP
LEASE VS
BUY ANALYSIS
EQUIPMENT FINANCE – AUTOMATED CAPITAL SOURCING PROCESS
Compare lease vs buy
options by analyzing
NPV, state and federal
taxes, monthly and
annual cash flows
AWARD
BUSINESS
COMPETITIVE
BIDDING
MATCH
LESSORS
Match to lessors based
upon credit profile,
asset type, ticket size
and geographic
location
Request bids from your
preferred lessors or
new funding sources
on Global Lessor
Network
Stack rank bids based
upon Present Value,
Cash Flow or Internal
Rate of Return. Select a
winning bid.
STANDARDIZED
CONTRACT
Negotiate using your
preferred contract or our
standardized Master
Lease Agreement,
Schedule and Rider
Specify equipment
make/model, desired
term, currency, payment
schedule and end of
term options
Savings: 7% Achieved through Competitive Bidding with Expert Global Transaction Support
Page 12© 2020 LeaseAccelerator Inc.
It’s Now Simple, Fast, & Easy to Compete Leases
500 Banks, Vendor Captives and
Independent Lessors
Equipment
Financing
RFP
Page 13© 2020 LeaseAccelerator Inc.
Material Handling Vehicles
A Fortune 150 customer wanted a lease line for material handling equipment. They utilized our Global
Lessor Network marketplace for competitive lease bids for extensive lease structures, including
splitting it between 1,000 and 2,000-hour usage. The event was a great success and the winning lessor
offered the same price for both usage scenarios. The savings were significant at $3.3M or 15.8%.
Amount Financed: $25,000,000
Term/Structure: 36 & 48-Months Lease with FMV and EOT options
Buyout, Renewal, Renewal with a Fixed 12 Month
Reduced Price and Return
Proposals Received: 9
Savings = Average Bid - Award Bid
Page 14© 2020 LeaseAccelerator Inc.
Savings: Competitive Sourcing Example
12 24 36 48
($3.1M) ($3.1M) ($3.1M)
6.5% $216K $216K $216k
Savings from competitive bidding
CapEx Spend: $10M Original Equipment Cost
Lease Term: 36 months
($3.1M)
Savings from timely end of term
management
$3.1M
Payments
Overpaymentdue to late
return
$648,000
Page 15© 2020 LeaseAccelerator Inc.
Context of Live Example
• $1.2B revenue company
• $10M IT equipment lease portfolio
Two different Equipment Lease Sourcing strategies
1. Captive lease strategy
2. Competitive marketplace strategy
Page 16© 2020 LeaseAccelerator Inc.
Comparative Lease Strategy Results
IT Equipment Lease portfolio
Average Term
Monthly Lease Payment
Financial Benefits and Savings
Cash Flow Benefits
Annualized P&L Savings
Competitive
Marketplace
Strategy
$10,000,000
36 months
$239,362
$2,310,606
$460,991
Delta
($17,988)
$577,857
$215,856
Captive
Lease
Strategy
$10,000,000
36 months
$257,350
$1,732,750
$245,134
Page 17© 2020 LeaseAccelerator Inc.
The Power of the LeaseAccelerator Marketplace!
Page 18© 2020 LeaseAccelerator Inc.
How to Analyze a Lease Rate Factor (LRF)
Prospective Lessor bid for a Forklift lease
• Initial purchase price of the forklift (PV)—$25,000
• LRF—2.87%
• Term of the lease (nper)—36 months, with one payment per month
• Payment timing (type)—advance
Page 19© 2020 LeaseAccelerator Inc.
How to Analyze a Lease Rate Factor (LRF)
With rate determined, the only variable missing in the Excel PMT formula is the residual value.
The PMT formula looks like: =PMT(.05/12,36,25000,fv,1)
where
• rate = 5%/12
• nper = 36
• pv = $25,000
• type = advance, which is represented by a 1 in Excel (arrears would be represented by 0)
Page 20© 2020 LeaseAccelerator Inc.
Goal Seek Function
With all these considerations, the Goal Seek formula would look like this before running the analysis:
Page 21© 2020 LeaseAccelerator Inc.
Goal Seek Function
The result is that the quoted LRF is made up of 5% cost of funds and a
4.46% residual. Not a big residual and hence not a very good LRF!
Page 22© 2020 LeaseAccelerator Inc.
Recipe for a “Best-in-Class” Lease Program
1. Establish a centralized owner for the global lease program to hold all stakeholders accountable
for their actions supported by Policy and Procedures. Organize global shared service to
centralize and simply management, process, controls, accountability, and reporting.
2. Standardize the Lease vs Buy process on the front end and apply consistent corporate rates to
determine the ideal acquisition method. This is a strong demand management tool.
3. Apply a standardized leasing process from beginning to end with pro-active management
throughout the lease lifecycle, once decision to lease is made.
4. Apply a common lease deal structure for new leases based on asset class that will
reduce/minimize the downstream compliance and financial risks
5. Standardize up front the end of term options to maximize flexibility and value at end of the term
6. Capture all relevant deal information up front to ensure an accurate lease portfolio that will allow
for proper business intelligence, analytics, system communications and continuity of ownership
and accountability downstream
7. Ensure pro-active management of all leases to make timely EOT decisions
Page 23© 2020 LeaseAccelerator Inc.
How to Drive Value with Leasing?
1. Compete every new lease with standardized leasing terms to control for financial risks
• Fair market value leases = lowest Total Cost of Ownership (TOC)
• Dollar out leases = lowest market rate
2. Return every asset at EOT on-time
These two performance-based outcomes maximize the contracted economic
benefit. This is achievable with a centralized global managed shared service
(aka Center of Excellence).
Page 24© 2020 LeaseAccelerator Inc.
Would You Like to Learn More?
If you would like to learn more
about how LeaseAccelerator can
help your organization, please
answer ‘Yes’ to the final polling
question and I will contact you
directly.
Special Offer for the first 5 responses:
One Free Equipment Lease
Sourcing Event!
Ingemar LaneviVP & GM Global Lease Sourcing Solutions
Page 25© 2020 LeaseAccelerator Inc.
Questions?
Ingemar LaneviVP & GM Global Lease Sourcing Solutions
THANK YOUQUESTIONS?
LeaseAccelerator LeaseAccelerator @LeaseAccelerate LeaseAccelerator
www.leaseaccelerator.com
© 2020 LeaseAccelerator Inc.