As the winds of regulatory change sweep the lease accounting world, some businesses are ready to take on the challenge. Isabella Grotto and Jonathan Minter speak to Martin Kennard and Sue Lebreton of lease portfolio manager Innervision about the state of the industry, international expansions and their lease management software, Lois
It’s an exciting time for Innervision director Martin Kennard. The leasing industry is awaiting long-promised regulatory changes to the lease accounting landscape with bated breath and Innervision, a leasing consultancy and specialist lease service provider, is ready to take full advantage of the changes through what Kennard describes as the company’s mantra of "bringing order to chaos".
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Chaos certainly seems to dominate attempts to update the accounting standards. Hopes of an agreement on lease accounting standards between the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) were dashed again in March, when a divergence in opinion led to the talks being set back indefinitely.
New lease accounting rules
The lack of clarity might seem daunting to some, but not to Kennard, who considers January 2018 "the most likely date that people are aiming for now", adding: "We’re desperate for it to happen."
"We believe new lease accounting is a huge opportunity for us, because the position within big companies is that operating leases currently don’t require much reporting, tend to be negotiated locally, and tend not to be known about centrally."
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By GlobalDataOnce the regulation comes into effect, however, companies will find themselves having to move a lot of their leasing accounts on-balance sheet, which Kennard say means: "They’ll need to be depreciated, they’ll need to have interest and capital split, [and] they will absolutely need to have control and account for that money centrally."
"All these people and organisations which have hundreds or thousands of operating leases which they probably know little about at the moment will have to become part of the core financial process, and that’s a big change."
This is where he believes Innervision can help, particularly thanks to Lois, the Lease Optimisation and Information System developed by the company in 2006 to manage every aspect of clients’ portfolios from quotation to lease management and online reporting.
Kennard described Lois as "a comprehensive and complex lease management system. It retains lots of information and can be as complicated or as simple as you like."
He adds: "We have something like £650m of leases on Lois, from several thousand leases. This contains all leasing information and we show what the lessee needs to know. Everything is open book and available for them."
The new lease accounting regulation is likely to mandate companies to move peripheral, sometimes chaotic information on leased assets into the core. This can be challenging for customers, particularly when it comes to gathering data, but Kennard says: "We perceive that what we have in Lois is the ability to help people do that.
"For all our customers we don’t have many leases that we don’t know about, because our job is to find all that information, and we have various techniques to do that.
Referring to the example of a company leasing forklift trucks, he explains: "Even if there are forklift truck leases which need to be renegotiated in the local depot, we have them on the system so when the new rules come in we’ll be able to programme Lois to take account of the new rules and it will automatically generate the information the clients want."
He says: "Generating the information customers want, once you’ve got the data, is going to be really straightforward. Getting the data is relatively complicated and hugely time-consuming.
"We see there’s a huge opportunity here which is encouraging people to think we need to start collecting this data because in a couple of years’ time they’re going to need it."
As such, he admits: "We’ve got a bit of a catch-22 at the moment, which is we’re desperate for the date to be announced when these rules will come into place because then once that’s announced people start working back [from it] and realising what they need to do to achieve the deadlines.
"I actually think that collecting the data is going to take a lot of people a lot of time. In our experience it takes 12 months, and even then you’re not completely accurate, in a big organisation.
"It’s not complex because it’s complicated, it’s just because there are so many people involved and there are so many different places where they’re hidden", Kennard explains, "It sounds like it should be simple but it’s not and I think a lot of big organisations are going to have a bit of a nasty wake-up call at some point in the future."
His recommendation to the industry is not to neglect the looming regulation: "I think people need to understand this is going to happen, because although it’s not 100% going to happen, it’s been going on so long and it’s had such a lot of focus that I can’t believe it’s not going to happen now.
"So I think believing it is going to happen and working out the sequence of events that you need to achieve the compliance is really important. I think if people start to think about that they will realise it’s a more urgent issue than they probably have it in their minds at the moment."
On the side of lessees
According to Kennard, Innervision is uniquely placed to offer help to organisations struggling with the new lease accounting rules. "We’re very different from most other organisations," he says, "I don’t think there’s anyone else who’s doing what we do."
Active in the market since 1992, Innervision’s focus is "exclusively on the side of the lessees", as Kennard says: "We work exclusively for lessees. They pay our bills and we represent lessees, and that’s I guess one of the key messages I want to get across; we’re independent from all lessors and from all our clients."
The company’s model seems to be a successful one; last year marked its best year ever, and despite being based in London, Innervision is looking increasingly further afield in its bid to expand its operations.
Sue Lebreton, account manager of Innervision, confirms the company is expanding globally. "We’re now also starting to work with people in Australia and China," she says.
"Although we’re based exclusively in London we have an agent on the ground in the Netherlands now to work in the Benelux countries," explains Kennard.
"We’re predominantly UK-based, but 30% of our business is non-UK and that’s roughly 15% European and 15% US/Canada."
He adds that the internationalisation of the business has been a recent phenomenon: "In about 2011-2012 we started to offer our services to our global customers, or international customers, outside the UK. So prior to 2011 we had virtually nothing outside the UK, and we’ve grown now to about 30% in two-to-three years."
Talking about Innervision’s international presence Kennard says: "I expected it to grow a bit more last year and it didn’t. So although actually overall volume has gone up, both for UK and non-UK, the percentage didn’t change. I think that’s likely to grow over the next two years."
This international push is coming from clients, according to Lebreton, who says: "I think what we’re finding when we go and talk to clients is everybody wants to have a global, consistent approach.
Lots of organisations that I’m talking to, certainly in the IT industry, now want the global consistency, so that’s something we’re definitely hearing."
Confidence within the company reflects a happier outlook within the leasing industry as a whole in Europe, with 2014 figures reflecting the first signs of a return to health.
Kennard confirms this outlook: "I certainly witnessed it last year compared to the previous year," he says.
"Last year was our best year ever, so for me that was a bit of a turning point because the previous two or three years had obviously been quite tough, not just for us but generally, and that turning point was driven largely by an increase in our new lease volumes. Our lease volumes went up quite significantly, and I’d expect to see it [materialise] this year."
Global service
Addressing specific sectors within the industry, Kennard says: "We are certainly doing a lot in IT. One of the reasons we’ve been successful in offering our service globally is that it works very well in the IT space. So that’s a sweet spot of ours.
"It’s more difficult to get that sort of global leasing arrangement in place for trucks and trailers, for vehicles or something like that, but in IT we’ve proved that it’s a good opportunity and it’s possible to deliver some real benefits doing so and on that basis we’re doing quite a lot of IT. We’re targeting global and we’re targeting places we can make a difference, so IT globally is a really big area for us."
Lebreton adds: "In terms of generating savings for clients, retail is a big area for us to focus on over the next 12 months.
"We’ve got a lot of retailers that lease trucks, trailers and tractors, so that’s somewhere where we are showing some huge benefits to potential clients at the moment. It’s a real mix."
Looking towards the rest of the year, Kennard and Lebreton say Innervision has its sights firmly set on expansion. Among the engines they are hoping will drive growth in the coming months is a series of pilot schemes aimed at allowing customers to experience a 90-day trial of the company’s service.
Kennard explains the pilot scheme is rooted in the particular nature of Innervision itself: "We’re relatively unique in what we do, so when we turn up and talk to any finance director he’s not looking for the service that we provide. So we turn up and describe the service and describe what we do.
"It’s very difficult because he has not experienced it before and because it’s a big commitment. It’s difficult to prove the value before you’ve experienced the value.
"But getting people to understand the benefits is relatively difficult, so we’ve introduced something we’re calling a pilot scheme which is a 90-day free, trial-buy effectively.
"We perform a limited amount of our services in a particular area for the client, and we demonstrate to them how good it is and what the benefits are."
According to both Kennard and Lebreton, the trials have proved successful. Kennard says: "We’ve signed quite a big organisation – we’re not allowed to say who they are – but they are quite a big waste management company, last month."
He reveals Innervision also signed a France-based European company on the same day, and Lebreton explains: "Once you get hold of the information, once we get hold of the data, it’s very easy for us to go back and actually demonstrate our services and how we can make a difference to them."
