It’s all about balance sheet,
believes Dan Levy, head of financing solutions at BT Global
Services.
Go deeper with GlobalData
While all the
speakers at the Leasing Life European Conference addressed
an attentive audience, one orator in particular commanded special
attention.
Dan Levy, head of financing
solutions at BT Global Services, stood at the lectern not as a peer
but as a client, and everyone in the room was keen to hear the view
from the customer.
Much of what Levy said was music to
the ears of the lessors in the room, although the client’s point of
view was not without controversy.
Outlining why BT Global Services, a
subsidiary of British Telecom which provides networked IT services
worldwide, uses leasing when its parent company, with £2bn in free
capital annually, is cash rich, Levy said it was all about balance
sheet.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData“We use leasing to look better,” he
told the audience. “It is nice to recognise revenue. When we use an
operating lease there is a margin benefit and we like using our
capital as effectively as possible, so if we can get things off
balance sheet through a lessor, we can use our capital for other
things.”
BT Global Services in the main
cater for blue-chip companies and governments which, said Levy,
means the company tends not to think too much about risk.
However, given the doubts about
credit around the world he said transferring risk was still a
benefit in using leasing.
He said: “We want to externalise
risks by using the leasing industry – especially today this would
be a good thing.
“Primarily what we are looking for
isn’t cheap money but risk transfer from our customers to you.”
Levy told the room full of lessors
his business prefers leasing, even if it is “largely for cosmetic
reasons” such as keeping things off balance sheet, and all the
leasing companies need to do is sell the idea of finance to the
customer.
Where some of the audience members
disagreed was on Levy’s assertion that one of the finance deals
frequently used by BT Global, the operating lease, was doomed as a
structure.
“It is going to disappear,” he
said. “Very rarely do you have a win-win in operating leasing.
Levy said, while leasing companies
can make money reselling the assets, IT and telecoms equipment is
not very re-sellable – a statement contradicted by 3 Step IT’s
Artti Aurasmaa later in the day when he said one-year-old Apple
equipment still holds up to 85% of its original value in the
re-sell market.
Lessors make money on operating
leases, said Levy, because the service companies get the deal wrong
and have to pay secondary rental.
The only reason BT Global still
uses operating leases, he said, was because they make the balance
sheet look good – but this could change under the new lease
accounting proposals.
“We are driven by our balance
sheet. [Under the accounting changes] what will happen to
accounting for service contracts? Operating leases will be on the
way out and this will be the most important thing for us,” he
said.
During the discussion after Levy’s
presentation, Jukka Salonen disagreed with his assessment of the
operating lease and said for some companies total cost of ownership
is the most important aspect of the deal as well as the
full-service package.
Aurasmaa also defended the funding
structure and said companies can run operational leasing IT with
very satisfied customers.
Levy concluded by inviting lessors
to come up with other structures to suit the needs of BT Global
Services.
“If you come to us with something that works – and it is off
balance sheet – we are happy to hear,” he said.
See also:
Conference opens with big
questions
Small companies present
opportunities
