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  1. Analysis
June 6, 2019

Office equipment leasing: a strong and staple relationship?

By Christopher Marchant

Few areas of leasing have been as radically transformed in the past decade as office equipment, with the spaces themselves changing with the types of hard asset required. Christopher Marchant speaks to experts in the field to assess how these changes are affecting business, and the benefits for those in the sector who readily adapt.

The boundaries between office equipment leasing and the outright provision of IT equipment can often be blurry, yet there are hard assets that are undeniably the sole prerogative of the leasing sector.

For Simon Rodway, head of the office equipment channel at Société Générale Equipment Finance (SGEF): “The most frequent asset that we see is multi-functional-device (MFD) photocopiers; this is closely followed by other assets such as telecommunications. This is a very mature marketplace with a very high lease penetration, as well as being very mature in its customer approach.”

John Barter, managing director at Oak Leasing, assesses the challenges of a changing workplace and how this affects the sort of equipment leased. “A key thing to consider is the amount of emails that people send, and cloud storage opportunities,” he notes.

“If an employee were to retain all the mail that they sent in a printed, physical form, they would be swamped. Information technology has for a very long time been the obvious solution, leading to a point where many large firms have moved from a copier on every floor to only one in the entire building. Paper is also unhelpful in an age of compliance in which records must be kept and shared widely.”

A look at further hard assets in the sector can also paint a dispiriting picture. In April this year, 124-year-old furniture firm Wesley Barrell closed its doors for the last time. In doing so, the historic Oxfordshire-based business failed to pay its 60 remaining staff across the UK. In January, North Tyneside furniture firm Godfrey Syrett went into administration with £8.5m (€9.9m) of debt and the loss of almost 200 jobs.

Barter notes a constricting environment for these types of asset. “Godfrey Syrett cited uncertainty in the marketplace as a reason for its folding,” he says. “This uncertainty comes from the reluctance for businesses to invest in new equipment in a cautious environment defined by ongoing uncertainty around major issues such as Brexit.”

Since its founding in 2016, SGEF’s office equipment leasing division is also identifying shifts in the sector. “The asset sizes by value seem to be decreasing, and this is heavily driven by the manufacturers providing smaller, cheaper assets that are fit for purpose to do the job. There has also been a decrease in the size of a customer’s fleet,” explains Rodway.

“Where a customer might have had 20 machines, they are now replacing them with 10. That might be as a result of a reduction in paper and other software, as well as processes not necessarily needing to go through print to be able to function.”

The ubiquity of the traditional office has changed greatly over the last 10 years. The American Community Survey has found that the number of people working from home increased year-on-year from 2005 to 2017, coupled by a surge in private office space providers such as Zipcube.

As for how this has impacted office equipment leasing, Matthew Woodhouse, UK head of sales at PEAC Finance, says: “The office environment has definitely changed buying trends. In an open office environment, there are fewer machines being funded, but those that are tend to be larger, faster and of a higher technical specification. In an older traditional set-up we would see more kit being funded to manage more offices, floors and desks.

“An open office environment tends to drive cost savings on print and storage of documentation, utilising more advanced software and more efficient printing methods.”

However, Rodway sees less of an impact. “You might see that in a managed office environment where assets are shared. As far as the corporate world and the general SME market go, there has not been any change in asset sourcing for SGEF at this stage,” he says.

According to Johan Mulder, vice-president for global program management at DLL: “The market is moving in the direction of more solution-oriented or usage-based acquisitions. Businesses not only want to acquire assets, there is a want for the necessary service plans and support to ensure reliability and uptime.

“Also, the digital age has transformed the legacy document-printing industry into the document-imaging and workflow industry, with hardware becoming a networked multi-functional peripheral that falls into the IT segment of a business.”

Tax and Lines of Credit

Tax benefits may be another consideration for leasing in this area. In the UK, for outright purchases, businesses can claim 65% of the capital cost against capital allowances. In contrast, if the office furniture lease finance route is followed, this allows companies to offset the total sum of repayments against a tax bill.

“PEAC has witnessed deals that were originally to be bought outright with cash moving to lease for this reason; however, as most UK suppliers lead with a rental, cash is rarely an option unless the company has significant cash reserves,” explains Woodhouse.

For Barter, the reasons for leasing office equipment are simpler. “Around 98% of people, unless you are a financial director or an accountant, would not have a clue about Byzantine tax laws,” he notes. “The overriding appeal of all forms of leasing is purely the presentation of cost as a low monthly or weekly amount. It is a salesman’s tool to overcome possible price objections.”

Another proposed motivation is preserving lines of credit. “If money is not tied up in equipment costs, businesses are free to invest in other areas of the business that can drive incremental revenue,” says Mulder.

Increases or Decreases?

With the likes of Brexit and the aforementioned closures of furniture providers, it is possible to regard this sector as being on a downward trend. Rodway at SGEF disagrees with this assessment, however. “This is very much a growth area – and quite a considerable one,” he says.

“As a new channel with exciting new offerings to the market, SGEF is being very versatile. Customers are recruiting SGEF as a provider of manufacturers and resellers. There is a large upward growth curve that is much greater than any overall economic growth curves.”

Woodhouse also expects significant growth in the sector this year. “This is being driven by taking shares from other competitors on the back of high service levels and flexibility, as well as a commercial approach to the increased need to fund managed service agreements,” he notes.

Maintaining a positive outlook for DLL’s role in the sector, Mulder adds: “The company continues to see business grow year-on-year as customers continue to acquire the equipment and software they need to flourish.

“For the past 50 years, DLL has been committed to a partnership approach that enables a support for vendors in times of economic prosperity and adversity. With this in mind, there is an accordant anticipation for continued growth over the next year, driven in large part by the growing demand for bundled services and total service solutions.”

Barter, however, is more mindful of general economic barriers to an expanding business, especially with a UK-only focus. “It is my personal anticipation that there will be a decrease in the sector, because of the unavoidable fact that the economy is being stagnated by Brexit,” he observes.

“It is struggling badly. Unless a bit of kit is in bits, people are not spending on a replacement. Brexit is the best excuse to postpone capital expenditure, and it is very difficult as a broker to find a way around this.”

Different Approaches

As well as changing types of equipment, consumers are looking for different ways to lease the products as well. Woodhouse notes: “Customers are now looking for even more flexibility when leasing or funding equipment. They want to be able to refresh equipment much more quickly and cost-effectively, and they are now looking to have one contract with one key point of contact.

“This is driving more managed service-type contracts, where the customer has one contract for all services and equipment while the funder sits behind the contract, undisclosed. PEAC is also seeing significant growth in residual value-led financing, especially in the public sector.”

As well as changes, there is much that has stayed the same within office equipment leasing, intrinsically tied to the benefits of asset finance as a whole. Woodhouse explains: “Customers choose leasing for the affordability and because, historically, they have always rented. This enables them to refresh to new models and change equipment as and when required.”

Mulder adds: “We’re seeing an increased demand for pay-per-use solutions that provide businesses with the flexibility to pay for equipment and software as they use it.

“DLL is leveraging its decades of experience with solutions such as cost per copy, as customers’ needs are evolving away from the traditional concept of equipment ownership toward a more fluid model where they have ‘just in time’ access to equipment at the moment it is needed. The focus is on securing all the benefits of equipment usage without carrying any of the related burdens and responsibilities of ownership.”

While brokers such as Barter and Oak Leasing record a relatively limited amount of businesses in the used equipment and refurbishment sector, for DLL it is more integral. “By providing financial solutions for second- and third-life equipment, there is a desire to help extend the life of equipment as well as build new revenue streams for our partners,” says Mulder.

“The Life Cycle Asset Management program was launched in 2013, and expanded financing offers for pre-owned assets. Through the program, DLL works with manufacturer and dealer partners to ensure the sustainable reuse of equipment and create second- and third-life revenue streams. The goal is to grow DLL’s new business in used equipment considerably.”

Other Forms of Leasing

SGEF’s specialist office equipment leasing division has experienced significant growth since its creation three years ago. The department is also looking to specialise in contracts such as framework business and government procurement, and welcomes the opportunity to interact with other introducers of office equipment assets.

As for how the division intends to co-operate with the many other sectors SGEF itself provides finance for, Rodway says: “There is an intent to provide finance on any technology that will go in an office environment. This includes print devices, telecommunications, vending machines and security.

“There will not be financing in the office equipment channels of any construction businesses; however, construction does need all of the assets that we provide, and therefore we will be providing those types of asset into the construction business building environment.”

For Barter, other forms of finance channel can be directly incorporated into office equipment leasing. “Using other channels, a total office refurbishment would be something that Oak Leasing could be very keen on,” he says. “This would be a total solution, from the air-conditioning units, the IT, the lighting, furniture, alarms and access control – the whole package. A lot of funders will offer individual items, but not a solution that can wrap it all in one.”

Explaining the PEAC approach, Woodhouse says: “There is a funding of both soft and hard assets. PEAC has four major sales divisions dealing with market-leading partners and introducers for office equipment plus areas such as plant, construction, commercial vehicles and access equipment. When a customer makes an inquiry, there is a conscious effort to incorporate and include every channel that might be able to provide a solution to their requirements.”

Simply observing frames from 2001 TV comedy The Office and its 2016 film follow up Life on the Road can show, on a surface level, how the layout and necessary structure of the workplace has changed. While the internet overtook physical mail in business two decades ago, recent years have seen transitions to near or totally paperless offices.

Yet while there may be fewer items such as photocopiers requiring leasing, office equipment is adapting accordingly. New forms of equipment are leased to workplaces every day, and for a multinational lender such as SGEF to launch a dedicated division suggests that it is an arena in which profits can still be sought.

This is also a channel that is increasingly integrated with a company’s overall asset finance offering, so perhaps it is not time to turn out the lights on office equipment leasing just yet.

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