Leasing cost-effective way to free cash for core business operations

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1 II BUSINESS DAILY Tuesday February 28, 2017 Leasing cost-effective way to free cash for core business operations Organisations of all kinds need a variety of assets to carry out their daily operations. But while this is expected, they face a dilemma on whether to buy the assets outright and own them or lease from the leasing firms whose numbers have been increasing in recent years. Organisations of all kinds need a variety of assets to carry out their daily operations. But while this is expected, they face a dilemma on whether to buy the assets outright and own them or lease from the leasing firms whose numbers have been increasing in recent years. Leasing is not a new concept; it follows the basic premise that business profits arise from equipment use, not ownership. Today, businesses that are long on ideas and short on cash are using leasing as a simple and flexible financing solution to increase productivity and generate profits. The lease agreement documents the transaction between the equipment owner (lessor) and the business that wants to lease the equipment (lessee/ client). Through leasing, the client acquires the right to use the equipment for a fee over time. The client agrees to make payments to the leasing company over the life of the agreement and can purchase the equipment, return it to the lessor, or negotiate a lease extension, when the original agreement expires. The leasing company remains the equipment owner. The client acquires the right of temporary possession and use. This asset financing concept allows the lessee to pay only for usage of the asset and not for the full price of buying it including value added tax (VAT). Thus, leasing frees up cash which can then be used to support the firm s core business. Leasing, a medium-term financing option, is an off-balance sheet solution. No loan liability will be disclosed in the lessee s books as is the case for an outright purchase financed by a loan. The lessee s balance sheet is therefore clean, with better financial operating ratios. A lease can be tailored to the client s specific needs and structured in a number of ways. Payment schedules, for instance, can be used to accommodate a business cash flow needs. A capital or finance lease combines some of the benefits of leasing with those of ownership. Payments are spread over several years and often represent the equipment s full value. An operational lease entails the client renting an asset over a time period that is substantially less than the asset s economic life. Operating leases are generally short term, typically three years or less, and are often used with equipment. Tax advantages are a primary motivator for leasing. Lease contracts allow the transfer of a valuable tax shield from the client to the leasing company. Is Kenya ready for an equipment bank? Building and construction industry in the region has progressively developed to new shifts due to the ever growing demand of construction and building equipment. As demand surges, several potential challenges emerge including hefty cost of equipment acquisition, repair, maintenance, insurance and government licensing. Against these drawbacks, most contractors resort to renting because they can free up capital, spread payments over time, gain tax benefits while also keeping up with the latest technology. In addition, renting allows contractor to access a broader range of equipment at all times and also frees repairs, maintenance, depreciation, government licensing, insurance and disposal costs associated with outright buying. Regional market leader, Vehicle and Equipment Leasing Limited (VAELL) has established equipment hubs in various parts of the country and has presence in Uganda, Rwanda and Tanzania, thus allowing their clients to access equipment across the East African region. Quipbank, an independent subsidiary of VAELL, is an equipment bank which offers equipment rental and sales options to contractors across the country on a technology platform. In addition, the equipment bank accepts deposits of surplus or idle machinery and equipment from contractors and rents or exchanges them on their behalf to other firms or organisations. Also, Quipbank sources for appropriate equipment when needed and acts as a storage, display and auction house for their customers, banks and stakeholders. Equipment banking has been accepted and embraced by leading multinational corporations around the globe as a convenient, cost effective and hassle-free way of asset acquisition and management. Key industry players cite the flexible terms of obtaining a rental as one of the major benefits that makes it attractive compared to outright purchase, says John Mogire, VAELL business development manager. Equipment banking has been accepted and embraced by leading multinational corporations around the globe as a convenient, cost effective and hassle-free way of asset acquisition and management.

2 Tuesday February 28, 2017 BUSINESS DAILY III Why McLeod & Company is the to-go-to firm for material handling equipment McLeod & Company (EA) Ltd is the Leasing and Rental arm of the Achelis Group of companies and is considered the leading Leasing expert in material handling equipment in Kenya today. A pioneering leasing company managing a portfolio of operating and finance leases in Kenya, McLeod & Company East Africa Ltd (McLeod) has been a reliable partner to the private and public sector for over 25 years and leverages on the Group s more than 56 years in the Kenyan market. McLeod supports businesses with different procurement options for Leases and Rentals of equipment based on customer requirements; whether fleet or single requirements. The company offers Operating Leases, Finance Leases, Long Term Rentals and Short Term Rentals. Operator training can be provided. The firm s value-add proposition includes on-time delivery and pick-up service along with on-site equipment setup and training of all its lease/rental equipment in the range of Material Handling and Warehouse equipment, Construction equipment, Power (Diesel Generators), Turn-Key Medical projects and specialised equipment for the Oil & Gas, and Mining sectors. McLeod stands for quality, and supplies only the most reputable brands backed by superior After-Market service. McLeod s Leasing & Rental value offering is a function of productivity - guaranteeing uptime during the life of an operating lease. Leasing is the most convenient form of financing available to organizations and offers a variety of significant benefits, both in the short and long term. After market service is critical to McLeod s business and is an essential part of their product offering. The Group has state of the art workshops and trained engineers to guarantee appropriate machinery installation and commissioning. Service and Annual Maintenance contracts are key to optimum performance of the equipment under lease or hire. an Achelis Group Company McLEOD your reliable Leasing & Rental Partner McLEOD & Co (EAST AFRICA) LTD / ACHELIS MATERIAL HANDLING LTD Nairobi Office: Akili House, Off Mombasa Road, Mombasa Office: Jomo Kenyatta Avenue, Sales mcleod@achelis-group.com Nairobi office Tel No.: / , / Mombasa Tel No.: / , / Website:

3 IV BUSINESS DAILY Tuesday February 28, 2017 Why Zohari Leasing is the right partner to grow your business In only ten months, Zohari Leasing has proven that the Kenyan market has immense potential. Its success confirms that leasing is the future for businesses and organisations keen to improve how they use their finances. In only 10 months, Zohari Leasing has proven that the Kenyan market has immense potential. Its success confirms that leasing is the future for businesses and organisations keen to improve how they use their finances. Zohari Leasing is a member of the Centum Group offering finance and operating lease solutions. The firm was established in April 2016 and by the close of the year had struck several deals encompassing different asset categories. The outlook is positive, declares Ms Bertha Mvati, the firm s business support manager. She emphasises that Zohari is true to its slogan as the partner who gives your business a new lease of life. This is owing to its efficiency and structured transactions or solutions currently not widely available in the market. We consider ourselves partners to our customers and not just financial solutions providers, asserts Mr Enock Tanui, Zohari Leasing business development manager. Our leasing solutions enable our partners to rapidly acquire the assets they need to achieve their goals. Leasing is a flexible way of meeting your business asset needs without requiring a large capital outlay, or risking equipment obsolescence. Zohari s team of highly specialised personnel together with its strong network of partners pride themselves in delivering unparalleled service to its clients. Various organisations in different industries including small and medium enterprises (SMEs) have benefitted from Zohari s expertise. We know that SMEs have the potential to step to the next level, Ms Mvati notes. Our leasing solutions can help them realise this goal. If they grow, we at Zohari grow and become their first choice for financial solutions. Zohari s range of leasing products includes vehicles, farm equipment, construction equipment, business technology, plant & machinery as well as medical equipment leasing. Benefits of leasing with Zohari: Leasing conserves valuable working capital. By not having to pay cash up front, the cost is spread to cover the working life of the equipment. So, the firm gets the benefit of immediate usage of the equipment/fit outs without the capital outlay. In addition, the total lease rentals are fully tax allowable. Zohari will be your dedicated asset manager and will organise servicing and insurance, thereby saving you time. Moreover, the client companies benefit from maintenance and end of term support throughout the leasing period. Ms Mvati says Kenyan firms can benefit from leasing equipment rather than buying to own. But she understands that this is a cultural challenge in this part of the world that might take time to change. Mr Tanui lauds the government for leading by example after it decided to lease vehicles for its departments.

4 Tuesday February 28, 2017 BUSINESS DAILY V RentCo leads the way in asset leasing solutions Innovating and tailor-making leasing solutions to fit different customer needs has created a niche market for RentCo East Africa Limited. This independent leasing company provides off-balance sheet asset financing solutions tailored and customised to both the private and public sector in Kenya and sub-saharan Africa. The leasing solutions we offer include RentCo dry lease, RentCo wet lease, RentCo back-to-back lease, RentCo sell and lease back, RentCo forex leases, and RentCo exchange plan lease. RentCo is a customer oriented firm with flexibility and ability to offer complex lease solutions that cater for all its clients which makes it stand out. Being an independent lessor gives the firm capacity to create relationships with any motor vehicle dealers or equipment manufacturers, thus increasing choice and variety for customers. RentCo is a member of the Leasing Association of Kenya (LAK) and strives to enhance understanding of the leasing services through the Association. A case in point is the government initiative to lease vehicles for use by the police. RentCo, through its RentCo back-to-back leasing structure, partnered with CMC Motors, Urysia Ltd (Peugeot dealer), Ecta Kenya (Subaru dealer), General Motors among others to lease over 1,700 vehicles to the government valued at Sh10 billion. The vehicles are currently in use by various departments including the National Police, the National Transport Safety Agency, prisons, and the Ministry of Health, among other government agencies. Leasing is a global best practice of market penetration and growth, said RentCo s Business Development Director Kasanga Kilili. He expressed optimism that the industry is on the right track, adding that RentCo has capacity to respond to increasing demand for leasing products. The firm, he said, has a robust business strategy aimed at providing innovative products and quality services to all our customers. Mr Kasanga said that focus is shifting away from buying to leasing as a way of cutting spending. It is a cost-effective way of owning assets that depreciate in value and allows organisations and governments to concentrate on their core business. Leasing also conserves cash flow which is an important aspect of business growth RentCo is a customer oriented firm with flexibility and ability to offer complex lease solutions that cater for all its clients which makes it stand out. and sustainability. RentCo believes in differentiated customised products and is a key player in a platform, coordinated and supported by the Executive Office of the President, to mechanise farming in the country. Under the programme, RentCo will provide subsidised equipment to farmers in different parts of the country to enable them to grow certain crops under a forward crop supply agreement with institutional buyers such as Bidco. To truly enable our customers get optimal value for our lease solutions we have consistently stretched the boundaries in offering value addition that our current wet-lease solutions provide our customers, which inevitably give them a significant competitive advantage over their rivals, Mr Henry Emuye, the firm s Chief Operating Officer, said. We are indeed the preferred asset leasing specialist in Kenya and the region at large. Moreover, our staff is highly experienced and fully trained in leasing, Why Lease with RentCo LEASING SOLUTIONS As an independent leasing company, our clients are privileged to select their preferred supplier and asset that best fits their needs. RentCo lease solution caters for all types of assets except land and buildings. 1. RentCo Dry Lease Clientslease assets and pay the lease amount only. 2. RentCo Wet Lease It includes lease, insurance, full maintenance, fleet management, etc. 3. RentCo Forex Leases For customers with foreign receivables and able to commit to pay rentals in foreign currency without being exposed to currency risk, we have tailored operating leases denominated and payable in a specified foreign currency (USD, EURO, GBP), which allows the client to enjoy the low interest rate of the applicable currency. 4. RentCo Sale and Lease Back Customers had already purchased assets by the time they realised that the lease solution was available. RentCo is able to purchase the assets and arrange for lease of the same assets back to the client over the remaining useful use of the asset. 5. RentCo Exchange Plan Lease Customers can exchange a specified percentage of the original equipment value at regular intervals depending on the term of the contract. The lease payment remains constant, despite the exchange. 6. RentCo Back to Back Lease structure Targeted to equipment suppliers who then extend lease solution to their clients. This involves a Sale and Lease Back between RentCo and the supplier, who then on leases to their customers on a full lease structure. This allows the supplier to retain full lease relationship with their customer. RentCo East Africa Limited Abcon House, Annex 1 st Floor, Upper Hill, Masaba Road, Nairobi. Tel: info@rentco.co.ke rentcoea

5 VI BUSINESS DAILY Tuesday February 28, 2017 How thriving leasing has put SMEs on the growth path Awareness on the value of leasing is increasing especially with Government having decided to lease on an unprecedented scale. Leasing by government started cautiously with the initial lease of police vehicles almost three years ago. Awareness on the value of leasing is increasing especially with Government having gone into the practice on an unprecedented scale. Leasing by government started cautiously with the initial lease of police vehicles almost three years ago. RentCo Chief Operating Officer Mr Heny Emuye says it was practical for the government to undertake this initiative as it explored various options of enhancing service delivery in critical areas like the police service. The initiative has been lauded as widely successful partly with the police vehicles seen on the roads daily, a sight that is different from the past when the vehicles were few and in bad shape at various stations. The Government vehicle leasing launched in 2013 is aimed at boosting the service delivery of the National Government. The interest by the government to start leasing various equipment and vehicles is good news for the leasing industry as it opens up a new market from the traditional corporate one. Are players happy with the regulatory and legal environment when it comes to leasing? It would be farsighted to review the rules on investment allowances for capital items that are currently tailored not to support leasing. This has greatly inhibited acquisition of key assets in various industries as organizations which cannot purchase still feel that leasing does not offer equivalent investment allowance benefits The buying mentality is shifting as more and more people understand the value of loeasing. It is a total paradigm shift for growth oriented business. According to Bertha Mvati of Zohari Leasing, leasing can play a significant role in the growth of small and medium sized enterprises. One of the primary reasons given for lack of access to finance in Kenya is the insistence of major financial institutions on collateral which many SMEs do not possess. Young companies are growing faster in Kenya thanks to leasing. Even when they require expensive equipment to produce goods or deliver services, they lease and do not have to wait until they have money with which to purchase the machinery outright. In most of the big corporate organisations in Kenya today, office equipment is leased. Because, the question is: Why buy a photocopier and four to five years down the line it is obsolete? Why not lease short-term, a year or two and change the equipment as rapidly as technology changes? When SMEs get to lease instead of buying key assets, the leasing industry will have contributed further to sustainable job generation, improvement of the overall human capital in Kenya, enhancement of the standards of living of the whole Kenyan population and the pursuit of happiness in a fair and free society. Leasing is an important driver of capital goods formation for any economy and in particular for the Kenyan economy. Capital goods formation in an economy is investment that creates more production of goods and services, and that overall increases wealth in the economy. New equipment and new assets that generate goods and services also improve job creation, education, government revenues and meet the increasing needs of the growing population. As it were, motor vehicle leasing is now widely accepted, especially among blue chip firms that appreciate what this form of financing can do for their business operations. Leasing allows corporate managers to fully focus on their core business instead of investing valuable capital, time and other resources on management of assets. Seeking leasing solutions? Look no farther than ALMAR Almar provides a full range of personalised, flexible leasing solutions. The firm was established in 1988 with the core business of leasing and trading in shipping containers. The company started operations at its head office in Durban, South Africa, from which it eventually opened offices in India (1992), Dubai (1994), Brazil (2010), Kenya and Angola (2011), and most recently Tanzania (2012). As a member of the Container Owners Association, Almar s technical knowledge ensures they maintain prescribed industry standards and promote equipment quality and interchange efficiency. With Almar s ongoing container programme ensuring availability of new equipment and contributing to cost savings for the lessee, we are well positioned to service a variety of container leasing requirements. Almar s lease offering extends across diverse products, from accommodation modules to ablutions, office and refrigerated containers to standard and un-modified dry strorage containers. Almar provides solutions for anything from static storage, cold storage, on site camp accommodation to office space with equipment able to be made available at short notice. The leasing industry in Kenya has come a long way and customers are realising that there are advantages to the leasing model. Companies are able to acquire expensive equipment whilst conserving working capital. With Almar s near 30 years experience, they are well placed to provide customers interesting and flexible lease solutions across our diverse product range. Almar s lease offering extends across diverse products, from accommodation modules to ablutions, office and refrigerated containers to standard and unmodified dry strorage containers.

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