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Nov/Dec 2015 • volume 3 • issue 6 | www.canadianequipmentfinance.com

Market REPORT:

Above and Below the Earth: Agriculture & Mining

Courtesy Verus Valuations

Regulatory: Bill 198: Navigating an Uncertain Landscape Your Business: Securing Your Company’s Success PM40050803


contents November/December 2015 Volume 3 Number 6 Publisher and Editor-in-Chief Steve Lloyd steve@canadianequipmentfinance.com Editor Karen Treml karen@canadianequipmentfinance.com Creative Direction / Production Jennifer O’Neill jennifer@canadianequipmentfinance.com

ELFA REPORT: Industry confidence grows in November due to positive job creation and resumed stability in the House of Representatives. ELFA has released a white paper addressing impending changes to the lease accounting standard and announced its new board of directors. »4

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Market Report Agriculture: How Farm Health Drives Equipment Sales »10

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Mining: The Top 10 Issues Mining Companies will Face in 2016 »11 Circulation Department 302-137 Main Street North Markham ON L3P 1Y2 t: 905.201.6600 • f: 905.201.6601 info@canadianequipmentfinance.com www.canadianequipmentfinance.com Subscriptions available for $40.00 year or $60.00 two years. ©2015 Lloydmedia Inc. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Printed in Canada. Reprint permission requests to use materials published in Canadian Equipment Finance should be directed to the publisher.

ELFA’s 2016 Equipment Acquisition Trend Forecast »13

NEWS »7

Events

Regulatory

Bill 198: Navigating an Uncertain Landscape Amid court decisions – and reversals – what’s a corporation to do? »14

Where to go. What to see. »20

Management Strategy

How is Your Digital IQ for 2016? »22

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Securing Your Company’s Success Five anchors to safeguard your enterprise’s crown jewels »16

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ELFA Report

Equipment leasing and finance industry confidence higher in November The Equipment Leasing & Finance Foundation has released the November 2015 ‘Monthly Confidence Index for the Equipment Finance Industry’ (MCI-EFI) today. Designed to collect leadership data, the index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $1.046 trillion equipment finance sector. Overall, confidence in the equipment finance market is 60.2, an increase from the October index of 58.7. When asked about the outlook for the future, MCI-EFI survey respondent David T. Schaefer, CEO, Mintaka Financial, LLC, said, “The most recent positive job creation report and the resolution of the leadership struggles in the House of Representatives should equate to more optimism and less uncertainty for small business owners and decision makers. I am more optimistic about the business environment.” November 2015 Survey Results:

The overall MCI-EFI is 60.2, an increase from the October index of 58.7. ◉◉ When asked to assess their business conditions over the next four months, 14.8 per cent of executives responding said they believe business conditions will improve over the next four months, unchanged from October. 74.1 per cent of respondents believe business conditions will remain the same over the next four months, a decrease from 77.8 per cent in October. 11.1 per cent believe business conditions will worsen, an increase from 7.4 per cent the previous month. ◉◉ 22.2 per cent of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, unchanged from October. 66.7 per cent believe demand will “remain the same” during the same four-month time period, down from 70.4 per cent the previous month. 11.1 per cent believe demand will decline, an increase from 7.4 per cent who 4

believed so in October. ◉◉ 22.2 per cent of executives expect more access to capital to fund equipment acquisitions over the next four months, and 77.8 per cent of survey respondents indicate they expect the “same” access to capital to fund business, both unchanged from October. None expect “less” access to capital, also unchanged from the previous month. ◉◉ When asked, 48.1 per cent of the executives report they expect to hire more employees over the next four months, an increase from 40.7 per cent in October. 48.1 per cent expect no change in headcount over the next four months, down from 51.9 per cent last month. 3.7 per cent expect to hire fewer employees, down from 7.4 per cent in October. ◉◉ 3.7 per cent of the leadership evaluate the current U.S. economy as “excellent,” unchanged from last month. 92.6 per cent of the leadership evaluate the current U.S. economy as “fair,” up from 88.9 per cent in October. 3.7 per cent rate it as “poor,” a decrease from 7.4 per cent the previous month. ◉◉ 18.5 per cent of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, an increase from 7.4 per cent who believed so in October. 77.8 per cent of survey respondents indicate they believe the U.S. economy will “stay the same” over the next six months, unchanged from the previous month. 3.7 per cent believe economic conditions in the U.S. will worsen over the next six months, a decrease from 14.8 per cent who believed so last month. ◉◉ In November, 44.4 per cent of respondents indicate they believe their company will increase spending on business development activities during the next six months, an increase from 40.7 per cent in October. 51.9 per cent believe there will be “no change” in business development spending, a decrease from 59.3 per cent last month. 3.7 per cent believe there will be a decrease in spending, an increase from none last month.

CANADIAN EQUIPMENT FINANCE | November/December 2015 | canadianequipmentfinance.com

ELFA releases white paper on ‘Changes in Lease Accounting’ The Equipment Leasing and Finance Association has released a new educational tool that addresses impending changes to the lease accounting standard. The white paper, ‘Changes in Lease Accounting: The Benefits of Equipment Lease Financing Remain’, is designed to help ELFA members understand what’s expected in the new accounting rules; educate their sales teams, vendor partners and end-users about the rules; and allay any potential customer fears about the forthcoming changes. The Financial Accounting Standards Board is expected to release the new lease accounting standard in December 2015 or January 2016, with an implementation year of 2019 for public companies—private companies will be allowed another year before transitioning is required. Although the new standard will change how leases are accounted for on corporate balance sheets, ELFA’s new white paper emphasizes that most of the lease accounting changes are expected to be relatively neutral in their impact. Further, the paper reveals that the core benefits of leasing transactions will not go away under the new standard. In fact, lessees will continue to enjoy a myriad of benefits, including: ◉◉ An immediate source of lowercost capital ◉◉ Flexible terms and structures ◉◉ Payment plans aligned with cashflow needs ◉◉ Convenient and efficient execution ◉◉ Industry expertise and regulatory knowledge continued on page 6


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ELFA Report

continued from page 4

Highlights

The “Changes in Lease Accounting” white paper encourages ELFA members to maintain a dialogue with their customers about the impending change and offers pointers for providing educated guidance to their sales teams, vendor partners and end-user customers. The readerfriendly white paper includes: ◉◉ A summary of the anticipated final guidelines, including a chart outlining key provisions of the expected final standard. ◉◉ Talking points for sales people and end-user customers on key provisions of the rules, including (1) Dealers/Vendor Partner Impact: Revenue Recognition and (2) End-User Customer Impact: Balance Sheet and P&L Impact. ◉◉ A chart outlining the benefits of leasing before and after implementation of the new standard, which demonstrates that the core benefits of leasing will remain intact. ◉◉ A “Lessee FAQ” featuring answers to questions that lessees may pose about the new rules. “With a new lease accounting standard imminent, ELFA members are engaging their customers and other stakeholders regarding the new rules,” said ELFA President and CEO William G. Sutton, CAE. “We are pleased to offer this white paper to assist in that education process. We especially thank the members of our association’s Captive and Vendor Finance Business Council Steering Committee who helped develop the white paper. The good news is that there are many reasons to lease, and the primary reasons to lease will remain intact under the new rules, from maintaining cash flow, to preserving capital, to obtaining flexible financial solutions, to avoiding obsolescence. Under the new standard, ELFA members will continue to offer practical and profitable solutions to help their customers acquire productive assets to grow their businesses.” 6

ELFA announces new board of directors William Stephenson, CEO and chairman of the executive board of DLL, is the new chairman of the board of ELFA and Anthony Cracchiolo, president and CEO of U.S. Bank Equipment Finance, is now chairman-elect. The chairman-elect and new board members were recommended by ELFA’s nominating committee and approved by a vote of the general membership. “We are very fortunate to have Bill Stephenson as chairman of the board of directors for 2016,” said ELFA President and CEO William G. Sutton, CAE. “Bill’s proven leadership skills, his industry knowledge and his dedication to our association’s mission will have a positive impact on both the ELFA membership and the equipment finance industry at large in the coming year.” “In this time and era where sustainable financial solutions are at the heart of a global transformation that challenges traditional business models, ELFA continues to be a key driver of economic growth in the equipment leasing and finance industry,” said Stephenson. “The association provides a wealth of resources to members including research, growth opportunities and networking. I am humbled to receive this honour and I look forward to serving as Chairman of the Board of ELFA in order to continue to drive the support this great organization provides to its members.” Stephenson is a recognized industry expert with more than 25 years of vendor finance experience. Since 1987, he has served in a number of key senior positions within DLL and played an integral role in the emergence of DLL as a global market leader within the vendor finance and equipment leasing industry. Most recently, he was DLL’s Chief Commercial Officer and a member of the Executive Board, responsible for the overall activities of the Global Vendor Finance Business, which includes offices in over 35 countries within Europe, The Americas, Asia and Australia. Stephenson is a strong advocate of

CANADIAN EQUIPMENT FINANCE | November/December 2015 | canadianequipmentfinance.com

corporate social responsibility and a frequent speaker at industry assemblies throughout the world. In addition to his current position on the ELFA Board, Stephenson serves on ELFA’s Executive and Personnel Committees. He is a former member of ELFA’s Small Ticket Business Council Steering Committee, Audit Committee and Investment Committee and the Equipment Leasing & Finance Foundation’s Board of Trustees. He earned a Bachelor of Science degree in business from Florida State University and completed the Advanced Management Program at the Harvard Business School. The newly elected members of the ELFA board of directors include: ◉◉ William Besgen, vice-chairman, board of directors, Hitachi Capital America ◉◉ Michael Campbell, CEO, International Decision Systems ◉◉ Aylin Cankardes, president, Rockwell Financial Group ◉◉ Lori Frasier, senior vice-president of strategy and performance management, Key Equipment Finance ◉◉ David Gilmore, senior vice-president, region 4, worldwide financial services division, John Deere Financial ◉◉ Brian Holland, president and CFO, Fleet Advantage ◉◉ Gary LoMonaco, vice-president and treasurer, Forsythe/McArthur Associates The following individuals were elected by the membership to serve as ELFA vice-chairs: David Schaefer, CEO, Mintaka Financial; Jud Snyder, president, BMO Harris Equipment Finance; and Martha Ahlers, vice-president and COO, United Leasing. Robert Boyer, president, Susquehanna Commercial Finance, will serve as treasurer. Paul Stilp, ELFA’s vicepresident of finance and administration, continues to serve as secretary. Ralph Petta will serve as the president and CEO, effective Jan. 1, 2016, following the retirement of William G. Sutton, CAE, at the end of 2015. Robert Rinaldi, CEO, commercial industrial finance, is immediate past chairman.


News

Finance & leasing company performance to begin normalizing in 2016 Asset quality reversion, growing regulatory scrutiny and profitability pressures are among the challenges facing finance and leasing companies (FLCs) globally in the coming year, supporting Fitch Ratings’ negative sector outlook for 2016. The rating outlook for FLCs, however, is ‘stable’, reflecting steady funding and liquidity profiles, a modestly positive impact from rising interest rates, and manageable leverage levels following a period of de-levering post-crisis and a more measured approach moving forward. The 2016 finance and leasing company outlook report published today addresses FLC subsectors including auto loan/ lease, credit cards, student loans, consumer unsecured, mortgage

servicing, aircraft leasing, railcar leasing, truck rental and leasing, and commercial fleet leasing. Fitch recognizes that the market dynamics may vary by subsector and by region, but the report identifies major trends expected to affect all players in the coming year. Regulatory scrutiny and asset quality reversion are the top factors contributing to expected pressures on earnings for the next year. Consumer finance companies in particular are expected to begin to be challenged by asset quality deterioration, as Fitch expects U.S. auto lenders to continue to loosen underwriting standards as competition in the subsector heats up. Credit card issuers will also likely experience modestly

deteriorating asset quality, given loan growth, portfolio seasoning and potential increased debt service burdens in a rising rate environment. On the regulatory front, consumer finance companies are expected to continue to feel the most direct effects in 2016. The private student loan industry, for example, is a continual area of focus for policymakers. As marketplace lending activity increases, regulatory scrutiny of the business is expected to intensify, as evidenced by several European countries narrowing in on consumer lenders thus far in 2015. On the commercial finance side, the pressures are viewed as less acute, although residual value risk looms, particularly

for truck and commercial fleet leasing companies. A relative bright spot, however, is the aircraft leasing subsector, which will likely continue on its positive growth trajectory supported by increasing global air traffic, tailwinds from low fuel prices, strong lease rates and expected industry consolidation as more players have entered the space. Fitch anticipates that leverage metrics will remain stable across nearly all asset classes despite new origination activity and acquisitive growth opportunities, as expected earnings growth will support potential capital needs. Leverage metrics remain below pre-crisis levels given more conservative leverage policies post-crisis and the uneven economic recovery.

LEAS

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T EAM

canadianequipmentfinance.com | November/December 2015 | CANADIAN EQUIPMENT FINANCE

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News

Auto Captives Summit provides industry leaders with new direction and vision for the future White Clarke Group’s inaugural Auto Captives Summit was held on November 11th, 2015 and was attended by senior executives of the world’s largest auto finance captives who gathered to understand more about how they can navigate the emerging digital landscape of auto finance. In a powerful opening speech “Auto Finance - Digitally Remastered” described by Big Data Scientist Erki Kert as “one of the best technology overviews I have ever heard”, Brendan Gleeson, Executive Vice-President, White Clarke Group, outlines the key drivers backed by present day examples which are already beginning to

change the way our industry is doing business. Other highlights included: The Zero Dollar Car presented by John Ellis, Global Technologist and Former Head of the Connected Car Program at Ford in Chicago. Ellis explained that the reason why disruptors are becoming increasingly interested in the auto and auto finance industry is because the data from connected cars is valuable and can be monetized. Ellis suggested that the value of an average car purchaser’s data is about US$5,500 per annum. This revenue may be used to drive down the cost of cars – and might potentially disrupt the

auto finance industry in much the same way that Kodak was disrupted by the emergence of digital cameras. Next Generation Credit Decisioning presented by Big Data Scoring, showcased how non-credit agency data is being used by retail banks to either supplement credit decisions and improve riskpricing for the prime market; or as an alternative to agency data in global markets where data is absent, or unreliable, or for non-prime customers. Delegates were walked through a series of real life case studies which resulted in between 30—40 per cent improvement on traditional credit scoring techniques. Luc Truntzler from Inbenta describes how recent advances in artificial intelligence have enabled organizations to deploy technology that can learn to understand what information customers want, and to guide them efficiently through an automated process, using normal speech or written questions. This technology promises to revolutionize the customer experience while potentially driving down the cost to serve as computers replace call centre staff as the first line of response.

Meeting the Needs of the Millennials provided an in-depth and at times controversial look by Jonny Combe, General Manager, Product and Channel Development at BMW Group Financial Services on how manufacturers need to transform their current offerings to meet the needs of millennials (the next generation of auto finance customers). Experian’s Nick Mothershaw offered an insight into where the dangers really are for auto finance organizations taking their offerings online. Topics being explored included the “Darknet”, and the measures available to finance providers to keep their online interactions with customers safe. In a post-event survey amongst attendees, an incredible 100 per cent of delegates reported that the event was excellent, and suggested that the “provocative content and speakers” were the best part of a very enjoyable and thought-provoking event. As one participant said, “This event had all the high standards that are synonymous with White Clarke Group—with a depth and diversity of subject matter that was both thought provoking and action inspiring!”

For breaking news and in depth new features, visit our website at www. canadianequipmentfinance.com 8

CANADIAN EQUIPMENT FINANCE | July/August November/December 2015 | canadianequipmentfinance.com 2015 | canadianequipmentfinance.com


News

National Leasing launches mobile quoting technology National Leasing, part of the CWB Group of Companies, has announced the launch of National Leasing Interactive, an online quoting system that equipment sellers can use anywhere, anytime from their desktop or mobile device. This new way to quote financing rates means consumers are finding out exactly what it would cost to lease equipment for their business in seconds. Depending on the complexity of the transaction, this process can currently take hours, in some cases days. “We are thrilled to make history in the equipment financing sector by releasing National Leasing Interactive to equipment sellers across Canada,” says Tom Pundyk, president & CEO, National Leasing. “Now an agriculture equipment retailer will be able to tell a farmer exactly how much it will cost to finance everything from a skid steer to a grain bin in seconds. This is just one example of the kind of quoting technology that is now available to all sectors. “Today, consumers expect everything to be instantaneous,” says Pundyk. “National Leasing has always been known for quick turn-around times on funding decisions thanks to our proprietary software Fast CreditTM which previously won technology awards. Today, National Leasing Interactive shows we are passionate about delivering technology innovations and driving new mobile experiences for equipment sellers, which ultimately gets assets into the hands of business owners more quickly and helps Canadian businesses grow.”

As the roll out begins, equipment sellers are invited to visit nationalleasing.com/ interactive to sign-up for access or contact their local National Leasing Account Manager. National Leasing, Canada’s equipment financing experts, helps over 57,000 Canadian businesses secure the equipment they need

to help their business grow. We offer a full range of financing services to commercial, agriculture, construction, transportation, forestry, health care, golf and turf equipment sellers. Our 60 sales agents and a broker network across Canada are supported from our head office in Winnipeg, MB.

To send press announcements, please direct them to Karen Treml, Editor, at karen@canadianequipmentfinance.com

canadianequipmentfinance.com | November/December 2015 | CANADIAN EQUIPMENT FINANCE

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Market Report

Above and Below the Earth: Inside two key Canadian markets Agriculture

How Farm Health Drives Equipment Sales By Leigh Anderson

roductivity is a critical element of modern agriculture. Farm equipment plays a significant role in making Canadian agriculture competitive in world markets.

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How does farm health affect equipment pricing? Our latest FCC Ag Economics report, Farm Equipment Sales for 2015, shows an important relationship between farm equipment prices and the Canadian agricultural economy. Patterns in farm equipment purchases can help you predict the underlying health of agricultural markets. Our research shows farm cash receipts are a leading indicator of future farm equipment sales. When equipment prices go up, it’s a good indicator the agricultural economy is healthy. The report also provides sale projections of new farm equipment for the rest of 2015 as well as 2016 and 2017.

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11 per cent year-over-year through the first three quarters of 2015, led by a 29 per cent decline in 4WD tractor sales and a 20 per cent decline in combine sales. Small and mid-sized tractors, over 100 HP were down 18 per cent and those between 40 and 100 HP were down 13 per cent. Tractors under 40 HP performed the best in terms of sales but still declined during the first three quarters of 2015 at 6.5 per cent. This slowdown in farm equipment sales hasn’t come as a surprise. We predicted this trend a year ago in our FCC Economic Update: Top 5 Economic Drivers to Watch in 2015.

Will the farm equipment market improve? Overall, farm equipment sales are projected to remain weak in 2016 and 2017, with declines of 4.9 per cent in 2016 and 2.7 per cent in 2017. The moderate slowdown in 2017 comes from a recovery in farm cash receipts and GDP growth in Canada.

How did the farm equipment market perform in 2015?

Is recovery on the horizon for larger equipment?

New farm equipment sales declined

Sales for larger items such as 4WD

CANADIAN EQUIPMENT FINANCE | November/December 2015 | canadianequipmentfinance.com

tractors and combines are projected to recover in 2016. We predict sales for 4WD tractors will decline by 0.8 per cent in 2016, while combine sales will increase 3.9 per cent over 2015 volumes with improved crop receipts. The projected increases for 4WD and combine sales are 2.4 per cent and 4.1 per cent for 2017.

What does this mean for the agriculture industry? The slowdown in farm equipment sales in 2015, along with low growth in 2016 and 2017, must be taken in context of where sales have been. The farm equipment market has done extremely well in the past five years. Our projected recovery in 4WD tractors and combine sales indicate the agriculture industry remains healthy Producers are also making investments in farm equipment where payoffs are larger, which oftentimes involves purchasing used equipment. Profit margins in agriculture remain positive, but finding efficiencies is critical for farming operations to remain competitive. Leigh Anderson, Senior Agricultural Economist, Farm Credit Canada


Market Report

Mining

THE ISSUES

The Top 10 Issues Mining Companies Will Face in the Coming Year

Going Lean — Operational excellence remains front and centre

By Philip Hopwood

espite predictions and hidden hopes that the mining sector will imminently recover, the industry’s down cycle continues apace. Weak commodity prices, declining grades and a falloff in demand— particularly from China—are exacerbating capital shortages and impelling companies to cut back on their exploration spending. Yet regulatory mandates, tax burdens and stakeholder expectations remain as high as ever. As a result, miners find themselves caught between the proverbial rock and hard place, uncertain how to extricate themselves from the negative spiral. Although it may not feel like it, this down cycle—like the super cycle before it—will eventually come to an end. To position for the upswing, miners must be willing to ask tough questions and approach endemic market challenges without any preconceptions. By taking a new look at traditional operating assumptions—in areas ranging from labour negotiations, technology investments, portfolio diversification and stakeholder relations to fund raising, exploration, M&A and safety—miners can begin to reconceive themselves as the pioneers of the future rather than the bastions of the past. In many ways, the industry has come to a crossroads. On the one hand, opportunities still abound. As with previous down cycles, this one too will come to an end once the specter of commodity

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shortfalls becomes reality and demand once again outstrips supply. Forwardthinking companies are preparing for the eventual upswing by strengthening their operational excellence, improving productivity, embracing innovation and adopting transformative technologies. On the other hand, some changes seem enduring. China’s shifting economic realities could arguably alter global mining market dynamics for years to come. The changing global energy mix will slowly but surely impel miners to reconsider their asset portfolios. And the ever-expanding view of corporate and personal welfare will continue to drive miners to refine their safety programs and devise more effective stakeholder engagement strategies. Amid this mutable environment, miners are increasingly asking tough questions: Have the world’s demand factors for commodities irrevocably changed? Do we need new mining approaches? Is the traditional profit model shifting? Can we afford to take out more costs? Is our financing model broken? How can we reduce unsustainable debt levels? While not all these questions have answers, they need to be asked if miners hope to position for growth in what promises to be an altered future. The companies most likely to succeed are those that relentlessly seek to uncover best practices, reward innovation and take bold actions across the board.

◉◉ Despite the benefits realized by several years of cost reduction efforts, miners cannot afford to become complacent about cost control. ◉◉ In an effort to achieve true operational excellence, industry leaders are leveraging best practices from other industries and tackling difficult issues, including labor relations. ◉◉ Other strategies to unlock further gains include energy efficiency programs, the adoption of lean practices, investing in innovation (from automation and robotics to data analytics and materials processing), data integration, supply chain optimization, back office outsourcing, operating model review, improved capital allocation, working capital efficiency, greater collaboration and a focus on accountability/metrics.

The Capital Crisis — Starved of finance, miners struggle to survive ◉◉ With segments of the industry running at a loss, and rising industry debt burdens, attracting capital has become harder than ever. ◉◉ In response, companies continue to seek out alternative sources of financing—even when the terms aren’t entirely in their favor. ◉◉ This is driving some miners to become increasingly creative in their efforts to uncover new financing options. Strategies include partnering with Asian engineering, procurement and construction firms; commercializing dormant assets; pooling resources; pursuing debt reduction strategies; considering crowdfunding; and seeking government funding.

Taxing Times: Global tax reset challenges yesterday’s tax management ◉◉ In an effort to curb inappropriate tax management, the OECD and G20 introduced 15 base erosion and profit sharing (BEPS) action items that will fundamentally change the tax

canadianequipmentfinance.com | November/December 2015 | CANADIAN EQUIPMENT FINANCE

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Market Report implications associated with a range of business activities. ◉◉ For miners, this will likely translate into heightened scrutiny of their tax compliance, substance and transfer pricing policies. With a compliance deadline of December 31, 2016, miners have less than one year to prepare for these regulatory changes. ◉◉ To keep pace with the evolving tax environment, companies should take steps to understand the financial implications of these new tax rules, assess their operational and corporate structures, take a fresh look at their tax management and engage with government stakeholders—especially where tax rules related to stability or production agreements threaten to change.

The M&A Paradox: To buy or not to buy, that is the question ◉◉ Despite predictions of a pick-up in mining M&A, M&A deal values and volumes continue to disappoint. In fact, the most active deal flow in recent years has come from divestments and rescue-type deals. ◉◉ Ironically, now may actually be the ideal time for miners to be making acquisitions. With distressed assets hitting the market, and majors divesting, buyers could acquire uncontested assets. ◉◉ To take advantage of these opportunities, miners may want to consider buying counter-cyclically and thinking twice before divesting.

Innovation: Preparing for exponential change ◉◉ Although innovation has become a critical theme for miners, many mining companies remain at the early stage of the adoption curve—placing most of their innovation focus on technological optimization of old techniques rather than looking for new ways to configure and engage externally. ◉◉ To avoid falling behind, miners should aim to stay abreast of crosssectorial innovations that may affect the industry in the future—including advances in networks, machine learning, genomics, wearables and 12

Ironically, now may actually be the ideal time for miners to be making acquisitions. hybrid airships. ◉◉ Nearer-term strategies miners should consider adopting now include enhanced innovation, collaborative ecosystems, digital workforce engagement, improved asset management, aligning work processes with energy availability, 3D printing and modularization.

The New Normal: What goes down must come up ◉◉ Although commodity demand— particularly out of China—is down, production is not falling apace. In fact, some producers have ramped up output to reduce unit costs, consolidate market share or simply avoid the costs associated with shutting down older mines. ◉◉ Despite this excess supply, however, declines in exploration and project pipelines may ultimately lead to future supply shortages. That’s especially true as growing rates of urbanization, industrialization and infrastructure development push up global demand. ◉◉ To find a balance between current and future demand factors, miners should hone the ability to scale production, labor and other inputs and outputs up or down in response to shifting economic trends. They may also benefit from using modular designs, easing back on current production (where possible) and partnering with junior explorers.

Engagement Party: Changing the nature of stakeholder dialogues ◉◉ Despite the challenges facing the mining industry, stakeholder expectations continue to rise, making it harder for miners to reconcile the often competing needs of governments, local communities, non-governmental organizations, employees and regulators.

CANADIAN EQUIPMENT FINANCE | November/December 2015 | canadianequipmentfinance.com

◉◉ In the face of these challenges, one thing is certain: old tactics no longer work. Instead, a new form of stakeholder engagement is needed— one that can demonstrably meet the demands of multiple groups. ◉◉ To succeed at these efforts, miners should align their investments with the underlying needs of their disparate stakeholders, explore the benefits of social media, leverage data analytics and social listening tools, involve senior managers in stakeholder negotiations, hold dialogues across an entire mining cluster, help inform national mine strategies and be prepared to walk away from projects that no longer promise to deliver a solid business benefit.

Safe, secure and healthy—An expanded view of corporate and personal welfare ◉◉ Although miners have made great strides strengthening their safety programs with the use of data analytics, industry risks related to both safety and security continue to grow. This is partly due to an expanded definition of safety—which now encompasses both physical and mental health. ◉◉ To keep abreast of these changes, miners should be prepared to tackle new risks arising not only from flagging mental health statistics, but also from the risk of physical harm and the mounting threat of cyber attacks. ◉◉ To enhance their safety records and security postures, miners may want to strengthen their safety analytics, adopt more robust mental health policies, improve their security protocols, employ risk monitors, conduct risk assessments and improve crisis management. Philip Hopwood, Global Leader – Mining, Deloitte Touche Tohmatsu Limited


MARKET Report

ELFA Forecasts the Following Top 10 Equipment Acquisition Trends for 2016: U.S. investment in equipment and software will hit a new high, but moderate in growth as businesses hold back on spending. Business investment will reach a new all-time high level, but after a sustained period of increasing as a share of GDP, the equipment investment cycle has likely peaked. Manufacturing weakness, global uncertainty and low oil prices that have discouraged businesses from spending will further moderate investment growth rates.

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End of zero interest rate policy will spur other businesses, particularly small businesses, to invest before rates go higher. After the first short-term interest rate increase in nearly 10 years, look for the Federal Reserve to act gradually to make additional rate increases throughout the year. As a result, businesses that may have been hesitant about spending— particularly small firms—may be more inclined to pull the trigger to take advantage of still-low rates before they increase.

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The growth of equipment acquired through financing will increase solidly, but more slowly. In 2016, a projected $1.627 trillion will be invested in plant, equipment and software in the United States. Approximately 64 per cent or $1.049 trillion of that investment is expected to be financed through loans, leases and lines of credit. Despite large volume and a rising propensity to finance, the waning replacement cycle and businesses’ continued hesitancy to expand will slow the rate of growth.

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Businesses will begin preparing for new lease accounting rules. After many years of anticipating the new lease accounting standard and

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attendant uncertainty in the marketplace, companies will move forward and prepare to adopt it. Although the new standard will change how leases are accounted for on corporate balance sheets, it will not impact the ability of companies to acquire productive equipment to grow their businesses. The primary reasons to lease equipment will remain intact under the new rules, from maintaining cash flow, to preserving capital, to obtaining flexible financial solutions, to avoiding obsolescence. China’s economic woes will be a global concern. A sharp slowdown in China’s economy will be a threat to global growth this year. While the U.S. economy is somewhat insulated (only about seven per cent of U.S. exports are shipped to China), U.S. manufacturers will feel the impact of reduced demand in China as well as its trading partners (e.g. Russia and Japan) as their economies absorb the effects of China’s slowdown.

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Equipment investment will vary widely by industry vertical. Look for a handful of equipment verticals to account for weakness in business investment, and others to gain momentum. Among the underperforming equipment types are agriculture, mining and oilfield, railroad, industrial and materials handling equipment. Medical equipment, computers and software are strengthening and construction equipment should remain solid with an improving housing sector.

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Customer demand for greater flexibility and convenience will increase the use of non-standard financing agreements. Shifts in customer preferences for managed services

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(bundling equipment, services, supplies and software), pay-per-use leases and alternative financing will spur equipment finance companies to find innovative ways to fill the demand. These deals won’t replace standard leases, but will become a larger proportion of financings. Low oil prices will continue to impede energy investment. In 2016, global oil production will remain elevated due to factors including improved U.S. oil industry efficiency and increased supply from China, Argentina and Iran. The result is likely to be sustained low oil prices, which will continue to dampen energy equipment investment.

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Eyes will be on the 2016 U.S. presidential election for potential policy shifts. The potential outcomes of the 2016 presidential election and their related policy implications will give businesses new factors to weigh when making their equipment acquisition plans.

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Looming “wild cards” could influence business investment decisions. Additional factors could present headwinds to equipment investment in 2016. A low inventory of homes in a housing market poised for a breakout year could either cause construction investment to surge or push up home prices and deter would-be buyers. The stronger U.S. labour market could accelerate wage growth, which would cause consumer confidence and spending to rise, but may also spur inflation, which could encourage the Fed to raise interest rates faster than expected. Last, a threat of continuing terrorist attacks could present economic and policy implications that in the short and long term could divert capital spending resources.

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canadianequipmentfinance.com | November/December 2015 | CANADIAN EQUIPMENT FINANCE

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Regulatory

Bill 198: Navigating an Uncertain Landscape Amid court decisions – and reversals – what’s a corporation to do? By Cameron Rose

decade has passed since the passage of Bill 198, but the full impact on public corporations remains uncertain. Legal interpretation of the bill and its provincial equivalents is still unfolding, with some recent rulings favouring the plaintiffs… and others, the defendants. What is clear, however, is that defending claims can be a complex endeavor that demands highly specialized knowledge. How can corporations bring some certainty to this still-evolving legal landscape? Designed to protect investors, Bill 198 holds public companies, investment funds and other issuers – as well as their directors and some officers, influencers and experts – liable for providing continuous corporate disclosure in the secondary investment market. When the bill was introduced, a few Statutory Secondary Market or Bill 198 cases trickled in, and by 2008 litigation had reached a steady pace. According to NERA Economic Consulting, in 2014, 11 securities class actions were filed in Canada, 10 of which were Bill 198 claims. Since 2005, 64 of the 98 securities class actions filed have been Bill 198 claims. Roughly half of U.S. filings against Canadian companies have a corresponding claim in Canada. As of year-end 2014, 22 statutory secondary market cases had been settled, and the average settlement was $8.7 million. Behind those numbers lies a great deal of complexity.

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Defending a Bill 198 claim requires not only quality of expertise, but also quantity of resources. It’s entirely possible in large complex cases to have more than 30 different legal professionals involved from a single firm and up to six law firms working on a single case. Frequently, two to three firms can support a defendant, but more complex or multi-jurisdictional cases may have an even higher number. Adding to the costs, law firm annual hourly rates have risen significantly over the past decade. Average hourly rates have increased at all levels of the organization, ranging from senior partner to associate. Because specialized knowledge is critical to these complex areas of litigation, and claims frequency is elevated, costs will likely continue to rise.

Defining the leave threshold On the legal front, the courts are setting ground rules for securities class actions, but the implications for public companies are mixed. In order to proceed with a Bill 198 claim, a plaintiff class (as these matters have, for the most part, proceeded as class actions) must get leave of the court. The leave motions are generally heard in concert with the certification hearing. Thus far, there have been numerous cases in which leave to proceed has been granted and there are conflicting decisions by the lower courts regarding whether common law claims for negligent misrepresentation can be certified as well, thus expanding the potential exposure corporations face. In the good news column, the leave

CANADIAN EQUIPMENT FINANCE | November/December 2015 | canadianequipmentfinance.com

test for permitting secondary market class actions to move forward became more stringent. In April 2015, the Supreme Court dismissed a proposed class action against Theratechnologies Inc. of Montreal. In that decision, Justice Rosalie Silberman Abella noted that to demonstrate a “reasonable chance of success,” one of the two criteria under the leave test, a claimant must provide “a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim.” This decision has been heralded as providing a more robust test under the Quebec Securities Act. Looking ahead, we await the decision of the Supreme Court of Canada in a series of lower court cases referred to as the “Trilogy” (Green v. CIBC, Silver v. Imax and Millwrights v. Celestica) which will examine the similar leave test under the Ontario Securities Act. The outcome of the Supreme Court’s decision on these cases should bring greater clarity to the leave test.

Reducing the risks Fortunately, corporations have powerful tools at their disposal to help reduce the risk of a class action suit. Good governance can go a long way toward safeguarding both corporations and their shareholders. For instance: Due diligence. Directors are required by law to exercise the care of a “reasonably prudent person” regardless of the director’s qualifications. Directors and officers help demonstrate due diligence by possessing a deep knowledge of the company’s operations, strategy, and


Regulatory financial situation. It’s important for board members to understand the role of the board versus the role of management in strategic planning. Some boards take a more active role in strategy development than others. Questions are an important part of this process. What are the risks involved in the company’s direction? Is the strategic plan rigorously thought out? Are any changes advisable? Similar questions are vital in the event of a takeover proposal. What are the company’s current and future prospects, as well as the risks and rewards associated with a takeover? Engaging knowledgeable professionals, including investment bankers and lawyers, is key to assessing potential consequences of the transaction and of directors’ decisions, as well as helping to ensure compliance with the directors’ fiduciary duties. Decision making processes should be both rigorous and well documented. Communicate, communicate, communicate. Communication needs extend beyond the formal disclosures required by Bill 198. The media is full of cautionary tales about the need for a crisis communications plan that details the contact people and processes involved in the event of a lawsuit (as well as other crises). Communications teams should include corporate employees, legal counsel, and public relations professionals who are well versed in crisis communications. Consistent, proactive messaging is critical. Transfer the risk. With claims potentially running into the millions or tens of millions, directors and officers (D&O) insurance can be a valuable addition to the claim management process. A knowledgeable carrier will provide guidance and support on topics such as appropriate legal staffing, hourly rates and strategy for a claim. When you’re evaluating your insurance options, consider questions such as the following: ◉◉ How many securities class actions has the carrier settled in the past few years, and how much was paid out in settlement? ◉◉ How long has the carrier handled D&O claims in Canada? How much

experience does the company have handling cross-border claims? ◉◉ How will a claim be handled in the event of a securities class-action suit? ◉◉ How will the policy respond to other types of claims? ◉◉ Will directors’ and officers’ personal assets be covered? ◉◉ What type of protection is included if the company undergoes a merger?

The courts will continue to clarify the impacts of Bill 198, but corporations need not wait to reduce the uncertainty. A disciplined approach to managing and transferring risks can go a long way toward protecting the bottom line. Cameron Rose is a senior vice-president, Canadian zone underwriting officer with Chubb Specialty Insurance for Chubb Insurance Company of Canada in Toronto, and can be reached at crose@chubb.com.

canadianequipmentfinance.com | November/December 2015 | CANADIAN EQUIPMENT FINANCE

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your Business

Securing Your Company’s Success Five anchors to safeguard your enterprise’s crown jewels

By David Drury and Xerxes Cooper

aced with the pressures of a growing and rapidly changing landscape, executives from companies of all sizes and sectors must focus on their organization’s strategic priorities and hone the ability to adjust to the realities of uncertainty, volatility, and complexity. Companies exist in a new competitive horizon, where each day, approximately 2.5 quintillion bytes of data are generated. To put that in perspective, that’s more than 500 million DVDs worth every day. And about 90 per cent of today’s available data was created within the past two years. Adding to this perplexity is the fact

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that all that data now originates from diverse sources – with 80 per cent unstructured. Data is coming at us simultaneously from texts, tweets, blogs and YouTube videos to sensors, traffic cameras, and more. The point is, data must be managed at all times and it’s paramount to everything CFOs and executives do – now more than ever. So how do we keep it under control and better protect the data that is relevant to an organization’s health? There are a number of factors to consider, but the groundwork starts from strengthening your enterprise’s defenses. Preserving instrumental parts of the body is mandatory to surviving in a datadriven environment. Implementing the

CANADIAN EQUIPMENT FINANCE | November/December 2015 | canadianequipmentfinance.com

correct, most efficient cyber security is necessary to understanding the entire picture of your company’s current health. While this may not seem difficult to decipher, stats and recent cases reveal that more attention from top-level staff is required. The ‘2015 IDC Report: Determining How Much to Spend on Your IT Security’ states that Canadian companies currently spend, on average, 9.8 per cent of IT budget on IT security – while the ideal spend is actually 13.7 per cent of the IT budget. Cyber-attacks are growing – targeting our workplace and identifying new vulnerabilities as we speak. This year’s Ponemon Institute cost of data breach study revealed that in Canada, the average per capita cost of a breach is $250


your Business

IBM studies and research shows us that on average it takes companies eight to nine months before they detect a breach.

and the average total organizational cost is $5.32 million as a result of countless attacks compromising more than hundreds of millions of personal records. Globally, the average total cost of a data breach for the participating companies increased 23 per cent over the past two years to $3.79 million. These attacks include stealing and tampering with lucrative property, such as spreading malware and fraudulent emails to acquire sensitive information. However, in addition to the large financial losses that follow, equally as important is to recognize the negative impact these circumstances have on brand reputation. The same Ponemon study described 2014 as being “remembered for … highly

publicized mega breaches”. Last year, several companies suffered from major data breaches, leading to the release of confidential data and information of employees, their families, emails, salaries, and more. As a result of these breaches, a company’s credibility and practice come into question, and various parties involved are often subjected to threats, extortion, and humiliation. Even worse, multiple reports speculated these attacks took place months prior to being known. IBM studies and research shows us that on average it takes companies eight to nine months before they detect a breach. But, that’s only the tip of the iceberg. Numerous big-box stores were hacked last year, targeting millions of credit card numbers, information, and personal data. And more recently, frightening news of national security breaches are being reported, both from our neighbours and right here at home.

in the steps they take to appropriately manage risk. Quite frankly, identifying and establishing the proper security system prior to an attack is what makes the difference of a company that’s here to stay. Outlined are the five key steps every organization needs to achieve to reduce risk and harm from a data security breach:

So where does this all leave us?

2. Be responsive

Larry Ponemen, the founder of Ponemon Institute, positioned the wake-up call as “an enterprise-wide issue, not just a technology problem” – and that’s exactly what business leaders need to embody. Executives need to realize that risk with such a profound impact on a company requires more than just IT experts – it requires action from empowered decision-making staff as well. And that includes the office of finance. In today’s age, where brand reputation and customer loyalty is at the centre of every business, leaders must be diligent

The longer it takes to counter an attack, the more costly the outcome will be – that applies to both your company’s money and reputation. In essence, time allows the breach to progress and escalate the issue to greater heights. Immediate and impromptu responses for what appears to be spontaneous attacks also tend to require a hefty sum of money. The key to prevention is having a rigorous incident-response plan in place, and always monitor what is happening across your infrastructure.

1. Build a risk-aware community It takes the entire company to maintain a risk-aware culture – having only a couple of employees follow standard procedure isn’t enough to prevent a cyber intrusion. For Canada, 48 per cent of security incidents were attributed to the result of employee errors and internal system glitches, according to this year’s Ponemon Institute study. To prevent this from reoccurring, training and awareness programs on security measures must be established and available to everyone at work – including departments outside of IT such as sales, marketing and human resources.

canadianequipmentfinance.com | November/December 2015 | CANADIAN EQUIPMENT FINANCE

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your Business 3. Protect your devices Personal technology in the workforce has become a common preference for employees, with many latching on to Bring-Your-Own-Device (BYOD) programs – offering members the power to go beyond traditional workstations and use their own smartphones, tablets and other devices. That being said, these programs can often leave the company’s assets more vulnerable to outside activities. According to the IDC report, it’s striking how these new devices are not considered more strongly as points of security weakness. IBM personnel use Maas360 from Fiberlink, an IBM company, to identify, control, and secure all mobile devices accessing the enterprise. The system follows a containerization approach – ensuring corporate data and personal data remain separate. But reality is, even with the toughest BYOD technology solutions – your

company is still at a risk. Similar to the first recommendation, education is critical for your employees. Define which uses adhere to your company’s policy and clearly outline the business’ conduct guidelines.

4. Go for quality not quantity Proprietary data takes up a very small portion of your overall information – specifically less than two per cent – but it can represent as much as 70 per cent of your market value. This data includes trade secrets, intellectual property and confidential business plans and communications. That’s why overseeing quality content is crucial. As a leader, ensure your parties have fully identified the crown jewels of the company, then build a program to safeguard these assets. Data has become the new natural resource, so it’s imperative to keep your managers accountable and on-guard.

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CANADIAN EQUIPMENT FINANCE | November/December 2015 | canadianequipmentfinance.com

5. Use your resources A reoccurring theme in the digital age is this: data is growing quickly and exponentially. Therefore, using old methods to analyze data and predict a security breach has become a significant global concern. Organizations need to acknowledge the fact that sifting through data manually simply isn’t an option anymore. Previous cases have shown that by the time an attack has been identified, it’s already lodged itself deep into the system. Big data analytics tools have the ability to trace suspicious behaviour before the alarm goes off. Applying analytics to business data drives new insights and positive transformation in the organization. It provides automated, real-time intelligence and situational awareness about the state of security to help mitigate an attack. Integrated solutions help prevent highly sophisticated threats by implementing the right tools to protect and provide predictive analytics – all in a significantly decreased amount of investigation time. Studies have shown an influx of data breaches on a national and global scale – proving to be, not just an IT issue, but a challenge that affects all parties. Regardless of whether it’s driven by social, political or personal motives, cyber threats are evolving, and therefore C-level staff especially need to raise awareness across the board. This is what needs to happen for executives to leverage their resources, make more strategic decisions and gain competitive edge in the 21st century. Prepare your enterprise with the correct utilities and exemplary practices – strong security practices are pivotal to ensure the longest survival and future growth. David Drury is the General Manager for IBM Global Technology Services in Canada. Over his 31-year career with IBM, Drury has taken on leadership roles as a Systems Engineer, a Client Director and the Vice President for Financial Services. Drury also serves on the board of directors for the Ontario Research and Innovation Optical Network (ORION), the Foundation Fighting Blindness, and as chair of the Board of Governors, Junior Achievement of Central Ontario. Drury’s focus is on advancing the role of IT for his clients’ organization, using emerging technological solutions and collaborative leadership.

Xerxes Cooper is the Chief Financial Officer for IBM Canada. Prior to taking on the role, he’s served as Director of Finance for Software Group, Controller for Global SWG Services and Controller for Global GTS Consolidations in the U.S. Xerxes has extensive experience in pricing consolidations, planning and delivery across many business lines, along with his collaborative style and creative mind.


2016 ISSUES & EDITORIAL THEMES Issue  January-February Industry Report

Kick off the year with our Industry Report, which provides insights on the state of the leasing and financing market in Canada and across North America. We feature contributions from industry and association leaders who provide exclusive, personal viewpoints that our readers will use to shape their planning and strategy for 2015 and beyond. EDITORIAL DEADLINE: February 12th

Issue  March-April Lending Report

The Lending Report is where our readers will get the word on the availability of capital from each of the significant sectors which provide funding—leasing companies, bank subsidiaries, credit unions, captives, third party and independent lenders. EDITORIAL DEADLINE: April 1st

Issue  May-June Technology Report

There’s two ways that our Technology Report helps our readers manage their key software, systems and hardware decisions. We look at a range of key IT developments which companies are managing while taking the plunge to upgrade, enhance and expand their IT operations. Readers will read exclusive articles that show the way to best practices in cloud computing, analytics, and more. EDITORIAL DEADLINE: May 13th

Issue  July-August Services Report

This issue is our Services Report, which looks at Remarketing, Aftermarket, Appraisals and Auctions. Readers will learn what they need to know to take full advantage of the offerings and opportunities in these key services. We feature contributions from the leaders of each area to provide advice on strategy, tactics and processes. EDITORIAL DEADLINE: July 29th

Issue  September-October Legal Report

Our Legal Report, which provides an extensive report on the legislation, statutes, law and ongoing government changes in Canada and across North America. We feature contributions from a wide range of legal experts who provide exclusive, fully vetted opinions that our readers will use to shape their deals, contracts, agreements and structure for 2015 and beyond. EDITORIAL DEADLINE: August 26th

Issue  November-December Market Report

With a new year on the horizon, our Market Report includes our convention issue and detailed industry forecasts. The issue focuses on hard decisions affecting our readers’ ability to fund their projects. Also features a series of industry leader interviews in a one-on-one format. EDITORIAL DEADLINE: October 7th

Plus…

Each issue includes Regular Editorial Columns which look at funding sources …business management…real world case studies…vertical market insights …technological developments…major news stories…events and more.

Call us to learn more about how to leverage these editorial opportunities with Advertising, Online Campaigns, Editorial Roundtables, and more. Phone: 905-201-6600 • Toll Free: 1-800-668-1838 • www.canadianequipmentfinance.com


EVENTS

WHERE TO GO. WHAT TO SEE. Find out more about the conferences, exhibitions, seminars and meetings in your industry

2015 November TBA Comexposium CARTES & Identification Exhibition 2016 Paris, FR www.cartes.com

2016 February 21-22 Equipment Leasing & Finance Association ELFA Equipment Management Conference Scottsdale, AZ www.elfaonline.org

February 28-March 2 IMN (Information Management Network) ABS Vegas 2015 Last Vegas, NV www.imn.org

March TBA National Heavy Equipment Show (NHES) Toronto, ON www.nhes.ca

March 2-4 National Equipment Finance Association NEFA 2016 National Equipment Finance Summit New Orleans, LA www.nefassociation.org

March 6-8 Equipment Leasing & Finance Association ELFA Executive Roundtable Coral Gables, FL www.elfaonline.org

March 22

May 12-13

Equipment Leasing & Finance Association 14th Annual IMN/ELFA Investors Conference New York, NY www.elfaonline.org

FC Business Intelligence Analytics for Insurance Canada Summit Toronto, ON www.fc-bi.com

March 29-31 20TH Annual AFSA Vehicle Finance Conference & Exposition Las Vegas, NV www.vehiclefinanceconference.com

April 13-16 Factoring Association 22nd Annual Factoring Conference Scottsdale, AZ www.factoring.org

April 19-21 Equipment Leasing & Finance Association National Funding Conference Chicago, IL www.elfaonline.org

April 28-30 Nat’l Assoc of Equip Leasing Brokers NAELB 2016 Annual Conference Las Vegas, NV www.naelb.org

May 1-3 Equipment Leasing & Finance Association ELFA Legal Forum San Francisco, CA www.elfaonline.org

May 4-6 Equipment Leasing & Finance Association Public Sector Finance Forum Charlotte, NC www.elfaonline.org

May 18-19 Equipment Leasing & Finance Association ELFA Capitol Connections Washington, D.C. www.elfaonline.org

June 5-7 Equipment Leasing & Finance Association ELFA Credit & Collections Management Conference Denver, CO www.elfaonline.org

September 12-14 Equipment Leasing & Finance Association ELFA Operations & Technology Conference Baltimore, MD www.elfaonline.org

September 12-14 Equipment Leasing & Finance Association Lease & Finance Accountants Conference Baltimore, MD www.elfaonline.org

September TBA Canadian Finance & Leasing Association CLFA Annual Conference 2016 Gatineau, QC www.cfla-acfl.ca

October 23-25 Equipment Leasing & Finance Association ELFA 55th Annual Convention Palm Desert, CA www.elfaonline.org

Visit us online www.canadianequipmentfinance.com/events.html 20

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MANAGEMENT STRATEGY

How is Your Digital IQ for 2016? ccording to PwC’s 2015 Digital IQ Survey report, Canadian companies continue to grow investments in digital technology in order to drive greater business value. In fact, nearly half of Canadian companies surveyed (44 per cent) allocate more than 15 per cent of revenue to digital investments. In this year’s report PwC identified 10 critical behaviors or themes common amongst companies with high Digital IQ scores that are correlated with strong revenue growth. Companies responding to the Digital IQ survey with the highest scores across the 10 behaviours are 50 per cent more likely to achieve rapid revenue growth and twice as likely to achieve rapid profit growth when compared to the remaining Digital IQ respondents. “Digital encompasses a broad set of trends and capabilities that are challenging Canadian organizations to innovate. A growing number of them are skillfully using digital technology to shift not only customer expectations but also entire business models,” said Philip Grosch, Partner and National Digital Services Leader, PwC Canada. “Digital has already had a profound impact on the way we use data to create insights and on the way technology is deployed by the enterprise in the age of Cloud. Organizations need to weave these realities into all aspects of their business—their strategy, structure, how they engage with employees and customers and how they innovate and deploy new technologies.” Although lower than the global number, 65 per cent of Canadian CEOs (compared to 73 per cent globally) are seen to be the champions of digital. Leaders are also seeking more strategic value from digital investments, with 45 per cent stating that their number one expectation from these investments is revenue growth, followed

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by 25 per cent seeking better customer experiences and 12 per cent aiming for improved profitability. Further solidifying the correlation companies are seeing between digital and business success, 31 per cent of global respondents stated they are investing more than 15 per cent of revenue into digital investments. Based on the latest survey, PwC identified the following 10 behaviors linked to stronger financial performance amongst Canadian companies: CEO champion

Less than three quarters (65 per cent) of business leaders in Canada point to their respective CEOs as champions for digital, as opposed to 73 per cent globally. Digital leaders set strategy

82 per cent of companies in Canada say that executives responsible for digital are involved in setting high-level business strategy compared to 77 per cent globally. Executive team engagement

79 per cent of respondents in Canada say their digital strategy is agreed upon and shared with its executive team, in line with 80 per cent globally. Cross-functional strategy sharing

Business-aligned digital strategy is agreed upon and shared enterprise wide at 71 per cent of companies in Canada compared to 69 per cent globally. Improve market competitiveness

engage with external sources to gather new ideas for applying emerging technologies compared to 64 per cent globally. Effective use of data

More than three quarters (78 per cent) of companies in Canada say they effectively utilize all the data they capture to drive business value compared with only 58 per cent globally. Defensive cybersecurity

A majority (83 per cent) of companies in Canada say they proactively evaluate and plan for security and privacy risks as part of digital enterprise projects compared to 76 per cent globally. Digital roadmap

More than half (64 per cent) of companies in Canada say they have a single, multi-year digital enterprise roadmap that includes business capabilities and processes as well as digital and IT components compared to 53 per cent globally.

More than three quarters (80 per cent) of respondents in Canada make enterprise investments in digital primarily for competitive advantage, more than the 76 per cent globally.

Consistent measurement

“Outside in” approach

The full 2015 Digital IQ report can be found here: www.pwc.com/ca/digitaliq.

68 per cent of companies in Canada actively

CANADIAN EQUIPMENT FINANCE | November/December 2015 | canadianequipmentfinance.com

A large majority of respondents in Canada (86 per cent) say they consistently measure outcomes from digital investments, versus 72 per cent globally.


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2016 Great rates. Brilliant results. Contact for rates and information Mark Henry, Corporate Sales Manager mark@canadianequipmentfinance.com 905-201-6600 x223

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Can you help our readers: • Create a strong financial structure and healthy economic ecosystem to ensure capital and cash flow keep their engines running? • Determine who their customers should be, how they can reach them most effectively, and how they can turn data-driven marketing into profitable sales? • Build efficient and effective financial systems to enhance payments and billings between their companies and their customers and vendors? • Convert all the data and information they collect from every contact point into tangible benefits that increase revenue and reduce costs? • Equip their companies with the tools, technology, systems and hardware needed to manage their operations, to create new services or products, and deliver them to their market? • Manage their customers with smoothly functioning support departments that are properly staffed and equipped to solve problems, foster loyalty and retain customers? • Make any or every step in that chain better, faster, cheaper, and more profitable?

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Canadian Equipment Finance Magazine Nov/Dec 2015  
Canadian Equipment Finance Magazine Nov/Dec 2015