Canadian Equipment Finance Magazine Spring 2018

Spring 2018 • volume 6 • issue 1 | www.canadianequipmentfinance.com

Non-residential construction, infrastructure drive growth

FEATURE: CWB Financial Group acquires ECN Capital’s C&V assets YOUR BUSINESS: Holistic ID verification to prevent fraud MANAGEMENT STRATEGY: Digitization opportunities and challenges

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contents Spring 2018 Volume 6 Number 1 Publisher and Editor-in-Chief Steve Lloyd steve@canadianequipmentfinance.com Editor Brendan Read brendan@canadianequipmentfinance.com Creative Direction / Production Jennifer O’Neill jennifer@canadianequipmentfinance.com

Cover

Photographer Gary Tannyan

Non-residential construction, equipment, machinery, infrastructure investments drive growth

Advertising Sales Mark Henry mark@canadianequipmentfinance.com Robert Fisher robert@canadianequipmentfinance.com

NEWS »4

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CWB Financial Group acquires ECN Capital’s C&V assets CWB strengthens its national presence, particularly in Ontario »16

Canadian market returning to growth »8 Canadian machinery, equipment spending to rise »10

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New transportation projects to roll »13 Federal, B.C. governments sign infrastructure funding agreement

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Alfa report: digitization opportunities and challenges Asset finance companies see the benefits of digitization »21

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News

U.S. equipment and software investment to strengthen: report After solid growth in 2017, U.S. investment in equipment and software will likely continue to strengthen in 2018. It is projected to expand 8.5 per cent (down slightly from 9.1 per cent in the Economic Outlook published in December) according to the Q2 update to the 2018 Equipment Leasing & Finance U.S. Economic Outlook released April 11 by the Equipment Leasing & Finance Foundation.

Business investment is expected to expand robustly, and stable credit conditions should foster an environment conducive to growth. Overall, the economy is expected to grow 2.7 per cent in 2018 (unchanged from the previous Outlook).

The quarterly report by the Foundation, which is focused on the $1 trillion equipment leasing and finance sector, highlights key trends in equipment investment and places them in the context of the broader U.S. economic climate.

“Business conditions continue to be favorable and are forecasted to be strong throughout 2018. As businesses implement their capital expenditure strategies in regard to tax reform, many equipment finance organizations are expecting the remainder of 2018 to expand the funding of

transactions,” said Jeffry D. Elliott, Foundation chairman and senior managing director of Huntington Equipment Finance.

Highlights from the study include: ◉◉ 2018 capital spending should remain on solid footing despite a slight increase in financial stress. Credit market conditions generally remain healthy, though private sector loan growth has moderated in recent months. This is in part due to rising interest rates and increased cash flow from tax reform that have combined to push some businesses toward cash financing; ◉◉ Overall, the economy should grow at a relatively steady pace over the course of the year, despite what appears to be a softer-thananticipated first quarter. The labor market will continue to firm and should result in increased consumer spending, while business investment will likely be a major bright spot in the coming year as tax cuts and a lighter regulatory touch encourage capex; and ◉◉ Sustained economic growth and an increasingly tight labor market are also anticipated and will continue

to put upward pressure on inflation, leading the Federal Reserve to lift its benchmark interest rate three more times in 2018, for a total of four rate hikes over the year.

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report, tracks 12 equipment and software investment verticals. In addition, the “Momentum Monitor Sector Matrix” provides a customized data visualization of current values of each of the 12 verticals based on recent momentum and historical strength.

Overall, investment in most equipment verticals should remain solid in 2018. Over the next three to six months: ◉◉ Agriculture machinery investment growth may slow somewhat; ◉◉ Construction machinery investment growth should remain strong; ◉◉ Materials handling equipment investment growth should remain solid; ◉◉ All other industrial equipment investment growth may decelerate; ◉◉ Medical equipment investment growth may have peaked and is likely to decline;

To send press announcements, please direct them to Brendan Read, Editor, at brendan@canadianequipmentfinance.com

4

CANADIAN EQUIPMENT FINANCE | Spring 2018 | canadianequipmentfinance.com

◉◉ Mining and oilfield machinery investment growth may weaken but remain positive; ◉◉ Aircraft investment growth may soften; ◉◉ Ships and boats investment growth is expected to decline; ◉◉ Railroad equipment investment growth may decline modestly; ◉◉ Truck investment growth is expected to remain positive; ◉◉ Computer investment growth should remain solid, and; ◉◉ Software investment growth should remain steady.

The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economic and public policy consulting firm Keybridge Research LLC. The annual economic forecast provides a three-tosix-month outlook for industry investment with data, including a summary of investment trends in key equipment markets, credit market conditions, the U.S. macroeconomic outlook, and key economic indicators.

The Q2 report is the first update to the 2018 Annual Outlook and will be followed by two more quarterly updates prior to the publication of the 2019 Annual Outlook in December.

News

Chorus Aviation reports strong 2017, 2018 momentum Chorus Aviation announced solid year-end and fourth quarter financial results for the fiscal year ended December 31, 2017 that bodes well for its growth plans.

The company reported an annual 2017 net income of C$166.3 million: an increase of C$54.6 million over its 2016 annual net income. It recorded a Q4 2017 net income of C$19.7 million: an increase of C$7.1 million from Q4 2016.

The Chorus group of companies accomplished several strategic initiatives in support of its corporate objectives to grow and diversify the business and improve its cost competitiveness.

Highlights of 2017 included: Regional aircraft leasing By the end of 2017, Chorus Aviation Capital (CAC) completed the acquisition of 21 aircraft and leased them to brand name regional carriers based in eight countries on six continents. These aircraft have an average age of less than three years and have an average leasing term greater than seven years.

Together with the 43 aircraft leased under the Capacity Purchase Agreement (CPA) with Air Canada, Chorus’ leased fleet of 64 aircraft is worth over C$1 billion.

To date CAC has acquired:

◉◉ Four CRJ1000s leased to Air Nostrum; ◉◉ Three ATR 72-600s leased to Flybe; ◉◉ Three ATR 72-600s leased to Virgin Australia; ◉◉ Three Bombardier Q400s leased to Falcon Aviation Services; ◉◉ One Embraer 190 leased to KLM Cityhopper; ◉◉ Three Embraer 190s leased to Aeromexico Connect; ◉◉ Two Embraer 195s leased to Azul Brazilian Airlines; and ◉◉ Two Q400 aircraft leased to Ethiopian Airlines.

Aircraft leasing under the CPA increased by C$16.9 million or 17.1 per cent with the addition

of five new CRJ900s, five Q400s and four Dash 8-300s (post completion of an extended service program or ESP).

Contract flying ◉◉ Operated over 230,000 Air Canada Express flights carrying just under 11 million passengers on behalf of Air Canada; ◉◉ Commenced new contract flying missions in Sweden, Denmark and Aruba; ◉◉ Transitioned a significant portion of the workforce to new industry competitive wage scales; currently 52 per cent of Jazz pilots are operating under the new collective agreement, and;

LEAS

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T EAM

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News ◉◉ Added 10 efficient aircraft (five CRJ900s, five Q400s) and removed six less efficient aircraft (three CRJ200s, three Dash 8-100s). Available seat miles increased by approximately 3 per cent over 2016.

Maintenance and repair organization (MRO) ◉◉ Completed the world’s first ESP on a Dash 8-300 aircraft.

The ESP extends the life of the aircraft by approximately 15 years. Four ESPs were conducted and a minimum of 12 additional aircraft are scheduled to undergo the program by the end of 2019; ◉◉ Became an Authorized Service Facility for Bombardier Commercial Aircraft at the MRO base in Halifax; ◉◉ Executed on third-party maintenance contracts and increased the number of heavy maintenance lines at the Halifax facility from three to five lines; ◉◉ Engineered a Supplemental Type Certificate and converted two former Jazz Dash 8-100 aircraft to Package Freighters and leased them to a third party.

This conversion was the first of its kind with a Dash 8-100; ◉◉ Parted out seven aircraft to support strong market demand for part sales; and ◉◉ Demonstrated strong technical capabilities through maintenance and engineering contracts including inflight entertainment and wireless GOGO installations, cabin seat reconfigurations of CRJ705 and Q400 aircraft, and the refurbishment of certain aircraft interiors.

2018 plans Chorus said it intends to continue growing its regional 6

Joe Randell, president and chief executive officer, Chorus.

aircraft leasing business through CAC by leveraging the proceeds from the private placement of convertible debt units to acquire aircraft for lease to regional aircraft operators.

CAC has invested approximately 70 per cent of that capital to date. It intends to deploy the balance by mid-2018 leveraging the remaining capital with further debt financing at a ratio ranging between three and four to one, to acquire new to mid-life regional aircraft for lease. Chorus is currently

CANADIAN EQUIPMENT FINANCE | Spring 2018 | canadianequipmentfinance.com

examining options for future financing arrangements to sustain the growth in the leasing business.

“I’m very pleased with the significant progress made in 2017 towards our vision of delivering regional aviation to the world,” said Joe Randell, president and chief executive officer, Chorus. “The successful launch of Chorus Aviation Capital and its rapid build to a global business has propelled the value of Chorus’ portfolio of leased aircraft to over one billion dollars and

demonstrated the strength of our growth and diversification strategy.

“We have been methodical and deliberate in deploying the $200 million gross proceeds from our convertible debt unit financing with Fairfax Financial.

Within a relatively short period of time we’ve concluded leasing agreements with eight wellestablished regional carriers in eight countries located on six continents. We have strong momentum.”

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Market Report

Canadian market returning to growth: World Leasing Yearbook

he asset-based Canadian equipment finance market appears to have turned around, at least for now.

New business increased by 2.7 per cent to C$33.8 billion in 2017 from C$32.4 billion in 2016, according to the World Leasing Yearbook 2018 (WLY 2018), published by Capital Markets Intelligence. It had dropped by 8.4 per cent in 2016, from C$35.4 billion in 2015.

There have also been signs of a rebound in the machinery and equipment market.

WLY 2018 reported a nearly 3 per cent spending increase in the first half 2017 over the same period in 2016, compared with an anticipated 3 per cent decline.

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Public and private spending on new machinery and equipment

CANADIAN EQUIPMENT FINANCE | Spring 2018 | canadianequipmentfinance.com

Spending (C$m)

% Growth

2017 F

2016

2017 F

2016

Canada Atlantic Provinces Quebec Ontario Manitoba Saskatchewan Alberta British Columbia

78,927 3,911 13,214 29,702 3,057 4,701 14,460 9,488

81,054 4,366 12,878 29,291 3,143 4,856 16,145 9,879

-2.6% -10.4% 2.6% 1.4% -2.7% -3.2% -10.4% -4.0%

-1.5% -4.7% 6.1% -1.1% -12.2% -14.1% -8.7% 16.4%

Source: Statistics Canada, Cansim matrix 029-0045 - via World Leasing Yearbook 2018

Market Report Financing shows turnaround, for now

Asset-based finance market in Canada: Equipment and commercial vehicles

2017 F

New business (C$m) 33,274 % change 2.7% Finance assets (C$m) % change Finance penetration rate 42%

2016 32,397 -8.4% 113,325 0.8% 40%

2015 35,367 -0.4% 112,479 4.7% 43%

Source: Canadian Finance and Leasing Association - via World Leasing Yearbook 2018

New business finance by credit instrument and source in 2016 Value (C$m) Share Equipment and commercial vehicle finance by credit instrument Lease 11,647 Secured loan 6,735 Line of credit 9,197 Credit card 4,817

36% 21% 28% 15%

Equipment and commercial vehicle finance by source Banks 13,981 Independent finance companies 7,342 Manufacturers’ captive finance companies 6,820 Other finance companies 4,253

43% 23% 21% 13%

Source: Canadian Finance and Leasing Association - via World Leasing Yearbook 2018

Economy driving rebound The WLY 2018 report, drawing from Canadian Finance and Leasing Association (CFLA) and Statistics Canada data, pointed to stronger overall economic growth in 2017. Public sector infrastructure projects are driving the equipment market, offsetting the weak mining and oil and gas extraction sector and weakening wholesale and retail trade sectors.

But how long will the equipment finance market growth will last remains in question. The WLY 2018 reports that the Canadian economy was expected to expand by 2.8 per cent in 2017, but that increase is projected to slow to 1.9 per cent in 2018.

There also does not appear to be any lasting turnaround in sight for the machinery and equipment segment, which

has been hobbled by low commodity prices. Its fall of 15.9 per cent in 2016 from 2015 was responsible for the total market decline in 2016. A 6.4 per cent increase in the fleet vehicle market was not enough to compensate for the loss.

“The low commodity price environment led to a sharp decline in the value of the Canadian dollar which helped fuel the rapid economic growth reported in the first half of 2017,” said the WLY. “Recent increases in interest rates and the Canadian dollar will, however, likely dampen some of that enthusiasm over the next few quarters. The value of the Canadian dollar, however, remains vulnerable—both on the up and the down side—to external shocks in commodity prices, US public policy and other global events.”

The financing share of the Canadian equipment and vehicle markets are, at the same time, expected to also turn around.

The WLY 2018 projects that it will have grown to 42 per cent in 2017 from 40 per cent in 2016; it had been 43 per cent in 2015. Statistics Canada’s current estimate for spending on new machinery and equipment in 2017 is now $80.6 billion, $1.6 billion higher than its 2016 estimate.

If machinery and equipment spending remains stronger than expected in the Statistics Canada survey, then the rebound in the finance penetration rate in 2017 “is likely to be much smaller or it could be even lower than the estimated rate for 2016,” the report pointed out.

Here’s why: the CFLA’s industry activity estimate is a dollar figure ($33.3 billion) that is derived independently from Statistics Canada’s survey, Robin Somerville, director, The according to Canadian chapter Centre for Spatial Economics. report author Robin Somerville, director, The Centre for Spatial Economics.

As a result the $1.6 billion increase in spending lowers the market penetration rate for 2017 to 41 per cent from the 42 per cent figure reported in the WLY article.

It is also worth noting, Somerville added, that a $1.6 billion downward revision to Statistics Canada’s estimate of spending in 2016 raised the penetration rate for that year to 41 per cent from the previous 40 percent estimate.

Of the financial instruments leasing continues its rise. The WLY 2018 report projects that it will have reached an estimated 38 per cent in 2017 from 34 per cent in 2015 and 31 per cent in 2013.

“Leasing’s gain in market share has come at the expense of credit card purchases,” said Somerville. “Funding shares for secured loans and lines of credit have been relatively stable over the period.”

For more information visit the World Leasing Yearbook www.world-leasing-yearbook.com.

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Market Report

Canadian machinery, equipment spending to rise: Statistics Canada tatistics Canada reported February 28 that it anticipates public and private nonresidential construction and machinery equipment expenditures to increase 0.8 per cent to $238.7 billion in 2018 (see chart below).

This is down from a 3 per cent increase in 2017. Statistics Canada anticipates that machinery and equipment capital spending will grow by $2.8 billion (3.5 per

S

cent) from 2017 to $83.4 billion in 2018 (see chart page 11). But it expects that capital construction spending is anticipated to decline 0.6 percent in 2018 to $155.3 billion.

to $32.4 billion in 2018. Higher and machinery and equipment (+9.2 per cent) investment and non-residential construction (+5.9 per cent) intentions are driving the growth.

Total capital expenditures will increase across all levels of public administration. This includes federal, provincial and territorial and local, municipal and regional.

Higher public sector investments Statistics Canada anticipates that public administration sector capital expenditures will increase 6.5 percent

Capital spending on non-residential tangible assets, industrial sectors 2015

2016

2017

2018

2017 to 2018

millions of dollars

millions of dollars

millions of dollars

millions of dollars

% change

Total, non-residential construction and machinery and equipment

251,337.7

229,952.3

236,753.7

238,645.3

0.8

Total, private capital expenditures

173,351.9

153,922.4

150,120.7

148,428.2

-1.1

Total, public capital expenditures

77,985.7

76,029.9

86,633.0

90,217.1

4.1

6,620.0 63,810.6 31,524.4 6,084.4 18,693.9 3,713.1 6,157.6E 29,501.1 11,182.0 4,656.9 10,200.2 2,795.0 244.9 1,911.4E

6,341.4 48,202.2 30,823.2 5,890.2 16,491.4 3,469.7 6,444.7 27,775.4 11,487.7 3,601.1 12,745.1 2,810.2 418.7 1,545.7

6,457.9 46,957.6 32,222.4 6,245.7 15,022.0 3,423.8 6,237.3 30,206.0 11,554.0 3,940.8 12,830.7 2,609.3 480.2 1,589.2

6,350.5 43,482.3 32,285.6 6,250.1 15,951.3 3,403.7 6,510.1 30,628.9 11,742.3 3,943.5 14,097.2 2,442.6 417.1 1,926.5E

-1.7 -7.4 0.2 0.1 6.2 -0.6 4.4 1.4 1.6 0.1 9.9 -6.4 -13.1 21.2

8,735.5 9,202.2 2,216.8 4,526.7 1,326.9E 28,233.9

9,519.3 8,363.8 2,586.0 4,051.7 1,238.2 26,146.5

11,309.7 8,491.4 2,386.7 3,426.6 972.0 30,390.4

11,684.8 8,337.3 2,463.2 3,367.2 995.2 32,365.9

3.3 -1.8 3.2 -1.7 2.4 6.5

Industrial sectors Agriculture, forestry, fishing and hunting Mining, quarrying, and oil and gas extraction Utilities Construction Manufacturing Wholesale trade Retail trade Transportation and warehousing Information and cultural industries Finance and insurance Real estate and rental and leasing Professional, scientific and technical services Management of companies and enterprises Administration, support waste management and remedial service Educational services Health care and social assistance Arts, entertainment and recreation Accommodation and food services Other services (except public administration) Public administration E use with caution Note(s): Data may not add up to totals as a result of rounding.

Source(s): CANSIM tables 029-0045 and 029-0047.

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CANADIAN EQUIPMENT FINANCE | Spring 2018 | canadianequipmentfinance.com

Market Report Capital spending on machinery and equipment, provinces and territories 2018 (millions of dollars) plus 2017 to 2018 % change

Canada 83,372.4 3.5% Yukon 211.9 59.8%

British Columbia 11,295.7 8.0%

Northwest Territories 184.3 -20.3%

Nunavut 292.9 67.4%

Alberta 13,795.6 -0.2% Saskatchewan 4,296.9 -6.2%

Newfoundland and Labrador 1,027.9 -3.8%

Manitoba 2,757.0 -4.1%

Quebec 14,608.4 6.1%

Ontario 31,330.2 4.9%

Nova Scotia New Brunswick 1,841.7 0.7% 1,452.9

Note(s): Data may not add up to totals as a result of rounding.

Source(s): CANSIM table 029-0045.

Ontario to drive spending growth Statistics Canada reported that nonresidential construction and machinery and equipment are anticipated to increase in five provinces and two territories in 2018. Here are the highlights: ◉◉ A projected widespread 7.8 per cent spending growth in Ontario, to $73.9 billion, driven by anticipated increases in the utilities, public administration and educational services sectors; ◉◉ Spending in Quebec is expected to rise 5.1 per cent to $37.7 billion: the fourth consecutive annual increase according to the agency. The real estate rental

Prince Edward Island 277.0 -0.8%

0.3%

and leasing, public administration and mining, quarrying and oil and gas extraction sectors are the main growth contributors. However utilities sector spending is expected to fall sharply, by -12.5 per cent; and ◉◉ In British Columbia, capital spending is anticipated to rise by 1.2 per cent to $32.2 billion. Declines in the mining, quarrying and oil and gas extraction and educational services sectors are expected to be more than offset by growth in other sectors, notably in utilities, manufacturing, real estate and rental and leasing.

Alberta, Newfoundland and Labrador spending may decline Some parts of the country will see less capital spending, according to the agency. Statistics Canada anticipates that Alberta and Newfoundland and Labrador are anticipating the largest capital spending declines in 2018: by -$3.0 billion to $54.1 billion and -$2.4 billion to $6.2 billion respectively.

The Statistics Canada report pointed to expected lower spending in the oil and gas extraction subsector and the utilities sector in both provinces. There would also notable declines in the educational

canadianequipmentfinance.com | Spring 2018 | CANADIAN EQUIPMENT FINANCE

11

Market Report services and the transportation and warehousing sectors in Alberta.

Sector capital spending increases Real estate and rental and leasing sector capital spending is projected to rise by 9.9 per cent to $14.1 billion in 2018, mainly prompted by increases in Quebec and Ontario.

Moreover, manufacturing sector firms expect to increase their capital spending by 6.2 per cent to $16 billion in 2018.

The growth is being led, said Statistics Canada, by higher spending in Alberta by petroleum and coal product companies (+$327 million to $601 million) and by chemical manufacturing firms (+$298 million to $693 million).

Total capital expenditures in the transportation and warehousing sector are expected to increase by 1.4 per cent to $30.6 billion, said the agency.

Additional spending in the transit and ground passenger subsector (+11 per cent to $8.5 billion) is expected to more than offset declines in the pipeline transportation subsector, down 9.8 per cent to $7.4 billion in 2018.

Anticipated oil and gas extraction spending down Statistics Canada said that capital spending in the oil and gas extraction subsector is expected to continue its contraction with a fourth consecutive annual decline in 2018, with a 12 per cent decrease to $33.2 billion. The agency attributes the drop primarily to a onefifth decline in the non-conventional oil extraction industry to $10.2 billion.

Meanwhile conventional oil and gas extraction industry spending is projected to decline 7 per cent to $23 billion.

Here is an oil and gas subsector spending breakdown, by province and

rank order, according to Statistics Canada: ◉◉ Alberta (-12 per cent to $22.5 billion); ◉◉ Newfoundland and Labrador (-31 per cent to $1.7 billion); ◉◉ British Columbia (-8.7 per cent to $4.6 billion); and ◉◉ Saskatchewan (-0.8 per cent to $3.9 billion).

Capital expenditures increased in 2017 Preliminary Statistics Canada estimates show that private and public capital expenditures in non-residential construction and machinery and equipment rose 3 per cent to $236.8 billion in 2017. This rise follows an 8.5 per cent decline in 2016.

Statistics Canada reported that capital spending grew in seven provinces and two territories in 2017, led by British Columbia (+21 per cent to $31.9 billion) and Ontario (+6.5 per cent to $68.5 billion). In contrast Alberta reported the largest decline (-6.0 per cent to $57.2 billion).

Widespread spending increases in most provinces and territories in the public administration (+$4.2 billion to $30.4 billion), educational services (+$1.8 billion to $11.3 billion) and utilities (+$1.4 billion to $32.2 billion) sectors led the way, said Statistics Canada. Increased transportation and warehousing sector (+$2.4 billion to $30.2 billion) investments, notably in Ontario and British Columbia, also helped to reverse the 2016 decline.

But conventional oil and gas extraction spending gains were offset by lower capital investments in non-conventional oil extraction and non-metallic mineral mining and quarrying, leading to a net decrease of $1.2 billion to $47 billion.

Manufacturing sector capital spending also fell: 8.9 per cent to $15 billion in 2017.

Intellectual property products expenditures grew Capital spending on software increased 19 per cent in 2016 to $10.6 billion, according to Statistics Canada. In a report released February 28 it said spending grew in seven provinces and two territories.

Ontario led the way, accounting for over half of all spending in 2016, with expenditures rising by $1 billion (+24 per cent) from 2015 to $5.4 billion.

There were also notable increases in British Columbia (+35 per cent to $1.2 billion), Alberta (+18 per cent to $1.4 billion) and Quebec (+11 per cent to $1.8 billion). But Saskatchewan recorded the largest drop (-20 per cent to $200 million).

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CANADIAN EQUIPMENT FINANCE | Spring 2018 | canadianequipmentfinance.com

Oil price drop led to 2016 expenditure decline Private and public expenditures on non-residential tangible capital assets witnessed an accelerated decline in 2016. Statistics Canada reported February 28 revised estimates for 2016 that showed they shrank by 8.5 per cent following a 7.6 per cent drop in 2015.

The declines occurred against the backdrop, the agency said, of significantly lower oil prices, particularly for West Texas Intermediate, compared with the 2010 to 2014 period.

Total engineering construction assets spending dropped by 12 per cent in 2016. This was led by a 25 per cent fall in oil and gas engineering construction (or $14.5 billion) to $44.6 billion. Overall, capital spending was down in four of nine engineering construction asset categories in 2016.

Excluding oil and gas engineering construction, engineering construction expenditures would have increased, said Statistics Canada, by 0.4 per cent.

This category it said has been the main contributor to every annual increase or decrease in capital spending on engineering construction since 2008.

Moreover, machinery and equipment spending declined for the second consecutive year, by -3.5 per cent from 2015 to 2016, for the fourth time in five years. The decline was led by Alberta, where expenditures were down 13 percent in 2016 and were 37 per cent lower compared with 2014, just prior to the downturn in oil prices.

Statistics Canada also reported that exploratory drilling for oil and gas expenditures fell 31 per cent or by $816 million in 2016, following a 40 per cent decline in 2015.

Spending on geological, geophysical, and other exploration and evaluation costs for oil and gas, and for mineral exploration also declined: by -32 per cent to $580 million and -14 per cent to $1.6 billion respectively.

Market Report

Brendan REad

Courtesy province of British Columbia

New transportation projects to roll

Transportation investments are helping to drive Canada’s construction, equipment and the rolling stock markets. Metro Vancouver, British Columbia will have a new light rail transit (LRT) system in Surrey following the success of the demonstrator Olympic Line streetcar in 2010 seen here, while the region’s SkyTrain system will be extended west on the Broadway corridor. Calgary, Edmonton, Hamilton, Kitchener-Waterloo, Mississauga/Brampton, Montreal, Ottawa and Toronto also have or will have new or expanded rail transit projects underway. Meanwhile British Columbia will be replacing the aging Pattullo Bridge with a new span.

ransportation infrastructure investments are helping to drive the Canadian construction equipment market. Here are high-profile examples:

T

Montreal area LRT network Ground was broken April 12 for the Réseau express métropolitain (REM) a new, 67-km $6.3 billion 26-station automated light rail transit (LRT) system. The REM will link downtown Montreal, universities, the south shore, west island, north shore and Montréal Trudeau airport. The first branch is scheduled to open in summer 2021.

Offering high-frequency service, the REM will be in service seven days per week, 20 hours per day, and will be connected to three main Montréal metro lines. It will reuse the existing electric commuter rail line under Mount Royal to access downtown Montreal.

The REM is being developed and will be operated by CDPQ Infra, a wholly owned subsidiary of Caisse de dépôt et placement du Québec. The REM is a partnership between CDPQ Infra and the Quebec government and federal governments. La Caisse is investing 51 per cent of the project’s share capital with the two governments equally financing the balance.

CDPQ Infra selected the NouvLR consortium for the engineering, procurement and construction and Groupe des Partenaires pour la Mobilité des Montréalais (PMM) for rolling stock

and systems, operation and maintenance.

Preparatory work has already begun with construction activities ramping up.

“With this ground breaking, thousands of people will soon be on site to build one of the world’s largest automated transportation systems right here. With $4 billion in Québec content and the creation of 34,000 jobs during construction, the REM will generate significant economic benefits for the economies of Greater Montréal and Québec,” said Michael Sabia, President and Chief Executive Officer of Caisse de dépôt et placement du Québec.

New Pattullo Bridge British Columbia Premier John Horgan announced February 16 that the provincial government will oversee and finance construction of a new $1.38 billion Pattullo Bridge. It will replace the aging span of the same name that links New Westminster with Surrey over the Fraser River.

Construction is to start in summer 2019. The bridge is expected to be open to traffic in 2023. The province will remove the existing bridge.

The province will and maintain the bridge. CBC reported February 16 that the province will take over operations of the bridge from TransLink, the regional transportation agency.

The new Pattullo Bridge will be four lanes, built to modern safety standards, featuring a centre safety median barrier and wider lanes to accommodate both

passenger and commercial vehicles, according to the province. The bridge will also have walking and cycling lanes, separated from traffic, on both sides of the bridge.

There will also be smoother connections on and off the new Pattullo Bridge. There will be new direct road connections between the bridge and East Columbia Street in New Westminster and a new direct off-ramp from the bridge to westbound Highway 17 in Surrey.

Opening in 1937, the Pattullo Bridge is one of the oldest bridges in Metro Vancouver, said the province. The bridge was designed for a 50-year life, which has been exceeded by 30 years.

The present 80-year-old structure does not meet modern design standards and would be at risk in the event of a moderate earthquake, ship collision or high wind event, said the province. Its piers are at risk of being undermined by river scour and many bridge components have surpassed their useful lives. Existing sidewalks, barriers and connections for pedestrians and cyclists do not provide the level of protection from traffic that a newer bridge would provide.

“This is an essential transportation link that British Columbians rely on, and it’s our job to make sure it’s safe and gets people moving better,” Premier Horgan said in a statement. “Replacing the Pattullo Bridge will help people get home to their families quickly and safely, while creating good jobs for local workers.”

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Market Report

Federal, B.C. governments sign infrastructure funding agreement he federal and British Columbia governments signed a bilateral agreement April 2 that will flow $4.1 billion in federal funding for infrastructure investments in the province through the Investing in Canada plan over the next decade (see chart).

This is one of the latest such partnerships with the provinces and territories that will see $33 billion in federal funding for public transit, green, recreational and cultural infrastructure and for northern and rural communities, according to Infrastructure Canada.

These projects will be cost-shared with the province, municipalities and other partners. The provinces and territories will develop three year plans that will provide information on how they will implement their infrastructure projects.

The investments will flow through four funding streams: ◉◉ $20.1 billion for public transit; ◉◉ $9.2 billion for green infrastructure; ◉◉ $1.3 billion for community, cultural and recreational infrastructure; and ◉◉ $2 billion for wide-ranging infrastructure needs in rural and northern communities. In addition, the $400 million Arctic Energy Fund will be delivered under this stream to support energy security in the territories.

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Allocations by funding stream: Funding Stream

Allocation

Public Transit

$2,691,101,894 to build new urban transit networks and service extensions that will transform the way Canadians live, move and work.

Green Infrastructure

$1,115,494,721 to support greenhouse gas emission (GHG) reductions; enable greater adaptation and resilience to the impacts of climate change and climate-related disaster mitigation, and ensure that more communities can provide clean air and safe drinking water for their citizens. ** This amount includes a $212 million allocation for the Lion’s Gate project, which is currently being implemented under PTIC-NRP.

Community, Culture and Recreation Infrastructure

$157,081,719 towards community, culture and recreation infrastructure to build stronger communities and improve social inclusion.

Rural and Northern Communities Infrastructure

$166,001,827 to support projects that improve the quality of life in rural and northern communities by responding to rural and northern specific needs.

The stream also includes the $400 million Arctic Energy Fund that will address energy security in the territories.

Source: Infrastucture Canada

“Long-term investments in infrastructure are key to building a strong Canada, connecting people, creating good job for the middle class

and building our economies for the future,” said federal Infrastructure Minister Amarjeet Sohi, in a statement.

Ritchie Bros. reports strongest start itchie Bros. had its strongest start in the first quarter ever in Toronto, Ontario. It sold more than 2,850 equipment items and trucks for C$37+ million (US$28+ million), surpassing the Toronto site’s previous Q1 sales record by 57 per cent.

The two-day auction that took place March 6 - 7, 2018 attracted a site record 5,250+ registered bidders from 58 countries, including 3,100+ online bidders.

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Approximately 88 per cent of the equipment in the auction was sold to Canadian buyers, with buyers from Ontario purchasing 72 per cent.

International buyers from countries such as the United States, Australia and Italy purchased 12 per cent of the equipment. Approximately 54 per cent of the equipment in the auction was sold to online buyers.

Equipment highlights in the auction

CANADIAN EQUIPMENT FINANCE | Spring 2018 | canadianequipmentfinance.com

included 265+ truck tractors, 175+ aerial work platforms, 110+ compactors, 90+ dump trucks, 75+ excavators, 60 skid steers, 35+ loader backhoes and 25+ bulldozers.

Specific sales highlights: ◉◉ Two Grove TMS900E 90-ton 8x4x4 hydraulic truck cranes sold for a combined C$495,000; ◉◉ Two 2015 Komatsu D61EXI-23

Market Report crawler tractors sold for a combined C$350,000; ◉◉ A 2014 John Deere 470G LC hydraulic excavator sold for C$340,000; ◉◉ Two 2016 Kenworth T800 dump trucks sold for a combined C$323,500; ◉◉ Two 2013 Manitou MRT2150P 10,000lb 4x4x4 telescopic forklifts sold for a combined C$250,000; ◉◉ Two 2010 Caterpillar 730 6x6 articulated dump trucks sold for a combined C$270,000; ◉◉ A 2014 Komatsu PC490LC-10 hydraulic excavator sold for C$235,000; ◉◉ A 2015 Komatsu D65WX-17 crawler tractor sold for C$210,000; and ◉◉ A 2017 Peterbilt 579 sleeper truck tractor sold for C$111,000.

“The strong pricing trend we have seen early this year continued last week in Toronto,” said Anna Sgro, Senior Vice President, Ritchie Bros. “We had a large selection of transportation and construction assets in this sale and saw strong pricing through most equipment categories in both sectors. We registered a record number of bidders, surpassing our previous attendance record by 14 per cent, resulting in a lot of competition and great results for our sellers.”

Behind the scenes shot of Warren Waechter being interviewed (Top). Kevin Tink, vice president, at the auction mic (Left).

A hydraulic excavator being sold in Chilliwack, BC (Above). Kevin Tink auctioneering from one of the auctions in Edmonton, Alberta (Opposite page)

rUAry 2014 | canadianequipmentfinance.com

Canadian small business investment up modestly in January loan originations. Manitoba (14 per cent), ayNet reports that the PayNet Feature report Saskatchewan (10 per cent) and Alberta Canadian Small Business (9 percent) showed the most significant Lending Index (CSBLI) increased increases. slightly from 110.2 in December 2017 to The PayNet Canadian Small Business 110.6 in January 2018. Compared to the Delinquency Index (CSBDI), shows same month one year ago, the CSBLI is that loans 30 days past due remained down six per cent. unchanged at 0.82 per cent in January “The rapid contraction in Canadian 2018. Compared to January 2017, small business originations may have delinquency decreased from 1.11 per reached its low point in December, as cent, marking the tenth consecutive originations ticked up slightly in January,” year-over-year decrease. said PayNet President William Phelan.

Over the last three months, 30+ “While short-term delinquencies remained day delinquencies declined in eight at all-time lows and the economy’s out of the nine sectors PayNet tracks, strength persisted, Canadian small with the exception of manufacturing businesses continued to show reluctance Selling Bigactivity.” with Ritchie Bros.

Auctioneers (+10 bps). Over that same period, 30+ to engage in new originations

By Ian Malinski star in its owndeclined auction-related television out into selling equipment, trucks and day delinquencies in every Year-over-year, sectors experiencing series titled, Selling Big. other industrial assets. were, andin stillCanada are, a lot of Builtper on the core principle of itchie Bros.

Auctioneers is the province and“There region and 90+ growth included transportation (25 hugely successful auctions shows: conducting strictly unreserved auctions— largest industrial R world’s Auction Hunters, Auction Kings, where every item is sold day withoutdelinquencies auctioneer, (12 with operations in declined inetc.— every cent), construction per cent), retail so I thought we could take this concept minimum bids or reserve prices—Ritchie more than 25 countries, including 44 to theregion next level and do a show about one Bros. has gone on to conduct auctions auction sites around the world. In 2013 province and with the exception (5 per cent), manufacturing (3 per cent), of the biggest auction companies in the across North and South America, Europe, the company sold more than 300,000 world,” Mr. Alp, about Ritchie Bros.

Middle East, Australia, and equipment items and trucks for ofAfrica Manitoba (+3saidbps). professional services (3 per cent, the and Auctioneers. “We presented the idea of Asia. approximately $3.8 billion, including “In contrast toto several sluggish originations, accommodation andsoldfood (1alone. per cent. the show TV networks and “We’re very proud to be a Canadian more than $1 billion in Canada a local Canadian company called Blue company and a leader in our industry,” Based in Canada, this international small businesses remain Agriculture remains weak cent), Ant was excited to feature the show on Kevin Tink, Senior Canadian Vice President, success story started from humble(-4 persaid their new channel Cottage Life. When Ritchie Bros. Auctioneers. “Ritchie Bros. beginnings in the 1950s in Kelowna, in a very financial at although British originations ticked we started to look deeper intoposition this we has been conducting unreserved public healthy Columbia, with brothers Ken, up slightly really felt that with such interesting auctions for more than 50 years—it’s an and John Ritchie. The three beginning of 2018,” addedandPhelan. in JanuaryDave (0.2 per cent). individuals, and the big machines exciting business; we getthe to work with brothers were running a local furniture money that these would be perfect builders of the world. Our customers store when their bank called in on a “Time will big tell whether this marks a new At a provincial level, allthesectorsthe ingredients to make a great TV series. build roads and hospitals, grow our food $2,000 debt. To raise the money And it turns out we were right... The and help provide our basic fossil fuels. brothers decided to hold an auction, baseline forseries growth.” experienced growth in year-over-year has been a big success.”

Our job is to help these buyers and sellers selling surplus assets from their store.

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Backstage Pass

to Equipment Auction Financing

Not only did the auction allow them to pay off their debt, it also helped them find their calling. Spurred by their initial success, the brothers decided to start an auction company and began conducting more regular auctions, soon branching

exchange equipment with ease and confidence, that’s it.”

Two years ago Ritchie Bros. was approached by Canadian television producer Tim Alp of Mountain Road Productions, based in Ottawa, ON, to

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

The Selling Big series consists of 13 30-minute episodes shot at Ritchie Bros. auctions across Western Canada, including auctions at three of the company’s permanent auction sites in Edmonton, AB; Grande Prairie, AB;

canadianequipmentfinance.com | JANUAry/FEbrUAry 2014 | CANADIAN EQUIPMENT FINANCE

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.com canadianequipmentfinance.com | Spring 2018 | CANADIAN EQUIPMENT FINANCE

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Feature

CWB Financial Group acquires ECN Capital’s C&V assets WB Financial Group (CWB) has acquired the Canadian commercial and vendor (C&V) finance assets of ECN Capital Corp.

(ECN) in a move that strengthens CWB’s national presence, particularly in Ontario.

The purchase, which closed January 31, 2018 for approximately C$850 million in cash, was financed primarily

by CWB’s securitization facilities.

With exposures broadly distributed across Canada, the portfolio is primarily comprised of loans and leases concentrated within the transportation, construction and healthcare industries.

It brings 3,000 business owner clients who may be interested in CWB’s specialized focus in the equipment financing and healthcare industries, as well as its broad range of banking, trust and wealth management products.

The equipment finance and leasing and general commercial assets are fully aligned with CWB’s balanced growth strategy, the CWB said in a statement.

The acquisition supports the bank’s continued progress toward strategic objectives for industry and geographic diversification.

CWB will leverage complementary strengths across its group of companies to integrate this portfolio, it added. This will include key operational and business development contributions from CWB National Leasing, CWB Maxium Financial and CWB

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Equipment Finance. Former ECN customers are being directed to a dedicated customer support team at CWB National Leasing who will handle customer inquiries and facilitate a smooth transition.

“This is a highly accretive and strategic portfolio acquisition for CWB, and an excellent capital deployment opportunity,” said Chris Fowler, CWB president and chief executive officer.

“The client base is a good fit with our strategic priorities, and provides us with valuable prospects to pursue future growth. We have a well-established specialization in equipment financing and leasing and this portfolio is fully aligned, with the yields and security types generally comparable to our existing business.”

Ontario drives growth Ontario accounted for 70 percent of CWB’s loan growth from last year, according to CWB’s Q1 2018 financial report. This reflected the combined impact of acquired growth and ongoing strong performance from CWB’s previously established businesses with a national footprint.

Central and Eastern Canada now account

CANADIAN EQUIPMENT FINANCE | Spring 2018 | canadianequipmentfinance.com

for 26 per cent of CWB’s total loan portfolio, up from 20 per cent in 2017.

Meanwhile, British Columbia represents 34 per cent and Alberta comprises 32 per cent of the total.

“With approximately 75 per cent of the portfolio originated outside of Western Canada, the portfolio acquisition will also move us toward our strategic goal to grow CWB’s Ontario exposures to a third of our total,” added Fowler.

Marketing strategy A targeted marketing campaign has been established to identify opportunities with these new CWB Financial Group customers. CWB said its collective strategy is to build new relationships with these customers and grow market share through tapping its competitive advantages focused on client service, expertise and responsiveness.

CWB National Leasing, CWB Maxium Financial and CWB Equipment Finance

Feature successes in helping clients across Western Canada.

Portfolio to boost CWB earnings

Chris Fowler, CWB president and chief executive officer.

are already leveraging established relationships identified in the portfolio and building market share with new customers, the bank reported. For example, CWB Equipment Finance, which primarily focuses on mid- and large ticket equipment transactions, has recently expanded its strategic focus in Ontario to build on its long-established

CWB expects the ECN portfolio transaction to be immediately accretive to earnings per common share and return on common shareholders’ equity, with positive contributions in fiscal 2018 to net interest margin and operating leverage. The acquired portfolio is expected to contribute approximately $0.10 of adjusted cash earnings per common share in fiscal 2018 and 2019.

“We expect strong financial contributions from these assets to contribute meaningfully to performance against our medium-term performance targets,” said CWB president Fowler.

“That said, the acquired portfolio has a relatively short, approximately two-year weighted average duration. As such, the magnitude of the impact will depend on our ability to quickly leverage the growth opportunities available to us.

We’re confident that our strong teams will continue to build on the quality relationships previously established

by ECN.”

National Leasing, LeaseTeam complete software project After CWB Financial Group’s recent portfolio acquisition from ECN Capital, National Leasing (NL), a subsidiary, connected with LeaseTeam, Inc. (LTi) to license technology that would allow it to service its share of the portfolio without disruption. As Canada’s largest and longest-running equipment finance company, NL knew it needed an innovative solution to accommodate the new business. As a premier technology partner in the equipment finance industry, LTi knew it could help NL accomplish the feat in a timely manner.

In a two month span, LTi created database copies, while scrubbing out unneeded data along the way; developed custom features tailored to NL’s business flow; performed database conversion and reconciliation; and provided onsite user training. Initial discussions began December 1, 2017, with the first test conversion taking place mid-January. Together, LTi and NL worked together to meet the target go-live conversion date of February 1, 2018.

“As with most great business opportunities, it came with great challenges,” said Michael Dubowec, president and CEO of NL. “LeaseTeam stepped up to the plate to help us determine and implement effective solutions to ensure we were ready to take on this new business within our tight timeframe.”

Randy Haug, Co-Founder and executive vice president of LTi, was pleased with the outcome of the collaborative effort as well.

“We joined forces with National Leasing to provide a custom solution to the challenge at hand in a short period of time,” said Haug. “This success story is a testament to the power of a strong partnership founded on innovation, efficiency and trust.”

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Your Business

Using holistic ID verification to prevent fraud

By Tom Donlea

he rising number of mass data breaches and the increasing sophistication of fraudster networks keep even the savviest fraud managers awake at night. Finance lenders face mounting pressure to thwart criminal activity, but without rejecting their good applicants.

Failure to strike this delicate balance will result in lost revenue and wasted resources.

Sophisticated financial lenders are responding to these threats by putting more advanced fraud prevention measures in place to optimize the workflow. They are refining their identity verification strategies with more mature

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CANADIAN EQUIPMENT FINANCE | Spring 2018 | canadianequipmentfinance.com

your Business solutions that utilize big data, machine learning and global data insights. These evolved practices help them more readily filter their processes to differentiate between good applicants (speeding them through) and potentially fraudulent actors (creating more checks to validate legitimacy).

Now this might seem like the sort of approach reserved for businesses above

points might be age of email (to verify it has been in use for a long period of time), addresses or phone numbers; Stage 3: Multiple identity attribute verification. Some businesses go the extra step to verify multiple attributes when authenticating their customers. As the number of factors that are verified goes up, so does the likelihood that customers are who they say they are.

Sophisticated financial lenders are responding to these threats by putting more advanced fraud prevention measures in place to optimize the workflow. the $10 million revenue threshold. But every online business can and in fact must combat fraud, such as by utilizing advanced approaches to identity verification, such as networks, data linkages and scores.

When talking about identity verification maturity with companies, I find that it is helpful to discuss it as a progressive four-stage scale. The higher you go up, the greater the ability to reduce fraud, manual review and false positives. Each case typically builds on the previous one, allowing organizations to ensure higher accuracy as they move forward.

Let’s take a closer look: Stage 1: Not identity proofing yet.

Believe it or not there are still online businesses that don’t take any extra steps to verify customers’ authenticity before approving their orders. They typically operate under the false assumption that an address verification system (AVS) is a “fail safe;” Stage 2: Verifying a single identity attribute. This group of businesses protects themselves rather minimally by focusing on a single factor before confirming orders. These individual data

This sort of multi-factor authentication speeds up transaction for good customers; and Stage 4: Holistic identity verification.

At this stage, businesses are verifying that multiple identity attributes are accurate and they all link back to the applicant making the inquiry. In a single search it’s possible to verify names matches home addresses, phone numbers and email addresses. But when searching for linkages between the persons and their contact information and related people it is a significant signal of risk if these cannot be established.

The linkages + holistic approach There are broad use cases for identity linkages. Take, for example, account takeover identity theft. In this scenario, a criminal uses personal information to gain access to a person’s existing accounts. The fraudster will change the mailing address or phone number associated with an account and then run up large bills before the identity theft victim realizes there is a problem.

Examining linkages can expose cracks in an identity that are strong signals of fraud.

Identity linkages, with holistic identity verification (Stage 4), unlocks a powerful new set of opportunities to leverage machine learning, sophisticated data analysis and data science that would not be possible with simpler methods of identity verification (Stages 1-3). When a whole identity is considered, a world of networks, history and patterns can be tapped for increased speed and accuracy.

Identity networks are extremely valuable to businesses because they can see signals across millions of transactions and multiple customers for a real time understanding of identity element velocities, transactional frequencies, and linkage histories.

Machine learning and sophisticated data science can be applied to analyze these transactions to learn and adapt to patterns across different industries.

For faster decision-making, some identity data services are distilling the results of their sophisticated verification processes into single numbers or “scores” for easy real-time rule building or integration into a risk model. While scores are useful for businesses of all sizes, they are particularly helpful to smaller businesses that might not want to dive as deeply into the data or have the resources to create their own models, when making transaction decisions.

Holistic identity verification for the win In an age where data breaches are far too common, the confidence of a financial lender to streamline their process hinges on its ability to verify identity. One of the simplest and fastest ways to do so is holistic identity verification which is especially effective at determining legitimacy of an identity.

Having a mature and holistic identity verification practice will to help expedite good applications through while weeding out the bad actors to reduce funding costs by identifying fraud earlier in the process and creating multiple underwriting pathways for optimization to your lending practice.

Tom Donlea is VP, Business Development and Partnerships at Whitepages Pro, the definitive identity verification data provider for risk management in banking and online lending worldwide. With over 10 years of online payments and risk experience, Tom previously was the founding executive director of the Merchant Risk Council.

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Management Strategy

Alfa report: digitization opportunities and challenges sset finance companies understand the value of digitization, or digitalisation.

But faced with several challenges that lie ahead they are not sure how best to move ahead.

A survey of global, including Canadian asset finance leaders by Alfa released in December 2017 revealed 98 per cent of them understand digitization and what is entailed. Nearly half (47 per cent) are piloting digital programs.

Asset finance companies see the benefits of digitization according to the Alfa report: “Digital Directions: Exploring digitalisation in the asset finance industry”. They include streamlining business processes and omni-channel customer service and contract management and invoicing self service.

Asset finance businesses are also becoming aware of the value of digital technologies in tracking and managing asset usage (see sidebar).

A

Asset digitization drivers The Alfa report identified five key factors driving asset digitization consistently across the equipment and vehicle leasing markets: 1. Competition. Lessors recognize the first-mover advantage gained by early investment and deployment of digitization initiatives. If they fail to offer similar products and services to their competitors, their customers are likely go elsewhere; 2. Cost and efficiency. Digitization is seen by asset finance executives as a key means to achieve greater process efficiencies and improve cost-income ratios. For example, fleet management companies are looking to digitize their supply chains, removing paper-based and manual processes;

Source: Alfa

3. Customer behaviour and demand. Customers are influenced increasingly by the digital services they use as consumers, as well as social media and the sharing economy. Then they want to see this replicated in the business to business (B2B) sector. A younger workforce expects to conduct business online, and services to be available 24/7; 4. Regulation. Leasing particularly European-based companies report that increasingly tougher reporting requirements can only be met through extensive digitization, particularly of back-office systems and the associated reporting processes, and; 5. FinTechs. FinTechs such as Alfa are seen by the survey respondents as driving the digital agenda. They told Alfa that vehicle lessors (captives) and bank-owned lessors have the greatest engagement with FinTechs through

partnering and running innovation centres to explore digital possibilities.

The Alfa study noted that leasing companies have not only developed distinct digital strategies, but they are in various stages of implementation.

But the digitization vision breadth and actual scope varies considerably between companies and verticals.

Finally, there must be buy-in ultimately from the end-customers where the technologies touch them. For example, the report cites the ability of geotracking to help farmers reduce the total costs of equipment ownership by enabling them to share assets with their neighbours.

“While retail finance represents the vanguard of digitalisation, asset finance has been moving more slowly,” said Steve Taplin, digital lead and global sales director, Alfa. “As a generalization, vehicle finance (B2C) is out in front,

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Management Strategy with fleet management and equipment finance next in line, although there are exceptions in agricultural, mining and construction equipment, where digitalisation is being driven by the manufacturers keen to leverage value from the application of telematics and other technologies.”

management companies are meeting these challenges by: ◉◉ Running pilot projects to test out new products and services, using rapid development techniques and embracing the concepts of “Build fast, fail fast”; ◉◉ Turning to their solutions providers to

“Asset finance has always been risk-averse, particularly when it comes to technology… However, competitive pressures and changing customer expectations are compelling companies in the sector to take on this digitalisation challenge.”

Meeting digitization challenges But asset financing companies that are moving ahead with digitization are encountering skills gaps, cumbersome and inflexible legacy technologies, poor business environment and consequent lack of investment appetite and lack of partner alignment, reported the Alfa survey. The industry also has lacked an innovation culture through its participants generally being risk-averse and heavily regulated.

“Asset finance has always been riskaverse, particularly when it comes to technology,” Taplin pointed out. “As technology providers, we at Alfa have always pushed our clients to innovate, but the cautious nature of large-scale lenders obliges them to wait for other markets to mature before moving forward themselves.”

“And so, the use of the latest technologies like artificial intelligence, augmented reality and voice recognition is not widespread in our world,” added Taplin. “However, competitive pressures and changing customer expectations are compelling companies in the sector to take on this digitalisation challenge.”

The Alfa survey reports that asset 22

bridge the knowledge gap, and forming partnerships with FinTech companies to accelerate the pace of change; ◉◉ Creating innovation labs to both foster and learn from digital startups. These initiatives are sponsored by vehicle manufacturers. While not confined to the finance divisions, finance is often a focus for innovation; ◉◉ Connecting different processes

together, integrating data and systems, enhanced by the next generation of asset finance organizations through using data from connected cars and the Internet of Things. Ever greater volumes of data about customers, assets, movements and trends will become available, and the challenge for organizations will be to find ways to use that data to locate actionable insights; and ◉◉ Respondents reported that they are keen to recruit “digital natives”, i.e. those considered to be at home with technology and able to respond to any challenges posed by digitization.

Around a third highlighted the need for specific technical skills, such as analytics specialists, data scientists, and customer experience professionals.

The general view is that these skills can be outsourced or insourced from parent companies’ resources.

Other respondents are seeking more generic qualities, such as willingness to experiment and challenge existing ways of working.

“The move to digitalisation is challenging and presents critical issues - particularly through the constraints of legacy systems, and the need to develop new skills,” said Taplin. “But the rewards can be significant.”

For more information on Alfa visit www.alfasystems.com

How to track low-value assets

Big-ticket assets such as construction equipment, machinery and trucks have been tracked when they have large residual value. The high monetary value then justifies the investment in geotracking and other similar systems.

But there are many small tickets assets that also have residual and replacement value, if measured efficiently using new technologies. How can asset managers track them affordably?

A new Alfa report, “Digital Directions: Exploring digitalisation in the asset finance industry”, suggests using RFID chips. They economically allow assets to be scanned at certain intervals so that the finance companies can be alerted to their absence from larger sets. RFID chips can even be applied to very small-ticket items, such as beer barrels, bikes, and some office equipment and appliances.

“Inspections provided by integrated sensors (which provide information on condition) or ad hoc (which demonstrate that the asset exists and is in a certain location) can be ‘touchless’ from the finance company’s point of view,” said the report. “The finance companies can then adjust agreements and the associated fees automatically.”

CANADIAN EQUIPMENT FINANCE | Spring 2018 | canadianequipmentfinance.com

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