Struggling with new standards on lease accounting? Steve Mason, FD at Siemens Financial Services. Leasing is its business - and he's dealing in three different GAAPs and eporting them all to HQ in Munich to double his troubles.

Siemens Financial Services (SFS) is located in an anonymous office block on a main road in the London suburb of Harrow on the Hill. You could easily walk past without noticing that it houses one of the UK’s leading financial services providers.

To some people the business itself might come across as a little faceless. Providing financing and leases for business equipment? Isn’t that a bit⦠dull? Don’t suggest that to FD Steve Mason. “I find the business fascinating â“ I always have and I always will,” he says. “You’ve got a regulatory side, a tax side, an accounting side to the business. Then you have to remember it’s about real people selling things. You’ve got the guy on the Clapham omnibus who wants to rent a piece of equipment, that’s your basic end user. There’s a huge spectrum between that and the very top end of the finance business.”

Being FD at a subsidiary of one of Europe’s largest corporations also complicates matters, especially when there’s a degree of upheaval at head office. Siemens’ CEO Klaus Kleinfeld is trying to turn the global business around, and in some areas â“ notably SFS’s sister company Siemens Business Services â“ that means major restructuring under the Fit4More programme, designed to boost profitability at underperforming units. (The day after we visited Mason, Siemens CFO Heinz-Joachim Neubuerger resigned with a year left on his contract. Never a dull moment.) So delivering on the numbers isn’t just a nice-to-have for this FD. It’s the only way to keep ahead of the game.

8.15AM An early start with Mason’s back-up team â“ five of the 13 finance function staff. It’s been a hectic month. March is the time when local authority expenditure gets decided. Once they’ve allocated budgets, people will start buying equipment, so the FD expects SFS to do a serious multiple of the usual monthly business.

This meeting is the weekly catch-up, and the FD takes the opportunity to brief the guys on his plan for the day. The big issue is going to be tax. March is also Budget time, and SFS has to gird itself for Gordon Brown’s latest assault on the treatment of leases â“ its core product.

“Leasing keeps evolving and Budget changes will see it evolve again,” Mason tells me later. It’s not just the government, of course. Accounting standards around leases have changed radically in the past five years. The International Accounting Standards Board’s desire to move leases onto the balance sheet and represent them as liabilities has grown in the past few years, but there seems to be little consensus on how exactly to settle the issue. Mason takes a pragmatic view. “We need to start here in the UK,” he says.

“We need to have a common voice and bring the accountancy profession together into a more unified body, and market ourselves better. I’m very disappointed with the failed mergers of the accounting bodies to date. Similarly the standards themselves will become more unified â“ IAS is an expression of this intent â“ which has to be a good thing. It’s just a bit of a painful process along the way.

“But it’s proved to be a very resilient industry. It will always come back because, fundamentally, people want a simple way to acquire and use equipment. They don’t want to use their bank lines to buy stuff. So while that demand is there, there will be a need for leasing.”

The guys back in Munich will also be keen to know how the model might change, and since Mason is the main point of contact for the German board, his team needs to be able to back him up on such matters pretty quickly. They agree that the main tax planning meeting, scheduled for later in the morning, should aim to set an agenda ahead of the imminent Budget.

9AM Back to his office â“ and emails, of course. It gives me a chance to look over the brochure. SFS has a total of 10bn in assets on its books; the UK and Germany account for the majority of that. Its main areas of business are healthcare equipment leasing â“ it’s a key provider of finance to the NHS â“ and asset-based lending (ABL) for private businesses. That covers everything from heavy plant to photocopiers for barristers’ chambers. But leasing sits at the centre of almost everything SFS does.

Charles Martin, head of IT, pops in for a quick chat about the company’s efforts to update its financial software package. The IT department wants to see greater integration across the business. It’s easy to assume a company such as SFS should have all this taken care of with the latest solutions. But, as Mason reminds me, this isn’t exactly an “established” business, at least not as part of the parent technology group. “I’ve been with this business since 2000, before Siemens acquired it â“ when we were part of Schroeder Leasing.”

What issues did that throw up for the FD? “It’s an interesting dynamic,” he says. “When you’re taken over, you bring people, culture and a way of doing things that are different. And it took at least four years for that integration to happen. Then, in the fifth year, the old management team had largely moved on and people like me came into the senior director positions. And they also brought in a new CEO to bring a fresh view. So it’s been four years of integration and now there’s a new management team and a new vision.”

The FD assures Martin that he’ll take the SAP update to the board. The two share a vision of a joined-up SFS business model. “We’re also trying to define what finance actually does for the business,” says Mason. “And it’s clear that the model Siemens would like is a shared services model, where processing is done centrally. We’re not part of that at the moment, but once we lock into an SAP system, we can start to look at it.”

9.30AM We’re off to the first floor for that meeting on potential Budget tax changes. Mason wants to get the sales team together to explain what they need to bone up on and to field any questions. It’s all part of making sure the team on the front line understand exactly what they are selling and how it affects customers. The FD says improving the sales team’s financial knowledge is a key task for him and his department.

“On the one hand you get sales guys who say, ‘I can’t do this, I don’t understand it and I haven’t been on a course’. On the other hand, you have guys who pick up soundbites and that becomes their way of working out what to say,” says Mason. “I try to help them all. It’s not about being a sales guru or a finance guru, but being a bit of both. You need to know when to bring in the soundbites and when they’re too simplistic. I have to say, some of the guys do it really well. And, luckily, I know enough about the sales process to be able to hold my own with these guys.”

This meeting is one of several throughout the day where the FD’s encyclopaedic knowledge of leasing comes in handy. But tailoring the sales pitch to the customer is still a challenge. “You go from a more wheeler-dealer sale at one end of the market to a more sterile one at the other,” says the FD. “I know which one I’d rather be at â“ the sharp end. It’s not quite the second-hand car market, but it is the grubbier end of the business.”

11AM Once the sales team are happy, the FD and SFS’s in-house tax expert, Stephen Beckett, get down to business: where might the chancellor attack? The main issue, for SFS at least, is the treatment of long-term leases. The sub-five-year deals that the sales team commonly negotiates should barely be affected. “The whole dynamic of the leasing model changes for longer leases, because it becomes more about service, delivery and processes,” says Mason. “Another dimension is between bespoke financing and retail financing. Our business is about running the processes more efficiently and structuring deals correctly.”

The two thrash the issue out for half an hour. “There are certain aspects of leasing and secured lending that the Inland Revenue simply does not like,” Mason explains later. “They’ve tried to tie up the stuff they like the least, which is mainly the longer-term deals, so we’ve got a patchwork of legislation. Really what the Revenue should say is that they’ll scrap the capital allowances and just permit accounts amortisation. But they’re very wary of that. So they’re putting bits in to try to plug holes.” Which makes it tough for the pros to understand, let alone me.

A week later, I call Mason to find out how the Budget went for SFS. The main bugbear for the FD was the decision to scrap the Home Computing Initiative, which allowed employees to lease PCs tax-free â“ and was a great perk for companies to offer. “HCI was generally regarded as a great scheme pushing all the right buttons for the right reasons,” he says. “So why did they scrap it, given that a number of financing packages and service companies have grown up to support it?”

12.15PM My head’s swimming, but it’s not about to get easier. Back on the finance floor, Mason hits the monthly investment committee meeting. Over sandwiches and orange juice, the five members of the committee talk through the deals that have been done in the past month.

SFS has several divisions. The business’s main driver is equipment and sales financing, which covers all Siemens’ leasing products to the trades and professions. Then there’s equity (investing in infrastructure projects across the world); project and export finance; investment management; insurance and treasury; and financing services.

Interestingly, SFS recently bought a company that specialises in leasing to fairground operators â“ who’d have thought they bought waltzers on tick? It’s pretty niche, the FD admits, but it could open up a raft of opportunities in a new market. Mind you, the team concedes, tracking down the funfairs as they move around the country might be something of a challenge.

1.15PM Once that’s over with, Mason heads to the second floor to sit in on a presentation from head of professions Jonathan Smith. Smith has been given the task of streamlining SFS’s broker-based businesses after a tough few years. The volume of business from brokers in the professional sector – dentists, vets, solicitors, accountants and so on – has fallen in the past three years, and Mason has asked Smith for his views on the situation. “Part of the problem is we’ve had a few issues with bad debts in that side of the business,” says the FD. “Jonathan’s been asked to step up a notch and look at the overarching business issues so we can come to some conclusions.”

The broker model has advantages: it connects SFS to a much wider platform of business and gets them into markets where a direct approach may be hard to manage. But the downside is that the business could become too dependent on the intermediaries and there’s the issue of their cut, of course. So Smith’s proposing a move away from a broker-based model into a more direct customer strategy that would increase volume and hopefully margins.

2.45PM On the way back to the FD’s office, we bump into Gregor Seegerer, who is over from Siemens in Munich to lead the internal audit. He’s been inspecting the office for the past few days, and you get the feeling he’s been doing the numbers equivalent of running his finger across the top of the doorframes.

Once Mason has assured him that SFS UK does enforce a “clean desk policy” and “no sensitive documents are left lying around", it’s down to business. They run through the imminent adoption of IFRS with the help of the KPMG adviser. Mason talks the auditors through compliance with the Sarbanes-Oxley Act, too. Since Siemens is listed in the US, subsidiaries need to offer umpteen assurances to the group board.

Mason’s obviously a dab hand at dealing with the challenges of being a subsidiary FD. The complexity of the Siemens Group means that he has his work cut out keeping up with the different reporting responsibilities. “My main input is to the SFS group in Munich,” he says. “You’ve got SFS divisions in the UK, US and Germany all reporting to SFS HQ over there. But I also report to the UK region. So immediately you’ve got two different reporting lines.” And I thought lease accounting was tough.

As if three types of audit – internal SFS, internal regional and external – weren’t enough, SFS has been integrating several businesses it’s acquired. The FD has scheduled a visit the following day to one of these operations. He wants to take Gregor to see what they’ve bought and work out how the new companies will fit into the group. Integrating the new units won’t be easy, but Mason is determined to make it work.

“We bought Broadcastle Bank and we’ve thrown two businesses together straight away,” he says. “They are geographically diverse places – there are sites in Stansted, Tonbridge and Havant – and the Germans obviously want to go out and see all those new business units.”

But the softly, softly approach appears to be his favoured method of acquisition integration. “You can’t just bring a small business into a much larger group without a few problems,” says Mason. “There’s bound to be a difference in culture. We can’t do what might be easiest, which is to shut everything elsewhere and bring it all in here. Commercially that would destroy the businesses.”

4PM All of the top team at SFS are part of a mentoring programme that helps junior staff develop a wider understanding of the business. The only rule is that the junior shouldn’t be someone from their own team. So Mason meets weekly with internal sales manager Darren Riva, to talk through issues and get feedback from one of the business’s most important divisions.

“Darren is one of the rising stars and he’s given great value to the business,” Mason says. “It’s about growing and getting people to expand their horizons. The guys in sales basically spend ten years competing with each other to be the best. And when you try to put them into a strategic role, they’re still doing that rather than managing people to get the best out of them. So I’m trying to improve management skills.”

4.50PM IFRS time. Mason’s organised a conference call with a partner at KPMG to talk through the finer points of the accounts. It seems even Siemens’ resident lease guru needs guidance from time to time. You get the feeling that he’s relishing the challenge of deciphering the labyrinthine accounting changes that will eventually trickle down to SFS in the UK. So does he see the shifting sands of accounting standards as an opportunity or a threat?

“The Siemens group reports under US GAAP because it’s quoted in the US,” he says. “We’ll also have an interest in IFRS because Siemens AG is quoted in Germany, so it has to report under the international standards. And we already have to report under UK GAAP as well as US GAAP.” Confused? I certainly am. But what does it mean for the FD?

“Accounting standards shouldn’t drive the business model,” he says. “That’s a very unhealthy way for regulation to work. Earlier on we talked about operating leases that generate losses. Commercially it makes no sense. So would we adapt our business model to deal with that? Quite possibly. But that’s because it’s an operational driver – your business and your commercial direction should come from what your customers want, not from accounting standards.” Ah. Now that’s the sort of language I understand.

The pace Mason works at has taken its toll on me, so I decide to leave him to it. As a parting question, I ask him whether he would consider trying his hand elsewhere. He gives me a puzzled look, as if leaving was the last thing on his mind. He shakes his head. “I guess you could say I’ve been taken over and Siemens-ised”. That’s easy for him to say.

Love leasing

As a member of the Finance and Leasing Association (FLA) accounting sub-committee, Mason has a responsibility to get his industry’s voice heard by the regulators. How does he go about standing up for leasing? “In several ways, but as an example, I was part of the consultation process for the tax rules,” he says. “We put two submissions into that process.”

Has that left him with a negative view of the regulators? “I try to take a balanced view. I think the regulations surrounding leasing have become more burdensome, but there is a better dialogue with the trade body than there used to be. It’s a recognition that leasing is an important part of how people do business. The government does realise that, especially with smaller businesses, leasing is important and they can’t just cut it off. But they’re not very comfortable with some of the arrangements.

“It’s difficult to influence government thinking because the leasing market tends to be dominated by two major factions – the big banks and the fleet providers. They have got much more clout than we will ever have – the big boys such as Lex have a great deal of power. In many ways you see that in the way the government reacts to issues such as tax. So the lobby can challenge things that have happened at the big-ticket end of the leasing market very effectively. But we’re all part of the same business, and all part of the FLA, so we all try to get our voice heard. And really, it doesn’t matter what happens in the big-ticket end. We’re mainly at the smaller end of the market, where it’s about customer service.”

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