The Rental Concept

Introducing the Concept of Rental

 The basis of any operating lease is a rental agreement where the renter pays periodic
rentals for the use of assets.
 Rentals are based on the reducing value of the asset throughout the term of the
agreement.
 Ownership rests with the lessor throughout.
 No bargain purchase option or residual commitment is negotiated at the time of
inception of lease.
 Operating leases must meet the criteria specified by prevalent accounting standards of
the country.

Companies benefit by using technology, not owning it

To keep the competitive edge, businesses must continually invest in technology.

 Often, vast amounts of unutilised equipment are taking up valuable space at a high
cost to company.

 In today’s fast-moving business environment, companies are finding it increasingly

challenging to keep up with an even faster pace of technology advancements as IT
hardware manufacturers and software developers continuously introduce new and
better equipment to make users more productive.

 The useful lifespan of IT equipment has been steadily declining. This is coupled with
continuing drops in acquisition costs – because what you pay for today is worth less
tomorrow, never mind in a couple of years’ time.

These trends clearly indicates that ownership is no longer a viable option for company’s intent
on staying current with new technology offerings and for those who wish to reduce the
operating costs of technology.

Businesses want to invest capital on investments that provide a return

This makes investing in technology counter-intuitive because purchased technology is

expensive. First there’s the cash layout on the initial purchase price of hardware and software,
add services, warranty, maintenance, forgotten contractual terms and conditions, and
upgrades. Then at the end of an IT asset’s usefulness, there are the costs and overheads
associated with removing and disposing of the obsolete hardware and introducing the new,
upgraded system. Add the cost of downtime, or related issues, when technology ‘expires’ and
businesses do not upgrade to newer technology, or even, the cost of downtime during
migration. What about shipping and documentation? Another question is how much income
generating business could have been bought for the cash that’s being laid out for equipment?
 What’s the alternative?

You no longer need to purchase a blanket of brand new technology; or pay large sums of
cash upfront; or even buy your equipment through a traditional banker’s lease. RentWorks
understands finance – and we also understand technology and how it addresses your
business needs. RentWorks works for business in the procuring, financing and management
of your IT equipment. You gain greater financial control and avoid equipment obsolescence.
You could choose to receive a cash injection for your business through RentWorks Sell and
Rent Back programme. Implement a structured cycle of equipment renewal with the
RentWorks Exchange Plan. Choose the option of off balance sheet reporting and stepped
payment plans – and even insure and track your rental assets with RentWorks Online
Contract Management to disclose every cost and every saving.

Benefits at a Glance
Rentworks Traditional
Key Benefit How Cash Purchase
Solution Lease
Conserve Cash Pay for equipment over time

Predict technology spend Regular, fixed payments - pay

as you use
Reduce ongoing paperwork Simple terms within a Master
Agreement
Choose your brand Access to all brand names -
your choice
Fulfill all your technology Bundling of hardware,
needs in a single payment software, maintenance and
services.
Stay ahead of the Upgrade more frequently and
technology curve eliminate the risk of technology
obsolescence
Enjoy contract flexibility Exchange equipment through
the contract
Enhance management Online contract management to
efficiency view your contract details 24/7
and an assigned dedicated
asset manager
Look ahead Flexible end of term options

Reduce technology costs Cost of ownership and disposal

is avoided
More liquid financials Off balance sheet reporting

Internal cost controls Cost centres can be billed

separately
Maximise uptime Dedicated Insurance

Know the status of every NetTrace for technology

computer
 Renting with RentWorks: Step-by-Step

1 Cut costs, give your company a cash injection and dispose of obsolete technology!

A RentWorks solution is the cost effective way to acquire, retain and dispose of technology. You can cut the cost of managing
everything from mainframes to PCs, printers, copiers, fax machines and even mobile devices by up to 30 percent. RentWorks
could even buy your old equipment for cash. No upfront cash layout means you can keep your cash for what you need it for most.

2 Assess your unique environment

Together with you, a RentWorks specialist will conduct an IT assessment to address all your technology challenges – like what to
do with your existing or obsolete equipment; compatibility issues; new hardware and software benefits; inclusive value added
services such as physical audits; insurance and support; end of term arrangements; buybacks and so on.

3 Make your technology and brand choices

You choose the brand of technology you want. At RentWorks we work with all the major hardware vendors to find the most
effective way to fund your technology needs. You can also select to utilise a variety of vendors’ products. 

4 Add value to your technology contract

Select from a wide range of RentWorks services available; monitor your fleet with OCM, insure it, arrange to trace individual
equipment to a precise location or even sell equipment to us and rent it back. 

5 Approve your customised contract

There are a number of RentWorks products to choose from. Once you have decided on the right one for you, you’ll receive a
customised proposal for your business. It contains detailed financials and an itemised technology analysis for your easy review
and to facilitate a seamless approval process.

6 Predict an entire contract’s payments

Under a RentWorks program, financing becomes a “service” and customers are charged through a single bill at a fixed quarterly
rate. This can be reflected off the balance sheet. You’ll also be saving substantially because you’re only paying for the technology
services you use and retaining capital for core business use.

7 Enjoy easy accounting

A Master Rental Agreement (MRA) means collaborative, streamlined paperwork so you can manage your RentWorks accounts
online; conduct transactions; and generate status and billing reports from a single source and further eliminate the need for
additional signatures and paperwork each month.

8 Watch productivity soar

You’re ahead of the technology curve so you have more success – with the latest equipment at your fingertips – keeping up with
the demands of business is easy.
 To Rent or Not to Rent
Companies looking to develop their IT infrastructures no longer need to worry about large
initial capital outlay. They can get what they need, when they need it, by renting their
equipment by one of a number of local rental providers. Hardware is not the only item you can
rent – alternative software-access options are being developed. IT rental in South Africa is
slowly developing as a genuine alternative to purchase and, while we may be far from
Europe’s market where, it is estimated 30% of all IT equipment is rented, South African
companies are looking seriously at rental as an option. When should companies rent rather
than buy? Bianca Wright finds out.

In the past, rental was not even part of an IT manager’s vocabulary. Owning IT was the way to
go and alternative options were never really mainstream. That, however, is all beginning to
change, as companies gradually realize that owning assets that depreciate rapidly does not
always make sound business sense.

Small and large companies alike are investigating rental as a viable option for setting up, or
supplementing, an IT infrastructure. South African IT rental company RentWorks is optimistic
about the benefits of rental to local businesses. Stuart Lewis, general manager: sales and
marketing of RentWorks, lists the benefits as focusing on three main areas: affordability,
predictability and flexibility.

Affordability, he says, centers around not having to invest that initial cash into equipment that
rapidly depreciates over time, but rather opting for an affordable fixed-rental payment over a
certain period. “Cash is better used reinvesting in the business”, he says. “we can offer rental
at rates below prime.”

The RentWorks Rental Programme

RentWorks, Australian in origin, can do this because of its backend system, which Lewis says,
is unique. When RentWorks has a transaction in which a customer want to rent, for example
R1 million worth of equipment, RentWorks invests its own cash into the purchase of
equipment, thereby lowering the customer’s rental payments. The true saving for the
customer, says Lewis, comes when the customer returns the equipment after the rental period
is over. The customer does not pay a residual at the end of the contract. “The customer hands
it back and walks away”, he says. RentWorks then refurbishes it through its remarketing and
refurbishing business unit, and then re-rents or sells the equipment to recoup the residual.

“One of the reasons that companies opt for rental is because they’re finding that the cost of
getting rid of technology is high, making rental an attractive option,” Lewis adds saying that, in
the past (companies) used to dump old equipment in a landfill site or donate it to charity,
neither of which are really viable options anymore. Dumping is not environmentally friendly
and donating is often difficult, because of the software run on the machines, which often can’t
do what the charity or school would need it to do, giving them more problems than are being
solved. “We take away the disposal problems that companies face,” he says.
Predictability, the second benefit that Lewis identifies, is about budgeting. If you choose a
rental programme that includes fixed rental payment for the duration of the rental, you will
know exactly what you will be paying each month, or each rental period. “We can tell you
exactly what you’ll pay for the next three years,” says Lewis, “which means that you can
predict what your costs are. It offers stability and predictable cash flow.”

Lastly, rental agreements offer flexibility that cash purchases cannot and, in the unpredictable
and ever-changing world of IT, this is a plus. “If you are going to spend cash and buy IT
equipment and if something changes in the business in 18 months, cash doesn’t suit your
business needs anymore, “says Lewis. “You’ll have to spend more cash to buy equipment that
meets your needs. You are stuck with what you’ve got.” RentWorks offers an Exchange Plan
which allows you to swap portions of your installed fleet through your rental fleet. If, for
example, you have rented R1 million of equipment, after 12 months you can swap
approximately 30% without increasing your payment. You just lengthen your rental period on
that new equipment. “If you find that you have power users who need more than just desktops
you have rented, you can swap for the equipment that you need,” he says. “Another key factor
is that you don’t have to swap like for like – you can swap IT equipment for office automation,
or desktops or laptops.”

Rental agreements can, thus help you keep competitive. Lewis says “Business that rely on
technology as a tool to maintain their competitive advantages recognize that each new
generation of technology can recognize the opportunity to outperform competitors. Under
these conditions, operating rental agreements becomes a highly-attractive solution, because
companies benefit by using technology and not by owning it.”

It seems that South African businesses are recognizing these benefits. RentWorks estimates
the IT-rental market in South Africa to be worth around R3 billion, excluding equipment
financed through traditional financing institutions, such as banks. In South Africa, RentWorks
has served over 400 clients with around R2.6 billion worth of assets currently under
management.

In his article Rent or Buy (and a little outsourcing on the side?), World Wide Worx’s Arthur
Goldstruck (http://www.theworx.biz/) states that South African rental company
ATRTechnology Rentals estimates that at least 60% of the top 100 companies are renting
some, or all, of their IT hardware.

Of course, purchasing can also make sense in a business environment. If a piece of

equipment can be expected to have a long life cycle, the chances are that it will eventually be
“free” equipment, paid off and depreciated, at a lower long-term cost than renting the same
equipment. “the trick, of course, is identifying which equipment will survive long enough to
provide that cosy state of affairs,” says Goldstruck. Lewis says that it depends on the needs of
the organization. Desktop PCs as well as notebooks are the most popular in the smaller
server environment,” he says.

Leasing Flexibility
Though not quite the same as renting, a number of companies have introduced innovative
leasing payment option that offer flexibility. IBM (http//www.ibm.com/), for example, has just
announced a new offering of IBM ThinkCentre desktop machines, or IBM ThinkPad mobile
hardware, with IBM office printers and a modular set of services to manage a desktop
environment, provided to the customer via IBM global Financing on a predictable price per
seat basis. This offering includes not only the cost of the services, but also the cost of the PC,
 itself, which is a totally new way to lower the issue of total cost of ownership, according to
IBM.

IBM combines Thinvantage technologies from PCD, proven best practices from IGS, x-series
technology from server group, development input from IBM, and research and financing from
IGF to provide a services-led approach to selling desktops and mobile devices that can
significantly reduce the total cost of ownership to the customer.

The offering aims not only to cut costs, but also to reduce end-user dependence on skilled
support through its intuitive systems. Oliver Fortuin, IBM Personal Computing Division
manager, uses the example of a businessman on a plane who experiences the dreaded blue
screen. “He only has to press one button to access a menu of options for Rapid Restore and,
within 30 minutes, he will be able to take the notebook back to a good configuration with no
outside intervention,” he says. This autonomic computing is an area that IBM sees potential
for growth and in which it will continue to invest. Fortuin sees the industry developing more
such payment offerings to cater to demands of the market. “the IT marketplace is a mature
marketplace and the unrestrained spend of the past is gone. Companies are starting to
manage their total spend on IT and they have found that the cost of ownership is 80%
operational expenditure and only 20% capital. As a result, this type of offering is going to
become de facto,” he says.

Weighing up the Options

Rentworks offers the following comparison of rental versus purchase options for IT equipment.

Cash Purchase Rental

Equipment Value The owner must accept any decrease in the All risk associated with equipment obsolescence and depreciation
value of the equipment. lies with the rental company.
Disposal of The owner is responsible for the disposal of The rental company is responsible for the disposal of the
Equipment the equipment which has associated costs. equipment that is returned.
Ownership All aspects of, and risks associated with All of the risks of ownership lie with the rental company, not the
ownership lie with the organisation. user.
Payments Payment in advance. Payments are fixed and spread over the useful life of the
equipment.
Taxation Owner may claim a tax deduction. Rental Payments are fully tax deductible over the period of the
rental term.
Effect On Appears as an asset on the balance sheet. Off balance sheet and is seen as an operational expense.
Balance Sheet
Flexibility No upgrade facility in place. An upgrade facility is available at any time during the rental
period.

Software Subscription Models

Hardware is not the only area in which companies can benefit from a system other than direct
purchase. Software subscription models, such as those offered under Microsoft’s new
licensing model are becoming increasingly popular, as are alternative payment options.
Goldstruck is not convinced that this is, as yet, a cost effective answer. “The situation
becomes a little more complex – and expensive – in the software environment. Many large
vendors, such as Microsoft and Oracle, have introduced licensing conditions that are, for all
the world, like rental agreements – except that upgrades often aren’t included,” he says,
explaining that, instead, users “subscribe” to the software, paying an annual license fee. “This
ensures annuity income for the vendor, and tighter control over the customer’s use of the
product. Some licenses allow multi-year usage and include upgrade options, for an annual
maintenance fee,” he says. He cites Gartner (http://www.gartner.com/) research, which found
that “it was better value to buy perpetual licenses than subscriptions, since the likes of
Microsoft charge rental fees of 85% of the cost of a perpetual license.” Gartner research
anticipates that the price point for rental models will come down, eventually, but that it will take
five to six years for software vendors to move pure rental model, he says. Despite his
uncertainty about its current value, Goldstruck sees the future possibilities. This future may
well include modular software that allows the customer to pay only for what he uses, probably
based on the ASP (Application Service Provider) model, in which the software is accessed via
the internet or equivalent network.

A number of companies, other than Microsoft, are offering these types of options already.
Siebel Systems (http://www.siebel.com/) is, currently, launching its CRM on Demand means
no cost of software, hardware, or support costs, and no costs for upgrade. Instead, companies
pay a fee of US$70 per user. “It is perfect for companies that are not ready to host their own
CRM systems or cannot afford the off-the-shelf options,” says Peter Mbelengwa, director of
Public Sector at Siebel Systems South Africa. Through this system, customers will handle
their own customization in-house, without the need for consultants, or additional installation
fees.

The offering seems set to compete with CRM (Customer Relationship Management) ASPs,
which are becoming more popular. Mbelengwa says that CRM onDemand is a pre-packaged
facility that really gives a small-to-medium sized business, or a company that is not ready yet,
the ability to continue to expand its business through sales force management and analytics
that are ready to use. “today’s businesses need to track sales leads, close their businesses on
time, and be in a position to have the data in front of management for analysis,” he says. He is
also highlights the cost saving.

The move to this type of offering was prompted by market demand. “Our customers are not in
the business of IT, but in the business of business. They want a facility that helps them to
drive their businesses, an enabler,” says Mbelengwa.

What you need to know Before you make a Decision

So, there are a number of options available to the savvy business owner, but what should you
know before you decide to rent? Lewis says that you should be aware of bundled rental
products when it is difficult to determine what you are paying for hardware, maintenance, and
rental, because when you want to get out of your contract it is difficult to identify what pays
what. Rather choose a company that separates each of the items so that you can see what is
making up the rental.

He also suggests avoiding agreements that have built in escalation in payment because that
can become an expensive option. “Rather opt for a fixed rental, or one linked at prime, so that
at least you know that when prime moves it will affect you,” he says. Beware of margin lenders
that take your deal to the bank and make a 2% or 3% return on the deal. “They are not adding
value in terms of the product. It is not a true offering at all.”

Jonty Collins, operations manager of SME-outsourcing specialist Netsurit, told Goldstruck that
renters should try not to tie themselves into long-term contracts. Collins also advises finding a
partner that includes upgrades as part of the agreement price, and not as an additional option,
and that does not force you to resign, or lengthen your rental period, after the upgrade.

He says that the rental company should audit your existing systems and provide you with
requirements based on what you are lacking, what you currently use the machines for and
what you plan to use them for in the near future. They should also continue to manage this
through the course of your relationship, thereby reducing the time you spend on managing
your IT infrastructure.

"What you should be looking for", Lewis says, "is a fixed-payment rental for predictability. I’m
not saying a linked rental is not a good thing when rates are coming down but it’s risky. If you
have not budgeted for changes, they can be expensive. With fixed rental, there are no nasty
surprises,” Lewis says. You should also look for a company that allows you to restructure and
leverage off the product during the rental term, for example RentWorks’ exchange plan. Says
Lewis: “Make sure it is a true flexible option that does not incur penalties if you decide to
change something.”

Regardless of which option you choose in hardware or software, make sure it is right for your
needs. Perform your own internal audit of IT needs before making your choice and, especially,
when deciding between renting or buying, discern whether or not the equipment will have a
long shelf life. Renting can offer a host of benefits if you go into it with your eyes open.

Success Stories
Why rent? Because it works!"

Financial Manager of a leading global cellphone manufacturer

A global cell phone manufacturer turned to RentWorks to assist it with IT obsolescence and
disposal problems. “We were sick and tired of our IT white elephants and struggling to find a
solution to costly but necessary upgrades and the disposal of obsolete equipment,” says the
company’s financial manager.

The company’s users were demanding higher performance machines before their current
machines had depreciated. Keeping up with rapidly evolving technology proved to be
expensive and almost impossible to manage. RentWorks has taken over the financing of the
client’s equipment and assists in the management of their procurement cycles. The
company’s new IT equipment including desktops, laptops and servers is rented and upgraded
bi-annually through the RentWorks Exchange Plan Ensuring that users have access to the
latest technology.

Thanks to it’s active secondary markets RentWorks also takes care of the disposal of the
company’s obsolete equipment. The seamless swapping procedure ensures that equipment
no longer “disappears” when the new equipment arrives and that the company does not incur
unnecessary storage costs.

"Using RentWorks has been a no-brainer for us. We are able to benefit from using the latest technology
while still conforming to the company's international practices."
IT Manager for an international food company

In 1998 an international food company representing some of South Africa’s best-loved brands
introduced a three-year replacement cycle for all PC hardware within the group. At the time,
the South African operation purchased all its IT equipment and replaced it after five years. The
company furthermore embarked on a global drive to tightly measure and manage the return
on investment (ROI) of all its assets.

The company has taken advantage of the RentWorks vendor independence and has, through
RentWorks been able to comply with head office requirements by implementing a three year
replacement cycle at all of their geographically dispersed sites. Rental through RentWorks can
be structured as a true Operating lease and as such assets for this multinational are financed
off the balance sheet.

RentWorks specialises in the financing of fast depreciating assets and the company has
utilised this expertise by financing security, coding and IT equipment through them, all
bundled into one regular payment. In addition, the company’s regular utilisation of the
RentWorks Exchange Plan ensures that their employees are able to use the latest IT
equipment. Says the company’s IT manager, “The contract has been approved by our
external auditors and our head office, who were impressed with how practical and cost-
effective such a solution has proven to be.”

"We have a duty to ensure that students are able to utilise the latest technology."
Chief Director of Finance of a South African Tertiary Institution

Established at the turn of the century, this tertiary institution has 10 000 full-time and 5 000
part-time students and offers students a spectrum of courses including education,
management, commerce, applied sciences and engineering. A large portion of the institution’s
IT base had become obsolete. There was a need to upgrade technology in the classrooms,
but the institution wanted to avoid falling into an obsolescence trap again. They were also
hesitant to tie up cash in the outright purchase of assets and the disposal of the technology
that reached the end of it’s life cycle had also become a problem.

RenWorks addressed the institution’s concerns surrounding large capital investments and
equipment obsolescence by supplying it with desktop computers. The computers will be
rented to the institution for three years after which RentWorks will be responsible for the
disposal of the equipment. Rental has removed the institution’s burden of equipment
procurement and management.
“We now have a fleet of up-to-date desktop computers for academic and administrative use
that is backed by a comprehensive warranty. Standardising our equipment also minimised the
required support effort,” says the institution’s Chief Director of Finance.