Australian businesses are being hampered by locked liquidity and a back-log of old, unproductive assets, with new research revealing that $85 billion, or the equivalent of 5.5% of the nation’s annual GDP, is tied up in the outright purchase of equipment. In addition, the productivity of one in two (56%) firms is being detrimentally impacted by outdated technologies, with SMEs more significantly affected than lower corporates, at 66% and 36% respectively.
These are the findings of the inaugural Alleasing Equipment Demand Index, which examines the asset intentions and influencers of Australian businesses turning over between $1-$100 million annually. The research reveals the extent of funds that could be unlocked and utilised for more productive means, including investment, talent acquisition, R&D or working capital.
From an industry perspective, the potential upside for the services sector is significant, with this group maintaining the highest percentage of owned assets. Conversely, the mining sector has the highest percentage of leased assets and lowest percentage of owned equipment.
The Index also found that SMEs, and those based in Western Australia and Queensland, are the most bullish on asset acquisition. Twenty eight per cent of SMEs are planning to increase their asset base by an average of 8% over the next quarter and 48% of these acquisitions are new assets. This contrasts with lower corporates, where 18% are planning to increase their asset base by an average 4.3 percent, with 24% of acquisitions relating to new assets.
Lower corporates however, have a greater focus on asset replacement than their SME counterparts, at 58% and 27% respectively.
According to Robert Spano, Alleasing’s Chief Executive Officer, there is a lot of talk about the investment recovery and its potential to be strong when it comes – this research suggests that the cycle may be turning.
“Asset acquisition intentions for the coming quarter are relatively strong, whether they relate to replacement or new assets,” said Mr Spano.
“This is a positive sign however, the research reveals that more investment is possible if businesses are innovative and find ways to tap into the $85 billion of corporate funds currently trapped in owned assets. If these funds start to shift, we could see a quantifiable difference in Australian businesses and the broader economy.”
While the asset acquisition plans of SMEs signal their growth intentions, they are constrained by access to finance. One in four SMEs indicate that a lack of access to secured funding is a key driver of finance decisions, whereas for lower corporates, the key driver is capital management efficiencies.
Across all groups, businesses which plan to increase assets over the next quarter indicate their decision stems from confidence in their own operation, not the wider economy. Further, the interest rate cycle has a greater influence on acquisition decisions than a business’s own budgetary cycle, with the current low rate environment positively impacting the investment cycle across the three segments.
“The divergent approaches to asset acquisition and drivers are not necessarily a surprise, as access to secured finance for smaller businesses has been an issue for an extended period of time,” said Mr Spano.
“The result is that this segment is finding different ways to support their growth aspirations, whilst managing their budget constraints. Their focus on new assets rather than replacement equipment suggests they see new technology as critical in the innovation stakes and in their battle for market share. This approach supports a push towards greater productivity, with new technologies aiding research and development, as well as improvements in production and operational processes.”
Australia’s small and mid-sized businesses have an estimated $91.8 billion (equivalent to 5.9% of GDP) in leased plant and equipment assets (excluding real estate)i. SMEs have the highest proportion of leased assets, at 9.5%, while 9.1% of their assets are owned outright.
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About the Alleasing Equipment Demand Index
The Alleasing Equipment Demand Index is a quarterly index, which examines the current asset inventory of Australian businesses, as well as expectations for future investment. The inaugural index was run during July and August 2014, with 1,253 Australian businesses that turn over $1-$100M surveyed. These businesses have been broken into three segments: micro business ($1-5M annual turnover), SME ($5-20M annual turnover) and lower corporate ($20-100M annual turnover). The index is executed by East & Partners on behalf of Alleasing.
Alleasing is a leading, independent provider of asset finance and leasing solutions. We have financed billions of dollars of assets for businesses in Australia and New Zealand during our 25 years of operation.
i Based on APRA data and research from East & Partners Australian Asset & Equipment Finance Markets Program
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