Servicing the new economy: Maximising productivity for business services and facilities management

December 13, 2016

Australia’s business services and facilities management industry has enjoyed steady growth from the rise of outsourcing, across government and the private sector. However, with the industry itself growing slower than the overall economy and competition intensifying, operators need to maximise productivity and their capital arrangement to achieve profits and revenue growth.

The latest snapshot by IBISWorld points to an upturn in the industry’s fortunes after a recent sluggish period. The September 2016 report predicts annual revenue growth of 3.4 per cent through to 2022, this follows growth of just 0.5 per cent from 2012 to 2017.

Revenue growth will be supported by increased spending by the education and health sectors, along with a rebound from mining and further outsourcing by all levels of government.

However, IBISWorld expects competition from outside the industry to further intensify. Construction, infrastructure and property management firms are likely candidates given their ability to provide integrated solutions and offer competitive pricing.

The report suggests larger industry players will gain increasing market share at the expense of small regional operators because economies of scale or range of networks are needed to pass on the lowest cost to clients. Firms will need to continue reining in costs by optimising supply chains and procurement operations while exiting from loss-making arrangements.

Key success factors for industry players include scope of capabilities, particularly for large tenders; flexibility in shifting resources from one project to another; an ability to self-deliver rather than rely on subcontractors; and effective management of the workforce, which can improve efficiencies and the bottom line.

While some parts of the industry experience low capital intensity levels (an estimated $0.04 is invested in capital items for every dollar spent on wages), other industry sectors rely on asset solutions to finance equipment, with the main capital costs relating to specialty equipment.

However, using innovative finance solutions which transition asset spending from capex to opex can free up cash for the necessary investments to help drive productivity improvements. These include improved computer diagnostics on internal equipment, allowing for more accurate and quick maintenance, while project management systems allow firms to more easily map out the asset life cycle of facilities and components. Better telecommunications can also allow facilities managers to centralise the operation of numerous projects and improve efficiencies.

Alleasing recently partnered with one of the world’s leading business services companies, which specialises in the provision of security products, services and solutions. The organisation operates in partnership with governments and businesses to provide integrated solutions to security challenges, and has a contractual mandate to refurbish its state of the art, secure transportation vehicles on an ongoing basis. The vehicles are highly specialised; containing security, air conditioning and custom built video technology which needs to be constantly maintained to be compliant with ever-changing regulation.

The organisation partnered with Alleasing to fund the build of its new vehicles and ongoing refurbishment of its existing fleet. We facilitate this by funding all works and any related soft costs regarding the refit and government contract requirements. This is valued by our client because it does not require the organisation to carry the depreciating vehicle on its balance sheet, or utilise its own funds at any stage of the maintenance or refurbishment processes.

The latest Alleasing Equipment Demand Index (the Index) reveals that 60 per cent of businesses have no plans to increase their asset base, with just 26 per cent planning increased spending and 13 per cent eyeing a decrease during the December 2016 quarter. However, businesses in New South Wales (NSW) and the Australian Capital Territory (ACT) are more bullish, with the number of such firms planning to increase their asset base rising by 35 per cent in the past two years, compared to significant falls in the traditional mining states of Queensland and Western Australia.

With the bulk of facilities management firms headquartered in NSW and the ACT (nearly 57 per cent combined), including some of the largest players such as Broadspectrum, Compass Group, ISS and Serco, the Index data suggests the industry is upgrading its asset base overall in its key demand areas.

To achieve further revenue growth and maximise productivity, Australian CFOs and corporate treasurers in the business services and facilities management industry need to reconsider their capital structure. This is a critical step in determining whether their company is well placed to facilitate investment in greater productivity capacity and take advantage of new opportunities, particularly amid the forecast industry upturn.

Contact us to find out more information about capital solutions.

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