A boost to productivity and investment is on the horizon, with Australian businesses set to increase their asset base in the first quarter of next year, according to new research.
The latest Alleasing Equipment Demand Index reveals that the number of Australian businesses intending to acquire assets over the next quarter has increased by 21 percent since August, with almost three in ten firms planning an increase in the coming quarter. Government and businesses turning over between $5 and $100 million are most bullish, with 39.5% and just under 32% respectively intending to acquire new assets. Among Micro businesses with turnover of between $1 and $5 million, the figure is lower at 23 percent.
Of those businesses planning to increase their asset base, 16% intend to use leasing, up from 9% in August. Lending finance indicators from the Australian Bureau of Statistics support this trend, with data showing the total value of lease finance has increased steadily since Q4 2013. The most recent monthly trend series data is also positive, showing a 1.2% increase month on month in September and a 16.6% increase year on year.[i] The trend in the value of commercial fixed loans for plant and equipment is more variable, up by less than 1% year on year in the September quarter and down 7% month on month.
The Equipment Demand Index indicates firms are looking to address the detrimental impact of un-productive assets on their operation. Fifty eight per cent of firms indicate this is an issue, however there is a significant difference across firm sizes. A greater percentage of micro (63%) and SME (68%) firms are impacted than larger corporates (34%) and government agencies (45%).
According to Robert Spano, Chief Executive Officer at Alleasing, we may have reached the turning point we’ve been looking for in the business investment cycle.
“While the economy continues to tick along at below trend growth levels, the battle for market share is heating up,” said Mr Spano.
“The data we are seeing now suggests that businesses are conscious of being left behind by their competitors and consequently, asset acquisition is on the agenda in early 2015.
“Our data tells us that operating lease is favoured by 32% of firms that intend to acquire assets in the New Year, while outright purchase is favoured by 30%. ABS data shows a similar trend, with commercial loans for plant and equipment inconsistent however, actual data for lease finance commitments has been trending upwards since the fourth quarter of last year.”
The assets in greatest demand include vehicles (cars/trucks) and IT&T equipment. A trend which is also supported by the most recent ABS data. The value of electronic data processing equipment (EDPE) and office machines (OM) on lease finance increased by 42% and 6.9% respectively month on month in September.
Positively for Australian suppliers, two thirds of the assets acquired will be sourced domestically, a further 20 percent from offshore, with the balance of firms yet to make a decision. Despite the fact the exchange rate has come off over recent months, it isn’t the key driver behind sourcing decisions, with availability the primary reason for choosing local suppliers.
“Our research shows that equity investment remains the predominant form of finance across all business sizes,” said Mr Spano.
“Bank loans and trade credit follow and are almost on par, with leasing and hire purchase accounting for ~11.5% of a firms financing requirements.
“This is an interesting result, particularly when earlier Alleasing research revealed that
$85 billion is tied up in outright equipment ownership. A re-balancing of this mix has the potential to allocate funds to more productive means, including investment, talent acquisition, R&D or working capital.”
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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. Each quarter ~1,200 Australian businesses that turn over $1-$100M are 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]Lending finance, Australian Bureau of Statistics, September 2014
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