The number of Australian businesses suffering negative impacts from outdated assets has continued to escalate over the past 18 months, with a rise of 16.1% resulting in six in ten businesses affected. These findings come as the latest research reveals that an estimated $124.9 billion of Australian business funds are tied up in the outright ownership of assets, thus hindering productivity and growth as firms fail to unlock valuable capital that could be used for more productive means such as investment, talent acquisition, innovation or working capital.
These are just some of the findings from the latest Alleasing Equipment Demand Index (the Index), which examines the current asset inventory and plans for future investment of Australian businesses. The research also reveals that the average percentage of assets owned outright by Australian businesses has jumped from 7.5% to 8.1% since the inaugural round of research in August 2014. Accordingly, the extent of funds tied up in the outright ownership of assets has increased by 52.2%.
The Index shows that almost two thirds (64.6%) of businesses are negatively impacted by old assets, however a greater portion at the smaller end of town are affected. More than three quarters of Australian micro businesses (75.5%) and as many as 77.1% of SMEs are detrimentally impacted by outdated assets. Conversely, one third (33.3%) of corporates report they are suffering adverse effects as a result of assets sweated beyond their shelf life.
Alleasing Chief Executive Officer Daniel Blizzard said the findings of the latest Index indicate a challenging environment for businesses.
“Australian businesses are being challenged to do more with less – a pressure they have been facing since the Global Financial Crisis,” said Mr Blizzard.
“They need to effectively manage their operations and capital expenditure, yet balance this against the need to be more productive and to grow their business.
“Over six rounds of research, we have emphasised the need for businesses to address the growing backlog of assets that are negatively impacting both their own operation and the nation’s productivity yet the research suggests they remain passive when it comes to addressing this problem, with a considerable 60.9% having no plans to invest in new assets during the March quarter.
“We’ve also seen the value of funds tied up in asset ownership increase yet if businesses used their funds more effectively, they could address their productivity issue and free up funds for other areas of business investment.”
However, there is one sector of the Australian economy that is bucking the national trend. Reflecting surging residential mortgage lending growth, the property industry has the most bullish asset acquisition intentions for the current quarter at 36.1%. The property industry is followed by the personal services sector at 34.4%, which comprises healthcare, equipment maintenance, and professional associations. On a geographic basis, New South Wales based firms are the most bullish on new asset acquisition for Q1 2016 at 31.2%, compared to Western Australia, which declined from 27.3% in Q4 2014 to 15.8% in Q1 2016.
Though the proportion of owned assets remains relatively high at 8.1%, Australian businesses are in a better position than their New Zealand counterparts, where the proportion of owned assets is 14.8%. The clear differentiation between both nations’ asset inventories also flows through to sentiment, as eight in 10 New Zealand firms are suffering the adverse impacts of assets sweated past their useful life, compared to six in 10 Australian firms.
However, New Zealand firms seem more ready to address the issue, with close to half (44.5%) of businesses intending to make an investment in new assets in the current quarter, in contrast to the 26.3% of Australian businesses with the same intent.
“Sentiment between the two nations is mixed, however broader economic headwinds facing both countries are abating. This, combined with lower interest rates and weaker respective dollars, will make way for smoother trading conditions, which should alleviate some pressure. Given many New Zealand businesses intend to make an investment in new or replacement assets, firms in both countries will have to carefully consider funding options to ensure they maximise potential for growth but also allow for the benefits new equipment can deliver,” said Mr Blizzard.
NB. The research and publication of the Equipment Demand Index was conducted under Maia Financial’s previous name, Alleasing.
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. More than 1,200 firms that turn over $1-$100M are surveyed each quarter. 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 inaugural index was run during July and August 2014 – the research 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.