28 October 2015

New Zealand firms bullish on plant and equipment investment

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New Zealand firms bullish on plant and equipment investment

Computer technology programming code with for plant and equipment

The turnaround in plant and equipment investment in the June quarter is expected to continue through to the end of the year, with new research revealing that four in ten (43.1%) New Zealand businesses intend to acquire new equipment in the months ahead.

The research, which examines expectations for future investment, found the SME segment is the most optimistic, with one in two planning to increase their asset base by an average of 7.3%. Corporates are less upbeat, with 33.0% indicating they will increase their asset base during the December 2015 quarter.

Interestingly, 40.1% of firms are focussed on replacement assets, 30.9% on new assets and a further 28.9% on a combination of both.

These results contrast with the expectations of Australian-based firms, where just one in four businesses intend to invest in new plant and equipment in the final quarter of the year. They also follow the most recent data from Statistics New Zealand, which showed a sharp turnaround in plant, machinery and equipment investment during the June 2015 quarter. Investment in this area rose 10.6%, making it the biggest quarterly rise since September 2010, and a substantial shift from the 9.8% fall that occurred during the March 2015 quarter.

According to Daniel Blizzard, Chief Executive Officer at Alleasing, we are seeing significant differences in the confidence level of businesses on either side of the Tasman.

“After an extended period of growth, the New Zealand economy is feeling the impact of a number of demand drivers, including a slide in dairy prices, fluctuating commodity prices, slowing demand by major trading partners and concerns over surging residential property in Auckland and Christchurch,” said Mr Blizzard.

“Despite these headwinds, New Zealand businesses are considerably more optimistic than Australian firms and their confidence is flowing through to investment expectations.

“The low interest rate environment in both countries should be conducive to business investment and indications suggest we will see a continuation of spending on plant and equipment in New Zealand in the coming months.

“In Australia however, the record low cash rate of 2.0% appears to be doing little to stimulate investment, but early confidence indicators suggest the recent changes to Federal Cabinet may be the stimulus required to spur businesses into action.”

Also positive for the New Zealand economy, the majority of businesses (73.7%) seeking to invest in plant and equipment intend to source equipment locally, rather than tapping overseas markets. This approach is primarily driven by the fluctuating New Zealand Dollar.

The new research also highlights that the move to invest in new plant and equipment is well overdue, with three in four businesses currently suffering the productivity draining impacts of assets sweated past their useful life.

There are variances between markets, with the figures reported by New Zealand businesses (75%) higher than those noted by Australian firms (63%).

A greater portion of small firms in New Zealand are affected by outdated technologies, at 79.4% (micro), 78.4% (SME) and 75.4% (corporate) respectively. Broken down by geography, 79.1% of Auckland based companies and 73.3% of Wellington based enterprises are negatively affected.

The detrimental impacts stemming from outdated technologies are wide and varied, but the most commonly cited are higher maintenance costs (69%), higher origination costs (57%), capacity constraints (35%) and slower delivery of products and services (33%).

“Productivity growth, particularly in OECD economies, has been relatively weak over recent years,” said Mr Blizzard.

“At an aggregate level, New Zealand has performed relatively well, but certainly there remains a portion of firms that haven’t seen the positive impact new technology can have on an organisation from a productivity standpoint. Our research highlights that fact, with three in four businesses indicating they need to bring new equipment online.”

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 New Zealand businesses, as well as expectations for future investment. Circa 450 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 corporate ($20-100M annual turnover). The inaugural index was run during July and August 2015 – 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.

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