EXECUTIVE INTERVIEW : Robert Spano, Chief Executive Officer - Alleasing
- Total equipment finance demand in Australia reaches 85 billion dollars.
- Four out of ten businesses plan to acquire motor vehicles in the next quarter.
- 78.2 percent of businesses are sourcing their equipment from local manufacturers.
- Financing non-core assets is essential for effective capital management and growth.
How important is it for businesses to focus on their liquidity needs and working capital?
Fundamentally, the organisation’s capital requirements is a huge issue and cash is a big part of that capital management. The way we manage our cash and the way we invest our cash is fundamental for success.
You have just released the third round of the equipment demand index, what is the current level of equipment finance demand in Australia?
The total demand is around 85 billion dollars on a per annum basis. We roughly get about 60 percent of that.
And of course that would be an outcome of productivity?
There is an element of productivity attached to that. We say that productivity gains are best obtained through the investing in capital equipment that is required to keep businesses on the move, may it be truck, motor vehicles, or IT. The newer the equipment, the more productive we are able to be with those assets.
What we found is that companies who didn’t invest in equipment in the past couple of years, due to GFC and the economy, have now started to look at replacing their equipment.
When the first equipment demand index came out, businesses are buying new equipment, now they’re replacing their existing ones.
If businesses are not replacing their equipment, how much is it negatively impacting their businesses?
It will increase productivity and will free up cash to be reinvested in more important areas such as R&D and HR.
When they do replace their assets, what are some of the most popular items?
The biggest asset without the shadow of a doubt is motor vehicles, which is also the biggest slice of the market. IT, is a close second. Then manufacturing and mining equipment. We’ve seen a slow-down in the mining industry, so mining equipment has curtailed and manufacturing has always been a struggle. But the majority of assets, among business both big and small are motor vehicles and IT.
What are some of the ways companies are paying for these?
A major percentage use finance. Operating lease is a major component, around 30 percent, in the motor vehicle and IT space.
Is the falling Australian Dollar making lives easier or harder for Australian businesses?
What we’ve found is that some of the companies are turning towards local manufacturers so there has been an increase in that local demand. Of course that has been more expensive, so financing options has been coming in to that.
Of course, this has had a significant impact on business confidence. At what point are we currently situated in the business cycle?
We’re in a very interesting stage. It’s a transitional period, where we’ve come out of a dormant period and there’s now a desire to get quite aggressive. But there’s also concerns on how the government is running its budget and the struggle that it’s having with the senate. And the falling of interest rate is also a reflection on concerns of demand, which is a huge issue.
So there’s a general lack of confidence in the business community, but everyone has the desire to get out of where they’ve been in the last five or six years. Now, we just need more confidence around that.
I think the world market is also having a bit of a struggle but USA coming back on track has been positive. For us, I think Asia has always been positive. There has always been a demand from Asia that has made Australian businesses more confident.
Lastly, what are some of the action points?
At the moment, Australian businesses need to keep investing in themselves for the growth. We also need to be aware of where we spend our money and where we capital manage. I’m a big believer in financing products that are not core to your business, and using your cash for your core products.
When you’re delivering food for example, the core product is food, not the motor vehicle. If we have the most efficient method to get there, it will be better for the economy and from a cost perspective.
I certainly believe that financing non-core assets is essential.
The next round of the Alleasing Equipment Demand Index will be released in June 2015