The latest Alleasing Equipment Demand Index (the Index) for New Zealand, So many assets, so much potential, issued in February 2017, shows businesses expect to substantially grow their asset base this year. This is against a positive economic backdrop, with the New Zealand economy turning in economic growth of 3.6 per cent, one of the highest in the developed world.
In a first for the Index, more than half of the 250 businesses surveyed indicated they have plans to increase their asset base in the March quarter of 2017.
The results show 51.2 per cent of respondents have plans to increase their asset base by an average of 8.9 per cent in the current quarter. This is the first time the quarterly increase has moved over the 8.0 per cent level. Just 3.0 per cent of businesses have plans to lower their asset base, by an average of only 3.4 per cent.
This is also the first time the Index has included responses from executives in larger corporate businesses, which are defined as those turning over between NZ$100 million and NZ$250 million annually.
This was the most positive group of all surveyed for the Index. Of this group, a healthy 56.9 per cent indicated they want to add to their asset base in the first part of the year.
SMEs are also bullish about their plans to expand their asset base. A majority (55.2 per cent) of businesses with an annual turnover of between NZ$5 million and $20 million intend to bump up their asset base in the March quarter.
Lower corporates (those with revenue of NZ$20 million to NZ$100 million) are the least positive, with a smaller 41.5 per cent planning to boost their assets in the first quarter.
From a regional perspective, businesses in Auckland are the most bullish of all, with 53.4 per cent indicating plans to increase assets. In Wellington 48.9 per cent of businesses were planning to invest in assets, while this figure was 46.9 per cent for Christchurch.
Given its reliance on capital-intensive equipment and dominance of the economy, it’s no surprise the highest anticipated demand for new assets came from the agricultural sector. An impressive 62.5 per cent of businesses in this sector aim to invest in assets this quarter. Following suit, 51.4 per cent of businesses in the manufacturing sector are also looking to buy assets this year.
However, the survey shows Kiwi businesses lease a relatively small proportion (16.0 per cent or NZ$128 billion) of their assets currently. Moreover, 14.3 per cent of businesses say unproductive assets hamper their growth.
This indicates there is a substantial opportunity for New Zealand businesses to leverage their balance sheets to invest in new plant and equipment.
Pleasingly, the survey indicated there is considerable appetite among businesses to change their capital structure, with 13.1 per cent stating they would like to refinance their existing assets through new capital structures.
However, nearly 19.6 per cent of the businesses surveyed said capital constraints were restricting growth. Both the small and big end of town are affected by constrained access to capital, with more than 20.0 per cent of both groups naming lack of capital as a concern. This is in contrast to just 17.1 per cent of mid-market businesses.
This reinforces the opportunity for New Zealand businesses to ensure they are making the most of their capital structure, to help support their operations while economic conditions are relatively benign.
NB. The research and publication of the Equipment Demand Index was conducted under Maia Financial’s previous name, Alleasing.