With operating margins under pressure, construction companies are looking for ways to increase efficiency and better manage existing core assets.
In the current economic climate, operating margins are under pressure and the focus is shifting from pure asset financing to “access” financing as construction companies are looking for ways to increase efficiency.
This is according to Toni Fritz, head of vehicle and asset finance at Standard Bank, who points out that the prevailing economic climate has led to assets – particularly yellow metal in the construction sector – lying unused in owners’ yards and auction lots. Although this raises the possibility of good deals for those with full order books, many operators are searching for ways of better managing existing core assets and reducing costs.
“The emphasis is changing from linear operations that begin at one point and end with the supply of a defined product at another. Instead, all alternatives of increased participation in the value chain are being looked at as companies assess ways of securing their futures,” says Fritz.
“Where options of expanding in the value chain are limited for some operators, others are examining ways of effectively obtaining access financing. This is done so that they can rather outsource equipment and rent it for the duration of projects, as opposed to purchasing it and being left with holding costs for non-performing assets.”
She further points out that as the focus has turned to maintaining margins and profitability, so has the brand allegiance that used to be a factor in equipment purchases.
“The emphasis has moved to acquiring equipment on its unique ability to undertake tasks, rather than having a uniform, branded fleet across a business, even though this can result in logistical and sourcing challenges. Many are willing to turn from traditional sources in America and Japan in favour of others whose quality may not be as high, but offer much lower prices, meaning that holding cycles become shorter, but less expensive for operators who can take advantage of lower maintenance costs for the duration of a machine’s viable lifespan,” she explains.
“Value for money and sharing of resources so that the agility of the business can be increased have also become a focus in South Africa. This has been characterised by increasing numbers of specialist operators applying for asset finance.”
A banker’s role
These developments are subtly changing the role of a banker to that of a person who facilitates access to finance by helping applicants assess their business plans, checks the sustainability of contracts and then provides the financial assistance required. In many cases this requires looking beyond the traditional requirements regarding collateral required to secure medium- to long-term loans.
“Essentially the banker is becoming an enabler who is required to use financial skills and knowledge of sectors to link people and opportunities as part of his daily functions. The emphasis is on being a partner in the value chain, rather than merely a person providing finance,” states Fritz.
Full thanks and acknowledgment are given to Standard Bank for the information to write this article.