Sector cools off

Industry revenue over the five year current performance period to the conclusion of the 2009-10 financial year, will show fairly subdued growth when averaged across the five years, increasing at a rate of 2.6% per annum.

This rate shows the fluctuations in earnings over the period however, with remarkable growth early in the period due to strong expansion in non-residential building construction markets. However, some factors have acted to constrain growth in industry revenue, such as the rising value of the Australian dollar over the period, which saw lower demand for this industry’s products on the global market. The price of steel is expected to skyrocket over the same time period, putting upward cost pressures on manufacturers.

The Garnaut Climate Change Review was published in September 2008, putting energy efficiency into the spotlight. Ross Garnaut’s recommendations to reduce carbon dioxide emissions by up to 25% by 2020 compared to 2000 levels will have a positive impact on the demand for more energy efficient products. The Federal Government released a white paper in mid-December 2008, outlining its Carbon Pollution Reduction Scheme. The Government is proposing to phase in this scheme from July 2011, and aims to reduce carbon pollution levels by 25% by 2020 (from 2000 levels).

Industry earnings over the projected five years of the outlook period will bode well, increasing annual growth considerably on that of the current performance period when averaged due to a recovery from the current economic slump.

The average annualised increase in revenue will be 4.4% over the five years ending at the conclusion of the 2015 fiscal year. Indications are that the economy has started to improve in 2009-10, and this trend is expected to continue over the next five years. Consumer sentiment has been growing in 2009-10, and is expected to continue to grow in the early years of the outlook period.

Fuelling growth in industry revenue will be a forecast return to growth within the non-residential building construction market (following a decline towards the latter part of the five years period to 2009-10). The private sector is expected to invest in new non-residential buildings.

As business sentiment, household disposable income increase and the unemployment rate drops, there will be greater demand for commercial buildings such as offices and shopping centres. As these buildings often need to have heating and cooling equipment installed at the time of construction, this will boost demand for this industry’s products. This will see an increase in demand at both the installation and manufacturing level.

Key success factors for operators in the industry:

• Economies of scope. A diversified product range that caters for the needs of specific markets.
• Effective quality control. Quality control, to boost customer confidence and reduce product call-back.
• Having marketing expertise. Strong marketing distribution channels. Project management and marketing skills are required to win sales to major building development projects.
• Undertaking technical research and development. Regulations affecting the type of refrigerants that can be used in air conditioning applications mean that companies need to have the expertise in developing alternatives.
• Access to the latest available and most efficient technology and techniques. Regulations affecting refrigerants and energy efficient implies that companies need access to the latest technology available.
• Provision of superior after sales service. The capacity to provide advice on the heating and cooling problems of customers, through the supply of quality information, products and service.
• Having a good technical knowledge of the product. Manufacturers need to understand the technical side of the product for quality, troubleshooting, maintenance and customer service reasons.

Robert Bryant is the general manager of business information firm IBISWorld.