Page 27 - Climate Control News magazine March 2022

Commercial Air Conditioning
TIGHT CONTRACTING MARKET
COVID-19 will hit smaller contractors the hardest with the market likely to shrink this financial year.
IBISWorld said industry participation is expected to decline at an annualised 1.5 per cent over the five years through 2021-22 to total 6,225 businesses, sliding from the peak at 6,866 enterprises in 2019-20.
This decrease mainly reflects the exit of many small-scale contracting enterprises due to weaker demand for non-essential repair and maintenance services during the current year.
Households remain a large market for air conditioning and heating
operators, particularly for small-scale firms focusing on localised areas.
The industry’s fragmented structure is demonstrated by the prevalence of small-scale businesses.
The vast majority of industry enterprises employ fewer than 20 people, including a significant share of non-employing businesses (40.6 per cent), which mainly comprise sole proprietors and partners.
Approximately 40.2 per cent of industry enterprises generate annual revenue of less than $200,000, while the top 13.5 per cent of businesses generate more than two million dollars.
FRESH DISRUPTIONS
Business leaders are moving to a ‘living with COVID’ footing after two years of massive disruption.
In a survey of CEO expectations and plans for 2022, participants said they expect to face fresh disruptions from COVID-19 this year.
The survey of 346 business leaders was undertaken by the Australian Industry Group (Ai Group).
The employer body’s chief policy advisor, Peter Burn, said there has been a significant contraction in activity in the construction market at the start of 2022.
“Despite a lift in new orders for commercial construction, across the broader industry new orders were dragged into contraction by a sharp reduction in orders for apartment buildings and a smaller drop in orders for houses,” Burn said.
“As they have done for some time, builders and constructors reported labour shortages although in this period the unavailability of existing staff who were COVID-positive or required to isolate exacerbated the problem.”
However, the industry is forecast to gradually recover over the next five years on the back of growth in the residential building market from 2023/24 onwards.
“Over the five years through 2026-27, industry revenue is forecast to increase at an annualised 2.9 per cent to reach $9.7 billion,” according to the report.
Many businesses have aimed to protect their cash flow and profit by securing ongo- ing repair and maintenance contracts over the past five years. However, greater sophis- tication in building information modelling (BIM) by building owners has increased competitiveness in the facilities manage- ment market.
This trend has constrained prices and profita- bility for both large and small providers.
Building managers are in a powerful position when tendering for maintenance contracts and many favour short-term maintenance arrangements that pass on a greater risk
burden to industry operators.
“The industry's profit performance is
forecast to strengthen over the next five years, in response to the improved de- mand for installation services in the res- idential building and infrastructure markets, which is anticipated to offset subdued demand from the non-residen- tial building market,” the report said.
The industry derives over half of its revenue from installing, maintaining and repairing HVAC systems in com- mercial and industrial buildings.
Australia’s air conditioning and heat- ing services industry has low market share concentration, according to IBIS- World, with the four largest players ex-
“ONE SWEET SPOT IN THE MARKET HAS BEEN REFRIGERATION.”
pected to account for less than 20 per cent of industry revenue in 2021-22. The largest players tend to service commercial and industrial mar- kets, and therefore receive ongoing contracts for continued maintenance and servicing of air conditioning and heating equipment.
Profit is expected to account for 4.9 per cent of industry revenue in 2021-22, and has fluctuated widely in response to changing demand condi- tions in downstream commercial and industrial property markets.
Over the past five years, the industry's profit margin has narrowed, principally stemming from the weaker demand following the outbreak of the COVID-19 pandemic.
Wage costs often differ between small busi- nesses and larger operators, as sole proprie- tors and partners tend to draw an income di- rectly from operating profit. This income can vary depending on the volume of work done in any given year.
Conversely, larger firms pay wages to staff to have a workforce available at all times, while subcontractor payments represent variable op- erating costs.
Direct employment costs are expected to ac- count for 28 per cent of industry revenue in 2021- 22, and have risen as a share of revenue over the past five years. This increase has been mainly due to employment and wages declining at a slower rate than revenue during the current year
as a result of the COVID-19 pandemic. Due to the current downturn in de- mand, firms are likely to shed non-per- manent subcontracted labour ahead of
permanent employees.
One sweet spot in the market has
been refrigeration. This segment has ris- en as a share of industry revenue over the past five years, which partly corre- sponds with the increase in retail store construction, notably of supermarkets and food preparation facilities.
For a copy of the report email inf o@ IBISWorld.com
LEFT: The pandemic has been particularly tough for smaller operators.
CLIMATE CONTROL NEWS MARCH 2022
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