As the current financial year draws to a close, business information analysts at IBISWorld explain which industries are set to have a bumper 2017-18, and which are likely to struggle.
“Industries that are expected to grow in the next fiscal year include railway track construction, car sharing providers, personal welfare services, uranium mining, and internet publishing and broadcasting,” explained Nathan Cloutman, IBISWorld senior industry analyst.
“Other industries will have a more difficult year and may have to adapt to challenging operating environments, including cereal grain wholesaling, building societies, brown coal mining, women’s and girls’ wear manufacturing, and magazine and directory publishing.”
Industries set to fly in 2017-18
|Industry||Revenue 2016-17 ($m)||Revenue 2017-18 ($m)||Revenue growth 2017-18 %|
|Railway track construction||5,705.1||7,611.2||33.4|
|Car sharing providers||83.6||102.7||22.8|
|Personal welfare services||15,450.0||17,700.0||14.6|
|Internet publishing and broadcasting||1,792.0||1,953.1||9.0|
Railway track construction
The railway track construction industry is set for accelerated growth during 2017-18, due to landmark rail developments in Sydney and Melbourne. The New South Wales government is promoting several large public-private partnership rail developments that will transform how Sydney commutes. Work is currently proceeding on the Sydney Metro Northwest project, which includes Australia’s longest railway tunnels and will eventually connect under the Sydney Harbour with the Sydney Metro City & Southwest project to create a comprehensive north-south rail network. Track laying activity is also gathering momentum on Sydney’s new $2.1 billion CBD and South East Light Rail project, running north from Central Station to Circular Quay, and south-east through to Randwick and Kingsford.
In Victoria, track construction is currently focused on the publicly funded $6.0 billion Level Crossing Removal Project, which is aiming to remove 50 dangerous and congested level crossings from the Melbourne metropolitan rail network by 2022. Work is also proceeding on the eight-kilometre extension of the South Morang metropolitan rail line through to Mernda by 2019.
Car sharing providers
Revenue for the car sharing providers industry is expected to increase by 22.8% in 2017-18. Rising urbanisation in Australia’s major cities, such as Melbourne and Sydney, has made it more difficult for consumers to purchase cars outright and find adequate parking spaces. Rising demand for cost-efficient and convenient inner-city transport is expected to drive revenue growth over the coming year. The industry has also benefited greatly from advances in mobile technology and the internet, as most car sharing companies now have mobile apps.
Local governments have supported the car sharing providers industry, as car sharing is viewed as way to reduce congestion, and noise and air pollution. The number of enterprises in the industry has grown strongly over the past five years, as new participants have entered the industry to capitalise on strong demand and revenue growth.
Personal welfare services
The personal welfare services industry provides community and welfare services to disadvantaged individuals, including children, the aged and those with long-term disabilities. Australia’s ageing population, coupled with government policies that aim to help elderly and disabled people stay in their own homes, is promoting growth in home-based and other community-based care.
The industry indirectly benefits from government funding programs, including aged-care assistance and the National Disability Insurance Scheme. These programs underlie the industry’s robust growth rate forecast for 2017-18, with the industry expected to generate $17.7 billion in revenue, up 14.6% on the previous year.
Several inter-related socio-economic variables are also driving the industry’s growth. Over the past five years, rising unemployment and underemployment have increased the incidence of family breakdowns, disparity in household incomes, single-parent families, single-person households, drug dependence, alcohol abuse and gambling addiction. Many of these factors will drive demand for the industry’s services in 2017-18.
Although Australia only accounts for about 10% of global uranium output, it contains approximately 31% of global reserves. Furthermore, a large percentage of Australia’s uranium reserves is of a high grade, making it a desirable energy input in export markets. As Australia does not have any nuclear power plants, all of the industry’s mined output is exported.
Nuclear energy projects across China and India are expected to continue growing and expanding, greatly benefiting the uranium mining industry in 2017-18. Increased demand from these countries is projected to push mining volumes up by 9.9% for the year, to almost 8,000 tonnes. However, continued flat uranium prices are likely to see the industry’s revenue increase by a similar rate at 9.8%, to just under $1.0 billion. The industry has endured lower global uranium prices since the 2011 earthquake and tsunami disaster at the Fukushima nuclear reactor in Japan.
Internet publishing and broadcasting
Revenue for the internet publishing and broadcasting industry is forecast to rise by 9.0% in 2017-18, continuing on from several years of strong growth. Firms in the industry continue to benefit from advertising services migrating towards online media. Major players such as Seek, REA Group (Realestate.com.au) and Carsales.com are driving the industry’s strong performance, as they each hold a commanding market share in the job advertisement, real estate and vehicle sales segments, respectively. Other players, such as subscription video on demand services Netflix and Stan, are also contributing to the industry’s expansion as Australians consume more online media. The prevalence of Facebook and Google, which take up the lion’s share of online advertising, act as a strong external threat to the industry’s growth.
Media buying agencies are attracted to these companies’ array of consumer data, and their ability to target certain demographics. Facebook and Google’s popularity has sent online advertising revenue offshore, which has prevented the industry’s growth from being more pronounced.
Industries set to fall in 2017-18
|Industry||Revenue 2016-17 ($m)||Revenue 2017-18 ($m)||Revenue growth 2017-18 %|
|Cereal grain wholesaling||21,684.1||17,832.8||-17.8|
|Brown coal mining||728.1||667.2||-8.4|
|Women’s and girls’ wear manufacturing||425.7||390.6||-8.2|
|Magazine and directory publishing||1,922.8||1,786.3||-7.1|
Cereal grain wholesaling
Wholesalers play a major role in distributing grain from farmers to end markets, both domestically and internationally. The supply of cereal grains from the grain growing industry is the most important factor affecting wholesalers’ revenue. Grain production depends on annual rainfall and natural disasters, such as floods, cyclones and bushfires. As a result, industry revenue is highly volatile. Revenue for the cereal grain wholesaling industry is expected to decline by 17.8% over 2017-18. This substantial decline in revenue follows a bumper crop in 2016-17, when cereal grain production volumes skyrocketed. Over 2017-18, Australian grain production volumes are expected to drastically decline, decreasing demand for industry services. In conjunction, an oversupply of grain is anticipated to occur in the global market, threatening global grain prices. This will place further downward pressure on industry revenue over 2017-18.
The building societies industry has been part of Australia’s financial landscape for a long time, reflecting the dream of many Australians to own their own home. However, regulatory requirements have restricted the industry’s ability to adapt to the ever-increasing complexity of financial markets over the past decades. Compared with other Australian deposit-taking institutions, building societies have significantly less access to capital due to their member-owned structure, which restricts funds available for investment to member-contributed funds. Consequently, major building societies such as the Heritage Building Society (now known as Heritage Bank), Hume Building Society (now Hume Bank) and Wide Bay Australia (now Auswide Bank) have converted to banks to increase the amount of capital available for investment.
The exit of these players has removed significant amounts of revenue from the industry over the past five years, increasing the importance of the four remaining building societies. The largest of these is Newcastle Permanent Building Society Limited. Newcastle Permanent has reported revenue declines since 2012-13, indicating that while its asset base is growing, significant competition from banks and low interest rates have made it difficult for the company to translate asset growth into revenue. Consequently, IBISWorld expects the building societies industry to contract by 17.1% in 2017-18, following years of declines in the number of industry operators.
Brown coal mining
The closure of Hazelwood power station, operated by Engie, on March 31, 2017 has dramatically affected the brown coal mining industry. This station was Australia’s largest emitter of greenhouse gases, producing approximately 3% of all emissions, and was also one of the largest producers of Victoria’s brown coal-derived energy. It was also only one of three operators in the industry. The major effects of the Hazelwood closure are expected to occur in 2016-17, with industry revenue declining by 24.2%. However, the full closure of Hazelwood isn’t expected to occur until 2017-18. Consequently, industry revenue is anticipated to decline by 8.4% in 2017-18, to reach $667.2 million. As a result, AGL and EnergyAustralia will become the only firms left operating in the industry.
Women’s and girls’ wear manufacturing
The women’s and girls’ wear manufacturing industry has suffered over the past five years, due to fierce import competition and difficult retail conditions. Industry revenue is expected to decline by 8.2% in 2017-18, to be worth $390.6 million. Local manufacturers have struggled to compete with international competitors that have significant cost advantages. Low wage and capital costs in Asia, particularly China, have encouraged companies to move production offshore. Furthermore, clothing retailers are increasingly sourcing products directly from these low-cost overseas manufacturers, further constraining industry growth.
Poor retail conditions have also affected the industry, as volatile consumer sentiment has decreased discretionary spending on clothing. Consumer sentiment is anticipated to decline in 2017-18, decreasing domestic demand for women’s and girls’ wear. This is expected to exacerbate price-based competition at the retail level, resulting in retailers demanding lower prices for clothing. As domestic manufacturers are typically unable to compete based on price due to high local wage and operating costs, these retailers will likely increasingly turn to cheaper offshore alternatives.
Magazine and directory publishing
Revenue for the magazine publishing and directory publishing industry is expected to fall by 7.1% in 2017-18. Magazines earn revenue from multiple sources, including printed copy sales, subscriptions and advertising. Due to Australia’s small population, most magazines have traditionally relied on advertising revenue rather than copy sales to remain profitable. Most magazines focus on specific topics that appeal to certain demographics. The industry has struggled to adapt to a changing revenue model. Online platforms, such as Facebook, allow advertising agencies to reach their clients’ target audience more efficiently and often at a lower cost. This trend, coupled with falling readership numbers, has compounded the industry’s troubles and is expected to cause revenue and profitability to significantly decline in 2017-18. The recent closure of several high-profile print magazines, such as Bauer Media’s Cleo magazine in 2016, highlight the industry’s problems, as readership bases and advertising revenue continue to decline.
For more information about these industries, visit www.ibisworld.com.au.
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