The Hidden Cost Of Corporate Transformation

This story features BRAMBLES LIMITED, and other companies.
For more info SHARE ANALYSIS: BXB
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

• Digital transformation and AI are forcing companies to increase their spending
• Short-term costs are certain, but future benefits are not
• Corporate transformation spending in Australia projected to hit US$84.7bn by 2033
• Potential limits for dividend payments

By Lily Brown

For much of the past decade, “digital transformation” has been a familiar slogan. For Australia’s major industrial companies, it has turned into a significant capital commitment.

Across logistics, transport, packaging and manufacturing, automation, predictive analytics and cloud-based systems have shifted from optional upgrades to essential tools for staying competitive.

But the financial impact of this shift is starting to appear in more places than simple capex lines — through delayed amortisation, higher capital intensity and tighter free cash flow.

Investors who still view digitalisation as a straightforward growth driver may need to rethink that assumption.

The transition is real, but the payoff is slow and financially disruptive in many cases.

The Macro Backdrop: Digital Spend Outpacing Plant Investment

Australian industrials are directing more capital toward technology than ever. The Australia digital transformation market reached US$18.5bn in 2024, and IMARC Group expects it to hit US$84.7bn by 2033 at a CAGR of 18.4%.

Meanwhile, expected growth in global manufacturing and transportation infrastructure sits at just 5–9%.

The pace of technology investment is clearly overtaking traditional plant and equipment spend.

Brambles ((BXB)) noted in its FY25 result it completed its 2023 goal of deploying analytics systems to identify stray assets and predictive models to recover lost assets across five markets.

But achieving this requires companies to commit significant upfront spending. Brambles, for instance, reported digital transformation costs in FY25 were -US$111.7m, up -US$11.4m year-on-year, reflecting continued investment in technology and analytics.

Such costs are something investors need to scrutinise.

Where the Costs Hide

Digital transformation doesn’t leave behind physical assets. Costs are spread across capitalised software, expensed items and restructuring charges, making them harder to spot.

• Downer EDI ((DOW)) reported -$19.1m in amortisation of IT assets in its FY25 results.
• Aurizon Holdings ((AZJ)) recorded about -$30m in transformation capital, mostly linked to automation and ERP spending, with limited disclosure on productivity gains or payback timelines.

The underlying message is that near-term profitability may be overstated.

Companies are paying for these projects now, but benefits may take years to materialise.

Margin Risk and Deferred Payoffs

PwC estimates automation projects, particularly AI, require several years to deliver full payback.

Meanwhile, training, system downtime and parallel operations push margins lower before benefits appear.

Winners and Laggards: Spotting the Difference

Digital spend varies dramatically in quality. Some ASX industrials can quantify their gains; others offer vague promises.

Clear execution examples include:

• Brambles increased return on capital invested to 21.9% (up 1.4 percentage points year-on-year) and lifted operating cash flow by US$152m through asset-efficiency programs.
• Cleanaway Waste Management’s ((CWY)) route optimisation has delivered measurable savings in fuel and logistics costs.
• Amcor’s ((AMC)) adoption of digital twin technology has sped up sustainable packaging development and reduced costs.

Investors should prioritise companies that provide quantifiable digital payback data. Historically, those that do —like Brambles, Cleanaway and Amcor— tend to outperform in both free cash flow (FCF) and valuation stability.

Capital Markets Implications

For yield-focused investors, digital investment is increasingly visible in cash conversion.

In FY25, Brambles demonstrated how digital transformation investments can be reflected positively in cash conversion metrics despite ongoing transformation costs.

The company reported free cash flow before dividends of US$1.095bn, up US$212 million year-on-year, driven by higher earnings and lower capital expenditure timing effects linked to asset efficiency investments.

This strong free cash flow generation underwrote a 17% increase in total dividends and supported a US$400m on-market buyback plan announced for FY26.

Brambles specifically highlighted its digital initiatives enhanced asset efficiency and productivity, contributing to cash flow stability and enabling shareholder value creation while continuing to invest heavily in transformation.

For yield investors, this demonstrates how robust free cash flow can coexist with significant digital capital and operational investments, making digital spend materially visible in cash conversion outcomes.

Meanwhile, Citi expects global AI compute demand to require US$2.8trn in spend by 2029. If amortisation and recovery lag expectations, companies may face pressure to slow or reduce cash returns to shareholders.

Dividend investors should note: rising digital investment with flat earnings guidance could squeeze payout capacity in FY26–27.

The New Industrial Premium

Digital transformation is no longer a strategy project but a core part of industrial cost structures. The key for investors is assessing the quality of digital spend, not the size.

Digital investment remains essential for long-term competitiveness, but today it is a quiet drag on cash flows.

Investors who adjust for hidden digital capex and delayed returns may find that the real advantage lays not with the companies spending the most, but with those executing the best.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms