Australian businesses cautiously optimistic
Monday, 27 July 2009 — Australia may prove to be the lucky country for businesses emerging from the global financial crisis, results from an Ernst & Young survey show.
The survey of 380 C-suite and board level executives from corporate Australia in June, compared to results of a similar global study, show Australian businesses have been more confident and more aggressive in responding to the crisis and the changing business landscape than global counterparts.
Ernst & Young’s Corporate Accounts Leader, Patrick Winter, says the results confirm that the impact on Australian businesses has not been as severe.
Of those surveyed, 76% see the impact of the current crisis on profitability as temporary.
“The results show Australian businesses are cautiously optimistic for the 2010 financial year, with far more proactive plans over the next 12 months,” says Winter.
“Access to capital is still difficult, particularly for small and mid-cap companies, however organisations have implemented initiatives to reduce costs and manage cash and working capital more effectively.”
“Many have introduced flexible working practices to help them avoid substantial headcount reduction, with a view to retaining the talent they will need when the market recovers.”
Winter says that while global respondents were primarily concerned with surviving the downturn, Australian businesses are focused on growth strategies.
In the next 12 months, 78% of Australian businesses placed the greatest importance on improving the performance of current assets, 70% are restructuring their business to meet new conditions, and 66% are prioritising taking advantage of the situation to pursue new market opportunities.
“The question now is whether Australian businesses have done enough to prepare for growth and capitalise on the upswing when conditions improve,” says Winter.
While 70% are restructuring their business, this is primarily centred on cost cutting rather than fundamentally realigning business structures and operations.
“The limited availability of debt has led to a gap in buyer/vendor expectations and a stagnant M&A market. These factors are inhibiting the ability of companies to truly restructure by divesting none core businesses, products or divisions.”
While 53% of respondents saw access to capital deteriorate over the past six months, 34% of those with $10 billion or more annual revenue reported improved access to capital in the past six months, reflected in the record capital raisings dominated by the larger ASX-listed companies.
“Many of our discussions with clients in recent months have focused on working capital and liquidity, as the pressure on management has intensified. Our respondents agree – only 15% say that cash is not an issue for their business.”
The survey results show Australian businesses have been more proactive than global respondents around debt finance, including reviewing, monitoring and renegotiating debt covenants and considering alternative sources of liquidity.
However, Australian businesses have been slightly less proactive in building working capital measures into management performance objectives and having an emergency plan for cash release.
“Whether Australian businesses have done enough to sustain their businesses in the short, medium and long-term growth remains to be seen. However the results of our survey suggest we may continue to escape the worst of the financial crisis and downturn.”
Key figures from the survey, The lucky country looks forward - Opportunities in adversity for Australian business, include:
- 76% see the impact of the current crisis on profitability as temporary
- 71% saw an increased ability to reduce costs in their business operations in the past six months
- 92% are currently implementing cost reduction initiatives
- 68% have reduced headcount, but only 38% were undertaking significant employee reduction programs
- 64% are currently implementing some form of business restructuring
- 53% saw access to capital deteriorate in the past six months
- 63% are proactively communicating with lenders, analysts and ratings agencies, compared to 34% globally
- 71% are reviewing cash management and cash flows
- 43% are considering alternate sources of liquidity (disposal of assets, shut down or sale of segments/revenue streams)
- 42% are making an inventory of all debt covenants and monitoring covenant compliance
- 31% are obtaining access to short-term finance facilities/credit
- 38% are building working capital measures into performance objectives of management
- 87% have increased their focus on key accounts
- 59% have narrowed their supplier base to negotiate better prices or terms
- 38% are prepared to use the efficiencies of share service centres for product research and development
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