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Confidence grows - is now the time to move? - EY - Australia

Australasian Capital Confidence Barometer, April 2012

Confidence grows -
is now the time to move?

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Australasia: On which of the following capital management issues is your company placing the greatest attention and resources?

Intra-Asia-Pacific cross border activity as well as inter Asia-Pacific cross border activity is increasingly perceived as a barometer for the global community’s economic health.

In the 6th global survey, we found economic outlook, optimism, business health and willingness to divest or engage in M&A activity varied by market cross Asia-Pacific.

Are markets pursuing growth or maintaining stability?

Singapore Indonesia Malaysia Mainland China South Korea Australasia
58% - pursuing growth 61% - pursuing growth 46% - pursuing growth 64% - maintaining stability 65% - pursuing growth 49% - maintaining stability



Intra-Asia-Pacific cross border activity as well as inter Asia-Pacific cross border activity is increasingly perceived as a barometer for the global community’s economic health.

In the 6th global survey, we found economic outlook, optimism, business health and willingness to divest or engage in M&A activity varied by market cross Asia-Pacific.

Companies are managing their capital differently from six months ago. What are most markets focusing on today?

  Southeast Asia Mainland China South Korea Australasia
October 2011 40% - investing capital 35% - preserving capital
35% – investing capital
52% - optimizing capital 30% - preserving capital
April 2012 36% - investing capital 44% - optimizing capital 68% - investing capital 31% - optimizing capital



(note: We define markets in Southeast Asia to include: Singapore, Malaysia, Indonesia, Vietnam, Thailand, Cambodia/Laos, Phillipines)



There may well now be a window for businesses with a clear growth strategy, who are rigorous in evaluating risk and astute in assessing cross border investment opportunities, to gain a competitive advantage while others sit on the sidelines.

Corporate confidence in the global outlook is steadily improving, Australian and New Zealand companies boast strong balance sheets and are positioned for growth. Despite this increasing optimism, companies are not yet accelerating acquisition plans and are more focused on organic growth.

An improving global economic picture is lifting the confidence of companies globally. Fears of another capital crunch were averted in January/February, as European governments took action to stabilise their financial situation.

The slow but steady improvement in the United States economy continues. Confidence in the sustainability of China’s growth has returned, with growth moderating but remaining healthy and most observers expecting a “soft landing”.

Against this backdrop, Australasian companies boast strong balance sheets, are indicating a focus on growth and a quarter intend to increase employment. However despite this, Australasian businesses remain cautious about pursuing acquisitions and appear content to try to squeeze more from existing assets.

More optimism and confidence in both the local and global outlook is not yet translating into increased M&A activity. A still healthy 32% of companies are now planning an acquisition in the next 12 months, down from 41% in October.

Divestment intentions remain at similar levels to six months ago, with 23% of Australasian businesses intending to make an asset sale in the next 12 months.

This caution may be driven by lingering concerns this could be another false start on the road to global economic growth. It may also reflect concern about increasing regulatory change and the complexity of minority government.

It also seems Australasian companies may be more cautious than their global peers. While 30% — twice as many as in October — of Australasian businesses now believe the global economy is improving, half of global companies are confident of an improving global economy. Significantly more Australasian companies also believe their local economy is improving, 46% now, up from 34% six months ago.

Is now the time for early movers and strategic buyers to gain a competitive advantage over more cautious competitors? If confidence continues to grow, M&A activity will quickly follow and pent-up demand for growth will likely see a rush for quality assets.

There may well now be a window for businesses with a clear growth strategy, who are rigorous in evaluating risk and astute in assessing investment opportunities, to gain a competitive advantage while others sit on the sidelines.

The generally improving outlook for the global and Australasian companies reported in this barometer is likely to result in higher levels of transaction activity in the second half of 2012.



Pip McCrostie Pip McCrostie

Global Vice Chair,
Transaction Advisory
Services
Graeme Browning Graeme Browning

Oceania Managing Partner,
Transaction Advisory
Services


About this survey

EY’s Capital Confidence Barometer is a regular survey of senior executives from medium to large companies around the world conducted by the Economist Intelligence Unit (EIU).

The respondent community is comprised of selected EY clients and contacts and regular EIU contributors.

This snapshot of our findings gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agenda.

Profile of respondents
  • Panel of over 1,500 executives surveyed in February and March 2012
  • Companies from 57 countries
  • 146 respondents from Australasia
  • Cross-section of respondents from over 40 industry sectors
  • 770 CEO, CFO and other C-level respondents
  • 400 companies would qualify for the Fortune 500 based on revenues


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