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Australasian Capital Confidence Barometer - Oct 2012 - Playing it safe is the new risky - EY - Australia

Australasian Capital Confidence Barometer, October 2012

Playing it safe is the new risky – is Australasia in danger of falling behind?

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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 is no doubt that current operating conditions are challenging, with rapidly shifting success factors. However, in our view, long term growth objectives should always be considered, and taking an overly cautious approach may be a bigger risk for some organisations.

There are a number of key factors encouraging a weak outlook in the global economy. The ongoing financial crisis in Europe, the slowing rate of growth in China, the looming US fiscal cliff and the uncertain political landscape in key regions, are just a few.

At home, our confidence has also declined due to growing concerns around rising labour costs and industrial relations generally, the continuing high dollar and softer commodity markets.

As a result of ongoing uncertainty, acquisition activity was expected to be modest. However, despite subdued transactions volumes, we are still seeing a number of strategic consolidations taking place, especially between organisations in the small-mid market range in the diversified industrial products and resources sectors. The main driver of these transactions is the need to bolster balance sheets, consolidate supply channels and diversify customer base.

Capital levels among investors is growing. When confidence does return it tends to increase rapidly so organisations will need to be prepared, as there is likely to be pent up demand across the board and things will move quickly.

Credit availability continues to be a challenge for some, and the situation could potentially get worse should there be a significant renewed focus on growth.

Interestingly it seems that Australasian organisations are a little more risk averse than their global counterparts. This is manifesting itself in a number of ways including their minimal utilisation of debt funding, their appetite to invest in Asia and transaction activity more generally.

Going forward it will be important for Australasian organisations to take a holistic view, keeping conservatism in balance, and ensuring it is not an impediment to growth.

In tougher economic times many organisations have a tendency to retreat from market activity. Many are focusing on ‘safer’ actions, such as reducing costs and implementing optimising strategies in order to improve margins and meet targets. This approach is unsustainable in the medium and longer term and can also negatively impact the ongoing competitive advantage of a business.

There is no doubt that current operating conditions are challenging with rapidly shifting success factors. However, in our view long term growth objectives should always be considered and taking an overly cautious approach may be a bigger risk for some organisations.



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
  • EIU panel of over 1,500 executives surveyed in August and September 2012
  • 133 respondents from Australasia
  • Companies from 41 countries
  • Respondents from more than 24 industry sectors
  • 754 CEO, CFO and other C-level respondents
  • More than 400 would qualify for the Fortune 500 based on revenues


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