Canadian Capital Confidence Barometer - October 2013 - April 2014
Intent to invest tops Capital Agenda
Growth is the primary focus for Canadian companies: appetite for growth has increased to 63% from 46% last year.
Companies have weathered a prolonged period of uncertainty. During this time, they have strengthened their balance sheets and largely optimized their capital structures.
A close examination of company responses, however, reveals a continued underlying conservatism. Although companies are intent on investment, they continue to cite the need for operational efficiency and cost control. Thanks in large part to these optimization efforts, companies have shifted their focus almost entirely out of survival or stabilization mode, toward growth mode, in a year.
Companies will not pursue growth if it will affect the optimization they have already achieved. So while their focus on growth points toward increased dealmaking, it also means executives will likely employ the same rigour in dealmaking that they applied to their capital structures.
Growth is the priority
- Focus on growth is at a two-year high
Over the next 12 months, 63% of Canadian companies say growth is their primary focus, consistent with their US counterparts at 65%. Continued operational efficiency and costcontrol measures, as well as an improving global economy, have largely eliminated Canadian executives’ concerns about stability and survival.
- Excess cash used to retire debt, fund growth
Both Canadian and US companies say they will primarily use excess cash to pay down debt — one of the remaining ways to optimize their capital structures. Additionally, a total of 46% of Canadian companies plan to use excess cash to fund growth, both organic and inorganic, with a slight bias towards organic strategies. This is also consistent with the views of US respondents.
- Organic growth strategies will centre on core products and existing markets
To address their need for growth, Canadian companies are returning their focus to lower-risk organic platforms: known products, channels and markets. This strategy allows them to pursue growth while maintaining financial discipline and governance objectives. Higher-risk organic strategies, such as developing new markets and products with technology and investing in new geographies, are less of a focus than they were six months ago.