Optimism or caution?
MOSCOW, 31 May 2012 – In April 2012 Ernst & Young conducted its sixth bi-annual Capital Confidence Barometer, a regular survey of senior executives from international and Russian companies. The previous survey was held in October 2011. Below is a snapshot of the survey key findings in Russia:
- After the elections, Russian respondents are more optimistic about local economic conditions.
- More Russian executives are willing to expand their workforce.
- Like their global peers, less Russian companies intend to pursue M&A deals, with more companies focusing on organic growth. This is largely due to persisting skepticism about global financial conditions.
- Debt remains the primary source of acquisition funding, although Russian respondents’ confidence in credit availability is declining.
- Russian respondents are less likely to make divestments over the next year than global respondents.
Reluctance to engage in M&A reflects a similar sentiment among respondents to the global survey against a backdrop of extended macroeconomic instability and the Eurozone crisis. More companies are now concentrating on organic growth and are looking inwardly – at managing their portfolios – rather than outwardly at potential buying opportunities.
Davron Rustamkulov, CIS M&A Leader, says: “In the short term, optimistic expectations of the situation in Russia's economy may evaporate under the combined pressure of the Eurozone sliding into a double-dip crisis, falling oil prices and reducing consumer demand. Companies do not rush to make acquisitions, more and more often preferring to sit and wait, opting for controlled organic growth. In our opinion, the trend to restructuring or quenching debt suggests that the companies want to be ready for shrinking consumer demand. We believe that long-term strategic deals between domestic companies will prevail in the market.”
Economic outlook: Robust outlook for the Russian economy
- After the presidential elections, confidence in the local economy is rising, with 47% having an improving perspective compared with only 27% in October 2011.
- Russia has the big gap of those respondents with a positive view on the local economy relative to the global economy.
- The situation on the Russian labor market is expected to improve moderately, with the number of those planning to create jobs increasing from 34% to 42%.
Access to capital: Less confidence in credit availability
- Confidence in credit availability has decreased since October 2011 due to the Eurozone crisis and global macroeconomic situation.
- Short-term debt extension is the primary purpose of refinancing cited by 42% of Russian respondents compared with only 6% in October 2011.
- Debt is the primary source of deal funding for 43% of Russian companies.
M&A Outlook: Deal appetite in Russia is below the global average. The companies prefer organic growth to M&A
- Appetite for acquisitions in Russia reduced further to 18% compared with 22% in October 2011.
- The main driver for 90% of Russian companies pursuing an acquisition is extension in existing markets, compared with 44% on a global level. However, only 30% of Russian respondents intend to tackle new markets, while 57% of global respondents intend to do so.
- The gap between Russian and global respondents in terms of divestment intentions widens as only 18% of Russian companies intend to divest within the next 12 months compared with 31% globally.
About the survey
Ernst & Young’s Capital Confidence Barometer is a regular survey of senior executives from large companies around the world conducted by the Economist Intelligence Unit (EIU). Our panel, the “Ernst & Young 1,000”, is comprised of selected Ernst & Young 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.
About Ernst & Young
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