Canadian Capital Confidence Barometer - April-October 2013


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Appetite for growth rebounds

As confidence in the global economy returns and credit availability improves, Canadian companies are reporting a slightly increased appetite for growth and a move towards investment. However, the trend seems to be levelling off in Canada and has now been surpassed by both global and US respondents.

When asked about their companies’ focus over the next year, 50% of Canadian respondents cited growth, a slight increase from October 2012 (48%), compared to the 15% increase reported by US respondents over the same period. Amid this cautious optimism, 33% of Canadian respondents remain focused on cost reduction and operational efficiencies.

% focused on growth

Plans for excess cash lean toward growth strategies

Canadian companies with excess cash are deploying it toward growth rather than returning it to stakeholders. In total, 64% of Canadian respondents are pursuing either organic or inorganic growth with their excess cash. Organic growth continues to be the major preference (48%) and inorganic growth has dropped slightly since October 2012 — the reverse of the trend among US respondents. In total, 36% of Canadian respondents say they are focused on returning cash to stakeholders — through paying down debt, paying dividends or buying back stock — a 6% increase since October 2012.

Organic growth driven by balanced risk portfolio

US companies are continuing to maintain a high level of focus on lower-risk growth strategies — much more cautious approaches than one would expect given increased confidence and credit availability. This has become the “new normal” in the postfinancial crisis world: growth activities perceived as higher risk are being more cautiously pursued. Companies want more and longer-lasting evidence of an upturn before making major investments. That said, Canadian companies are taking a more diversified approach to organic growth by using a mix of highand low- risk strategies to achieve goals.

Investing dominates the Capital Agenda

Despite a contraction of two percentage points, Canadian companies expect their Capital Agenda priorities to continue to move towards investing over the next 12 months. Although largely focused on investing over the last 12 months (48%), Canadian respondents are still feeling the need to optimize their capital structure, with a significant increase in focus from 19% six months ago to 36% currently. While companies are positioning toward an investment mindset, they continue to pursue organic growth and portfolio-optimization strategies.

A conservative agenda focused around efficiency and cost control, risk management and capital allocation continues to dominate boardroom discussions.


Boardrooms balancing governance and growth

Boardrooms are currently focused on the fundamentals: efficiency, cost control, risk management, capital allocation, regulatory issues and corporate governance. All of these agenda items, which were cited by half or more of our respondents, point towards companies building greater stakeholder accountability.

Riskier growth measures are lower on the agenda. However, the findings in this Barometer point to a window of opportunity for accelerated growth. Economic confidence, credit conditions and valuations — along with a recent rise in shareholder activism — all signal an imperative to act. Prudent discipline and governance are necessities. But now may be the time for boards and management to address a more accelerated growth agenda.