| | A comprehensive survey
of senior executives at
nearly 900 major
companies worldwide by
Ernst & Young reveals a
very different business
environment compared to
twelve months ago but
highlights a corporate
world that for the most
part is still nervous
about recovery.
In January last year
an Ernst & Young study,
Opportunities in
Adversity, asked
companies about their
key strategic priorities
for 2009. Nearly
three-quarters said they
were focused on securing
the survival of their
present business and
only 19% said they were
looking to take
advantage of the
recession to pursue new
market opportunities. As
part of Ernst & Young’s
ongoing Lessons from
change program, new
research shows that by
the beginning of
December 2009, the
percentage looking to
pursue new opportunities
this year has risen to
34%. Over half (53%) of
companies, however,
still agreed that
surviving 2010 would
still remain a
challenge.
However, after the
actions that many were
forced to take earlier
in the year it was not
surprising companies
were seeing progress
with fewer still focused
on improving the
performance of their
current assets, down
from 39% to 27%, and the
proportion still
restructuring their
business also declined
from 37% to 27%.
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Scott Halliday,
managing partner, UK &
Ireland, Ernst & Young
says, “The spirit of
optimism has increased,
but it is essentially
fragile in nature. A
pick up in confidence is
not surprising, given
the massive global
government stimulus
working its way through
the economy and the
larger developing and
emerging economies
beginning to rebound.
Companies may be less
worried about survival
over the next 12 months,
but the return to a
healthy operating
environment is still
some way off.”
A significant
minority are generating
growth in EBITDA
Surprisingly, for a
significant minority
2009 was a year when
earnings improved. More
than one third of
companies surveyed
reported that EBITDA
earnings had grown by
over 5% in the last 12
months. Remarkably in
the context of a global
recession, 7% of all
businesses had seen a
more than 20% increase
in earnings.
Forty-five per cent
of the companies based
in Asia-Pacific and with
a turnover of between
US$100m and $500m
reported in excess of 5%
EBITDA growth. One-third
of the very largest
organizations surveyed
(turnover exceeding
US$10billion) also
reported EBITDA growth
exceeding 5%.
In Latin America
(26%), Western Europe
(28%) and Eastern Europe
(29%) the proportion | |
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| | 1% were pessimistic
enough to say it would
never return to
pre-recession levels.
Varley adds: “Revenue
growth – not just
earnings growth – is now
the burning platform for
corporates, many of whom
see recovery, certainly
in the short to medium
term, as sluggish.”
And what will
happen in 2010?
How were companies
planning to improve
their performance this
year? Three-quarters of
respondents said they
believed that there were
still major costs
savings to be made in
their organization
through improved
efficiency. A high
proportion of companies
(72%) felt they needed
to increase the
flexibility of their
operations through
reducing fixed costs,
particularly among
support functions and
improving productivity.
The next most popular
response was optimizing
the markets they serve
(64%) via new market
entry, new products or
new channels, and
through revitalizing the
business model (64%)
with new thinking around
organizational
structure, core
competencies and new
business collaborations.
Respondents also
believed that
accelerating their
decision making
processes and execution
(63%) and strengthening
their management talent
(62%) would be critical
to improve their chances
of success.
80% look to growth | |
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| | despite problems with
accessing capital
Exactly half of all
businesses agreed that
restricted access to
capital will continue to
constrain their growth
prospects over the next
year, yet a significant
minority of respondents
(30%) said they intended
to take an aggressive
growth-oriented stance
as the demand outlook in
their markets is
improving. A further 49%
of corporates said that
they intended to pursue
growth
opportunistically, as
the prospects for
recovery in their
markets remain unclear.
The remaining fifth of
companies said that
their strategic focus
will remain squarely on
cost control until the
market improves.
Halliday concludes,
“It is clear that many
companies are seeking to
learn the lessons of the
changed market. Although
there is no silver
bullet – no single
action that will deliver
success – our research
has identified a number
of action programs which
sets high-performing
companies apart. For
instance, they have a
deeper, broader
understanding of their
markets and the risks
involved. Furthermore,
they are more innovative
in strategy and
structure than their
competitors and are more
collaborative with
partners. These
successful companies are
essentially equipping
themselves for the new
economy and navigating a
new future for
themselves.” | |
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| | reporting 5% EBITDA
growth or more was
lower. By sector, more
than 40% of
pharmaceutical,
aerospace and defence
and banking companies
exceeded the 5% growth
threshold. Corporates in
the oil and gas,
manufacturing and
automotive sectors were
far more likely to
report flat or declining
earnings.
Steve Varley, head of
market, UK & Ireland,
Ernst & Young comments:
“As we predicted last
January, despite the
turmoil and the
challenges in 2009 there
were some outright
winners – companies that
have found opportunity
in the adversity.
Judging by our research,
a picture is emerging
across countries and
sectors of a group of
companies that share a
certain performance
agenda, particularly
around achieving
speed-to-market. They
are faster in making and
executing decisions to
take advantage of their
changing markets.”
But a way to go
before earnings back at
pre-recession levels
While they are out of
crisis mode, corporates
are now turning their
attention to when there
will be a full recovery
in earnings.
Approximately one-third
saw revenue growth
returning within six
months, one-third said
by the start of 2011 and
the final third not for
at least two years. Only | |
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