Wednesday, September 09, 2009

The Crystal Ball for 2010


Looking ahead to 2010


A new study from business services and consultancy Deloitte reveals that most US companies expect the economy to turn around in 2010, and in the early portion of the year at that. However, many of those same companies expect to lag behind. Meanwhile, accounting and financial advisor KPMG looks at how individual sectors of the economy expect to fare.

One expected result of the economic crisis, widely believed to be the deepest since the Great Depression, is that the economy that exists at the other end of the recovery will not look exactly like the one in place when the problems began surfacing in force last autumn.

That means new winners and losers. Some companies will take advantage of new realities and come out on top. Others will have sustained too much damage or will have failed to adapt and will fall by the wayside. (And of course, many have departed already.)

Taking delight in Deloitte

There is nothing bad about widespread optimism at a time such as this, and it is a good thing that most corporations think we’ve seen the bottom and will be moving up in earnest within the next 12 months. 55% of those surveyed said that signs of recovery will be present during Q1 or Q2. 25% suggest Q3 is more like it.

The fact that the same companies expect that they will not be participating in the recovery right away is interesting. Almost invariably, surveys we’ve seen, and we’ve seen tons of them, reveal that even when corporate executives are pessimistic about the economy in general, they are far more upbeat about the prospects of their own company, and usually they are at least a little more upbeat about the prospects for their sector. So that result is odd.

Deloitte Consulting’s Kelly Marchese took a stab at analyzing the oddity. "After implementing initial cost cutting measures when the economy first began to tumble -- such as reducing salaries, layoffs and plant shutdowns -- many companies are now are confused about their next steps. We believe these businesses should stop focusing on short-term concerns and look at their business in this new reality. Businesses need to focus on areas such as talent, growth and structural change so that their business doesn't just survive -- it thrives."

Among broadcast companies we’ve monitored during the last round of quarterly conference calls, LIN Television seemed to have the right idea. Like all communications companies, it has had to tighten its belt. It’s looking forward to an improved economy in 2010, and it expects to benefit from the cash generated by the Olympics and especially from another election season. But it also expects to benefit from a new, leaner cost structure – it made sure that its cuts were both judicious and permanently sustainable, allowing more of its income to feed into its profit margin.

Deloitte says companies go through three stages in times like this: focus on mere survival; focus on structural change, strategic change and redefining the profit model (where most are now); and adapting to new economics, market realities and competitors.

Looking ahead, another Deloitte Consulting principal, David Brainer commented, "Like any recession, this one will play out in stages and will vary by industry. And, regardless of which stage your company fits, or the speed of change, you must move beyond tactical, reactionary moves and make structural changes needed to support growth. To make this shift, companies need to be proactive and prepare now for the new growth environment, whatever it may look like."

Sector Snapshot: Banking & Finance

The money industry needs more than just an improved economy. It is banking on stabilization of the real estate market before it can declare itself fully recovered – well, at least that’s what almost half of surveyed execs believe. With that extra hurdle to overcome, they expect to lag behind the overall recovery, according to KMPG.
But most executives in the business expect improvement. 78% say 2010 will be a better year than 2009 in general; 72% expect significant increases in revenue; and 68% expect significant improvement in profitability.

"The downturn impacted the banking and financial services industry to a greater degree than most industries and therefore it will take longer to fully recover," said KPMG Banking and Finance specialist Tony Anzevino. "And although the results of this survey suggest senior leaders think the industry has hit the bottom of the downturn, clearly they still indicate that finding new sources of revenue and improving their management of risk will be major challenges in the year ahead."

Sector execs want to see more than just an improvement in real estate. They are also counting on a turnaround in the employment situation and improved consumer confidence. On the structural side, most companies said they have downsized and will not go further down that road; only 15% are considering further layoffs, meaning that at 85% will at the very least not further exacerbate unemployment.

Sector snapshot: Food & Beverage

Most food & beverage companies are expecting to do better in 2010 – 72% see improved business conditions; 72% see increased revenue and 65% see increased profitability. However, according to KMPG, despite the seeming majority opinion on a healthy 2010, 48% think the economy as a whole will not come around until 2011 or later.

Not surprisingly, the keys to recovery for the sector are employment and consumer confidence. As for their own operations, most have already done what laying off they’re going to do, and 86% see the employment situation in their sector as stable. A minority, 22%, has not yet ruled out further cuts.

"These survey results show a cautiously optimistic outlook from industry execs, even as the underlying volatility in the food and beverage sector -- based on companies wrestling with the sting of higher costs, shrinking consumer spending, and working capital constraint -- continues to develop," said KPMG Food, Drink and Consumer Goods advisor Patrick Dolan. "With the food and beverage industry in the midst of potentially disruptive change -- led by accelerating technological, social, and economic shifts -- the executives surveyed are still upbeat about their future, though much hard work remains."

60% of the execs in the sector expect to outperform the general economy. About the same number, 58%, say the biggest challenge ahead is finding new sources of revenue growth.

Sector Snapshot: Retail

Retailers see things pretty much as do food & beverage execs: things will improve in 2010 (70%); revenue will grow (68%); there will be increased profitability (66%); yet, the overall economy will not bounce back until 2011.

This was actually seen as outstanding news by KPMG retail specialist Mark Larson, who commented, “This outlook for the year ahead and beyond should be heartening, since the importance of the U.S. retail industry to gross domestic product and overall economic health cannot be overstated. It's the second largest industry in the U.S. and employs the second highest number of people among all sectors."

As you might expect, retailers are looking for upticks in consumer spending and confidence as barometers of economic improvement, and that is keyed to an improved employment scenario. Execs say the sector’s biggest challenge is to somehow restore consumer confidence. They’re split 51-49 on timing of the retail recovey, with the tiny edge going to the optimists who say retail will outperform the economy as a whole.

Sector Snapshot: Technology

Member of the technology industry are telling the rest of the business community to get in line and follow their lead into recovery. 77% expect to recover ahead of the economy as a whole; 80% see improved 2010 business conditions; 78% see improved revenue and 72% see improved profitability. On the down side, 39% expect the rest of the economy will not catch up until sometime in 2011.

KPMG’s Gary Matuszak said, "The results are in line with recent earnings reports in the technology sector which suggest business conditions are starting to improve. There are also reports of software industry sales expanding five to ten percent annually after the recession, so while it's far from blue skies in the industry, the worst seems to be behind us."

Of the sectors we’ve looked at, techies are least concerned about improved employment and consumer confidence, although both are seen as keys to recovery. Edging out consumer confidence (41%) was business confidence (42%), highlighting the BTB market. Of course, if businesses are more confident, that’s good news for consumers looking for employment.

This group is also particularly concerned with finding new revenue sources, with 66% naming that as the sector’s biggest challenge.

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1 comment:

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