Mid-market companies are battling but by no means beaten - Commonwealth Bank Future Business Index reveals
Commonwealth Bank’s Future Business Index today reveals that despite a subdued outlook by Australia’s mid-market companies, most remain cautiously optimistic.
- (1888PressRelease) October 17, 2012 - While business sentiment has fallen, reflected in a five point decline from 9.3 to 4.3 in the overall Index, confidence remains significantly higher than 12 months ago when it sat at -0.3.
The Index is an analysis of the views of financial decision makers in companies with a turnover of $10m – $100m, measuring their outlook on business conditions, investment plans, business challenges, projected revenue and how prepared they are to navigate volatile conditions for the six months ahead.
Despite the restrained outlook, some sectors have witnessed an impressive turnaround over the last six months.
Retailers have got out of the red and jumped 11.2 points to 10.2, driven by improved business conditions and a greater preparedness to deal with future volatility.
The Mining sector is also up by seven points to 17.7 on the back of strong results.
Other sectors including Construction (-11.1), Business Services (-17.9) and Transport & Logistics (-18.2) have seen major decreases as profits have fallen and the appetite for risk has slowed.
Symon Brewis-Weston, Commonwealth Bank’s Executive General Manager of Corporate Financial Services says that while the outlook has softened, some sectors remain strong when viewed in a global context and Australia’s mid-market firms are doing comparatively well.
“Despite signs of cautious business sentiment it’s important to look at these results over the long run to get the full picture and we can see Australia’s mid-market is actually in a better place than it was at this time last year, with half expecting revenues to increase.
“Confidence in the mining sector continues to surge, however, the surprise for many is the rise in confidence in Retail which has seen a significant turnaround. Retail is often a bellwether sector for the broader economy so this is particularly promising.”
While confidence in mining has remained strong until now, concern about increased international competition and a potential economic slowdown in China means confidence in Western Australia has declined sharply by 16.7 to -2.
At a state level, the picture is mixed.
Victoria and Tasmania were the only states to experience an increase in confidence, scoring 6.2 on the index (up from 4.0).
South Australia and the Northern Territory are the most pessimistic, suffering a huge decrease from 7.3 earlier this year to -10.1.
New South Wales and Australian Capital Territory remain the most confident despite a minor decrease from 14 to 10.4.
Looking back over the last six months, business conditions have remained steady with 51 per cent of mid-market companies reporting increased revenues and 46 per cent reporting higher profits. Transport & Logistics, Finance & Insurance and Wholesale Trade companies saw the largest revenue increases. One third of mid-market companies saw profits fall over the last six months with Construction hardest hit.
Looking ahead to the next six months, most companies expect to see operating costs rise due to surging energy prices and their appetite for risk has fallen with many saying they are unwilling to invest in more staff or higher capital expenditure. Mining companies in particular are less likely to undertake new capital investment with just 29 per cent saying they plan to increase expenditure, down from 45 per cent in the last Index.
“Despite fluctuations across the Index, business conditions have remained steady with most mid-market organisations prepared for future volatility through well-defined business strategies and cost controls. Just under half, 43 per cent, say increased demand and consumer confidence means they will seek to expand in the domestic market over the next six months which is a very positive sign,” Mr Brewis-Weston concluded.
KEY FINDINGS FROM THE INDEX
In terms of business conditions, only 27 per cent of mid-market organisations anticipate an improvement over the next six months, with 26 per cent forecasting a decline.
Businesses in Retail and Mining are most well prepared to react well to adverse conditions with those in Business Services, Finance & Insurance and Transport & Logistics less certain.
50 per cent of companies predict revenue will increase over the next six months and 44 per cent predict a rise in profits.
59 per cent expect an increase in operating costs, with 73 per cent acknowledging rising energy costs as a factor impacting business.
Larger organisations continue to be more optimistic than small organisations, with 59 per cent of those in the $50m – $99m turnover range forecasting increased revenues compared to only 45 per cent in the $10m – $19m range.
Only one third of businesses plan to increase capital expenditure over the next six months, down from 38 per cent.
23 per cent expect to reduce staff headcount up from 19 per cent.
Only one in five business plan to expand overseas in the next six months while 43 per cent intend to expand within Australia.
80 per cent of mid-market companies claim to have a well-defined business strategy and strong cost controls, while 72 per cent believe they have well prepared risk-management plans.
Media enquiries:
Sarah Gibbons
Commonwealth Bank
P: (02) 9118 1706 | M: 0403 681 515
E: sarah.gibbons ( @ ) cba dot com dot au
About the Future Business Index
The Commonwealth Bank Future Business Index is based on a detailed quantitative survey of 436 financial decision-makers in public and private companies throughout Australia with turnover between $10 to $100 million. Conducted by ACA Research, the Future Business Index is an indicator of what the business landscape will look like over the next six months, based on business confidence, predicted future activity and an organisation’s ability to manage fluctuating business conditions. The survey sample includes businesses from a range of sectors including Retail, Business Services, Construction, Health & Education, Information Media & Telecommunications, Manufacturing, Mining, Transport & Logistics and Wholesale Trade. The data has been weighted to reflect the latest Australian Bureau of Statistics Business Counts.
The Index seeks to identify:
The level of confidence in business conditions over the next six months
The challenges and threats businesses face over the next six months
How prepared businesses are to navigate volatile conditions
The use of financial facilities and risk planning
Expected sources of growth and opportunities.
How the Index is calculated
The Commonwealth Bank Future Business Index has been calculated by taking a net balance of future business conditions, net revenue and risk as indicated by businesses with an annual turnover of $10 to $100 million.
Net Business Conditions is a net balance of those that indicated that business conditions will improve minus those who predict business conditions will decline.
Net Revenue is calculated by taking those companies that see an increase in revenue over the next six months minus those that foresee a decline.
Net Well Preparedness is a net balance of those that are ‘well prepared’ minus those that are ‘somewhat’ and ‘not well prepared’.
About ACA Research
ACA Research is a full-service market research consultancy, with particular expertise in customised business-to-business thought leadership, executive research and syndicated multi-client studies throughout Australia, New Zealand and Asia. Through a high level of business and research experience, industry expertise and focus on high-quality outputs, ACA Research effectively supports business thought leaders in their decision-making activities.
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