Global corporates tiptoe cautiously into 2010

One in three companies, growth in EBITDA

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%.

“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,” said John Murphy, Global Managing Partner, Markets, Ernst & Young.

Surprisingly, for a significant minority, 2009 was a year when earnings improved. Remarkably in the context of a global recession, 7% of all businesses had seen a more than 20% increase in earnings.

More than one third of companies surveyed reported that earnings before interest, depreciation and amortization (EBITDA) had grown by over 5% in the last 12 months.

One-third of the very largest organizations surveyed (turnover exceeding US$ 10 billion) also reported EBITDA growth exceeding 5%.

Forty-five per cent of the companies based in Asia-Pacific and with a turnover between $100 million and $500 million reported in excess of 5% EBITDA growth.

In Latin America (26%), Western Europe (28%) and Eastern Europe (29%), the proportion reporting 5% EBITDA growth or more was lower.

By sector, more than 40% of pharmaceutical, aerospace and defense and banking companies exceeded the 5% growth threshold.

When will earnings go back to pre-recession levels?

Approximately one third of the surveyed 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 1% of the respondents were pessimistic enough to say it would never return to pre-recession levels.

“Revenue growth – not just earnings growth – is now the burning platform for corporate, many of whom see recovery, certainly in the short to medium term, as sluggish”, John Murphy added.

What will happen in 2010?

How were companies planning to improve their performance this year? Three-quarters of the respondents said they believed that there were still major cost savings to be made in their organization through improved efficiency.

72% of the companies felt they needed to increase the flexibility pg their operations through reducing fixed costs, particularly among support functions and improving productivity.

Optimizing the markets they serve via new market entry, new products or new channels, and through revitalizing the business model with new thinking around organizational structure, core competencies and new business collaborations have been the second most popular responses among the surveyed companies (64%).

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.

79% look to growth

Half of all business 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. 49% or corporate 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 market improves.