Despite months of bleak and uneven economic news in the winter and spring, most Canadian financial executives believe an economic recovery is on the horizon, according to a study sponsored by Ernst & Young LLP.
Prepared by the Canadian Financial Executives Research Foundation, the report found that 55.5% of respondents think the economy will rebound in 2010; 30.5% predicted that recovery would happen in 2011. Private company executives were more confident of an earlier recovery (58%) than their public company counterparts (50%). Two-thirds of manufacturing executives predicted a recovery in 2010 compared with a third from the finance and insurance sector.
Until that recovery kicks in, however, survey respondents expressed mixed feelings about their corporate performance in 2009. About 42% expected revenue to decline in 2009; 38% predicted their revenue would increase; 16% forecast company revenue would remain the same as it was in 2008.
The results suggest the economy is helping or hurting companies in different ways, depending on product, services, sector and geographic market. Most senior financial executives said that retaining and growing their customer base is a major focus and concern.
The report added that companies whose primary business is in the U.S. or Asian countries may be suffering from declining sales, but are enjoying favourable exchange rates. Businesses not affected by the slump in consumer demand in these currencies are reaping cash windfalls compared with those that are affected by falling commodity prices or declining demand for large consumer durables. These companies, the report said, are cautiously managing their foreign exchange positions.
Liquidity and cash management are also the top two financial management issues. Companies having trouble gaining access to cash from traditional sources are turning to asset-backed loans, equity financing and subordinated debt. Private companies were more likely to look for equity financing than public companies, which are more inclined to look to asset-backed loans.
According to the survey, cash management will be the financial objective of the year. Most companies said they would be reducing costs over the next 12 months and didn't expect improvements in cash flow until 2010. About 20% said they would be reducing working capital to manage costs.
The survey found that the most popular cost-cutting technique will be freezing executive compensation and deferring capital investments. Reducing head count or implementing salary roll backs were less popular.