Execs focus on costs, see recovery in 2010

The Canadian economy should recover in early 2010, but the road to earnings growth will not be the same for all sectors, according to a survey of more than 200 senior financial executives.

“We expect Canada will experience uneven recovery and growth across the country,” said Ramona Dzinkowski, executive director of the Canadian Financial Executives Research Foundation (CFERF), which conducted the survey.

“Some sectors have been fairly recession-proof, and companies that were able to manage their cash positions effectively will be better poised for recovery as they are now able to acquire assets at fire-sale prices.”

Even with the recovery postponed until 2010, most respondents said that 2009 would not be a horrible year, with 38% expecting revenues to increase and 16% saying they would stay the same, compared with 42% expecting a decline.

Across Canada, 75% of respondents said they were keeping a closer eye on cash management in 2009 than they did in 2008.

Among those intending to cut costs, nearly half (48.7%) were planning staff cuts, while about one-third were planning salary rollbacks. Executives will share the pain of cost management in most companies, with 62% of respondents anticipating a freeze in executive compensation over the next 12 months.

“Canadian companies need to ensure they’re adequately capitalized to carry out their plans for growth,” said Steve Lewis, a partner with Ernst & Young, which sponsored the survey. “Many respondents said they are focusing on acquiring new customers, making strategic acquisitions and exploring non-traditional markets. With a solid balance sheet, they’ll be able to move on competitive opportunities like these.”

The majority of respondents were expecting economic improvement to contribute to better corporate earnings. Surprisingly, the manufacturing sector was the most optimistic, perhaps because the sector has been so beaten up that the future can promise only better times.

Companies that are well capitalized are expected to lead the pack in the recovery, as they are better able to invest in productivity enhancements at a time when costs for equipment and additional facilities are low.

“Companies that are cash-poor, or have been deeply affected by a slowdown in consumer demand, may have to wait to experience economic recovery until 2011 and beyond,” Dzinkowski said.

When asked how they were coping with the downturn, 70% of financial executives said they are focused on customer retention, while 65% are focused on maintaining profit levels and 59% are looking to ensure long-term growth. The development of new products and services is taking a back seat, however, with only 35% saying they were focused on this.

CFERF is the research institute of FEI Canada.

(06/17/09)