Sales and profit expectations soar as recovery gathers speed

Australian businesses have recorded the greatest increase in sales and profit expectations in 21 years, with many now looking to take on new staff, new Dun & Bradstreet data shows.

The latest D&B National Business Expectations Survey for the December 2009 quarter reveals that sales expectations have recorded their largest quarterly rise in the survey’s history, moving up 46 percentage points. A massive 44% of companies expect an increase in sales during the final quarter of the year, while 22% expect a decrease.

Sales expectations in the wholesale sector increased by 56 points, while retail sector sales expectations increased by 48 percentage points.

The profits index has also recorded a record one-quarter rise, with 31% of executives now expecting profits to increase compared to 20% expecting a decrease. It is the first quarter out of the last six that has seen a positive profits outlook.

Inventory expectations are also on the rise, with 18% of executives expecting an increase in inventories, with 10% expecting a decrease. Inventory expectations in the retail sector have jumped to their highest level in five years, with one quarter of all businesses expecting rises in stock.

In an encouraging sign, capital investment expectations have reached a positive outlook with 17% of businesses expecting to increase investment, with only 5% expecting to decrease investment. Retail executives hold the highest expectations of capital expenditure at 16 percentage points.

Employment expectations have also been given a boost, with 15% of companies expecting to increase staff numbers, while only 8% are expecting to reduce staff numbers. The figures come after Australian Bureau of Statistics Labour Force data showed the unemployment rate remained steady at 5.8% from June to July.

But despite the good news, D&B chief executive Christine Christian says many challenges remain. The survey shows that 36% of executives claim wages growth as the primary influence on business during the 2009 quarter, with 30% expecting interest rates to rise.

“It’s very good news and there’s no doubt the Government’s stimulus package has been successful in encouraging household spending. However, there are going to be further challenges. The trading environment will remain fairly difficult, and possibly volatile, interest rate rises and tightened criteria by lenders will all require cautious operating.”

Christian says it is important that businesses do not become complacent, and executives cannot relax on fundamental businesses issues such as risk management and cashflow.

“Businesses need to focus on profitability rather than just revenue, focus on capital expenditure, focus on ensuring they have sufficient cash so they’re not burdened by interest rate rises. Look at margins, cashflow and risk management.”

Meanwhile, results from the latest KPMG Mood of the Market Survey reveal 39% of companies expect economic activity to remain steady, with many believing the economy will expand rather than contract.

The survey shows that 62% of businesses believe the Government’s stimulus packages helped the economy avoid recession. It also reveals competition is thriving, with 49% of businesses planning to acquire market share through weakened competition, while another 14% will investigate taking over a competitor.

Graeme Matthews, national managing partner of KPMG’s Middle Market Advisory, says the survey also shows businesses believe interest rates have hit their low-point, leading to expectations of an economic recovery.

“There is good news, but I think there will still be a lot of challenges. There will be pressure on interest rates, as all of our respondents feel the bottom of the cycle has been reached. As that happens they need to be conscious of the fact they’ll pay a higher rate, there will be issues around cashflow, bank covenants and so on.”

Matthews also noted that 18% of companies increased employment levels over the last quarter, with 25% also experiencing a skills shortage. He says businesses must continue to do all they can to prepare for a recovery.

“They have to make sure their workforce is properly set up for the upturn, and as companies expand and grow, they also need to realise there will be issues with cashflow and finance. Companies must review where they are and where they are going.”