Strongest quarterly spending boost in six years, according to the latest Commonwealth Bank Business Sales Indicator (BSI).
Business confidence rebounds as outlook improves
- Future Business Index doubles in past quarter
- More businesses upbeat about future despite underperformance in past six months
- Businesses better prepared to face future market conditions
- Australian dollar volatility a major concern for businesses
4 October 2013: Confidence among Australia’s mid-market businesses has returned in the September quarter following a period of depressed sentiment, according to the Commonwealth Bank Future Business Index.
The Index reveals that confidence has more than doubled to 10.8, following a reading of 5.2 in the June quarter. The positive sentiment is related to expectations over the next six months of increased revenue (Index increased to 25 in the September quarter from 20 in the June quarter), moderating salary pressures (Index decreased to 35 in the September quarter from 37 in the June quarter) and reduced operating costs (Index decreased to 33 in the September quarter from 37 in the June quarter).
Despite the increase in confidence and improved outlook, over the past six months a significant proportion of businesses underperformed in terms of revenue and profitability, with 35 per cent reporting falling revenues over the six months to September, compared to only 19 per cent who had anticipated a drop, according to the Index. Similarly, only 43 per cent of businesses achieved an increase in revenue, compared to 50 per cent who had forecast a rise.
The Index is based on a survey of financial decision makers in public and private companies throughout Australia with a turnover of between $10m-$100m. The Index is calculated through the net balance of future business conditions, revenue, and how prepared businesses are to meet future challenges.
The Index also shows that 36 per cent of businesses expect conditions to improve in the next six months, and only 22 per cent anticipate a decline. While businesses remain optimistic, key challenges remain. At the time of the survey, the top three challenges facing Australian businesses were uncertainty about government policy decisions, weak consumer confidence and a falling Australian dollar.
Despite these challenges, the Index revealed that businesses are better prepared for any fluctuations in business conditions in the next six months, with 47 per cent indicating they are well prepared in the September quarter, up from 44 per cent in the June quarter. In addition more businesses indicated that their business strategy is well defined, the competitive landscape/threats are fully understood and their risk management plan is well prepared.
Exchange rate risk became a key focus for mid-market businesses in the September quarter, with 39 per cent concerned about the effect that the falling Australian dollar would have on their business performance in the next six months. In fact, 51 per cent of businesses stated their desire for an exchange rate of US 90 cents or above.
Michael Cant, Executive General Manager, Corporate Financial Services, Commonwealth Bank, said, “There has been a significant rebound in confidence levels following a period of lower business confidence in the mid-market. This is being driven in part by businesses having better control of costs which allows them to more effectively navigate market volatility. In fact, the Index showed that 57 per cent of businesses will place a greater emphasis on cost management initiatives over the next 6 months while only 43 per cent will focus on growth initiatives.
“We are seeing a strengthening in revenue and profit forecasts in the quarter ahead. The Index has showed us that confidence in the mid-market has turned a corner,” said Mr Cant.
Diana Mousina, Economist, Commonwealth Bank commented, “The findings reveal that businesses are now better prepared to ride out any ongoing economic instability, and this has helped boost business confidence in the mid-market. That said, global economic factors are still impacting business’ outlook, particularly any economic slowdown in Asia.
“A growing number of organisations are also looking at strategies to capitalise on an Australian dollar that has fallen from its recent highs, with a large proportion seeking to increase exporting activity,” said Ms Mousina.
Information Technology, Media and Telecommunications industry experiences greatest lift in confidence
While the September Index has illustrated an increase in overall confidence compared to the June quarter, the Information Technology, Media and Telecommunications industry recorded the largest comparative increase. The industry also had a positive outlook with a significant growth in the proportion of firms expecting profits to rise, up from 34 per cent to 72 per cent.
The Mining industry on the other hand, suffered the biggest drop amongst all industries, with the Index decreasing from 4.5 in the June quarter to -15.9 in the September quarter, driven by a decline in demand and commodity prices.
The Construction industry also experienced one of the largest falls in confidence of all industries. The key challenge cited was the lack of preparedness to face future conditions with only 50 per cent saying they are well prepared, down from 64 per cent in June.
Queensland holds top position as confidence remains
Queensland has retained its position as the most confident state, with a modest increase in confidence during the quarter. Victoria witnessed the largest increase in confidence of all states over the past quarter, and recorded its highest confidence levels for 2013.
Western Australia experienced a substantial improvement in confidence during the quarter, with the Index increasing from zero in the June quarter to 11.3 in the September quarter. Western Australian firms were also well prepared to address future volatility with 90 per cent of businesses having costs well controlled, and 87 per cent reporting to have a well-defined strategy.
– ENDS –
About the Commonwealth Bank Future Business Index
The Commonwealth Bank Future Business Index is based on a detailed quantitative survey of 435 financial decision-makers in public and private companies throughout Australia with turnover between $10 to $100 million. The September quarter survey was conducted prior to the 2013 federal election (from 23 July 2013 to 16 August 2013).
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.
For a full copy of the report visit www.commbank.com.au/futurebusinessindex
(02) 9303 1353