Fuel prices hurting nine in ten Australian firms
8 July 2008
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To listen to an audio broadcast with Christine Christian, D&B's CEO, click on the following link: http://www.brr.com.au/event/47555 |
The latest D&B National Business Expectations Survey shows
Outlook for September quarter 2008
- All indexes except selling prices have entered negative territory
- Sales and profits growth expectations have fallen sharply, down 36 and 33 points respectively from December quarter highs
- Employment growth expectations are at the lowest point since June 1991
- Capital investment expectations have dropped 13 points to an index of minus seven
- Selling price expectations have climbed six points to an index of 51
Fuel prices
- Climbing 28 per cent since March, 89 per cent of executives have reported that soaring fuel prices have had a negative impact on their business
The Australian dollar
- Fifty per cent of firms have been impacted by recent movements in the Australian dollar, with 21% negatively impacted and 29% experiencing a positive effect
Tightening credit market
- Two thirds (67%) of executives anticipate that a tightening credit market will have a negative impact on operations
Consumer spending
- One third (32%) of executives have noticed a slow down in consumer spending in the past month
Actual for March quarter 2008
- Growth in sales was negative for the first time in five quarters
- Profits growth was at the lowest level since June quarter 1991
- Employment growth was negative and the worst since the September quarter 1992
- Capital investment growth was negative and the lowest since the question's introduction in June 1994
- Selling price rises were down one point on the December quarter 2007
Australian executives anticipate further deterioration in business conditions in the September quarter as a slowing economy, soaring fuel prices and tightened credit conditions impact the bottom line.
The latest Dun & Bradstreet (D&B) Business Expectations Survey reveals that fuel prices are hitting Australian businesses hard with nine in ten (89%) indicating recent movements have had a detrimental impact on operations - a 28% increase in just three months. Meanwhile 32% of firms have noticed a slowdown in consumer spending in the past month and recent movements in the value of the Australian dollar have had a negative impact on 21% of businesses.
The September quarter is expected to bring a steep decline in sales, profits, employment growth and capital investment, with all of these indexes now in negative territory.
Poor results in the March quarter (42% of businesses saw a decrease in sales) are reflected in expectations for the coming three months, with 41% of executives anticipating a fall in sales. This equates to a 36 point decline in the expected sales index since the December quarter 2007.
The actual sales index for non-durables manufactures has been hard hit, falling 41 points from the December to the March quarter. Durables manufacturers have also been affected though the fall has been less severe, dropping 25 points from the December to the March quarter.
Profits expectations have also fallen sharply, down 33 points since the December quarter 2007. This decline in expectations is a reflection of poor March quarter results, particularly for non-durables manufacturers and retailers.  |
D&B Expected Sales and Profits Indexes (All Firms)
Supporting expectations that inflationary pressure will continue at least in the short-term, the selling prices indicator has risen six per cent to an index of fifty one. Fifty eight per cent of executives now expect to raise selling prices in the September quarter however despite the increase, the index remains lower than four of the last five quarters.
The employment index has dropped to its lowest level in 17 years, with 21% of executives expecting to have fewer staff in the quarter ahead than they did a year ago. Just 10 per cent of businesses expect to increase employee numbers.
A significant weakening in capital investment expectations has resulted in the overall index dropping to minus seven. Fifteen per cent of executives expect a decrease in capital investment, while just eight per cent anticipate an uplift.
According to Christine Christian, Dun & Bradstreet's CEO, continually escalating costs are eating away the profit margins of Australian businesses.
"Fuel prices are continuing to soar, interest rates remain steady but high and consumer spending is dropping away - all of these factors are squeezing the profit margins of Australian businesses," said Ms Christian.
"Executives face challenging decisions about how to manage these costs. Moves to increase prices will likely be met by customer backlash however as costs continue to rise and margins get thinner, failure to pass on these costs will have detrimental impacts on profitability."
Bumping interest rates out of the top spot for the first time in six months, 43% of executives now rate the cost of fuel as the most important influence on the business in the September quarter - this is the highest level of concern in more than a year.
With the Reserve Bank keeping interest rates on hold for four consecutive months concerns about rates have declined. One third (34%) of executives now indicate that interest rates are their primary concern in the September quarter, down from 47% in the previous survey. Retail executives continue to show the highest level of concern, with 45% ranking interest rates as the issue most likely to impact operations in the September quarter.
Credit market conditions continue to represent a significant concern. Two thirds (67%) of firms surveyed indicated that a tightening credit market will have a negative impact on operations - 11% anticipate a very negative impact.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the Australian economy is slowing quickly.
"Bureau of Statistics data for May reveal very weak growth in retail sales and a further decline in the number of new dwelling approvals. The small boost from income tax cuts starting this month will do little to boost consumer sentiment and spending in an environment of high food and petrol prices and high interest rates," said Dr Ironmonger.
"Despite the RBA indicating its concern regarding inflation, it has kept the cash rate unchanged for four consecutive months. With demand growth continuing to moderate the next interest rate adjustment, which may not occur this year, could be a downward movement."
The D&B index for expected sales is down 31 points to -16, with 25% of executives expecting an increase in sales and 41% expecting a decrease. The profits index is down 24 points to -21, with 22% of executives expecting profits to rise and 43% expecting a fall.
Employment expectations are down 15 points to an index of -11, with 10% of executives expecting an increase in staff and 21% expecting a reduction. Capital investment expectations are down 13 points to an index of minus seven, with 8% of executives expecting an increase and 15% expecting to cut spending. Inventories expectations are down nine points to an index of minus nine.
The selling prices index is up six points to an index of 51, with 58% of firms expecting to raise prices and 7% expecting to decrease them.
For further information, or to arrange an interview, please contact:
Danielle Woods
D&B PR Manager Australia & New Zealand
(02) 8270 2926
Dr Duncan Ironmonger
D&B Economic Consultant
(03) 8344 2131
About the Survey
D&B Australasia conducts latest Business Expectations Surveys every month. Each quarter over 1,200 business owners and senior executives representing major industry sectors across Australia are asked if they expect increases, decreases or no changes in their upcoming quarterly Sales, Profits, Employment, Capital Investment, Inventories and Selling Prices. Since its introduction in Australia in 1988, the survey has proven to be a highly reliable measure of economic performance.
Note: The index figures used in the survey represent the net percentage of survey respondents expecting higher sales, profits, etc., compared with the same quarter of the previous year. The indices are calculated by subtracting the percentage of respondents expecting decreases from the percentage expecting increases.
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
