22/06/2009 - 06:49

Smooth sailing for private companies

22/06/2009 - 06:49


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Private Australian companies are weathering the effects of the global financial crisis remarkably well with a KPMG survey revealing 90 per cent of respondents claimed they were prepared to respond to market changes.

Private Australian companies are weathering the effects of the global financial crisis remarkably well with a KPMG survey revealing 90 per cent of respondents claimed they were prepared to respond to market changes.

KPMG's annual Private Companies Survey, released today, showed that mid-sized Australian businesses felt that they had not overstretched, had adequate access to credit but believed their greatest risk was a fall in consumer confidence in the short-term and a skills shortage in the future.

The firm's Middle Market Advisory partner, Don Abell, said that the results challenged a common perception that the credit squeeze is strangling Australian business.

"We may well be in the biggest downturn since the great depression but the responses show otherwise, for the moment anyway," he said.

"Private companies are not experiencing a credit led recession, instead it is consumer sentiment steering their fortunes at the moment.

"Well over half (62 percent) of our respondents told us the availability and cost of credit is having little or no impact on their activities.

"The drop in interest rates seemed to give minimal relief due to a consensus that rate cuts were not fully passed on to private company borrowers, although it was agreed rate drops and the government's stimulus efforts had helped to maintain consumer demand."

Many private company executives felt that if there was a credit crunch it was predominantly for the big end of town.

The economic downturn was considered to be a sector related problem, affecting property, construction and manufacturing hardest.

"The results suggest that many private companies entered the downturn with lower geared balance sheets compared to public companies. One respondent claimed that banks were knocking on their door for the first time ever, but many businesses are waiting to see how things play out before borrowing," Mr Abell said.

Forty-two percent of respondents had cancelled major projects or business expansion plans compared to fifteen percent in 2008 with almost the remainder (57 percent) putting plans on hold.

However, private companies seem to be prepared to act, with 90 percent of respondents claiming to be very well or moderately well prepared to take advantage of any opportunities during the downturn, Mr Abell he said.

The issues of employment were high on the radar this year with questions on headcount introduced to the survey for the first time.

The majority of respondents (52 percent) reported a reduction in employee headcount over the previous six months as a direct result of the economic climate.

"Interesting to note that despite the downturn, a third of all respondents are still struggling to find appropriately skilled labour. This shows that even in the worst of times, the need for skilled people remains," Mr Abell said.

For the third year in a row, a skills shortage was reported across all industries. It remained high in mining, manufacturing and utility sectors, showing the traditional trade skills are still in short supply.

The survey showed common alternatives to redundancies were requesting employees take long service leave (27 percent) and annual leave (50 percent), along with reduced working hours (20 percent).

Nearly half of all respondents (43 percent) had put a freeze on salary increases.
While the results show private companies are taking appropriate measures to minimise unnecessary expenditure and reduce staff costs, they remain remarkably positive.

At the time this survey was undertaken, twenty-six percent of businesses believed we have already reached the bottom of the downturn albeit with a tough twelve months ahead.

Nearly half (46 percent) rated the medium term prospects good or very good.

A further forty-three percent felt prospects in this next three year period would be average, while eighty percent said the long term outlook (5 years and beyond) was good or very good.

"The results suggest that private business is better equipped then we thought to handle any choppy seas ahead and they'll be maintaining a tight ship to do so," Mr Abell said.


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