World Industry Outlook: Which Industries Gain and Which Lose in a Slowing Global Economy?

Transcription

1 World Industry Outlook: Which Industries Gain and Which Lose in a Slowing Global Economy? Mark Killion, CFA Managing Director World Industry Service Global Insight October, Copyright Global Insight, Inc.

2 genda Outlook for Industry Sales and CapEx Rankings of Industry Winners and Losers within EMU Introduction to Sector Risk Rating Forecasts and Expected Migration of Credit Quality Historical Ratings of Sector Debt and Leverage for Public Companies Copyright Global Insight, Inc.

3 ector Composition of Macro Economic Growth Annual Percent Growth of Sector Real Value Added EMU World Annual Growth (%) Annual Growth (%) - - Constr. & Utilities Manuf. Services Constr. & Utilities Manuf. Services - - Copyright Global Insight, Inc.

4 tlook for Key Manufacturing Sector Markets Growth in Inflation Adjusted Sector Sales) EMU World Chemicals exc. Pharma Transport Equipment Computers & Electronics Chemicals exc. Pharma Transport Equipment Computers & Electronics Copyright Global Insight, Inc. Source: GII World Industry Service

5 tlook for Key Services Sector Markets Growth in Inflation Adjusted Sector Sales) EMU World - Financial Institutions Computing & Related Services Communications Financial Institutions Computing & Related Services Communications Copyright Global Insight, Inc. Source: GII World Industry Service

6 Which Industries Will Show the Fastest Real Growth? (Industry Ranking of - Growth Rates in Inflation Adjusted Sales) Top Twelve Real Growth Performers By Growth Rate in Gross Output (Real) Ranking in European Monetary Union Share in Total Sales (%) Growth - (%) World Ranking in Other Regions/Countries U.S. OECD (x US) BRICS Asia Pacific Eastern Europe & CIS. Computers & Office Equipment... Drugs & Medicines... Electrical Industrial Machinery... Scientific, Measuring & Precision Equipment... Computer & Related Services... Communications... Metal & Wood Working Machine Tools... Communications Equip. incl. Semiconductors... Special Industry Machinery... Renting & Leasing of Machinery & Equipment... Agricultural Machinery... Business Services.. Copyright Global Insight, Inc.

7 Which Industries Show the Fastest Nominal Sales Growth? (Industry Ranking of - Growth Rates in Nominal Euro Sales) Top Twelve Revenue Performers By Growth Rate in Sales (Nominal Euros) Ranking in European Monetary Union Share in Total Sales (%) Growth - (%) World Ranking in Other Regions/Countries U.S. OECD (x US) BRICS Asia Pacific Eastern Europe & CIS. Educational Services... Medical & Dental Health & Veterinary Svs... Drugs & Medicines... Electrical Industrial Machinery... Commercial Research & Development... Computers & Office Equipment... Computer & Related Services... Financial Institutions... Business Services... Transport & Storage... Special Industry Machinery... Restaurants & Hotels.. Copyright Global Insight, Inc.

8 Which Industries Show the Slowest Real Sales Growth? (Industry Ranking of - Growth Rates in Inflation Adjusted Sales) Most Modest Real Growth Performers By Growth Rate in Sales (Real) anking in European Monetary Union [Rank is Weakest] Share in Total Sales (%) Growth - (%) World Ranking in Other Regions/Countries U.S. OECD (x US) BRICS Asia Pacific Eastern Europe & CIS Textiles, Apparel & Leather. -. Energy Mining. -. Petroleum Refineries.. Agriculture, Hunting, Forestry, Fishing.. Electrical Appliances & House wares.. Paper & Printing.. Basic Industrial Chemicals.. Electricity, Gas & Water.. Rubber Products... Retail Trade: Automotive & Gasoline... Aluminum & Other Non-Ferrous Metals... Processed Food & Tobacco.. Copyright Global Insight, Inc.

9 ich Industries Show Fastest Growth in Capital Expenditures? ustry Ranking of - Growth Rates in Capital Spending, in Nominal Euro) Top Twelve Investment Performers By Growth Rate in CapEx (Nominal Euros) Ranking in European Monetary Union Share in Total CapEx (%) Growth - (%) World Ranking in Other Regions/Countries U.S. OECD (x US) BRICS Asia Pacific Easter Europe & CIS. Electrical Industrial Machinery... Medical & Dental Health & Veterinary Svs... Drugs & Medicines... Commercial Research & Development... Computers & Office Equipment... Metal & Wood Working Machine Tools... Computer & Related Services... Agricultural Machinery... Special Industry Machinery... Fabricated Metal excl. Mach. & Equip.... Insurance... Transport & Storage.. Copyright Global Insight, Inc.

10 troducing World Industry Service Sector Risk Ratings (SRR) ector Risk Ratings provide globally onsistent, forward-looking benchmarks of redit quality for each sector and country. ector Risk Ratings allows you to: Quantify the Risk/Return Profile of Sector Based Portfolios Forecast Changes in the Credit Quality Profile of Industries Rank Sectors with Best and Worst Credit Profiles, Show Expected Direction of Migration in Sector Credit Quality Stress Test Portfolios with Simulation and What-if Scenarios Inform Credit Risk Analysis and Sector Rotation Strategy A composite risk rating from lowest () to highest () is created for each sector, built up from separate risk factors Top-Down Sector Benchmarks to Complement Traditional Bottom-Up Analysis Copyright Global Insight, Inc.

11 mposite Risk Ratings, From Lowest () to Highest (), Are eated from Individual Credit and Operating Risk Factors ctor risk factors are derived from the ndard credit risk framework used in rporate lending and fixed income portfolios Sector risk factors measure the effects from industry structure, stage in lifecycle, sovereign/ macroeconomic conditions on industry risk profil Growth Risk Growth in real revenue Growth in sales Volatility, turning points Profitability Risk Pricing strength Operating profitability Free cash flow Return on invested capital Fixed asset turnover Degree of operating leverage Supply Risk Capital intensity Capacity overhang Depreciation cost of sales Market Structure Risk Dependence on suppliers, customers Exposure to energy, labor Export reliance, Import competition Cost of Goods Sold Barriers to entry and exit Technology and substitution Economic & Country Risk Sector cyclicality Sector interest rate sensitivity Country-level sovereign risks (From Globa Insight s Global Risk Service): Exchange rate Equity markets Regulation policy Tax policy Copyright Global Insight, Inc.

12 ctor Risk Ratings in EMU sk Ratings from Lowest () to Highest () Risk) In EMU Manufacturing and Business Service Sectors Drives Risk Ratings In the U.S. Construction, Retail and Finance Sectors Drives Risk Ratings Risk Rating Private Non-Ag Sectors Manufacturing Business Services Private Non-Ag Sectors Manufacturing Business Services Copyright Global Insight, Inc.

13 ctors Driving Changes in Risk Ratings for EMU ime-trends of Annualized % Change in Risk Factors for All Sector Average (Private, Non-Ag. ased on moving -year change) I m p or o v e W o r s e n % % % % % % -% -% -% Growth Risk Pricing Risk Profitability Risk -% Copyright Global Insight, Inc.

14 isk of Sales Forecast Growth is Rising in Select Commodity ctors in European Monetary Union Ratings in EMU for the Risk Factors of Forecast Sales Growth (SRR Rating from Lowest () to Highest () Risk) Iron & Steel Industrial Chemicals Motor Vehicles Agriculture, Hunting, Forestry, Fishing Sector Risk Ratings for the Forecast Sales Growth Risk Factor for EMU Industries Forecast Growth Risks for Sales, Production and Free Cash Flow are all Risk Factors that are expected to worsen Forecast Growth Risk has risen since, expected to grow further in the near-term Most affected are iron & steel, basic chemicals and agriculture Copyright Global Insight, Inc.

15 ich Industries Have The Highest (Worse) Composite Sector sk Ratings in EMU? Sectors with Highest Risk Rating in EMU (Negative Change implies Improving Risk) Ranking in European Monetary Union Change in Risk Rating - (%) World Ranking in Other Regions/Countries U.S. U.K. China India Japan. Energy Mining -.. Petroleum Refineries -.. Aircraft & Aerospace -.. Communications Equipment incl. Semiconductors.. Petroleum & Tar & Coal Product -.. Computers & Office Equipment -.. Motor Vehicles & Parts.. Iron & Steel.. Agriculture, Hunting, Forestry, Fishing -.. Electrical Appliances & House wares -.. Textiles, Apparel & Leather.. Engines & Turbines -. Copyright Global Insight, Inc.

16 ich Industries Have The Lowest (Best) Composite Sector Risk tings in EMU? Sectors with Lowest Risk Rating in EMU (Negative Change implies Improving Risk) Ranking in European Monetary Union Change in Risk Rating - (%) World Ranking in Other Regions/Countries U.S. U.K. China India Japan. Educational Services.. Medical & Dental Health Services -.. Restaurants & Hotels.. Financial Institutions.. Recreational & Cultural Services.. Wholesale Trade -.. Insurance -.. Business Services.. Electricity, Gas & Water.. Retail Trade: Automotive & Gasoline -. Copyright Global Insight, Inc.

17 ector Risk Ratings Framework Helps Evaluate and Anticipate hanges in Credit Profiles of Industries and Portfolios hich Sectors Have High Risk Profiles? hich Sectors Are Improving or Deteriorating? Change in Risk Measures ector Risk Levels: Falling Risk Static Risk Rising Risk Low Risk Moderate Risk High Risk Potential Recovery Yellow Flag Red Flag Monitor Changes in Sector Risk Profiles Drill down to the individual sub-factors to s the drivers for changing ri profiles Compare sector risk factor on a global and country basis, compare risks acros sectors Identify correlated industri that improve or deteriorate together Rigorous framework for evaluating diversification and strategy Copyright Global Insight, Inc.

18 ustry Winners and Losers (-) ticipated Changes in Sector Credit Profiles in European Monetary Union Summary of Composite Sector Risk Ratings in EMU: Current Ratings Level and Anticipated Change in the Ratings from - Sector Risk Rating Level (Down) Direction of Change in Ratings (Across) Low Risk Moderate Risk Falling Risk Static Risk Rising Risk Computing Services; Wholesale & Retail; Health Services; Insurance Renting & Leasing; Transport & Storage; Drugs & Pharma; Mining of Metals & Minerals Education; Hotels & Restaurants; Recreation Engines & Turbines; Communication Services; Processed Food; Paper & Printing; Construction Materials Financial Institution; AG Machinery; Industrial Machinery; Railroad Equipment Tooling Machinery; Fabricated Metal; Ship Building; Utilities; Commercial Research & Development; Construction High Risk Energy Mining; Refineries; Aircraft & Aerospace; Electrical Appliances Auto & Parts; Computer Hardware; Agriculture Communications Equipment; Iron & Steel; Textiles & Apparel; Industrial Chemicals Potential Recovery Yellow Flag Red Flag Copyright Global Insight, Inc.

19 troducing Industry Balance Sheet (Debt) Data and Ratings Compliment to National Income Account Based Sector Risk Ratings New Indicators of Corporate Debt & Financial Leverage Debt to Equity Ratio (LT Debt to Equity) Short Term Debt as % of Total Debt Net Debt as % of Sales Interest Payments as % of Total Expenses Financial Leverage Ratio (Ratio of Assets to Equity) History Only (not Forecast), As Reported (not Scrubbed ), Public Companies (no Gov t or Privately Owned), GAAP Accounting Conventions (not NIA), GICS Sector Classification (not ISIC) Includes Risk Rating Assignment for Each Ratio, and a Risk Rating for the Composite for All Debt Indicators Copyright Global Insight, Inc.

20 ector Gearing Ratio for All Non-Financial Sectors Long Term Debt as a % of Common Equity, & Interest as a % Total Expense US EMU Interest Expense as % of Total Expense Interest Expense as % of Total Expense Lo ng Term D eb t t o Equit y, % ( R HS) Lo ng T erm D eb t t o Equit y, % ( R HS) Canada Asia / Pacific Interest Expense as % of Total Expense Long Term Debt to Equity, % (RHS) Interest Expense as % of Total Expense Lo ng T erm D eb t t o Eq uit y, % ( R HS) Copyright Global Insight, Inc.

21 hich Sectors Have the Highest Net Debt as a % of Total Sales US Sectors with High Ratio of Net Debt to Total Sales EMU Sectors with High Ratio of Net Debt to Total Sales Financial (LHS) Utilities Telecommunication Services Industrials Financial (LHS) Utilities Telecommunication Services Industrials Copyright Global Insight, Inc.

22 hich Sectors have the Lowest Net Debt as a % of Total Sales US Sectors with Low Net Debt to Total Sales Ratios EMU Sectors with Low Net Debt to Total Sales Ratios Consumer Staples Materials Energy Consumer Staples Materials Energy Copyright Global Insight, Inc.

23 ich Non-Financial Sub-Sectors have the Highest and Lowest t Debt as a % of Total Sales Top Ten Sub-Sectors with Highest Net Debt as a % of Total Sales Top Ten Sub-Sectors with Lowest Net Debt as a % of Total Sales Ranked by US US Indicator EMU Rank Canada Rank Asia / Pacific Rank Ranked by US US Indicator EMU Rank Canada Rank Asia / Pacific Rank Leisure, Media & ertainment il & Gas Exploration & duction ublishing & Printing tilities..... Diversified & Precious Metals. Non-Automotive & Gas Retail.Steel.Health Care Providers & Services elecommunication vices extiles orest Products ommodity Chemicals.....Photographic Products.Electrical Equipment.Aerospace & Defense. Fertilizers & Agricultural Chemicals ousehold & Personal ducts.. Automotive & Gas Retail. - Hotels & Restaurants..Tobacco. - - Copyright Global Insight, Inc.

24 hich Non-Financial Sectors have the Highest Composite istorical Debt Rating? US Sectors with High Composite Historical Debt Risk Assignment EMU Sectors with High Composite Historical Debt Risk Assignment Telecommunication Services Utilities Industrials Telecommunication Services Utilities Industrials Copyright Global Insight, Inc.

25 hich Non-Financial Sectors have the Lowest Composite istorical Debt Rating? US Sectors with High Composite Historical Debt Risk Assignment EMU Sectors with High Composite Historical Debt Risk Assignment A Energy D Consumer Discretionary B Materials E Consumer Staples A Energy Health Care B Materials E Consumer Staples Copyright Global Insight, Inc.

26 U Sub-Sectors with Highest (Worse) Debt Ratings ICS Sectors Ranking Based on Composite Debt Risk Score in ) Sectors with Highest (Worse) Debt Rating in EMU Risk Rating for. Scale: - (Lowest to Highest) Ranking in European Monetary Union (GICS Codes) Change - (%) World Ranking in Other Regions/Countries U.S. U.K. China India Japan. Insurance ().. Telecommunication Services ().. Banks & Diversified Financials (_).. Publishing & Printing (_).. Transportation ().. Automobiles & Components ().. Utilities () -.. Forest Products () -.. Automotive & Gas Retail ().. Motorcycle Manufacturing () -.. Tobacco ().. Construction Materials () -. Copyright Global Insight, Inc.

27 U Sub-Sectors with Lowest (Best) Debt Ratings CS Sectors Ranking Based on Composite Debt Risk Score in ) Sectors with Lowest Debt Rating in EMU Risk Rating for. Scale: - (Lowest to Highest) Ranking in European Monetary Union (GICS Codes) Change - (%) World Ranking in Other Regions/Countries U.S. U.K. China India Japan. Pharma & Biotech () -.. Energy ().. Household & Personal Products () -.. Fertilizers & Agricultural Chemicals () -.. Commodity Chemicals ().. Health Care Providers & Service () -.. Aluminum () -.. Steel () -.. Precious Metals & Minerals ( ) -.. Machinery () -.. Electrical Equipment ().. Trading Companies & Distributors (). Copyright Global Insight, Inc.

28 mpare Rankings for the Fastest Growing Sectors in EMU EMU Sectors with The Strongest Forecast Growth in Real Sales Ranking in European Monetary Union ased on Real Sales CAGR - Share in Total Sales (%) High Annual Growth - (%) High Growth in Sales (Nom. Euros) Ranking in Other Factors & Indicators High Growth in CapEx (Nom. Euros) Low Growth in SRR Composite (% ) Low Debt / Equity Rating Low ST/LT Deb Rating Computers & Office Equipment.. Drugs & Medicines.. Electrical Industrial Machinery.. Medical, Scientific & Measuring Equipment.. Computer & Related Services.. Communications.. Metal & Wood Working Machine Tools.. Communication Equip. incl. Semiconductors.. Special Industry Machinery... Leasing of Machinery & Equipment... Agricultural Machinery... Business Services.. Copyright Global Insight, Inc.

29 Thank you! Mark Killion, CFA Managing Director Prem Premakumar, Ph. D. Principal/Senior Economist World Industry Services Global Insight, Inc. Phone: Copyright Global Insight, Inc.