Global Capital Confidence Barometer

Transcription

1 Issue 4 November 2012 Real Estate, Hospitality and Construction Global Capital Confidence Barometer About this survey The Global Capital Confidence Barometer is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU). Our panel consists of select Ernst & Young clients and contacts, and regular EIU contributors. This snapshot of our findings gauges corporate confidence in the economic outlook, and it identifies boardroom trends and practices in the way companies manage their capital agenda. The survey was conducted in October Ernst & Young s Real Estate, Hospitality and Construction practice performed an analysis of these survey results, specifically focusing on responses from real estate, hospitality and construction companies. Optimization continues to drive companies capital agenda Optimism for the global economy has weakened, with 76% of real estate, hospitality and construction (RHC) respondents in our latest Global Capital Confidence Barometer survey saying they see no signs of improvement (see Chart 1). The Eurozone crisis and slowing growth in emerging markets, such as China and India, have dampened global economic confidence and expectations around corporate earnings. Contributing to this sentiment is the decline in confidence around short-term market stability and stock market outlook, versus October 2011 (see Chart 2). Chart 1: Perspective on the state of the global economy The Capital Agenda Based around four dimensions, it helps companies consider their issues and challenges, understand their options and make more informed capital decisions. 1. Preserving capital: reshaping the operational and capital base 2. Optimizing capital: driving cash and working capital and managing the portfolio of assets 3. Raising capital: assessing future capital requirements and evaluating funding sources 4. Investing capital: strengthening investment appraisal and transaction execution 28% 24% 39% 35% 14% 41% 47% 37% 35% Oct-2011 Apr-2012 Oct-2012 Improving Stable Declining

2 Chart 2: Level of confidence in Oct-2011 Apr-2012 Oct % 35% 31% 32% 28% 20% 21% 16% 19% 24% 19% 23% 18% 28% 16% 26% 12% 9% 6% Equity valuations/ stock market outlook Short-term market stability Regulatory environment Credit availability Employment growth Economic growth Corporate earnings Nearly 40% of executives said the global economic downturn will continue for at least a year, while onequarter think it could persist for more than two years (see Chart 3). However, certain real estate sectors, such as homebuilding and hospitality in the US, are seeing renewed growth and investment. Housing starts in the US have surged to their highest level in four years, while the lack of new supply in the US hospitality sector is creating greater demand, resulting in higher revenue per available room for hotels. Chart 3: Expectations on the remaining length of the global economic downturn 25% 38% 25% 12% 0-6 months 6-12 months 1-2 years More than 2 years 2 Global Capital Confidence Barometer

3 The number of RHC respondents focused on growth declined to 27% from 43% in October 2011 (see Chart 4). While growth is still on the agenda, over the next 12 months many companies will be refocusing on initiatives that maintain stability, reduce costs and improve operational efficiency (see Chart 5). Chart 4: Percentage of companies focused on growth 90% 78% 80% 69% 70% 60% 50% 40% 30% 20% 43% 36% 27% 0% Oct-2010 Apr-2011 Oct-2011 Apr-2012 Oct-2012 Chart 5: Where companies will focus over the next 12 months 42% 29% 27% Survival Maintain stability 2% Cost reduction and operational efficiency Growth 3

4 Despite strong fundamentals for deals, including rising cash balances and largely stable credit availability, there is a lower appetite for acquisitions compared with any previous edition of our survey: only 25% of respondents expect to pursue an acquisition in the next 12 months. However, RHC respondents positive sentiment around the number, quality and likelihood of closing deals increased (see Chart 6). Chart 6: Expectations to pursue an acquisition, and level of confidence for deals over the next 12 months Expectations to pursue an acquisition Level of confidence for deals 50% 41% 40% 38% 41% 31% 30% 20% 25% 0% Oct-2010 Apr-2011 Oct-2011 Apr-2012 Oct-2012 Number of deals Positive 35% 46% 41% 34% Stable 42% 41% Negative 20% 23% 18% Quality of deals Positive 26% 42% 44% 36% Stable 51% 37% Negative 23% 19% Likelihood of closing deals Positive 19% 38% 34% 38% Stable 43% 44% 24% Negative 38% Oct-2012 Apr-2012 Oct Global Capital Confidence Barometer

5 Contributing to the lack of confidence around merger and acquisition (M&A) activity is the valuation gap between buyers and sellers. While it has improved in the last six months, it continues to hamper transactions. Moreover, 80% of RHC companies surveyed expect the valuation gap to remain the same over the next 12 months (see Chart 7). Chart 7: Current valuation gap between buyers and sellers, and future expectations for the valuation gap over the next 12 months Current valuation gap Future valuation gap expectations Apr-2012 Oct % 41% 40% 35% 33% 14% 18% Contract Stay the same Widen 36% 42% 80% Oct-2012 Apr-2012 Less than 10 20% 21 30% Over 30% 5

6 With a recovery taking longer than expected, some RHC companies are pursuing organic growth by focusing their efforts primarily on changing their mix of existing products and services (see Chart 8). Some examples in the global hospitality sector include reducing services that do not provide high value propositions to customers; catering to specific guest segments, such as providing female-only floors; and increasing distribution channels through mobile applications. Meanwhile, the global homebuilding industry is catering to a growing number of people 55 years and older by focusing on developing more senior living facilities. Chart 8: Primary focus of organic growth Changing mix of existing products and services 32% More rigorous execution of core products/ existing markets 23% Exploiting technology to develop new markets/products 15% New sales channels 15% Increase research and development 15% Given the slower M&A environment, companies will have to focus on optimizing capital by controlling costs, improving performance and focusing on bottom-line improvements. Those who execute in a disciplined way will be best positioned when economic confidence returns. Understanding your capital agenda A strong capital agenda needs to be at the heart of all strategic boardroom and management decisions. Using the capital agenda will help companies consider their issues and challenges and, more importantly, understand their options to make more informed strategic capital decisions. The capital agenda is based on four key dimensions: 1. Preserving capital: reshaping the operational and capital base 2. Optimizing capital: driving cash and working capital and managing the portfolio of assets 3. Raising capital: assessing future capital requirements and evaluating funding sources 4. Investing capital: strengthening investment appraisal and transaction execution 6 Global Capital Confidence Barometer

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8 Contacts Global Real Estate Howard Roth Global Real Estate Leader Rick Sinkuler Global Real Estate Markets Leader Ad Buisman EMEIA Real Estate Leader Shohei Harada Japan Real Estate Leader harada-shh@shinnihon.or.jp Chris Lawton Asia Pacific Real Estate Leader chris.lawton@au.ey.com Michael Straneva Americas Real Estate Leader michael.straneva@ey.com Global Transaction Real Estate Hartmut Fruend Global Transaction Real Estate Leader hartmut.fruend@de.ey.com Christoph Ehrhardt EMEIA Transaction Real Estate Leader christoph.ehrhardt@de.ey.com Ross Hamilton Asia Pacific Transaction Real Estate Leader ross.hamilton@au.ey.com Gary Koster Americas Transaction Real Estate Leader gary.koster@ey.com Satoshi Yamada Japan Transaction Real Estate Leader satoshi.yamada@jp.ey.com Global Hospitality Michael Fishbin Global and Americas Hospitality Leader michael.fishbin@ey.com Cameron Cartmell EMEIA Hospitality Leader ccartmell@uk.ey.com Jeff Green Asia Pacific Hospitality Leader jeffrey.green@hk.ey.com Ernst & Young Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit About Ernst & Young s Global Real Estate Center Today s real estate industry must adopt new approaches to address regulatory requirements and financial risks while meeting the challenges of expanding globally and achieving sustainable growth. The Ernst & Young Global Real Estate Center brings together a worldwide team of professionals to help you achieve your potential a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It s how Ernst & Young makes a difference. For more information, please visit 2012 EYGM Limited. All Rights Reserved. EYG no. DF No Exp. This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young Global Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.