Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The first Canadian mid-market chief financial officer (CFO) survey published today by GE Capital, shows that local metals and mining companies are extremely positive about the current state of the industry, but less optimistic about the state of the world economy.
The sector, which was the most cheerful of the four industries included in the survey (food, beverage and agribusiness; retail; trucking; and metals and mining), sees increasing revenues and moderate growth in the next months, according to the survey results.
The study, which took place during the first quarter of 2012, includes responses from 186 CFOs, 27 of which belong to the extraction sector with an average annual revenue of $25 million and in business for about a decade.
GE Capital conducted a similar survey of 495 U.S.-based CFOs during the first quarter of 2012, discovering that Americans are less positive about the current state of their own industry and their domestic economy. However, they showed an equal sentiment to that of their Canadian counterparts on the global economy.
More than half (54%) of U.S. metals CFOs say their own industry will expand over the next 12 months, while 43% say it will stay the same. The other half (51%) expects the U.S. economy to grow over the next 12 months, while 40% think it will stay about the same.
Among Canadian metals CFOs, 59% say their industry will stay about the same over the next 12 months and 33% say it will expand. When it comes to the national economy, 52% say it will expand over the next 12 months, while 41% say it will stay about the same.
Growth and profit expectations
When asked to describe the business phase their company will be in for the next one to three years, 48% predict a moderate growth phase, followed by 41% who predict cyclical or limited growth.
Most CFOs (67%) expect their company’s revenues to increase this year, while 44% of them think their company’s profit margins will increase this year compared to last year.
Confidence indicators: Cost structure, hiring, new orders and capital expenditures
The majority of metals CFOs (56%) expect their company’s cost structure to increase in 2012 compared to 2011. That’s the highest among all groups surveyed; the average is 36% across the board.
Nearly three-quarters (74%) of metals CFOs are planning to increase pricing this year. Again, that’s the highest among all of those surveyed; the average is 55% across the board.
When asked about their cost structure, 56% of metals industry respondents say it will increase this year. Thirty% are expecting it to stay about the same.
Nearly three-quarters (74%) say they’ve already begun hiring this year, and 85% say they will be hiring within the next 12 months.
Finally 44 % expect their company’s amount of capital expenditures to be about the same in 2012 as in 2011, while 30% expect them to be greater.
Metals-specific findings:
– Respondents were asked whether they saw their company using hedging to a greater extent in the next 12 months due to volatility in metals prices. Nearly three-quarters (74%) of Canadian metals CFOs say no, while 69% of U.S. ones says no.
– An overwhelming 93% of Canadian CFOs do not see an increase in metals-related imports as a competitive threat. The percentage was less among U.S. CFOs, with 71% seeing them as a threat.
– Fifty-six% of Canadian CFOs say their current level of inventory is about right, while 22% say it’s too low and an equal amount say it’s too high. Among U.S. CFOs, 63% say their current level of inventory is about right, 26% say it’s too high and 9% say it’s too low.
– Compared to three months ago, 52% of Canadian CFOs say new order lead times are increasing and 33% say they’re decreasing. In the U.S., 60% of CFOs say their new order lead times are increasing and 29% say they’re decreasing.
– Respondents were asked about the degree of impact they expect potential new carbon dioxide emission regulations to have on their business’s profitability. Canadian CFOs are divided; with 30% saying the regulations would have a minor impact and an equal amount saying they would have a mild impact. Among U.S. CFOs, 40% say they would have no impact on their profits, while 14% predict a minor impact and 23% expect a mild impact.
Among the CFO surveys published, the GE Capital Canadian Mid-Market CFO Survey is one of the few that examines Canadian businesses across distinct sectors, providing a comprehensive picture of how financial executives view the world today and their outlook for the months ahead. The CFOs surveyed represent companies with revenues ranging from $5.3 million to $3.6 billion.
