Energy prices hammer at US multinationals; threaten business continuity investments

Leaders of large US-based businesses have turned less optimistic about the domestic and world economies, according to the latest PricewaterhouseCoopers Management Barometer survey. 59 percent now see energy prices as a potential barrier to their company's growth, up sharply from 36 percent in the prior quarter. Executives from these energy-vulnerable companies are more uncertain about the domestic and world economies; have less healthy gross margins; and expect slower revenue growth, less new hiring and fewer key investments.

"The number of companies seen as energy-vulnerable has increased dramatically over the past quarter," said John O'Connor, vice chairman of PricewaterhouseCoopers LLP. "And, across-the-board, the economic outlook is less positive—with a connection to the higher cost of energy. The big question is: Are we witnessing a case of corporate jitters, or a shift in the tide?"

Pricier energy's impact may be seen in:
* Squeezed margins. Among companies described by management as energy-vulnerable, 36 percent reported improved gross margins in the third quarter, but 32 percent said their margins declined. In contrast, all other surveyed companies had a net of 17 percent with increasing margins.

* Slower growth. Energy-vulnerable businesses are projecting revenue growth averaging 7.1 percent over the next 12 months, versus 10.1 percent for all others surveyed—a difference of 30 percent.

* Fewer new jobs. Only 48 percent of energy-vulnerable businesses plan net new hiring over the next 12 months, versus 67 percent of all others. Workforce contraction averaging 0.3 percent is expected for energy-vulnerable companies, versus workforce growth of 2.5 percent for all others.

* Fewer key investments. Fewer energy-vulnerable businesses expect to make increased investments over the next 12 months for: information technology (42 percent, versus 64 percent for all others); and new product or service introductions (33 percent, versus 47 percent for all others).

www.pwc.com

Continuity Central comment:
Unfortunately, in many companies business continuity is still a ‘grudge purchase’ and is often one of the first areas to be cut back during times of economic downturn. At best, energy-vulnerable businesses are likely to freeze spending on business continuity; many can be expected to reduce spending in this area. As a result, the strong growth that has been seen in the overall US business continuity market since 2001 may be reduced in 2006.

•Date: 22nd Nov 2005 • Region: US • Type: Article •Topic: BC markets
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