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David Yager, CEO of HSE Integrated Ltd., a company that sells safety products and services to heavy industry in the comany's head office in Calgary, Alberta.
David Yager, CEO of HSE Integrated Ltd., a company that sells safety products and services to heavy industry in the comany's head office in Calgary, Alberta.

June, 2009

The return of optimism Add to ...

For HSE Integrated Ltd., a Calgary company that sells industrial health and safety services, the recession has been a major downer.

Many of HSE's clients are in the oil and forestry industries, the automotive business, steel manufacturing and nickel mining, said chief executive officer David Yager. Each one of those sectors has been hammered by the downturn, making a big dent in HSE's business in recent months.

Yet, Mr. Yager is now optimistic that things have bottomed out.

"The first step to going up is to quit going down," and that appears to the case right now, he said. The oil industry is showing signs of life as a result of higher prices, U.S. Steel is bringing back some staff at its operation in Hamilton, Ont., and Chrysler's plant in Windsor, Ont., may be fired up once Fiat gets the keys, he said.

"It's just a little bit here and a little bit there, [but it's]a cumulative improvement."

Mr. Yager's relatively sunny view reflects the findings of the latest C-Suite survey of corporate executives, which shows a dramatic shift in the attitudes of those occupying corner offices, compared to just four months earlier.

While there was nothing but doom an gloom on their minds in the last survey, top managers now perceive significant brightness on the economic horizon.

Fully 55 per cent of the executives surveyed expect moderate growth in the Canadian economy in the next year, a sea change from the 11 per cent who felt that way in February.

And the proportion of those who expect growth in the struggling U.S. economy has surged from 5 per cent in February to 38 per cent this time round.

The C-Suite survey was conducted in late May and early June for Report on Business and Business News Network by Toronto market research firm Gandalf Group. Top executives from 157 firms responded.

The surveyed executives are also far more optimistic now about the prospects at their own companies. Fifty-eight per cent expect their firms to grow moderately in the next year, while 17 per cent foresee strong growth.

"Probably the worst is over," said Jean Perron, chief financial officer of Innergex Renewable Energy Inc., a developer of hydro and wind power projects based in Longueuil, Que.

Mr. Perron also notes, however, that the economy is no where near where it was a year and a half ago, and as a result Innergex is still very cautious about making any ambitious corporate moves in the short run.

But a turnaround is certainly on the horizon, according to the executives polled, and it is coming more quickly than they thought at the time of the last survey.

In February fully 50 per cent of the respondents thought it would take at least a year for an economic recovery to take hold. Now only about one-quarter of executives expect to have to wait that long.

Almost half now think growth with resume in six months to a year, and a quarter expect a rebound in less than six months.

Glenn Squires, CEO of Holloway Lodging REIT, a real estate investment trust based in Bedford, Nova Scotia, said he is looking for a turnaround in the fourth quarter of this year for the hard-hit hotel business.

But Holloway's hotels, which are mainly in small and mid-sized cities across the country, may also get "a little bit of a pop" in the third quarter because of pent up demand for short-duration domestic travel, Mr. Squires said.

For hotels, the drop in business with the onset of the recession was extremely quick and deep, he said, so it is a relief to see some signs of improvement. "If I thought it was going to get worse, I don't know what I'd do. I'd go over to my fishing camp in Newfoundland and hibernate for a couple of years."

Many executives are shifting their views on staffing, as a consequence of an expected turnaround. In February almost 40 per cent of decision-makers said they would likely be cutting employment over the next year, but that number has now dropped to 13 per cent. Thirty-seven per cent said they plan to add staff in the next 12 months, up from 20 per cent in February.

One clear reason for the shift to a more optimistic tone is the rebound in the stock market. While it is not a perfect gauge of the economy, it does reflect an important change in attitude, said Neil Maclean, chief financial officer at The Keg Royalties Income Fund in Richmond B.C.

"Three quarters of recessions are caused by the public perception that there is a recession," Mr. Maclean said. If people think there is going to be good news, they will start acting accordingly by loosening their purse strings, and that seems to be what's happening now, he said.

Keg Royalties, which operates and franchises a chain of restaurants across Canada, has not been hit as hard as many other companies by the recession, Mr. Maclean said. Same-store sales were down about 3.5 per cent it the last quarter, a relatively small drop.

In the oil patch, recent optimism has been fed by the sharp increase in the price of crude oil, which is now double where it was in mid-February.

Kelly Kerr, CFO at Action Energy Inc. in Calgary, says that is a huge factor in the more positive tone in the west, but he also believes the stimulus packages governments have put in place are making a difference.

One cautionary note for the west, however, is the outlook for natural gas prices, he said. In the near term there will continue to be downward pressure on gas prices, Mr. Kerr predicts, and as a result "optimism is a bit tempered" particularly among companies that have a heavy weighting in natural gas.

As for the long-term legacy of the recession, it will not easily be forgotten once the economy improves, most executives suggest. People had false expectations before the recession, and the downturn has been a bracing reality check, Mr. Yager said. "The people who have been around [for a long time]are going to have to get back to the basics, and the young people who have never experienced it before ... well I hope they saved some money when they could."

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ABOUT THE SURVEY

The quarterly C-Suite survey was conducted for Report on Business and Business News Network by Gandalf Group, and sponsored by KPMG.

The survey interviewed 157 executives between May 21 and June 3. Respondents represent ROB 1000 companies from across Canada.

Each quarter, a $1,000 charitable contribution is made on behalf of a survey participant. For the February survey, a donation will be made to Toronto's Hospital for Sick Children on behalf of Petra Kuester, chief financial officer of Schenker of Canada Ltd..

Want to know more about what the nation's leaders think? Join host Kim Parlee tonight on Business News Network for the C-Suite Survey at 7:00 p.m. (ET).

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Expectations

What are your expectations for your company over the next 12 months?

Strong growth 17%
Moderate growth 58%
Moderate decline 21%
Strong decline 2%

KATHRYN TAM / THE GLOBE AND MAIL

SOURCE: GANDALF GROUP

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WHAT THE EXECUTIVES SAID

ECONOMY

The outlook for the Canadian economy has improved sharply since February, and a majority of executives now expect to see moderate growth in the next year. Opinions on the U.S. economy have also shifted positively, although more than half still expect a decline in the coming year. Access to capital remains the biggest corporate challenge, along with other economic and market issues.

RECESSION

Half of the executives surveyed said they will be keeping employment levels relatively stagnant in the next year, but more companies plan to add staff than to reduce jobs. Credit still remains tight, but there has been some improvement in the picture compared to February. Companies are now considering a variety of short-term moves such as acquisitions, refinancing, or selling equity .

RECOVERY

The light at the end of the tunnel is a little bit closer, executives say. Almost three-quarters think recovery will come within a year. But when things are back to "normal" our standard of living will still not be where it was before the recession hit, most top managers say. Still, credit markets, the stock market, consumer spending and other indicators are expected to be on the upswing soon.

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