MARK BLINCH
Canadian executives are digging in for a prolonged economic siege by trimming their spending, hiring and marketing as they brace for a recession that could be long and deep.
The latest quarterly C-Suite survey reveals a growing pessimism about the economy, and shows that executives now feel the initial measures they've taken may not be enough to deal with the deepening downturn.
The survey was conducted in late January and early February for Report on Business and Business News Network by the Gandalf Group. Top executives from 150 companies responded.
Those in the corner office are more negative about the economy than they were just three months earlier. Now almost 90 per cent expect the economy to decline, either moderately or strongly, in the next 12 months. Half think it will be more than a year before growth returns.
As a result, almost 40 per cent of those surveyed said their companies will be cutting staff levels in the next year.
"We're in pretty dark days, really," said Steven Ranson, chief executive officer of Toronto-based Home Equity Income Trust. Mr. Ranson's firm, which sells reverse mortgage products, has recently trimmed close to 10 per cent of its staff, and it is taking other actions such as restricting advertising spending.
The tough times now look like they will last considerably longer than expected, Mr. Ranson said.
Last October, Home Equity determined that it needed enough liquidity to carry it through to November, 2009. "Now I'm not sure that that's long enough."
Like other businesses, the company is being extremely cautious about spending.
"You just try and watch every penny, manage your business as closely as you can, be careful about hiring people … and really hunker down," Mr. Ranson said. "You have to watch everything you do and make sure it justifies itself and pays for itself, so that you are in the position you want to be in when things ultimately do turn around."
Indeed, hunkering down for survival now seems to be top of mind for many executives. While those surveyed expressed an almost unanimous confidence that their own company will be able to weather the recession, more than 80 per cent say this is the worst downturn they've seen in their years in business.
Two-thirds say the economy has forced them to focus on the short-term at the expense of long-term growth plans, and half are more concerned about corporate survival than they were six months ago.
At many resource firms, which have seen a perfect storm of low demand and falling commodity prices, quick action has been necessary. At Calgary-based Grande Cache Coal Corp., coal production has been cut, 100 employees laid off, and plans for two new mines delayed.
Still, there is a sense of optimism - at least in the long term.
"We do believe things will turn around. It's not going to carry on like this forever," said chief financial officer Ian Bootle. The key, he said, is to conserve cash and be ready to expand when the economy improves. But he does not expect a turnaround at least until 2010.
While Grande Cache has considerable cash on hand, it is still looking into financing for some new equipment. That has become a tough task. "It's expensive, and the kind of conditions [on the loans]are not what we would have seen a year ago [or]six months ago."
Indeed, of the C-Suite respondents, almost two-thirds said it is now even more difficult to access credit than it was three months ago - when it seemed tougher than ever.
At the top of the list of actions executives say they are considering to deal with this environment is cutting capital spending. Eighty per cent said they are now more likely to make this move in light of current conditions.
More than half say they are more likely to look at trimming marketing costs, while 35 per cent may trim back research and development. About 16 per cent say they're more likely to consider seeking creditor protection, because of the downturn.
The goal, for everyone, is to ensure survival.
"We have to make sure that we protect our business, first and foremost," said Daniel Gumprich, chief financial officer of Sterling Shoes Income Fund, which owns several footwear retail chains. Key is conserving cash, he said, and at Sterling that was accomplished with a substantial 70-per-cent cut in the company's monthly distributions.
The company will also slow the expansion of its retail chains, and generally "be as prudent as possible," Mr. Gumprich said.
If there is an upside to the recession, it is that some competitors will be "weeded out," he added. There might also be deals that can be arranged with landlords who will be willing to offer better prices on available retail space.
All companies have to ensure they come out of the recession healthy enough to exploit those opportunities, Mr. Gumprich said.
"This is the time when businesses need to get themselves in the strongest position possible to take advantage of the opportunities."
C-Suite executives generally expressed positive opinions about the recent federal budget, and its stimulus measures, with about 60 per cent saying they viewed it favourably.
Infrastructure spending, the boost for lending programs, and an extension of the capital-cost allowance for manufacturers, were looked at in the best light.
Still, some executives feel the government's actions will not be the crucial factor in getting Canada out of recession.
"We were dragged into this by forces beyond our control - the United States and world markets," Mr. Gumprich said. "We'll be dragged out of it by them as well."
And for some companies, of course, the recession will be a good thing.
Nancy Lala, CFO of human resources consulting firm Morneau Sobeco Income Fund, said the downturn is actually a boon.
"In our business, we're not seeing a downturn," she said. "We definitely see more activity required for pension plans, and for our employee assistance program."
Shifting or cutting employees means more activity on the pension front, Ms. Lala said, and as things get more stressful for workers at client firms, benefits such as the EAP become crucial.
Still, even with business booming, "We are being more conservative, watching our spending, and being cautious about growth," she said.