How will your sector perform in 2009?

The threat of recession hangs heavy over the business landscape, but not every company is bracing for bad news. In a sector-by-sector breakdown, SmartCompany reveals the industries of likely refuge in the maelstrom ahead.

By Patrick Stafford and James Thomson

Sector by sector report 2009

The threat of recession hangs heavy over the business landscape, but not every company is bracing for bad news. In a sector-by-sector breakdown, SmartCompany reveals the industries of likely refuge in the maelstrom ahead.

Australia might be hurtling towards a recession, but that doesn’t mean that every sector of the economy is feeling the pinch.

Despite the growing gloom, companies in the agribusiness, construction, health and parts of the property sector remain on the lookout for opportunities.

To help you spot the areas to target – and avoid – the SmartCompany team has prepared this special sector-by-sector outlook for the year ahead.

Advertising and marketing

The advertising and marketing sector has largely held up well, despite staff cutbacks in larger groups such as Euro RSCG. And while advertising spend is down across the board – with Nielson reporting dips in internet ad sales – many executives suggest SMEs will want to use the downturn to help get an edge on the competition.

Jane Emery from Grey Group says there are “huge opportunities” for clients willing to take advantage of the tough environment.

“We have clients who see a real opportunity to lift market share. And we have clients in the food area that are having no problems whatsoever because people are not eating at restaurants, they’re eating at home, so they’re doing fine,” she says.

“We talk gloom and doom, but the opportunity for anyone is to seize these moments.”

Agribusiness

While agribusiness has been hit hard by the drought, there are still some positive signs for the next 12 months. The financial crisis has seen commodities fall in price, while global food shortages should help exports.

The dollar’s slide should also help in that regard, with the industry’s export value predicted to rise 56.3% on 2007-08. The global food crisis should also make Australian exports attractive.

And according to an Australian Bureau of Agricultural and Resource Economics report, wheat exports are predicted to increase by 43.4% in 2008-09, with production climbing 53.1%, in the same period.

Lucy Purcell, director of the Agribusiness Association of Australia, says: “We’re still seeing a huge amount happening in certain industries; still a lot of growth.

“But people are hanging on to their grain because prices aren’t terribly good. The issues are logistics, but… there’s still a positive outlook.” Purcell also says the industry is continuing to employ despite the downturn, especially at the executive level.

Construction and engineering

More Government spending on infrastructure such as the $300 million for local projects, should help keep the engineering construction sub-sector busy. But the commercial sector has been hit hard, with $60 billion worth of new developments deferred in the first 10 months of 2008.

With credit tight, the industry may not see a huge recovery until next year. Indeed, the Association of Consulting Engineers Australia expects revenue to only increase by a meager 4% in 2009-10 and 2% in 2010-11.

Jim Barrett from the Australian Industry Group says the health of the construction and engineering industry depends on new projects booked over the next six months.

“In the public sector, we’re buoyed by the fact state budgets have a significant infrastructure spend. The downside to that is significant cuts in revenue,” he says.

“But unless there’s a significant stimulus in terms of the development of new projects in by the middle of the year, construction will, in 2009-10, start to suffer quite significantly.”

Food and beverages

For the food and beverage industry, exports are going be the key in 2009. With the falling dollar, the meat, grains, dairy and wine industries should enjoy a significant boost for export earnings.

But with our two biggest customers – the US and Japan – already in recession, the next 12 months will be nervous ones for the industry. And the falling dollar could see the price of raw food materials go even higher.

But there is some good news for local food and beverage retailers, which may see a surge in sales as many people opt to spend more time cooking at home.

Financial services and insurance

The financial services industry will be seeking a recovery in 2009. The collapse of companies such as Opes Prime, MFS and Asset Loans Group, as well as the recent voluntary administration of Storm Financial, all point to a dire season ahead.

With disappointed investors and few signs of a comeback any time soon, perhaps the only opportunities will be for companies dealing in restructuring and insolvency.

But Jim Downey, principal of insolvency firm JP Downey & Co, says while much of the financial services sector will be hit, for some it’s business as usual.

“There’s work for the insolvency sector. If you’re looking at the accounting world, you wouldn’t expect audit activity would be significantly impacted except to the extent that some of their clients might fail.

“But the mergers and acquisitions sector may struggle. The tax area would also typically slow down in an environment where profits are diminishing.”

Health and pharmaceuticals

The health and pharmaceuticals industry should be safely buffered against the downturn, and kept particularly busy with the ageing population.

Robert Bryant, general manager of research firm IBISWorld, says community health services, diagnostic services and aged care services should continue to grow during 2009.

“Strong growth in the 70-plus demographic will continue to propel growth in nursing homes, with strong government funding helping to stabilise the sector and mitigate risk.”

But with economic conditions deteriorating, non-essential services such as beauty spas and gyms will likely experience setbacks as discretionary spending falls. Bryant says one possible way wellness businesses can combat this is to promote their products and services as relatively inexpensive “treats” that struggling consumers can enjoy.

Information technology

The information technology industry will be a mixed bag over the next 12 months. Many companies will be hit by government contracts drying up, while IT budgets are often the first to go during cost-cutting initiatives.

But despite the hard times ahead, bigger companies such as Melbourne IT and IBA Health Group are set to continue hiring – but several have adjusted earnings projections. Additionally, new research from Gartner suggests IT budgets will remain static during 2009.

But as several IT companies have already dealt with hard times during the dot-com crash earlier in the decade, adjusting for another downturn shouldn’t be too much of a problem.

Australian Information Industry Association chief executive Ian Birks says the industry is “well placed” to deliver support and will still find opportunities.

“The current economic downturn means the ICT sector will likely continue to suffer a slowdown in the first half of 2009, but the AIIA believes that the ICT industry as a whole, however, will not suffer as severely as other sectors of the economy, and can be expected to rebound more quickly.”

Internet

After almost a decade of growth, big internet companies in Australia and overseas will be tested in 2009 as growth rates drop sharply.

Google and Yahoo have already cut spending by slashing jobs and dumping projects, and both companies are searching desperately for ways to boost their advertising revenue.

Closer to home, Australia’s biggest online company, recruitment giant SEEK.com, is forecasting zero profit growth in 2008-09 as the economy stalls and unemployment increases.

However, there are bright spots, particularly for those online retailers who are seen to offer “value”. Amazon reported its busiest Christmas period on record, while Australian online travel site Webjet says it completed $180 million of transactions in the six months to 31 December, up 14% on the previous corresponding period.

“Despite the general gloom we expect that profit for the period will show a similar level of increase on last year and early holiday period January bookings have continued strongly,” Webjet’s managing director David Clarke says.

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