BOSTON, MA, Jul 14 (MARKET WIRE) —
Global investors are anticipating economic recovery — although opinions
vary widely as to when that recovery will be fully sustainable, according
to a recent survey conducted by The Boston Consulting Group. But no
matter when the recovery finally kicks in, there is a consensus that
developed economies face an extended period of below-average growth.

Investors’ Views on Economic Recovery and Growth

The BCG survey polled a broad cross section of U.S. and European
investment professionals responsible for more than $1 trillion in assets
under management. Among the key findings:

– Thirty percent of respondents said they expect a recovery (defined as
2.5 to 3 percent sustainable annual GDP growth in the world’s
developed economies) to happen by the end of 2010. And more than half
(55 percent) expect it to be in full gear by July 2011.

– However, investors and analysts covering European and other global
markets were considerably more pessimistic about when the recovery
will occur than those covering the United States. Nearly 40 percent of
the U.S.-focused respondents see developed economies reaching the 2.5
percent GDP growth threshold by the end of 2010 and 60 percent by July
2011. By contrast, the equivalent numbers for those respondents not
focused on U.S. markets are 19 percent and 50 percent, respectively.
And 31 percent of these respondents don’t see the recovery happening
until January 2013 — or later.

– Most respondents foresee an extended period when corporate earnings
growth will remain below the long-term historical average for
developed markets of approximately 5 percent. A plurality (46 percent)
estimate that annual net-income growth rates in the next few years
could be as low as 2 to 4 percent. Another 40 percent were slightly
more optimistic, seeing net-income growth in the neighborhood of 4 to
6 percent. Only 9 percent expect earnings growth to be 6 percent or
higher.

The Implications for Companies

Precisely because finding opportunities for growth will be more
difficult, investors are looking to invest in companies with credible
plans for profitable organic growth based on sustainable competitive
advantage. “As the recovery gathers steam, investors are becoming
relatively less concerned about a company’s liquidity and near-term
financial survival and more concerned about its ability to take advantage
of even a modest renewal in economic growth rates,” said Jeff Kotzen, a
senior partner in BCG’s New York office and a coauthor of the study.

But that doesn’t mean companies can pursue “growth for growth’s sake.”
Investors also want companies to deploy their capital prudently,
returning excess cash to investors once profitable growth has been
funded. What’s more, survey respondents generally prefer that cash in the
form of dividends rather than share repurchases for the simple reason
that most (76 percent) believe that companies do a poor job of timing
share buybacks.

“Alignment of a company’s business, financial, and investor strategies is
critical to attracting investors and managing their expectations,” said
Eric Olsen, a senior partner in BCG’s Chicago office and study coauthor.
Companies still have a long way to go to achieve that alignment. A full
67 percent of respondents said that the companies in which they invest
are either poorly or only partly aligned on these three dimensions.

An Action Plan

In addition to reporting on the survey findings, the BCG article
“Investors’ Priorities in the Postdownturn Economy” outlines four key
steps companies can take to respond to current investor sentiment.

– Revisit growth strategies. At a time when companies can no longer rely
on macroeconomic trends to fuel growth, it is critical to review
growth strategies and pursue only those that rest on a foundation of
competitive advantage.

– Reevaluate deployment of excess cash. After a period in which many
companies have been extremely conservative about protecting liquidity
by preserving cash on the balance sheet and paying down debt, they now
need to carefully develop the best plan for deploying that cash and
their ongoing free cash flow.

– Understand the key drivers of relative valuation multiples. Expansion
in a company’s valuation multiple will be an important contributor to
total shareholder return (TSR) in the years to come. BCG research
shows that it is possible to identify and actively manage the factors
that determine roughly 80 percent of the differences in valuation
multiples across a company’s peer group.

– Take a fresh look at the company’s investor base. Given the evolution
of investor priorities since the downturn, it is especially important
for a company to reengage with its investors and share an up-to-date
view on the company’s business strategy, competitive positioning, and
financial results.

To receive a copy of the article or arrange an interview with one of
the authors, please contact Eric Gregoire at +1 617 850 3783 or
gregoire.eric@bcg.com.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm
and the world’s leading advisor on business strategy. We partner with
clients in all sectors and regions to identify their highest-value
opportunities, address their most critical challenges, and transform
their businesses. Our customized approach combines deep insight into the
dynamics of companies and markets with close collaboration at all levels
of the client organization. This ensures that our clients achieve
sustainable competitive advantage, build more capable organizations, and
secure lasting results. Founded in 1963, BCG is a private company with 69
offices in 40 countries. For more information, please visit www.bcg.com.

The Boston Consulting Group
Eric Gregoire
Global Media Relations Manager

Tel +1 617 850 3783
Fax +1 617 850 3701
gregoire.eric@bcg.com

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