Annual Review 2006 - PwC

Why?
Thought
Leadership.
Resources
The resource sector experienced another spectacular year
with revenue increasing 25 per cent to $222 billion.
In the midst of such strong returns, many stakeholders began to
question how sustainable the growth would prove when confronted
with burgeoning demand and increasing environmental concerns.
PwC once again got to the heart of boardroom thinking with
comprehensive annual global surveys examining the state of the
world’s top utilities and mining companies.
In June 2006, mine* – let the good times roll, a review of global
mining trends, analysed 40 leading companies representing more
than 80 per cent of the industry by market capitalisation. The report
paid special attention to the impact of the ‘awakening giants’ of
Russia, China and India and the future of what have been recordbreaking
years for commodities.
The fi ndings indicate the industry’s performance has exceeded
that of the overall market by 300 per cent over the past two years.
While profi tability is at a high, operating costs have also increased
and may create challenges if commodity prices fall. CEOs appear
focused on maintaining supply and maximising production, while
navigating issues of safety and political uncertainty in many
resource-rich regions.
Financial
Services
The Big Leap surveyed the changes that are being made or need
to be made in technology, investment, mergers and acquisitions,
effi ciency, cleaner fuels and customer relationships in the utilities
industry. The responses from senior executives in Europe, North
and South America, the Asia Pacifi c, Africa and the Middle East
were largely consistent.
The power and gas sector is facing ‘revolutionary’ changes
unprecedented in recent times; the pace of change needs to be
increased with more focus on long-term solutions; and political
and regulatory policy continues to be both the leading catalyst
and hurdle to change.
Additionally, the National Generators Forum and Energy Retailers
Association of Australia commissioned PwC to undertake an
independent survey considering the level of liquidity in the
electricity fi nancial contract markets in the context of the National
Electricity Market. The independent analysis found the majority
of respondents perceived the current levels of liquidity in the
Australian market to be adequate for managing risk.
The fi rm expressed its concern about the heavy toll that
over-regulation is taking on fi nancial institutions.
In a July 2006 opinion piece in the Australian Financial Review,
Banking & Capital Markets Leader Michael Codling noted that too
much unnecessary regulation had come out as the number one risk
facing our banks for the second year running, according to a survey
of industry participants sponsored by PwC. While individual banks
don’t collapse as a result of regulatory overkill, it can damage the
banking system as a whole, and the industry is now rightly throwing
down a challenge to regulators as to whether they have the right
balance of cost and benefi t.
In an Asset magazine article, Why planners need to know about
product rationalisation, partner Peter van Dongen argued the
current legislation in Australia either inhibits investment product
rationalisation or, where it can be practically achieved, makes it
expensive, cumbersome and high risk. Industry data shows that
Australia has a similar number of funds to the US, but only 6 per
cent of the assets under management. With all other fee
assumptions being equal, Australian investment managers have to
price approximately 15 more unit prices per dollar of revenue than
their US counterparts. This heightens risk and increases the need
for legislative change to facilitate sensible product rationalisation.
The PwC Investment Management Survey was conducted during
May and June, involving 30 investment management organisations
representing more than $700 billion in assets. The survey found
CEOs generally optimistic about the business environment, though
conscious that many risks still exist. PwC’s analysis indicated
organisations need to better align internal processes with service
providers, ensure emerging risks are understood by advisors and
end users, establish more creative staff retention strategies and
evolve customer focus beyond fundamental customer satisfaction.
In November 2006, we released an analysis of the annual results of
Australia’s four major banks. The fi ndings showed resilient
earnings, up 13.7 per cent on the previous year, primarily due to
volume growth. Cost-to-income ratios improved despite the banks
boosting the number of front-line staff and branches in a bid to
improve the customer experience. As the banks move into an
environment of softening demand for credit and fi erce competition,
investment decisions will remain key.
Annual Review 2006 77