Risky business: IBISWorld rates Australia’s most at-risk industries for 2009

The five industries with the lowest risk next year are: nursing homes; veterinary services; diagnostic imaging; community health services and residential property owners and developers.

While IBISWorld’s risk forecasts take historical data into account, they largely look ahead and consider vital information about the dynamic business environment and influencing factors which will be critical to each industry’s future performance. Factors taken into account include an industry’s life cycle, level of competition, trade exposure, external assistance, growth risk, macroeconomic variables and non-economic sensitivities.

Top 10 Riskiest:

Tyre manufacturing

Weakening downstream demand from the car manufacturing industry on the back of falling discretionary spending and less freely available credit will threaten the industry in 2009. Replacement tyres will suffer most as people put off changing tyres for as long as possible to either save the money or spend it on “essentials”. The industry also faces significant import competition from low-cost Asian countries, such as India, where production costs are around six times lower than in Australia.

Car retailing

The exit of the two largest car financiers (GE Money and GMAC) in December has left hundreds of dealers without financing, and facing the very real prospect of either closing down or selling their business at a hugely discounted price. Add to that declining demand for new cars, which IBISWorld predicts will be down 5.3% by June 2009 with total revenue falling by more than 6%. Mr Robert Bryant, IBISWorld General Manager (Australia), said car manufacturers will be forced to sell cars at extremely low margins under pressure from manufacturers which are threatening dealers with canceling their franchise agreements if they don’t meet quotas. Early 2009 will see an oversupply of new cars, price drops, diving profits and struggling dealers. Consumers will be the winners, but it remains to be seen whether anyone will be buying.

-2- International Airlines

An economic downturn in the key markets of the US, New Zealand, Japan, most of Europe and the accelerating slowdown in China will severely curb international travel to and from Australia in 2009, despite the low Australian dollar which would normally stimulate travel to this country. The global financial crisis is also putting a squeeze on business travel abroad, with forecast rising crude oil, and jet fuel prices, compounding the industry’s woes.

Real Estate Agents

Despite falling interest rates and the extended “first home owners’ grant” Australians will, by and large, put off buying property in 2009. The result will be a serious drop in sales for real estate agents, with transaction values (and therefore agent’s fees and profit margins) also waning along with depreciating house prices. This financial year, industry revenue will be 7.5% lower than last year and so far, rate cuts haven’t resulted in higher auction clearance rates, particularly in Sydney and Melbourne. Mr Bryant said that while house prices will decline, sales will not respond with any rise until possibly late next year.

Boatbuilding

With people not buying cars and delaying buying houses, it’s no surprise that boatbuilding will suffer in 2009 since the industry mainly produces high value luxury goods for recreational purposes, with its major customer segment being cash-rich retirees and wealthy business people – many of whom have incurred significant losses on the share market this year. The credit crunch is also impacting the willingness of banks to lend for highly discretionary purchases, such as pleasure boats. Anticipating a sharp decline in revenue, Australia’s largest boat builder, Riviera, has already let a quarter of its workforce go.

Silver, lead and zinc ore mining

The end of the resources boom and plunging commodities prices are the culprits putting this sector at risk, with zinc and lead prices particularly hard hit in 2008, with further falls to come and IBISWorld predicting a 30% drop in revenue this financial year.

Investment banking & securities brokerage

With revenue forecast to decrease by 15% this financial year, the glory days of our banking sector have truly come to an end. The poor performance of the stock market has reduced stock values – and company assets – and the sector now faces high competition and highly volatile revenue streams due to ongoing fluctuations in the market.

Bricklaying

A sharp reduction in dwelling approvals will reduce demand for bricklaying services, while competition and revenue volatility will remain high due to the sector’s dependence on the construction cycle. An increase in high-density and high-rise buildings is also reducing demand for bricklayers.

Catering and food service contractors

Much lower demand for catering services from the financial and resources industries will hit this sector hard, as well as poor demand for catering at sports and other major events as attendances fall in 2009. A predicted slump in Australian tourism will curb demand from airlines, while tighter budgets will see scaled-down or cancelled company events such as parties, conferences and off-site meetings.

Prawn fishing

Rising import competition and falling prices due to oversupply will affect this industry in 2009, as well as the fact seafood and prawns are viewed as discretionary items people will forgo in the face of lower incomes and rising unemployment, despite a recent brief splurge over the holiday season. Climate change, illegal fishing and loss of fishing grounds to marine parks are additional threats.

The rest at risk…

Additional high-risk industries for 2009 will be: computer manufacturing; machine tool and part manufacturing; and tool and hardware manufacturing. All of these are struggling against low-cost importers, fierce competition and a downturn in the construction cycle. Jewellery and watch retailers will also struggle since these are highly discretionary items and one of the first things to go when consumers opt to cut conspicuous consumption.

Top 5 Low Risk:

Nursing homes

No matter what is happening in the global economy, people will still age and require care with demand outstripping supply over the short term in Australia. “Strong growth in the 70+ demographic will continue to propel growth in nursing homes,” explained Mr Bryant, “with strong government funding helping to stabilise the sector and mitigate risk”. The fact we’ll be less wealthy and increasingly time-poor in 2009 will also encourage more children to put their parents into homes rather than attempt to look after them at home, and readily available immigrant labour is helping industry operators boost profitability, by keeping a lid on wage levels.

Veterinary services

We have a particularly high ownership rate of companionship animals in this country and looking after pets is an emotional expense, which means most people are willing to sacrifice something else to seek treatment for their pets during difficult times. The industry’s effort to educate the public about animal health issues – through radio and television segments – is also driving demand for veterinary services. As the drought eases, rising livestock numbers will boost demand for veterinary services for farm and production animals.

Diagnostic imaging services

This industry’s services are largely required by the over-65s, thus the sector will benefit from our rapidly ageing population, and remain largely independent of economic conditions. The industry also receives a high level of assistance since most of its services are covered by Medicare, and new technology is expanding the services it offers and ensuring the sector remains in the growth phase of its life cycle.

Community health centres

In this sector competition is extremely low and government assistance is high, and growing, which insulates the industry against external variables to a large extent. Demand for community health centres is largely driven by child health initiatives and programs for the elderly. The recent baby boom and our ageing population have helped this industry, however IBISWorld believes the number of births will slow on the back of worsening economic sentiment and consumer confidence.

Residential property operators and developers

This industry is largely engaged in leasing and renting property, and Mr Bryant expects that poor housing affordability and high population growth will benefit the industry next year, along with government assistance in the form of rent assistance to low-income tenants. Whatever the economic climate, people still need a place to live, resulting in a low level of volatility for this sector.

And the rest…

Other sectors which will be low risk in 2009, according to IBISWorld, include: child care; and cosmetics. “It may seem surprising that the collapse of the ABC group has actually lowered the risk for the rest of the child care industry. Not all of ABC’s centres will be purchased, the result of which will be limited supply in a sector experiencing heavy demand and growing government funding. While revenue growth will be slow, prospects for carers are good and ABC’s exit means many centres with established infrastructure and clients may be available to purchase at fire-sale prices. Although they might seem discretionary in nature, cosmetics are a luxury consumers are reluctant to give up, even in times of economic distress.

For more information on any of Australia’s 500 industries or 2000 top companies, log onto onto www.ibisworld.com.au