European firms predict double-digit profit growth in 2011

These are among the findings of an online study conducted by Simon-Kucher and Partners among 200 managers in the construction, chemicals and base-material industries in Europe.

The respondents aim to improve sales while taking advantage of pricing measures; cost cuts will be kept to a minimum.

Beyond this, over half of the managers plan to strengthen investments in research and development (R&D) and step up their international expansion.

‘The managers show that they now place more trust in long-term strategies. We won’t be seeing many snap decisions for quick-profit wins,’ said Sebastian Strasmann, co-author of the study and director at Simon-Kucher and Partners.

Managers are said to have diverging opinions about the levels of profit growth: more than 10 per cent of the respondents foresee a profit surge of more than 20 per cent in 2011.

Eighteen per cent, mostly from the building-material industry, expect stagnating profits. Managers from the building-technology industry are most optimistic, planning a 20 per cent profit increase. Base-material, building-material and chemical sectors foresee a lower rate of 12 to 14 per cent.

The profit surge, contend two-thirds of the managers, will result from sales improvements. Two-thirds of the respondents plan on boosting sales levels by expanding their products and services. Only one-third is relying on larger market shares to increase sales figures.

Managers from chemical and base-material companies are expecting their added profits to come from pricing measures.

While more than 70 per cent of the chemical and base-material managers see price increases as a source of higher profits, only 40 per cent of the building-material and building-technology managers agree with them.

Managers are in agreement about where their profits will be invested: R&D, capacities, international expansion and employee training.

The main beneficiary of profits varies by industry. Base-material companies (more than 80 per cent) plan on investing in capacities, while chemical firms will focus their extra earnings on capacities and R&D. Around 65 per cent of building-technology companies will concentrate primarily on R&D.

A common position taken by all respondents is that these measures will take priority over profit distribution, debt reductions or increasing equity. The managers will invest their profits in forward-looking measures that will boost performance, with short-term withdrawals playing a more insignificant role.