All industries by state

Victoria

The Victorian economy is very much reliant on manufacturing, retail and property to drive its economic growth. Whilst there has been a move to more service oriented businesses, which has provided greater growth compared to traditional industries, the continued downturn in manufacturing and relatively poor retail activity has diminished growth in the Victorian economy relative to other states. However, Victorian businesses told us they are confident their fortunes will rebound in the year ahead.

Both consumers and businesses have been cautious with their spending and have focused on debt repayment which may account for the 11 per cent jump in average profits for the state – the highest for any state or territory, without significant revenue growth.

PwC has seen a recent upswing in merger and acquisition activity as the assessment of value between parties aligns. There is growing interest from overseas buyers possibly due to relatively better growth rates in Australia and lower interest rates globally. This however may diminish with continued strength of the Australian dollar.

Business growth Profits are up but can they be sustained? Over the past 12 months, Victorian private businesses increased sales by a modest five per cent, however their profitability grew an impressive 11 percent - the highest of any state or territory. This is likely a reflection of curbed spending and deleveraging of balance sheets versus sustained productivity and efficiency gains. It will be interesting to see whether the profits generated by Victorian private businesses results in a boost to future investment spending or there is a continued conservative approach applied.
Revenue targets hard to achieve This edition of the PwC Private Business Barometer saw a larger share of Victorian firms undershooting their revenue goals (36 per cent, up from 29 per cent six months ago). PwC believes Victoria has been hit harder than most states by recent tightening in consumer spending. In addition to the direct effects on agriculture, retail and manufacturing, which make up a large share of the Victorian economy, there are knock-on effects for sectors such as transport.
Will organic growth be enough? Victorian businesses are expecting profit growth to exceed revenue growth over the short to medium term. Private businesses are expecting growth from organic activity and expansion into new markets. PwC is not confident sustained double-digit revenue and profit growth aspirations can be achieved in the Victorian economy, given its profile, without significant efficiency and productivity gains in addition to inorganic growth strategies and sustained push into external markets.
People Talent is mobile – to other states and countries Finding qualified candidates to hire was the number-one concern for Victorian businesses, although this was more of an issue for businesses in some other states. Many Victorian-based unskilled workers have followed the money to the mining states, while skilled workers have gone overseas to expand their career and experience.
Funding Limited plans for investment Victorian businesses were least likely to have plans for major investments in the upcoming year (38 per cent compared to 44 per cent in other states). PwC believes this may be a symptom of a two speed economy with greater investment spending occurring in WA and Queensland and a more conservative approach taken by Victorian businesses given the growth profile of the Victorian economy and the dominate objective to grow organically.
Business operations Struggling to raise capital Nearly three quarters (71 per cent) of Victorian private businesses said funding was a major challenge they faced running their business. PwC believes this is because of the continued impact of the weak global financial markets and lower risk appetite of the major financial institutions in Australia. The weak leading environment has compounded inherit issues faced by private businesses when raising debt which typically includes limited capital base and security, history of profitability, private structures and less sophisticated financial reporting and governance structures compared to listed companies which are competing for the same available funds. People issues are still a common concern for Victorian private businesses. There is a continuing battle to retain and attract key talent when competing against other states, internationally or public companies with more sophisticated remuneration structures. Many private businesses have consulted PwC about how they can better align employee and shareholder goals in a private business environment including providing more flexible working options or remuneration structures which mirror the level of sophistication of public companies.