Planned Spending Lags Considerably Behind Expected Revenue Growth.

2002 budget planning had a higher degree of difficulty for nearly half the nation’s fast growth CEOs, given greater marketplace volatility in the aftermath of 9/11. As a consequence, many cautious “Trendsetter” companies have positioned themselves for a spending pace that lags their growth projections by a considerable amount. The reason: difficulty forecasting revenues and uncertainty about key customer spending levels. These are highlights from PricewaterhouseCoopers’ latest “Trendsetter Barometer,”.

Nearly half the CEOs of the nation’s fastest growing companies (47 percent) say it was more difficult to develop a budget for their business this year, compared to a year ago, because of unsettled world events and economic volatility–including 23 percent who said it was much more difficult, and 24 percent a little more difficult. Only 11 percent found it less difficult.

Most “Trendsetter” companies’ fiscal budgets are on a calendar year basis (75 percent), with an average two-month advance preparation period—placing their planning process squarely in the November-December time frame. However, despite proximity of their planning to the September 11 tragedy, this year only 17 percent budgeted for previously unexpected new expenditures like security, safety or other factors related to the war on terrorism—accounting for an average 5.8 percent increase in their budget. In contrast, 83 percent of CEOs expect no new spending in this area.

“These CEOs are suggesting that heightened economic volatility following September 11 may have had a greater impact on the planning process for their business than the war on terrorism,” said Paul Weaver, PricewaterhouseCoopers’ global technology industry leader. “In uncertain times, some may have felt they couldn’t afford even a modest new line item, going forward.”

A Cautious Spending Outlook

CEOs of “Trendsetter” companies are expecting their 2002 revenue growth will build to an average of 14.8 percent from 12.8 percent in 2001, a 15.6 percent improvement. But considerable fiscal caution prevails: Only a 5.7 percent increase in planned spending is expected among all businesses surveyed.

· Only 59 percent report that their 2002 spending plans are higher than a year ago in absolute dollars, including 23 percent “much higher,” and 36 percent “a little higher.” Meanwhile, 22 percent are holding the line, retaining the same level of expenditure; and another 18 percent will spend less. One percent did not report.

· For those with higher spending plans, forecasted expenditures increased an average of 17.0 percent. And, for those planning lower spending, cutbacks averaged 24.6 percent.

“For these companies with extraordinary potential, spending growth is lagging expected revenue growth by a notable degree,” said Mr. Weaver. “Unless 2002 spending plans are flexible enough to grow as these businesses recover, a disproportionately low investment rate could have an unfortunate impact on the companies themselves, and the economy.”

Factors Creating Planning Difficulties

The single most important factor creating problems in finalizing fiscal 2002 budgets was difficulty forecasting revenues, or uncertainty about client/customer spending levels, noted by 54 percent. This factor was of even higher importance for technology businesses, cited by 60 percent, versus 47 percent for non-tech businesses.

A distant second in importance was uncertainty about margins, noted by 23 percent, reflecting unknowns about pricing, market softness and competitive pressures.

Need to commit to longer-range programs—and need to improve the budget process—were each cited as important factors by 20 percent.

“The volatile economy has made it especially difficult for CEOs to get their plans and budgets together for the current year,” said Mr. Weaver. “Technology businesses have been especially plagued with uncertainty about their revenue stream. It would appear that ‘Trendsetter’ companies, with their disproportionately low spending plans, will need to be flexible, should a recovery materialize.”

For more information at http://www.barometersurveys.com