Post on 25-Dec-2015
Copyright ® 2007 Global Insight, Inc.
Global Insight’s Sector Risk AnalysisWhich are the Winners and Losers?
December 2007
About Global Insight’s Sector Risk Analysis One Section for each of the U.S., Eurozone,
and U.K. Global Insight’s Corporate Bankruptcy Forecast Sample View of Sector Risks (2007-08)
Contact Information
2Copyright ® 2007 Global Insight, Inc.
About Global Insight’s Sector Risk Analysis
One Section for Each of the U.S., Eurozone, and UK
Bankruptcy Forecast and Sample of Sector Risk Ratings
Contact Information
3Copyright ® 2007 Global Insight, Inc.
Introducing World Industry Service Sector Risk Ratings (SRR)
All the forecasts and analyses provided in this presentation were produced using the World Industry Service’s Sector Risk Ratings.
Sector Risk Ratings allow you to:
Quantify the Risk/Return Profile of Sector-based Portfolios Forecast Changes in the Credit Quality Profile of Industries
Globally Rank Sectors with Best and Worst Credit Profiles, Show Expected
Direction of Migration in Sector Credit Quality Inform Credit Risk Analysis and Sector Rotation Strategy
4Copyright ® 2007 Global Insight, Inc.
Comparative metrics for each sector and country, history and forecast
Globally consistent sector benchmarks of credit and operating risks
Ratings are created from structural and cyclical indicators drawn from standard corporate credit risk frameworks
User-friendly tool for risk management and stress testing Scientific, transparent construct, and long track record
Using standard credit risk methodologies as applied to industries, the Sector Risk Ratings provide globally consistent, forward-looking benchmarks of credit quality for each sector and country. The service includes:
Sector-based Credit and Operating Risks
Top-down Sector Benchmarks to Complement Traditional Bottom-up Analysis
A composite rating from lowest (1) to
highest (10) is created for each sector, built up
from 40 separate risk factors
5Copyright ® 2007 Global Insight, Inc.
Growth Risk Growth in real revenue Growth in sales Volatility, turning points
Profitability Risk Pricing strength Operating profitability Free cash flow Return on invested capital Fixed-asset turnover Degree of operating leverage
Supply Risk Capital intensity Capacity overhang Depreciation cost of sales
Market Structure Risk Dependence on suppliers, customers Exposure to energy, labor Export reliance, import competition Cost of goods sold Barriers to entry and exit Technology and substitution
Economic & Country Risk Sector cyclicality Sector interest rate sensitivity
Country-level sovereign risks (From Global Insight’s Global Risk Service):
– Exchange rate– Equity markets– Regulation policy– Tax policy
Composite Risk Ratings Are Created from 40 Individual Risk Factors that Reflect and Predict Changes in Credit Quality
Sector risk factors are derived from the standard credit risk framework used in corporate lending and fixed income portfolios
Sector risk factors show the effect of industry structure, stage in lifecycle, and the sovereign/ macroeconomic environment on industry risk profiles
6Copyright ® 2007 Global Insight, Inc.
Change in Risk Measures
Sector Risk Levels:
Falling Risk
Static Risk
Rising Risk
Low Risk
Moderate Risk
Yellow Flag
High Risk Potential Recovery
Red Flag
Which Sectors Have High Risk Profiles?Which Sectors Are Improving or Deteriorating? Monitor Changes in Sector
Risk Profiles “Drill down” to the 40
individual sub-factors to see the drivers for changing risk profiles
Compare sector risk factors on a global and country basis, compare risks across sectors
Identify correlated industries that improve or deteriorate together
Rigorous framework for evaluating diversification and strategy
Sector Risk Ratings Help Evaluate and Anticipate Changes in Credit Profiles of Industries and Portfolios
7Copyright ® 2007 Global Insight, Inc.
Clients Use Sector Risk Ratings to Help Evaluate and Anticipate Changes in the Credit Quality of Industries and Portfolios
Quantify the risk profile of key sectors in a loan or bond portfolio Is portfolio risk high or low? Is it improving or deterioration? Identify groups of correlated industries that improve/deteriorate together Use rigorous framework for evaluating diversification and strategy
Monitor and anticipate changes in sector credit quality Monitor composite ratings, flag sectors to “drill down” for deeper investigation
– Which risk factors are driving the change?– What is the geographical composition of the sector change?
Stress test the portfolio through simulation and “what-if” scenarios
Use SRR as sector benchmark for corporate credit research Compare company risk prospects to that of its own sector peer group Analyze market prospects for key client markets into which it sells product
Forecast changes in bankruptcies, defaults, loan loss requirements For individual sectors as well as for entire portfolio
8Copyright ® 2007 Global Insight, Inc.
Sample of Sector Risk Ratings for Composites in U.S. and the Eurozone (Risk Ratings from Lowest (1) to Highest (10) Risk)
0
1
2
3
4
5
6
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
E
2008
F
Ris
k R
atin
g
"All Corporate" Sector ManufacturingConstructionFinance, Insurance, Business Services & Real Estate
Sector Risk Ratings for the “All Corporate” Sector, Manufacturing, Finance, & Business Services
0
1
2
3
4
5
6
7
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
E
2008
F
Ris
k R
atin
g
"All Corporate" SectorManufacturingConstructionFinance, Insurance, Business Services & Real Estate
United States Eurozone
9Copyright ® 2007 Global Insight, Inc.
Forecast of Migration in Credit Quality Across Sectors (United States, Eurozone, and United Kingdom)
*Annualized % Change in Risk Rating U.S. Eurozone U.K.
2006-07 2007-08 2006-07 2007-08 2006-07 2007-08
All Corporate Sector 13.3 1.4 -4.9 4.7 2.3 11.1
Goods Sectors (ISIC 1-3) 11.1 10.0 8.7 8.0 12.0 8.9
Agriculture, Hunting, Forestry, Fishing (ISIC 1) -17.9 34.8 9.1 11.7 0.0 27.5
Mining and Quarrying (ISIC 2) 6.0 9.4 28.8 1.5 16.7 1.4
Manufacturing (ISIC 3) 20.0 2.4 4.2 8.0 0.0 10.9
Manufacturing Non-Durable Goods (ISIC 31, 32, 34, 35) -2.5 2.6 -1.9 5.7 1.9 0.0
Manufacturing Durable Goods (ISIC 33, 36 - 39) 12.8 4.5 8.9 10.2 -17.3 11.6
Basic & Fabricated Metals (ISIC 37 & 381) 21.1 4.3 11.4 16.3 -18.2 17.8
Electronics (ISIC 3825, 3832 & 385) -16.0 31.0 -1.6 1.7 -1.5 -12.1
Autos & Aircraft (ISIC 3843 & 3845) 5.5 3.4 6.5 1.5 5.9 9.3
Construction (ISIC 5) 13.6 2.0 2.9 8.3 7.0 8.7
Wholesale & Retail, Restaurants & Hotels (ISIC 6) -2.2 0.0 -2.3 0.0 6.0 5.7
Transport, Storage & Communications (ISIC 7) -9.6 0.0 -3.6 1.9 -3.4 5.3
Finance, Insurance, Bus. Services, Real Estate (ISIC 8) 23.3 1.68 -19.97 4.5 4.8 13.6
Community, Social & Personal Services (ISIC 9) -4.55 0.31 -4.9 2.6 -2.1 8.7
*An increase indicates a rise in risk
10
Copyright ® 2007 Global Insight, Inc.
About Global Insight’s Sector Risk Analysis
Highlights for United States
Bankruptcy Forecast and Sample of Sector Risk Ratings
Contact Information
11
Copyright ® 2007 Global Insight, Inc.
2.5
3
3.5
4
4.5
5
5.5
6
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
E
2008
F
15000
25000
35000
45000
55000
65000
75000
WIS Composite Risk Rating for Non-Financial Sector - LHS
Total Number of Company Bankruptices in U.S. - RHS
Global Insight Expects U.S. Corporate Bankruptcies to Rise 13% in 2008 (Forecast as of December 2007)
ForecastHistorical Data
Source: World Industry Service; The American Bankruptcy Institute
0.00.1
0.2
0.30.4
0.50.6
0.7
0.80.9
1.0
Current Year Year Ahead
“Current Year” and “Year Ahead” Correlation Coefficient between WIS Composite Non-Financial Sector Risk Ratings and Corporate Bankruptcies in U.S., 2000-04
Sector Risk Ratings Forecast “Year-Ahead” Number of U.S. Corporate Bankruptcies
12
Copyright ® 2007 Global Insight, Inc.
Factors Driving Changes in Risk Ratings for U.S.
-40%
-30%
-20%
-10%
0%
10%
20%
30%
2002-04 2003-05 2004-06 2005-07 2006-08 2007-09 2008-10
Growth Risk
Pricing Risk
Profitability Risk
Operating Efficiency
Time-Trends of Annualized % Change in Risk Rating (based on moving 2-year change)
I m
p o
r o v
e
W o
r s
e
n
13
Copyright ® 2007 Global Insight, Inc.
Growth Risk Factor in Select Sectors in United States
0
2
4
6
8
10
2003 2004 2005 2006 2007 2008 2009
Photographic & Optical Goods Electronics
Real Estate Basic Industrial Chemicals
Growth Risk has risen since 2006, expected to increase in 2008 and stabilize in 2009
Growth Prospects for Electronics are weak due to slowing consumer spending
Industrial Chemicals’ Growth risk is tied with prospects of Agriculture and Construction
Real Estate Growth Risk will remain weak through 2008
WIS Sector Risk Rating, (1) for lowest - (10) for highest
14
Copyright ® 2007 Global Insight, Inc.
Risks to Pricing Strength Are Rising in Select Sectors in U.S.
0123456789
10
2003 2004 2005 2006 2007 2008 2009
Basic Metals Basic Industrial Chemicals
Construction Real Estate
The combination of surging oil prices and a decelerating economic activity leads to worsening pricing power
Energy-intensive industries (Metals, Chemicals, etc.), and industries that import from abroad, will get negatively impacted by soaring input costs
A weaker dollar will ease this risk for export-oriented sectors
WIS Sector Risk Rating, (1) for lowest - (10) for highest
15
Copyright ® 2007 Global Insight, Inc.
Sector Risk Rating Level (Down)
---------------------------- Direction of Change in Ratings (Across)
Falling Risk
Static Risk
Rising Risk
Low Risk Drugs & Medicines; Printing & Publishing; Retail Trade
Fabricated Metals; Computers; Wholesale Trade; Restaurants &
Hotels; Sanitation & Social Services
Fertilizers & Pesticides; Non-Ferrous Metals; Electrical & Electronic Products excl. Computers; Industrial Chemicals;
Business Services; Utilities
Moderate Risk
Paper & Products; Specialty Chemicals excl. Pharma;
Transport & Storage; Wood Products & Furniture;
Rubber & Plastic
Iron & Steel; Railroad Equipment; Shipbuilding;
Banking; Leasing of Machinery Equipment;
Communications; Food & Beverages;
Agriculture; Agricultural Machinery; Insurance; Petroleum Refineries;
Synthetic Resins; Construction; Mining & Construction Machinery; Energy Mining;
Communication Equipment; Aircraft
High Risk
Engines & Turbines; Non-Energy Mining; Autos;
Tobacco; Textile; Photographic & Optical
Goods
Real Estate; Apparel; Watches & Clocks
Metal & Wood Working Machinery; Leather
U.S. Industry - Anticipated Changes in Credit Profiles
Red FlagPotential Recovery Yellow Flag
Summary of Composite Sector Risk Ratings for United States:Current Ratings Level and Anticipated Change in the Ratings in 2008
16
Copyright ® 2007 Global Insight, Inc.
Which High Risk Sectors will Deteriorate/Improve in U.S.
SectorAnnual percent
change in Risk Rate (2007-08)
Energy Mining 14.3%
Metal & Wood Working Machinery
10.0%
Agricultural Machinery 3.6%
Railroad Equipment 1.8%
Leather 1.6%
SectorAnnual percent change in Risk Rate (2007-08)
Engines & Turbines -15.4%
Non-Energy Mining -8.7%
Textiles -4.5%
Motorcycles & Bicycles -3.0%
Photographic & Optical Goods
-1.3%
High Risk but Improving High Risk and Worsening
17
Copyright ® 2007 Global Insight, Inc.
About Global Insight’s Sector Risk Analysis
Highlights for the Eurozone
Bankruptcy Forecast and Sample of Sector Risk Ratings
Contact Information
18
Copyright ® 2007 Global Insight, Inc.
2.5
3
3.5
4
4.5
5
5.5
6
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
E
2008
F
50,000
65,000
80,000
95,000
110,000
125,000
140,000
155,000
WIS Composite Risk Rating for Non-Financial Sector - LHS
Total Number of Company Bankruptices in Eurozone - RHS
Global Insight Expects Eurozone Corporate Bankruptcies to Rise 5% in 2008 (Forecast as of December 2007)
ForecastHistorical Data
Source: World Industry Service; National Statistics
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Current Year Year Ahead
Sector Risk Ratings Forecast “Year-Ahead” Number of Corporate Bankruptcies
“Current Year” and “Year Ahead” Correlation Coefficient between WIS Composite Non-Financial Sector Risk Ratings and Corporate Bankruptcies in the Eurozone, 2000-04
19
Copyright ® 2007 Global Insight, Inc.
Factors Driving Changes in Risk Ratings for the Eurozone
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2002-04 2003-05 2004-06 2005-07 2006-08 2007-09 2008-10
Growth Risk
Pricing Strength Risk
Profitability Risk
Industry Structure Risk
Time-trends of Annualized % Change in Risk Rating (based on moving 2-year change)
I m
p o
r o v
e
W o
r s
e
n
20
Copyright ® 2007 Global Insight, Inc.
Risks Are Rising from Slowing Sales Growth in Select Sectors in the
Eurozone
0
2
4
6
8
10
2003 2004 2005 2006 2007 2008 2009
Basic & Fabricated Metals Industrial Chemicals
Agriculture Construction
Agriculture and Construction sales are forecast to see slower sales growth than in the recent past
Metals and Industrial Chemicals, in turn, see less growth from ties to intermediate demand
Forecast Growth Risk has risen since 2006, expected to stabilize but remain high in the near-term
WIS Sector Risk Rating, (1) for lowest - (10) for highest
21
Copyright ® 2007 Global Insight, Inc.
0
2
4
6
8
10
2003 2004 2005 2006 2007 2008 2009
Basic & Fabricated Metals Petrochemicals
Fertilizers & Pesticides Aircraft
The combination of surging oil prices and a decelerating economic will increase the Pricing Strength Risks
The ability of energy-intensive industries (Metals, Chemicals, etc.) to pass through soaring input costs is somewhat limited
A strong euro will help to mitigate this risk for importing industries
WIS Sector Risk Rating, (1) for lowest - (10) for highest
Risks to Pricing Strength Are Rising in Select Sectors in the Eurozone
22
Copyright ® 2007 Global Insight, Inc.
Sector Risk Rating Level (Down)
---------------------------- Direction of Change in Ratings (Across)
Falling Risk
Static Risk
Rising Risk
Low Risk Insurance; Educational Services
Wholesale Trade; Public Admin Services
Business Services; Fabricated Metals; Railroad Equipment; Agricultural Machinery; Non-Metallic Mineral
Products; Rubber & Plastic; Banking; Restaurants & Hotels; Construction
Moderate Risk
Wood Products; Utilities; Retail; Drugs; Electrical
Machinery; Printing; Equipment Leasing;
Transportation
Beverages; Communications; Social Services;
Basic Industrial Chemicals; Specialty Chemicals; Fertilizers & Pesticides;
Electrical Apparatus; Mining & Construction Machinery; Ship Building;
Metal & Wood Machinery; Engines; Non-ferrous Metals; Watches; Furniture;
Clothing; Food;
High Risk Communication Equip.;
Energy Mining; Computers; Leather Products
Photo & Optical Equip.; Footwear; Aircraft;
Petroleum & Refineries; Textiles; Autos; Agriculture
Red FlagPotential Recovery Yellow Flag
Summary of Composite Sector Risk Ratings for the Eurozone:Current Ratings Level and Anticipated Change in the Ratings in 2008
Eurozone Industry - Anticipated Changes in Credit Profiles
23
Copyright ® 2007 Global Insight, Inc.
Which High Risk Sectors will Deteriorate/Improve in Eurozone
Sector Annual percent change in Risk Rate
(2007-08)
Agriculture 11.7%
Iron & Steel 10.2%
Scientific Equipment 8.3%
Motorcycles & Bicycles 6.8%
Textiles 4.5%
SectorAnnual percent change in Risk Rate (2007-08)
Computers -15.6%
Communication Equipment
-5.7%
Leather -3.3%
Electrical
Appliances-1.7%
Energy Mining -1.4%
High Risk but Improving High Risk and Worsening
24
Copyright ® 2007 Global Insight, Inc.
About Global Insight’s Sector Risk Analysis
Highlights for the United Kingdom
Bankruptcy Forecast and Sample of Sector Risk Ratings
Contact Information
25
Copyright ® 2007 Global Insight, Inc.
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
e
2008
f
7,500
10,000
12,500
15,000
17,500
20,000
22,500
25,000
WIS Composite Risk Rating for Non-Financial Sector - LHS
Total Number of Company Bankruptices in UK - RHS
Global Insight Expects U.K. Corporate Bankruptcies to Rise 3% in 2007 (Forecast as of November 2007)
ForecastHistorical Data
Source: World Industry Service; National Statistics
0.0
0.1
0.2
0.3
0.4
0.5
0.6
Current Year "Year Ahead"
“Current Year” and “Year Ahead” Correlation Coefficient between WIS Composite Non-Financial Sector Risk Ratings and Corporate Bankruptcies in UK, 1996-2006
Sector Risk Ratings Forecast “Year-Ahead” Number of Corporate Bankruptcies
26
Copyright ® 2007 Global Insight, Inc.
Factors Driving Changes in Risk Ratings for U.K.
-20%
-10%
0%
10%
20%
30%
40%
2002-04 2003-05 2004-06 2005-07 2006-08 2007-09 2008-10
Growth Risk
Pricing Strength Risk
Profitability Risk
Supply Risk
Industry Structure Risk
Time-trends of Annualized % Change in Risk Rating (based on moving 2-year change)
I m
p o
r o v
e
W o
r s
e
n
27
Copyright ® 2007 Global Insight, Inc.
Risk of Sales Growth Slowing is Increasing in Select Sectors in the U.K.
0
2
4
6
8
10
2003 2004 2005 2006 2007 2008 2009
Finance & Business Services Contruction
Industrial Chemicals Wholesale & Retail
Finance and Business services growth prospects are hit by the current credit squeeze
Agriculture and Construction sales forecast growth is in line with a slowdown of consumer spending
Metals and Industrial chemicals, in turn, see less growth prospects in intermediate demand
Forecast Growth Risk has risen since 2006, expected to stabilize but remain high in the near term
WIS Sector Risk Rating, (1) for lowest - (10) for highest
28
Copyright ® 2007 Global Insight, Inc.
Risk of Free Cash Flow Growth is Rising in Select Sectors in the United Kingdom
0
2
4
6
8
10
2003 2004 2005 2006 2007 2008 2009
Agriculture Contruction
Industrial Chemicals Basic & Fabricated Metals
The combination of surging oil prices and a decelerating economic activity fuels Free Cash Flow Growth Risk
The ability of Energy-intensive industries (Metals, Chemicals, etc.) to pass through soaring input costs is indeed not guaranteed
A strong Sterling can help to mitigate this risk, but for export-dependent sectors such as Chemicals it is also a threat for sales growth
WIS Sector Risk Rating, (1) for lowest - (10) for highest
29
Copyright ® 2007 Global Insight, Inc.
Sector Risk Rating Level (Down)
----------------------Direction of Change in Ratings (Across)
Falling Risk
Static Risk
Rising Risk
Low Risk -
Educational Services; Machinery & Equip. Leasing; Leather &
Products
Construction; Industrial Chemicals; Banking; Insurance; Restaurants &
Hotels; Special Industrial Machinery; Metal & Wood working Machinery; Iron &
Steel; Business Services; Watches & Clocks; Electrical Appliances;
Moderate Risk
Tobacco; Non-ferrous Metals;
Ship Building/Repairing;
Electrical Apparatus; Food;
Wood Products; Autos & Aircraft; Furniture; Basic & Fabricated Metals;
Motorcycles & Bicycles; Communications; Petroleum Refineries; Agriculture, Non-
energy Mining; Engines; Specialty Chemicals; Retail trade; Photographic &
Optical Goods; Rubber & Plastics
High Risk Railroad equip.;
Energy Mining; Real Estate; Drugs;
Electronics;
Utilities, Transport; Public Admin &
Sanitary Services; Printing & Publishing;
Textiles; Clothing; Paper Products; Beverages; Retail trade (non-Auto);
Wholesale trade;
Red FlagPotential Recovery Yellow Flag
Summary of Composite Sector Risk Ratings for United Kingdom:Current Ratings Level and Anticipated Change in the Ratings in 2008
U.K. Industry - Anticipated Changes in Credit Profiles
30
Copyright ® 2007 Global Insight, Inc.
Which High-risk Sectors will Deteriorate/Improve in U.K.
Sector Annual percent change in Risk Rate
(2006-08)
Textiles 8.5%
Paper 7.0%
Beverages 5.1%
Clothing 5.1%
Retail (non Auto) 5.0%
SectorAnnual percent change in Risk Rate (2006-08)
Drugs -19.4%
Railroad Equipment -9.3%
Communication Equipment.
-5.4%
Computers -4.5%
Energy Mining -1.4%
High Risk but Improving High Risk and Worsening
31
Copyright ® 2007 Global Insight, Inc.
About Global Insight’s Sector Risk Analysis
Global Insight’s Bankruptcy Forecast
Sample Views (2007-2008)
Contact Information
32
Copyright ® 2007 Global Insight, Inc.
Please Contact Us for a Personal Demonstration!
More Information?
Mark Killion, CFAManaging Director, World Industry Service1-610-490-2547mark.killion@globalinsight.com
Natasha MuravytskaEconomist, World Industry Service1-610-490-2558natasha.muravytska@globalinsight.com
Alain FaucherEconomist, World Industry Service+ 44.207.452.5063alain.faucher@globalinsight.com
For More Information: www.globalinsight.com/WIS-Risk