Industry Top Trends 2021 - Key Themes - S&P Global
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Industry Top Trends 2021 Key Themes S&P Global Ratings 1
Industry Top Trends 2021: Key Themes
Industry Top Trends 2021
Key themes
Gareth Williams
Key Takeaways Head of Corporate
Credit Research
– 2021 will likely see a sharp rebound in aggregate revenues and cash flows, but this isn’t quite London
the panacea for credit quality it appears. gareth.williams@
– Beneath the surface, there’s a wide divergence in prospects across and within sectors, right spglobal.com
down to individual product mixes. COVID-19 casts a long shadow in itself, but it has also +44-20-7176-7226
accelerated disruption and amplified many of the changes being wrought by ESG concerns
and the energy transition.
– Rated nonfinancial corporates added an estimated $1.2 trillion of cash to balance sheets in
the first three quarters of 2020. Our industry reports suggest M&A and shareholder returns
are more likely destinations than capex or deleveraging.
As vaccine rollouts in several countries continue, S&P Global Ratings believes there remains a high
degree of uncertainty about the evolution of the coronavirus pandemic and its economic effects.
Widespread immunization, which certain countries might achieve by midyear, will help pave the way for
a return to more normal levels of social and economic activity. We use this assumption about vaccine
timing in assessing the economic and credit implications associated with the pandemic (see our
research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions
and estimates accordingly.
COVID-19’s long shadow
Inevitably, the shadow of COVID-19 looms large over the 23 Industry Top Trends reports
presented together here. The pandemic has wrought havoc across most facets of
everyday life, disrupting revenues, employment, investment plans, and in some cases
necessitating urgent financing to sustain corporate solvency. It has resulted in a wave of
negative ratings actions (see chart 1), and one-third of global nonfinancial corporates
rated by S&P Global Ratings have a negative outlook (chart 2).
Chart 1 Chart 2
The wave of COVID-19 and recession related …but one-third of global nonfinancial corporates
negative ratings actions has subsided… have a negative outlook
Outer Positive
Downgrade Upgrade 5% Negative
ring 16%
100 Dec
2019
0 Positive
Inner 4%
-100 ring
End-Dec
Negative
-200 2020
33%
Stable
-300 60%
-400
-500
1/20 3/20 5/20 7/20 8/20 10/20 12/20
Source: S&P Global Ratings. Data as of Jan. 27, 2021. Weekly counts. Source: S&P Global Ratings.
S&P Global Ratings January 29, 2021 2Industry Top Trends 2021: Key Themes
Recovery, yes, but it’s complicated
Revenues and cash flows will likely bounce back strongly from 2020’s slump,
underpinned by enormous monetary and fiscal support, the ongoing recovery in China,
and vaccination programs which offer the hope of an end to the crisis. The aggregate
forecast of our rated nonfinancial companies suggests that 2021 revenue will rise 12.6%,
following a 13.5% decline last year (see chart 3). We project EBITDA will expand 27% this
year, after a 26% decline in 2020. In both cases, positive momentum will likely continue
into 2022, albeit more slowly.
Chart 3 Chart 4
Global Nonfinancial Corporate Revenue Growth Global Nonfinancial Corporate EBITDA Growth
Revenue Growth (YOY%) EBITDA Growth (YOY%)
Estimate Estimate
+20 +30
+15 +20
+10
+10
+5
+0
+0
-10
-5
-10 -20
-15 -30
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
Source: S&P Global Market Intelligence, S&P Global Ratings. Includes non-financial corporations rated by S&P Global Ratings, excluding real estate.
Expressed in U.S. Dollar terms.
Diverging trends across sectors…
Chart 5 shows the picture at the sector level. It’s characterized by exceptionally large
revenue contractions for many of the sectors hurt most by COVID-19 – hotels and leisure,
oil and gas, transportation – which will likely reverse direction in 2021, but not yet fully
recover. At the other end of spectrum are around one-third of sectors that have seen
little, if any, revenue loss, and are expected to grow further this year. In terms of the risks
around the forecast, COVID’s evolution is inevitably the prime concern (see table 1 at the
end of the report) with prolonged lockdowns and the consequences for orders and
unemployment at the core. The timing of an end to restrictions is also an issue, as well as
consistency. For example, theme park operators are seasonally reliant on third-quarter
attendance, and cruise ship operators are particularly vulnerable to stop-start sailings.
S&P Global Ratings January 29, 2021 3Industry Top Trends 2021: Key Themes
Chart 5
Global Nonfinancial Estimated Sector Revenue Growth In 2020 And 2021
Revenue Growth 2020 YOY% Revenue Growth 2021 YOY%
+30
+20
+10
+0
-10
-20
-30
-40
Source: S&P Global Market Intelligence, S&P Global Ratings. Includes non-financial corporations rated by S&P Global Ratings. Expressed in local
currency terms, weighted by prior year U.S. Dollar revenues.
While the growth turnaround supports credit quality, it is far from being the whole story.
Chart 6 shows the current outlook distribution by industry, ranked by the net outlook bias
– the percentage of ratings with positive outlooks minus the percentage with negative
outlooks. It illustrates one of the clearest themes emerging from the reports, which is
that credit prospects across sectors remain highly divergent, with substantial risk still
present in sectors most affected by COVID disruption, particularly in relation to
speculative-grade credits.
Chart 6
Global Ratings Outlook Distribution By Industry (Ranked By Net Outlook Bias)
Negative Watch Negative Stable Watch Positive Positive
Hotels Restaurants & Leisure
Autos
Retailing
Media
Oil & Gas
Transportation
Engineering & Construction
Business & Consumer Services
Metals & Mining
Capital Goods
Aerospace & Defense
Chemicals
Building Materials
Real Estate
Consumer Products
Healthcare
Technology
Utilities
Paper & Packaging
Telecommunication Services
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: S&P Global Ratings. Ratings data as of 31/12/20.
S&P Global Ratings January 29, 2021 4Industry Top Trends 2021: Key Themes
…and within sectors
This divergence is equally apparent within sectors as well as across them – for example
the contrast in the transportation sector between still-struggling airlines and more
positive shipping trends. Within healthcare, pharmaceutical makers have been largely
insulated from the pandemic while hospitals and health care service providers have been
hit hard. Similar differences exist at the individual company level too, even for companies
with near-identical businesses. Domestic travel will likely recover faster than long-haul
international travel, meaning narrow-body airplane production will likely recover faster
than wide-body, with direct implications for suppliers and manufacturers depending on
their particular product mix and focus.
This explains one of the puzzles that emerges from the revenue growth trends shown
above – why are sectors such as retail and media, widely seen as among the hardest hit
by COVID, projected to show relatively positive trends this year and next?
Chart 7 shows the grouped distribution of 2020 revenue growth forecasts for retail
globally. By far the largest group of companies are those where we expect sales to have
fallen at least 20% in 2020, largely those focused on discretionary sales and with a bias
to pandemic-affected physical stores. But there are also many retailers expected to see
strong growth. Food and big-box retailers have benefited from demand for basics,
consolidated shopping trips, and larger baskets. Chart 8 provides a macroeconomic
illustration; within the eurozone, food, beverage, and tobacco retail sales actually grew
during the crisis, contrasting with the dramatic slump in apparel. A comparison with the
same distribution for 2019 reveals both the scale of the slump in 2020, the fact that many
retailers were already struggling pre-crisis, and that a fairly constant share of companies
have been achieving strong sales growth. Unsurprisingly, Amazon.com and JD.com
(China’s largest online retailer) feature in this cohort.
This is then a tale of extreme winners and losers. Across our rated retail portfolio, about
20% of ratings are in the ‘CCC’ category, and more than 50% have a negative outlook.
Industry risk has become less correlated and entity risk more acute, a picture that
applies across many sectors. Nor is this picture static. Many of the sectors suffering most
acutely – hotels, travel, and hotels, for instance – will likely become beneficiaries of
substantial pent-up demand once COVID restrictions are substantially lifted.
Chart 7 Chart 8
Distribution Of Global Retail 2019 and 2020 Eurozone Retail Sales, Select Sectors
Estimated Revenue Growth Rate
Number of Apparel
2019 2020 IT Equipment
companies
Food, Beverages and Tobacco
60
140
Index of turnover (2015 = 100)
50 120
40 100
80
30
60
20
40
10 20
0 0
May-19
Jan-20
Jul-19
Mar-20
Nov-19
May-20
Jul-20
Sep-19
Sep-20
-20 -10 -5 0 5 10 20 More
Revenue growth YOY%
Source: S&P Global Ratings. For rated companies only. Calculated using Source: Eurostat. Note: Apparel includes textiles, clothing, footwear and
local currency growth rates. Histogram bins show count of companies leather goods in specialized stores. IT equipment includes computers,
within group up between previous bucket and up to shown amount. peripheral units and software; telecommunications equipment, etc. in
specialized stores. Food, beverages and tobacco includes food, beverages
and tobacco. Data is seasonally and calendar adjusted.
S&P Global Ratings January 29, 2021 5Industry Top Trends 2021: Key Themes
Differentiating factors – China, industrials, WFH, and tech
Among the factors that continue to differentiate corporate prospects, many were
understood early on in the crisis – the benefits to technology and telecoms companies
from home-working, the importance of online retail, and benefits for media entities
providing content that is consumable at home rather than outside. These continue to
weigh heavily while lockdowns persist, but questions around their permanence are now
at the fore. For example, in real estate, a more permanent shift toward work-from-home
arrangements could significantly reduce office demand; industrial data centers should
continue to benefit.
Perhaps less well appreciated was how important China’s recovery was to become in
supporting industrial resilience, particularly given the virus’ origins in China and the initial
concerns for industrial supply chains. China’s recovery, heavily dependent on government
stimulus for infrastructure, has proved a substantial benefit for many global capital
goods companies, among others, while U.S.-China trade tensions have appeared to
become less acute for now.
Charts 9 and 10 show how very tangible these differentiating factors are in determining
the shape of recovery across many industries. By broadly allocating sectors to two groups
– COVID-affected and COVID-unaffected – we can see sharp differences in revenue and
EBITDA trends both in the wake of COVID and the time it will take to return to 2019 levels.
For the least-affected sectors, the return to normal will come this year, for the most-
affected this process will take until at least 2022, and depends on the assumption that
widespread immunization will be achieved by some countries by mid-year.
We have also looked at the same trends for rated nonfinancial companies that derive
20% or more of revenues from Greater China according to their last published accounts.
For these companies, revenues barely dipped in the wake of COVID and are likely to
expand rapidly this year and next.
Chart 9 Chart 10
Global Revenues For Nonfinancial Sectors Most Global EBITDA For Nonfinancial Sectors Most And
And Least Affected By COVID-19 Least Affected By COVID-19
COVID Affected COVID Not Affected COVID Affected COVID Not Affected
China Exposure China Exposure
Indexed, 2019 = 100 Forecast Indexed, 2019 = 100 Forecast
115 120
115
110
110
105 105
100 100
95
95 90
90 85
80
85
75
80 70
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022
Source: S&P Global Ratings. All data in USD denominated.
“COVID-affected” sectors included here are Aerospace & Defense, Autos, Business & Consumer Services, Consumer Products, Hotels Restaurants &
Leisure, Media, Oil & Gas, Real Estate, Retailing, Transportation, and Transportation Infrastructure.
“COVID Not Affected” sectors included here are Building Materials, Capital Goods, Chemicals, Engineering & Construction, Healthcare, Homebuilders
& Developers, Metals & Mining, Paper & Packaging, Technology, Telecommunication Services, and Utilities.
“China Exposure” are rated companies who derived in excess of 20% revenues from Greater China in their last reported annual accounts
S&P Global Ratings January 29, 2021 6Industry Top Trends 2021: Key Themes
Structural changes – accelerated disruption, regulation, ESG
Turning to the medium-term, the Industry Top Trends reports identify three broad
clusters of structural changes and risks:
– Accelerated disruption – What will life be like after COVID, and will altered patterns of
consumptions persist? This is relevant for many sectors, but principally for those
whose revenues have either ceased, diminished or transitioned to online platforms.
Some changes may become permanent, particularly if mutations and seasonal
recurrence mean COVID considerations persist for many years, but also if they are
seen to have other benefits, such as in relation to climate change. For many sectors,
already affected by disruptive technological change, COVID has acted as an
accelerant, bringing urgency to the need to adapt.
– Regulation – This is flagged for different reasons across a number of sectors,
including technology, telecoms, and media. Privacy and antitrust concerns feature as
well as issues around content responsibility that came to the fore in the U.S.
presidential election. More positively, telecoms is an example of a sector whose
resilience has proven essential to pandemic life and this may consequently balance
out the more usual concerns around competition with regard to regulation and
competition policy.
– Environmental, Social, and Governance (ESG) and the energy transition – ESG
investing has moved to the fore in the past year for a variety of reasons, including
concerns around environmental impacts but also social, given the unequal social and
health impact of COVID. It is also making itself felt in capital allocation with respect to
the metals and mining and oil and gas sectors, for example. Energy transition remains
a theme at the core of prospects for key sectors, such as autos and utilities.
The corporate cash puzzle
Massive central bank intervention helped provide liquidity and sustain market access
through the worst of the crisis, allowing companies to raise record amounts of cash (see
chart 11) on both an essential (mitigating cash burn and sustaining operations) and
precautionary (just in case) basis. The effect of this is apparent on balance sheets. We
estimate that rated nonfinancial corporates increased balance sheet cash by $1.2 trillion
in the first three quarters of 2020 (see chart 12), taking the total to some $6.5 trillion. As
the crisis has eased, the question of how this cash will be deployed has become more
pertinent, and our industry reports and forecasts provide some clear direction.
Chart 11 Chart 12
Global nonfinancial bond issuance hit record highs …and global corporate cash balances have surged
as companies sought to bolster cash holdings… Rated global nonfinancial corporate cash
Speculative-Grade Investment-Grade Cash & Short-Term Investments
USD, Trillion
800 7.0
700 6.5
Bond Issuance ($Bil.)
600 6.0
500 5.5
400 5.0
300 4.5
200 4.0
100 3.5
0 3.0
2.5
Sep-17
Sep-18
Sep-19
Sep-20
Jan-17
May-17
Jan-18
May-18
Jan-19
May-19
Jan-20
May-20
Jan-21
2.0
2015 2016 2017 2018 2019 2020
(3-Months Ending)
Source: Refinitiv, S&P Global Ratings Source: S&P Global Market Intelligence, S&P Global Ratings. Latest data
point is Q3 2020.
S&P Global Ratings January 29, 2021 7Industry Top Trends 2021: Key Themes
Capex likely to remain subdued
A boom in capital expenditures (capex) is unlikely, in our view. Capex growth will likely
resume (see chart 13), particularly for companies focused on growth markets such as
China (see chart 14). But even for sectors least-affected by COVID there seems little
appetite to rapidly expand investment with capex still barely beyond 2019’s level in 2022.
For the most-affected sectors, 2022 capex will still remain 10% short of 2019’s outlay.
Chart 13 Chart 14
Global Nonfinancial Corporate Capital Expenditure Global Capital Expenditure For Nonfinancial
Growth Sectors Most And Least Affected By COVID-19
COVID Affected COVID Not Affected
Capital Expenditure Growth (YOY%) China Exposure
Estimate Indexed, 2019 = 100 Forecast
+25 115
+20 110
+15 105
+10 100
+5 95
+0 90
-5 85
-10 80
-15 75
-20 70
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 2016 2017 2018 2019 2020 2021 2022
Source: S&P Global Market Intelligence, S&P Global Ratings. Includes non- Source: See charts 9 and 10
financial corporations rated by S&P Global Ratings, excluding real estate.
Expressed in U.S. Dollar terms.
As context, it should be kept in mind that many large sectors – autos, utilities, technology
– are already spending substantial amounts on transformative investments. Others are
being forced to invest to cope with accelerated disruption – retail for example – which is
less about responding to rapid consumer spending growth and more about maintaining
market position amid the online transition. Some sectors that have curtailed capex in
recent years, such as metals and mining, are now contemplating capex to replace
depleted reserves, and resilient industrial and technological growth in Asia-Pacific may
also have upside potential. But a broader boom seems unlikely at this point.
Limited appetite for debt reduction
There also appears little appetite for debt reduction. The prospect of sustained low
interest rates and funding costs means that restoration of shareholder returns (see chart
15) occupies more attention in the industry reports.
S&P Global Ratings January 29, 2021 8Industry Top Trends 2021: Key Themes
Chart 15 Chart 16
Global Nonfinancial Corporate Shareholder Global Median Debt/EBITDA For Nonfinancial
Returns Sectors Most And Least Affected By COVID-19
Dividends Share Buybacks COVID Affected COVID Not Affected
USD Bn x Forecast
2,000 5.5
1,800
1,600 5.0
1,400
1,200 4.5
1,000
800 4.0
600
400 3.5
200
0 3.0
2007 2009 2011 2013 2015 2017 2019 2016 2017 2018 2019 2020 2021 2022
S&P Global Market Intelligence, S&P Global Ratings. Includes non- Source: See charts 9 and 10
financial corporations rated by S&P Global Ratings, excluding real estate.
Expressed in U.S. Dollar terms. Most recent datapoint is LTM.
Chart 17
Projected Median Debt/EBITDA Ratios For Speculative Grade Sectors
2020 vs 2019 2021 vs 2020
Difference in median sector Debt/EBITDA (x) - speculative grade ratings only
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
Source: S&P Global Ratings
While there has been a sharp rise in debt metrics, particularly for the hardest-hit sectors
(see chart 16), many companies seem content to allow these ratios to fall through
improving EBITDA rather than seeking to reduce leverage by paying off debt. Higher levels
of debt – and, consequently, risk – will likely persist, making the exit from the COVID
recession quite different from “normal” recessions. We expect speculative-grade sectors
to reduce leverage (see chart 17) in most cases, but those that have seen leverage rise
the most won’t fully unwind this in 2021. The exceptions appear more in emerging
markets, where concern for maintaining capital discipline and preserving capital market
access is more apparent.
S&P Global Ratings January 29, 2021 9Industry Top Trends 2021: Key Themes
M&A likely to continue its rapid recovery
The prospects for mergers and acquisitions (M&A) feature prominently throughout the
industry reports, both for defensive reasons – trying to adapt to the post-COVID world
and cope with disruptive pressures – as well as expansive ones. For example, auto
manufacturers and suppliers will likely seek consolidation and partnerships to share the
burden of product development in a rapidly evolving industry. Similarly, we expect the
semiconductor industry to continue to consolidate due to higher research and
development requirements and benefit from scale efficiencies. M&A recovered strongly
in the second half of 2020 (see chart 18), and we expect to see this trend to continue,
providing market conditions remain favorable.
Chart 18
Global Nonfinancial Corporate Mergers And Acquisitions -
Value of quarterly transactions by sector and share of 2020 total by sector (%)
Consumer Energy and Utilities Health care Consumer
USD Industrials Materials Real Estate 12%
Billion TMT TMT Energy
900 33% and
800 Utilities
700 9%
600
500 Health
400 care
300 11%
200
Real
100 Estate
0 13% Industrials
15%
Materials
7%
Source: S&P Global Market Intelligence. Data as of January 28, 2021. Deal Valuations are as of Agreement Date. Includes private equity deals.
Related Research
The full set of 23 reports referenced in this report can be accessed from the links below:
Corporate Infrastructure
Aerospace and Defense EMEA Utilities
Autos Latin American Utilities
Building Materials N.American Merchant Power
Capital Goods N.American Regulated Utilities
Chemicals Transportation Infrastructure
Consumer Products
Healthcare
Homebuilders and Developers
Hotels, Gaming and Leisure
Media and Entertainment
Metals and Mining
Midstream Energy
Oil and Gas
Real Estate
Retail and Restaurants
Technology
Telecommunications
Transportation
S&P Global Ratings January 29, 2021 10Industry Top Trends 2021: Key Themes
Table 1
Corporate Sector Risk And Opportunity Map
Sector Subsector/region Risk/opportunity 1 Risk/opportunity 2 Risk/opportunity 3
Aerospace and defense Commercial aerospace Limited air traffic recovery Supply chain disruption
U.S. defense Defense spending cuts Weaker foreign sales Commercial op. crosswinds
European defense Defense spending cuts U.S. sales fizzle out Brexit hinders collaboration
Autos Reliance on China Electrification Digital services
Building materials N. America Unemployment trends Policy gridlock M&A-induced debt levels
EMEA Prolonged lockdowns Aggressive financial policies CO2 emission cuts
Latin America Political and economic risks Renewed lockdowns Infrastructure projects
Asia-Pacific Prolonged pandemic Liquidity and refinancing Consolidation in China
Capital goods Vaccine delays U.S.-China trade disputes Onshoring and automation
Chemicals Demand slips Adverse financial policy Capital market access
Consumer products Accelerating e-commerce At-home consumption Pressure on weaker credits
Health care COVID-19 impact Margin pressures Less government support
Homebuilders and U.S. Higher mortgage rates Lower prices Deteriorating affordability
developers Europe End of fiscal stimulus Tighter financing conditions More stimulus
Asia-Pacific Margin erosion in China Credit quality polarization Indonesian liquidity needs
Latin America Resilient Brazilian issuers Market share in Mexico
Hotels, gaming, and leisure Gaming APAC: financial policy U.S.: Virus-related closures Europe: regulation
Hotels Recovery timing Business travel changes
Cruise Stop-start sailing Reduced long=term demand Debt levels
Media and entertainment OOH entertainment Vaccine delays Trends for movie releases Events recover well
Internet/Online Vaccine delays Regulatory risks Competition within China
Content COVID production delays Niche DTC services struggle Content-driven M&A
Advertising Vaccine delays Consumer behavior alters
Metals and mining Weaker Chinese demand Currency swings ESG factors
Midstream energy Counterparty credit risk Delayed upstream recovery Rapid energy transition
Oil and gas Lockdowns; mild winter OPEC+ compliance breaks Rapid energy transition
Real estate U.S. REITs COVID slows recovery COVID reshapes demand Data center opportunities
European REITs Valuation declines M&A hurts credit quality COVID shopping restrictions
Asia-Pacific REITs Retailer credit quality Fixed-rent structure change Lower asset values
Latin America Industrial assets resilient COVID and retail Office occupancy questions
Retail and restaurants COVID slows recovery Financial support wanes Omnichannel opportunities
Technology Corporate event risks (M&A) Legacy tech challenges Recovery pace link to COVID
Telecommunications Global COVID slows recovery Regulation post-COVID WFH and 5G
N. America Increased regulation Financial impact of COVID Impact of 5G
Europe Prolonged recession Resurgent competition Accommodative regulation
Latin America Sovereign/parent links FX risk Shape of recovery
Asia-Pacific Limited new 5G use cases Increased competition Deeper recession
Transportation Airlines Vaccine progress Global economy Structural demand change
Shipping Sluggish trade volumes Bunker fuel price spike Shrinking new ship supply
Railroads Weak economic activity Coal volumes decline further Emissions scrutiny
Equipment leasing Airline failures Used car market weakens Capital market access
Consistent themes key COVID-19/Recession ESG and energy transition Financial policy/M&A
Source: S&P Global Ratings.
Risks and opportunities have been simplified and standardized relative to the originals for cross-section clarity. No rank ordering is implied between the
risks/opportunities.
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