Deloitte Belgian CFO Survey Special Edition Outlook 2014  Benchmarking corporate financial attitudes
“Organisations that are successful in the long run focus on growth strategies rather than cost reduction, compete on value creation rather than on price. Current business priorities might not be in line with growth ambitions”
Content
Belgian Outlook 2014: Fierce competition in low growth environment
5
Looking Back: Business confidence through the financial and economic cycle (2009-2013)
6
Fierce competition for growth, in low growth environments
8
New mood of optimism confirmed
10
Low growth projections for Belgian economy
11
CFOs upbeat on 2014 top line growth for their company
14
Expansionary strategies gain only slightly in importance
17
Financing is available and attractive
20
Federal measures, inappropriate and/or insufficient?
23
Profile Q4 survey participants
25
Deloitte Belgian CFO Survey Special Edition Outlook 2014 3
Belgian Outlook 2014: Fierce competi
Highlights
Reconnecting with growth • The world looks less risky today as it did in the past few years. The signs for the global economy look positive. The consensus view today is that the world economy is set for recovery in 2014 driven by a revival in the industrialised world and emerging markets. • Growth in Belgium and the Eurozone, representing close to 60% of Belgium’s exports is expected to be slow and around 1% in 2014. Only a minority of CFOs seriously consider the possibility of a new Eurozone or Belgian recession in the next 2 years.
World economic recovery
Less risky world
recovery
• The Euro is on a firmer footing. Few CFOs consider the possibility that one or more countries will leave the Eurozone. Yields on government bonds in the euro area will give vital evidence this year as to whether the region's recovery is indeed on track. • The U.S. Federal Reserve’s intent to taper supply of money, and set steps to tighten US monetary policy seems less worrying today as it did a few months ago. Over half of CFOs do not expect interest rates and lending terms to go up in the next few quarters.
A mood of optimism • Belgian CFOs are more optimistic about the future prospects of their businesses as they have been since the beginning of 2011. Following 5 quarters of pessimism, the optimism that had surfaced in the third quarter of 2013 remains strong for 2014. • In spite of the moderate growth expectations for Belgium and the Eurozone, CFOs’ ambitions for their businesses are upbeat with over half budgeting more than 2% growth and 20% even more than 5%. • Many corporates are cash rich and have internal financing available, but also external financing through corporate debt, bank borrowing and equity financing are considered attractive. Since the launch of the Deloitte CFO Survey five years ago in 2009, equity financing has never been rated as attractive as today.
4
Low Reconnect World growth euro with growth economic zone
Less risky world
Prudent tapering Low Reconnect money growth euro withsupply growth zone Prudent tapering money Optimism supply
Low growth euro zone
Low growth euro zone
A new mood Optimism of optimism
A new Ambitious growth mood of optimism
Funding available
Funding available
Ambitious growth Fierce competition
Some Defensive Fierce Expansionary strategies competition strategies
Low appetite for risk
Less risky world
Low Reconnect growth euro with growth zone
ition in low growth environment Prudent tapering money supply
Optimism
Low growth euro zone
A new mood of optimism
Funding available
Ambitious growth
Defensive strategies • Expansionary strategies will gain some importance in 2014, but defensive strategies such as cost reduction, efficiency improvement and cash flow management remain top priorities for most corporates.
Fierce competition
Some Expansionary strategies
Defensive strategies
Low capital expenditure
Low appetite for risk
• CFOs are most concerned about the competive position of their organisations. Taking into account corporates’ growth ambitions in the slow growth economic climate, competition will be fierce. • Corporates remain prudent. Not withstanding corporates’ growth ambitions, risk appetite remains low and only 15% of corporates plan to increase capital spending in the next 12 months. Without a stronger uptake in capital spending, it might be a struggle to reach growth ambitions and secure long term growth plans.
Macro-economic backdrop to the Deloitte CFO Survey Q4 2013 Business confidence in most of the industrialised world improved while prospects for growth in many emerging economies softened. In December, the US Federal Reserve announced that it would start to slow the pace of its programme of Quantitative Easing. Ian Stuart, Chief Economist Deloitte UK Deloitte Belgian CFO Survey Special Edition Outlook 2014 5
Looking Back: Business confidence through the fi (2009-2013)
Less Optimistic
More Optimistic
Looking Back: Business confidence through the financial and economic cycle (2009-2013)
Q2 2009 “Preparing for a slow recovery”
Q3 2009 “Financial conservatism is back”
Q4 2010 Q1 2010 Q2 2010 “Planning for Growth” “Financial “Confidence Repair, grows” Q1 2011 economical “Call for uncertainty” caution”
ism
tim
Op
Q4 2009 “Diverging fortunes going into 2010”
Q2 “At a po
Q3 2010 “Higher confidence, good results”
Q1 2009 “First signs of optimism in uncertain times”
Q3 2011 “Results under pressure”
Q4 2011 “Outlook 2012: a very difficult yea
Text ......
6
“CFOs are more optimistic about the future prospects of their businesses as they have been since the beginning of 2011”
financial and economic cycle
2011 turning oint”
ar”
Q1 2012 “Anxiety has eased, but plenty of risks remain”
Q3 2013 “A new mood”
Q4 2012 “Outlook 2013: how CFOs are preparing for 2014”
Q2 2013 “Call for Action” Q3 2012 “The New Normal is here to stay“ Q2 2012 “Corporates are defensive“
Q1 2013 “Concerns Dominate”
Q4 2013 “Growth ambitions”
Fierce competition for growth, in low growth environments The signs for the global economy are positive. Belgian CFOs have entered 2014 in an optimistic mood. CFOs are more optimistic about the future prospects of their businesses as they have been since the beginning of 2011. Growth plans are ambitious with over half of CFOs budgeting more than 2% growth and 20% even more than 5%. One can only hope corporates will succeed in realizing their ambition this year, as over half of CFOs report their organisations have not been able to make the budget in 2013. Reasons for concern are that risk appetite remains weak and expansionary strategies prudent. Few CFOs have planned increases in capital spending. Taking into account the low growth environment in which corporates are operating and CFOs’ concerns related to their competitive position, focus on value creation and flexibility in execution will be key factors of success. Looking at 2014 with optimism CFOs have entered 2014 very differently from the way they had entered 2012 and 2011. For many businesses 2013 has not been a grand year, with over half of our survey respondents reporting their organizations have not made the budget for 2013. Based on our survey panel, 2013 has been particularly difficult for the smaller businesses: 70% of organisations with a turnover of less than 100 million euro did not perform as budgeted. But today a new mood colors the outlook for 2014. The new mood of optimism we had reported in the third quarter survey still stands. Following five quarters in which CFOs were outright pessimistic about the financial prospects for their businesses, the majority of CFOs confirm the optimistic mood that already surfaced in the third quarter. International businesses, deriving over 70% of their turnover outside Belgium are however less optimistic as those that have significant business in Belgium. Managing in the new normal The global financial and economic environment also looks very different from last year. The world looks a less risky place at the start of 2014 than it did at in recent years, in large part because the euro is on a firmer footing. The possibility that one or more countries will leave the Eurozone is at present no longer considered. The financial crisis seems to be pretty much under control. The worst of the economic crisis also seems to lie behind us, and expectations are that most markets will re-connect with growth in 2014. Only a minority of CFOs seriously consider the possibility of a new Eurozone or Belgian recession in the next 2 years. The world economy is set for a recovery. Corporates learn to operate within the new economic and financial environment. The dominant view amongs CFOs is that the current level of economic and financial
8
uncertainty is still above the normal level. But the proportion of CFOs reporting the economic and financial uncertainty is high has continuously and significantly decreased over the past 18 months. Top concerns for CFOs going into 2014 are very similar to those reported in last years’ outlook: first the competitive position within the industry and markets (up from first place last year), second the pace and level of the economic recovery (down from first place) and third the impact of regulation. In construction and manufacturing industries, commodity prices provide some reason for concern. CFOs are not particularly worried about access to capital or funding. Ambitious growth objectives Corporates look positively towards 2014, and this is reflected in their plans. Almost three quarters of our survey respondents have budgeted top line growth for 2014. Close to 60% of the businesses also expect to improve operating margins. Growth ambitions of many CFOs are impressive: Over half budget growth of over 2%, over 20% even budget growth of over 5%. Local businesses budget somewhat less growth than more internationally oriented businesses. Fierce competition Although most markets will re-connect with growth, the growth projections are significantly below the pre 2008 levels - and this for developed economies as well as for emerging markets. As Belgian and Eurozone growth is not expected to exceed 1%, U.S. 2.5% and emerging markets 4-5%, budget increase projections of corporates seem bullish. Taking into account corporates’ growth ambitions, competition in the low growth markets is likely to be very intense. In this respect, it is not a surprise that next to the economic recovery, CFOs are above all concerned about their ability to compete effectively in the market place.
Little appetite for risk Capital spending collapsed across the world during the recession, and few CFOs report they will increase capital spending in 2014. Appetite to take on additional risk on the balance sheet remains low. The (low) growth projections for Belgium and the Eurozone continue to inhibit investments plans, especially for the organisations whose business is predominantly local. For organizations that operate mostly in international markets, projected growth in the US, Asia Pacific and emerging markets positively impact investment plans. But only a small minority of CFOs report increases in capital expenditure budgets for 2014. As capital expenditure will be important to keep the recovery on track, this remains an important and worrying point of attention. Compared to last year’s outlook, expansionary strategies have gained some importance in this year’s outlook. But this does not mean that defensive strategies – such as cost reduction, increasing efficiency and productivity, cash flow management – are not on top of the agenda.
But as risk appetite and capital spending is weak, expansionary strategies remain modest. Cost reduction and efficiency improvement remain high on the agenda, and important levers to remain competitive. But as a recent study* of the VBO/FEB and Deloitte concluded, organisations that are successful in the long run focus on growth strategies rather than cost reduction, compete on value creation rather than on price. Corporates can no longer opt for a single direction or business strategy. With today’s new normal, corporates need to adapt, develop and test multiple scenarios in parallel. Recovery seems to be coming. The signs for the global economy are positive. But the actual path of the economic cycle is unpredictable. We hope the early signs of recovery will motivate corporates to gradually put more focus on these success factors in the course of 2014. Current business priorities might not be in line with growth ambitions.
Financing is available Financing is available for the majority of corporates. Many corporates report internal financing is available, but also external financing through corporate debt, bank borrowing and equity financing is considered attractive. Since the launch of the Deloitte CFO Survey five years ago in 2009, equity financing has never been rated as attractive as today. Equity is considered appropriately valued.
Thierry Van Schoubroeck, Partner Deloitte CFO Services
Joël Brehmen Finance Lead, Partner
Bank borrowing remains on average cheap and available. The Federal Reserve’s intent to taper supply of money, and set steps to tighten US monetary policy seems less worrying today as it did a few months ago. Over half of CFOs do not expect interest rates and lending terms to go up in the next few quarters. The recipe for success Last year’s outlook concluded that little improvement was to be expected in 2013 – as has been the case. This year’s outlook is somewhat more upbeat, and sunnier. Most CFOs expect their organisations to get back on the growth path this year.
* The complete VBO Study can be downloaded via http://deloitte.dsi-media.be/superior-performance/index.html#methodology Deloitte Belgian CFO Survey Special Edition Outlook 2014 9
New mood of optimism confirmed Net % of CFOs who are more/less optimistic about financial prospects for their company 60
More optimistic
Following 5 consecutive quarters of overall pessimism amongst CFOs, the new mood of optimism that surfaced in the third quarter, has been confirmed in the fourth quarter. Close to half of the respondents are more optimistic bout the financial prospects for their businesses compared with three months ago.
53% 44% 40%
50 40
25% 22% 17%
30 20 10 0
34%
26% 12%
8% 0%
-10
Less optimistic
30%
-11%
-20 -18% -30 -34%
-40
-15%
-27% -29% -42%
-50 -60 -70 -75%
-80
'09 '09 '09 '09'10'10'10'10 '11 '11 '11 '11 12 12 12 12 13 13 13 13 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
On average, the companies deriving over 70% their turnover outside Belgium, are however significantly less optimistic compared to companies that have a more significant part of their business in Belgium.
Net % of CFOs who are more/less optimistic about financial prospects for their company - split in respondents' organisations based on % of revenue derived from outside Belgium 60%
53%
50% 39% 40% 30% 20% 8%
10% 0% Organisations deriving 0-30% of revenue from outside Belgium
10
Organisations deriving 31-69% of revenue from outside Belgium
Organisations deriving 70-100% of revenue from outside Belgium
Low growth projections for Belgian economy The decreasing trend in overall level of uncertainty amongst CFOs continues its course. At this moment, only 17% of the respondents rate the current level of financial and economic uncertainty as high. But for over 60% of CFOs, the level of economic uncertainty is still above normal level.
% of CFOs rating the general level of external financial and economic uncertainty high/very high 60%
53%
51% 50% 47% 40%
41%
42%
37%
33%
30%
26% 27%
21% 20%
17%
10% 0%
CFOs’ projections on the Belgian economic growth are moderate, with less than 10% of the CFOs expecting a growth of more than 1%.
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
2012 Q3
2012 Q4
2013 Q1
2013 Q2
2013 Q3
2013 Q4
CFOs' expectations for the Belgian economic growth in 2014
0% 1% 0%
8%
23% 27% Greater than 1% 0,6% to 1% 0,2% to 0,5%
40%
-0,1% to 0,1% -0,5% to -0,2% -1% to -0,6% Less than -1%
Deloitte Belgian CFO Survey Special Edition Outlook 2014 11
Overall, CFOs’ growth expectations for the Belgian economy are slightly more cautious compared with the 1.1% growth projection published by the National Bank of Belgium.
Real GDP evolution: Belgium vs. the Eurozone
2,5% 2,0% 1,5% 1,0% 0,5% 0,0% -0,5% Belgium Eurozone
-1,0% 2010
2011
2012
2013*
2014*
*Source of data: Economic Indicators for Belgium N° 2014-01, National Bank of Belgium 2013 & 2014 data are forecasts, Belgian forecasts are based on NBB estimates from December 2013, Eurozone forecast based on OECD preliminary version November 2013
The majority of CFOs are not worried that our economy will enter into a new recession: only 22% of CFOs consider it a likely scenario. Similarly, only one out of five CFOs assign a high likelihood to a new recession in the Eurozone in the next two years. These results are very similar to last quarter’s results.
CFOs' expectations on the likelihood of a (new) recession in Belgium/Eurozone in the next 2 years
100% 17%
22%
90%
1%
1% 32%
20%
19%
80% 70% 60%
55%
40%
38% 56%
50% 40% 30% 20%
40%
39% 29% 21%
10% 0%
1% 2013 Q3
2013 Q4
Belgium Quite low
Quit high
Very low
12
1% 2013 Q4
Eurozone
Very high
Neither high nor low
2013 Q3
The CFOs’ top concerns are similar to the ones reported in the previous periods. But for the first time in the past two years, the economic recovery is no longer the number one concern for CFOs. Instead, CFOs are now most concerned about the competitive position of their company in the market. The impact of regulation completes the top three concerns. Commodity prices provide reason for concern to construction and manufacturing companies.
CFOs' perception on the greatest concern for their business in the next 12 months 1%1% 0% 3%
3%
4%
Competitive position in the market Economic recovery
12%
36%
Changes in regulation Commodity prices Interest rates Impact of Belgian financial & economic policy making
12%
Slow-down in China Increasing sovereign risk Access to capital 27%
One or more member states leaving the Eurozone
Deloitte Belgian CFO Survey Special Edition Outlook 2014 13
CFOs upbeat on 2014 top line growth for their company Looking back, over 50% of the respondents reported that their company did not meet the financial budget in 2013. Only 15% has performed somewhat better than expected.
Comparison of the surveyed organizations' actual performance versus budget
4% 3% 11%
Significantly better than expected
49%
Somewhat better than expected
32%
As expected Somewhat worse than expected Significantly worse than expected
The past year was especially disappointing to the smaller companies included in our survey panel, as 70% of the organizations with a turnover of less than 100 million euro have performed worse than expected. For the organisations with a turnover of over 1 billion euro, close to 25% was able to perform better compared to their budget. Comparison of the surveyed organizations' actual performance versus budget Split based on turnover
Turnover > €1bn
24%
15%
€100mn < Turnover < €999mn
Turnover < €100mn
35%
5%
0%
35%
50%
25%
10%
20%
70%
30%
Better than expected
14
41%
40%
50%
As expected
60%
70%
80%
Worse than expected
90% 100%
For the last three years, about half of CFOs have reported disappointing performance to budget, and the trend has not reversed yet.
Comparison of the surveyed organizations' actuals performance versus budget over time 100% 90%
20% 18%
12% 29%
37%
80%
49%
45% 57%
35%
70%
43% 57%
50% 38%
60%
47%
52% 54%
41% 37%
50% 40%
22%
39%
22%
30%
23%
35%
23%
30% 42%
32%
35%
53%
20%
24%
41% 34%
10%
35%
29%
27%
24%
25% 20%
18%
22%
8%
15%
0% 2010 2010 Q2 Q3
2010 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 Q4 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Worse than expected
As expected
Better than expected
But despite the disapporting performance reported for 2013, corporates look positive towards 2014: the majority of CFOsâ&#x20AC;&#x2122; organizations budget volume growth (higher revenues) and higher operating margins for 2014 as compared to the 2013 actuals. This outlook is far more brighter compared to the one for 2013. Net % of CFOs expecting an increase/decrease of the following key metrics for their companies in the next 12 months 16%
Revenues
63%
20% 40%
Operating margins
4% 13%
Operating costs -44%
Discretionary spending, for instance on travel, training and marketing
-16% 2% 4%
Financing costs
13%
-4%
Capital expenditure
27% Operating cash flow
41%
2% 17%
Levels of cash and cash equivalents on balance sheet 7%
Inventory levels
-31%
Headcount
-7% 1%
-60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80%
Decrease
Increase
2013 Q4 2012 Q4
Deloitte Belgian CFO Survey Special Edition Outlook 2014 15
Over half of the CFOs expect a revenue increase of more than 2% and more than 20% even expect an increase of more than 5%. Close to 35% of the CFOs expect headcount for their company to increase in the next twelve months, but about the same number plan a decrease. CFOs' expectations on key metrics for their companies in the next 12 months 3%
Revenues
23%
30%
21%
14%
3% 6% 4% 3%
Operating margins
14%
24%
20%
23%
11% 1%
Operating costs
6%
14%
20%
33%
19%
7%
3%
Headcount
10%
0%
10%
21%
20%
33%
30%
40%
Increase with more than 5% Increase between 2% and 5% Increase between 0% and 2% Same level
50%
10%
60%
70%
16%
80%
Decrease between 0% and 2% Decrease between 2% and 5% Decrease with more than 5%
The percentage of companies budgeting for top line growth is slightly higher for companies deriving the majority of their revenue from outside Belgium compared to local organisations. CFOs' expectations on the evolution of revenues for their companies in the next 12 months - Local vs. international organizations
Organisations deriving 70-100% of revenue from outside Belgium
76%
Organisations deriving 0-30% of revenue from outside Belgium
65%
0%
10% Increase
16
16%
20%
30% Same
17%
40%
50%
Decrease
60%
70%
80%
8%
17%
90% 100%
7%
90% 100%
Expansionary strategies gain only slightly in importance Although overall optimism and business conditions are taking up, risk appetite amongst CFOs is not (yet) increasing. At this point, only 21% of respondents believe that now is a good time to take greater risk on the balance sheet.
% of CFOs who think now is a good time to be taking greater risk onto their balance sheet 45%
41%
40%
35%
35%
31%
30%
35%
30%
28%
25%
21%
20% 17%
24%
23%
17%
15%
22%
19% 21%
19% 14%
13%
10%
8%
5%
5%
0%
26%
'09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12 '13 '13 '13 '13 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Increase
Furthermore, business priorities have not changed substantially compared to previous quarters: in the next 12 months organisations will mainly focus on the defensive strategies of increasing productivity/efficiency and reducing cost. However, expansionary strategies such as expanding organically and introducing new products/entering new markets are slightly gaining on importance. Expanding by acquisitions and increasing capital expenditure remains low on the agenda. Increasing capital expenditure remains very low on the priority list, not withstanding meaningful growth ambitions. Business strategies likely to be a priority for the CFO's businesses over the next 12 months 2%
Increasing productivity/efficiency
72%
Expanding organically
54%
Reducing costs
35%
53%
Introducing new products/ services or expanding into new markets
16%
Reducing leverage
15%
6%
Expanding by acquisition
6%
Raising dividends or share buy backs
5%
0%
10%
45% 23%
29%
56%
25%
60%
26%
68%
32%
62%
16%
10%
11%
56%
14%
Disposing of assets
6%
37%
45%
Increasing focus on sustainability programmes
11%
41%
52%
Increasing cashflow
Increasing capital expenditure
27%
79%
20%
Strong priority
30%
40%
50%
Somewhat of a priority
60%
70%
80%
90% 100%
Not a priority
Deloitte Belgian CFO Survey Special Edition Outlook 2014 17
Following the trend started in early 2012, organisations will keep their focus in 2013 on defensive strategies. However, the focus on expansionary strategies is also taking up.
CFO priorities: defensive vs. expansionary strategies 50%
40%
30%
20% ‘11 ‘11 Q1 Q2
‘11 Q3
‘11 Q4
‘12 Q1
‘12 Q2
Expansionary strategies
‘12 Q3
‘12 Q4
‘13 Q1
‘13 Q2
‘13 Q3
‘13 Q4
Defensive strategies
Arithmetic average of the % of CFOs who rated expansionary and defensive strategies as a strong priority for their business in the next 12 months. Expansionary strategies are introducing new products/services or expanding into new markets, expanding by acquisition and increasing capital expenditure. Defensive strategies reducing costs, reducing leverage and increasing cash flow.
Following the trend started in last quarter, actual or expected growth in US, Japan, Asia-Pacific and in emerging markets is perceived as one of the main stimulating factors for organisations’ investment plans. The economic situation in Belgium and the Eurozone continues to be an inhibiting factor, but to a lesser extent compared to previous quarter. Secular or long-term growth for products or services continues to be the main driver for investment plans.
Stimulating/Inhibiting factors to investment plans (current impact) -63% -70%
Uncertainty about the economic and financial environment
-38% -33%
Financial and economic policy making in Belgium
-19%
Actal or expected growth in Belgium
-28%
Actal or expected growth in the euro area
-7% -6% -7%
Cost and availability of external finance
9%
17% 24%
Actal or expected growthin US, Japan, Asia-Pacific
0%
Availability of internal finance
28%
12%
Actal or expected growth in emerging markets Secular or long-term growth for your products or services
46%
36%
16%
-70% -60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Inhibiting 2013 Q3 2013 Q4
18
Stimulating
Drilling down, especially for organisations deriving at least 70% of their revenues from outside Belgium, actual or expected growth in US, Japan, Asia-Pacific and the ermerging markets has a positive impact on their current investment plans. On the other hand, both international as well as local companies feel uncertainty about the economic and financial environment and consider financial and economic policy making in Belgium as being a stronger inhibiting factor for investment. Stimulating/Inhibiting factors to investment plans (current impact) - Local vs. international companies -87% -72%
Uncertainty about the economic and financial environment
-35% -29%
Financial and economic policy making in Belgium
-9% 16%
Cost and availability of external finance Actal or expected growth in Belgium
-20%
Actal or expected growth in the euro area
-20%
-9% 4% 17%
Actal or expected growth in US, Japan, Asia-Pacific
40%
22%
Actal or expected growth in emerging markets
56%
30% 25%
Availability of internal finance
48% 40%
Secular or long-term growth for your products or services
-90% -80% -70% -60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60%
Inhibiting
Stimulating
Organisations deriving 0-30% of revenue from outside Belgium Organisations deriving 70-100% of revenue from outside Belgium
The percentage of respondents expecting M&A activity to increase over the next 12 months, has not changed compared to previous quarter. Whereas CFOs were bullish on expectations for M&A activity coming out of the (previous) recession, this is less the case today.
Net % of CFOs who expect M&A activity to increase over the next 12 months 100%
90%
90%
89%
80% 70%
76%
76%
88% 84% 74%
70%
69%
59%
60%
40% 36%
30%
36% 24%
20% 10% 0%
57% 50%
48%
50%
30%
55%
12% 5% '09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12 '13 '13 '13 '13 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Deloitte Belgian CFO Survey Special Edition Outlook 2014 19
Financing is available and attractive Net % of CFOs reporting the following sources of funding as attractive/unattractive 80% Attractive
All three sources of external funding are considered as attractive by the majority of CFOs. Whereas the attractiveness of debt and borrowings has remained stable over the last year, the attractiveness of equity has risen substantially compared with three months ago.
60% 40% 20%
Unattractive
0% -20% -40% -60% -80%
'09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12 '13 '13 '13 '13 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Corporate debt
60%
60%
40%
40%
20%
20%
0%
0%
-20%
-20%
-40%
-40%
-60%
-60% '09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12 '13 '13 '13 '13 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-80%
Availability of credit
Cost of credit
CFOs' expectations about the evolution of the long term interest rates in the next 6 months 81%
80% 70% 60% 50%
47%
44%
40% 30% 18%
20%
8%
10% 0%
20
0%
2%
Increase significantly
1% Increase somewhat
No change
Decrease somewhat
2013 Q3 0% 0% Decrease significantly
2013 Q4
Credit is available
80%
Credit is unavailable
Credit is costly
80%
-80%
Compared to last quarter, CFOs have also eased their expectations on the development of long term interest rates in the next 6 months: Currently only 46% of the respondents expect an increase, down from 81% last quarter. CFOs seem to have been reassured that the Federal Reserves tapering at quantitive monetary easing will only happen slowly.
Equity
Net % of CFOs reporting credit is costly and net % reporting credit is available
Credit is cheap
The availability of credit has continued to increase in the fourth quarter of 2013, following the trend of the last year. As in the previous quarters, bank credit remains hard to get for one third of CFOs. Credit is still perceived as cheap for the average CFO.
Bank borrowings
CFOs' expectations about evolution of price terms and lending terms in the next 6 months
60% of the CFOs do not expect any change in price terms/ lending terms over the next months. Lending conditions are expected to remain attractive.
6%
34%
Higher price terms and/ or harder lending terms No change
60%
Lower price terms and/ or easier lending terms
Following several years during which corporate balance sheets were perceived as appropriately leveraged, the average CFO now believes that corporate balance sheets are rather underleveraged (similar to previous quarter).
Net % of CFOs who think Belgian corporate balance sheets are overleveraged/underleveraged
Overleveraged
40%
34%
30% 20% 10%
13%
9% 4%
Underleveraged
0%
2% -10%
-10%
-11% -13%-11%-10%
-3%
0%
0% -7% -4%
0% -15%
-9%
-20% -22% -30%
'09 '09 '09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12 '13 '13 '13 '13 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Deloitte Belgian CFO Survey Special Edition Outlook 2014 21
Overvalued
Net % of respondents who think the following assets are overvalued/undervalued
Undervalued
Over the last three quarters the CFOsâ&#x20AC;&#x2122; valuation of both equity and government bonds has been moving towards fair value, whereas commercial real estate continues to be perceived as overvalued.
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
-20%
-20%
-40%
-40%
-60%
-60%
-80%
'09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12 '13 '13 '13 '13 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Governments bonds
Commercial real estate
In line with the general perception on equity valuation, the majority of CFOs perceive their own equity as priced at fair value.
-80%
Equity
CFOs' perception on the pricing of their company's equity by the market
0% 6%
9%
27%
Very overvalued in chart Somewhat overvalued At fair value Somewhat undervalued
58%
22
Very undervalued
Federal measures, inappropriate and/or insufficient? The Belgian Government has published the new federal measures to support the economic activity and job creation. On balance CFOs believe that all measures will have a positive impact on their company, especially the decrease in labour cost. Net % of CFOs rating the impact of the implementation of the new federal measures introduced by the Belgian goverment on their company as positive Decrease in cost of labour
63%
Decrease of companies’ energy costs
48%
Structural reduction in charges & diverse labour cost reductions for SMEs, companies hiring young job-seekers, fully continuous shift systems & for purchasing power of employee
41% 39%
Expansion of concept of ‘youth in education’ Strengthening of fiscal deduction
33%
Increase in net salaries for people with low salaries via increase of fiscal workbonus
24%
Reduction of VAT on electricity for private persons
17%
-20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80%
Negative
Perception by a net % of CFOs of the way in which the Belgian government is setting the right priorities for financial and economic policy making
appropriate
20% 10% 0% -10% -20% -30%
-20%
-25% -33%
-29%
-34%
-40% -50% -60% -70%
inappropriate
Although CFOs believe that all the new federal measures will have a positive impact, the impact of the measures looks insufficient to many CFOs: respondents still rate the way in which the federal government is setting the right priorities for financial and economic policy making as negative.
Positive
-46% -52% -63% 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4
Deloitte Belgian CFO Survey Special Edition Outlook 2014 23
Similar to the previous quarterâ&#x20AC;&#x2122;s results, hardly any of the CFOs still assign a high rating to the likelihood of one or more member states leaving the Eurozone in the next 12 months. The worst of the euro crisis seems to lie behind us.
CFOs' rating on the likelihood of one or more member states leaving the Eurozone in the next 12 months 53%
50%
40% 35% 31%
30%
26%
25%
20% 11%
10%
7%
7% 2%
0%
As a consequence, only very few companies are changing their plans to deal with the risk of the euro stress.
Very high
3%
2012 Q2 2013 Q4
Quite high
Neither high nor low
Quite low
Very low
Extent to which companies are changing their plans to deal with the risk of the Euro stress
3%
Significant change in plans Somewhat change in plans No change in plans
97%
24
Profile Q4 survey participants
A total of 73 CFOs completed our 2013 fourth quarter survey. 27% of the participating companies have a turnover of over €1 billion, 41% of between €100 million and €1 billion and 32% of less than €100 million.
Turnover > € 1 bn €100-€999 mn
27%
32%
< € 100 mn
The participating CFOs are active in variety of industries. 36% of the participating companies derive up to 30% of their revenues from outside Belgium, 24% between 31% and 69% and 40% derive more than 69% of their revenues from outside Belgium.
41%
Industry sector
5%
2% 2% Manufacturing
5%
Services/consulting
25%
Construction/mining Healthcare/pharmaceuticals
11%
Banking/finance/insurance Retail/wholesale Transport
13%
14%
Energy/utilities Technology Leisure/entertainment
13%
Communication/media
13%
Real estate
Revenues from outside Belgium 0% - 30% 31% - 69% 70% - 100%
37%
40%
24%
Deloitte Belgian CFO Survey Special Edition Outlook 2014 25
The Deloitte Belgian CFO Survey is produced by Thierry Van Schoubroeck, Partner, Ann Moerman, Senior Consultant and Romana Jelinkova, Consultant. A note on methodology Not all survey questions are reported in each quarterly survey. In response to the current financial economic situation survey questions will be selected. In case you participated to the survey and would like to receive information about non-reported questions do not hesitate to contact us. Some of the charts in the Deloitte CFO survey show the result in the form of a net % balance. This is the percentage of respondents reporting, for instance, that bank credit is attractive minus the percentage saying bank credit is unattractive. This is a standard way of presenting survey data. The 2013 fourth quarter survey took place between December 11th 2013 and January 6th, 2014. A total of 73 CFOs completed our survey. The participating CFOs are active in variety of industries. 27% of the participating companies have a turnover of over €1 billion, 41% of between €100 million and €1 billion and 32% of less than €100 million. We would like to thank all participating CFOs for their efforts in completing our survey. We hope the report makes an interesting read, clearly highlighting the challenges facing CFOs, and providing an important benchmark to understand how your organization rates among peers.
26
Delivering the voice of the CFO community
Contact Thierry Van Schoubroeck Partner, CFO Services tvanschoubroeck@deloitte.com + 32 2 749 56 04
JoĂŤl Brehmen Finance Lead, Partner jbrehmen@deloitte.com + 32 2 800 22 32
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte's more than 195,000 professionals are committed to becoming the standard of excellence.
Š February 2014 Deloitte Consulting Designed and produced by the Creative Studio at Deloitte, Belgium.