1301 89720 CFO survey report Q4

T h e D e l o i tt e C F O S u r v e y
Q 1 2 0 1 4 r e s u l ts
2
Contents
Key points from the 2014 Q1 Survey
4
Market conditions and the economy
6
Cash flow and risk
8
M&A10
Special topic
11
A note on methodology
15
Contacts15
The Dutch Deloitte CFO Survey More optimism, less uncertainty and the return of M&A
3
Key points from the 2014 Q1 Survey
Sustained optimism among CFOs
CFOs of Dutch companies are still optimistic about the financial prospects of their
companies. The score of 41% equals last quarter and is considerably higher than the
31% of their UK counterparts.
41%
are optimistic about
financial prospects for
their companies
Economic uncertainty fades away
The percentage of CFOs who feel uncertain about the economy decreased to 66%
from 70% in 2013 Q4. So, one-third considers the current economic situation to be at
a normal level, but the majority of CFOs still rate the economy as uncertain.
34%
rate the external
financial and economic
uncertainty facing their
business as normal, or
even below normal
Risk attitude increases again
Some 34% of CFOs believe that now is the time to be taking greater balance-sheetrelated risk, the highest score since 2010 Q4.
34%
are willing to take greater
balance sheet-related
risks
Cash flows expected to increase further
53%
expect cash flows to
increase by more than
10%
4
More than half (53%) of CFOs expect their operating or free cash flow to increase by
more than 10% over the next 12 months, the highest score since the launch of this
survey in 2009 Q1.
Some 78% of CFOs expect an increase and, only 4% expect a decline.
The good news continues. The Dutch economy is
emerging from recession. The budget deficit has
already fallen below the 3% EU threshold and is
expected to remain so in 2014 and 2015. There seems
to be no need for additional austerity measures in the
coming years.
In its Fiscal Monitor, the International Monetary Fund
(IMF) is more positive about the Dutch economy than
three months ago, forecasting growth of 0.8% for this
year and 1.6% for 2015. Forecasts by the Economist
Intelligence Unit (EIU) are 1.0% and 1.5% for 2014 and
2015 respectively.
The Bureau for Economic Policy Analysis (CPB) is also
expecting a pick-up of the economy over the next
couple of years. The economy should grow 0.75% this
year and 1.25% next year.
CPB said that budget deficit is expected to fall to
2.9% of GDP this year and to 2.1% in 2015. It also
expects domestic spending, particularly investments,
to increase, and for 2015 consumption is projected to
increase for the first time in years, in line with a growth
in wage income and benefits.
Since the Dutch economy is one of the world’s most
sensitive to global trade flows, it is also very vulnerable
to any escalation of the crisis in Ukraine. The CPB stated
that if the crisis led to a 10% increase in energy prices
over two years, inflation would rise worldwide and a
fall in spending would hit world trade.
In early March, Moody’s raised the outlook for the
Netherlands’ Aaa rating from negative to stable. The lift
was driven by declining risks from the euro area debt
crisis, stabilization of fiscal strength and the belief that
domestic vulnerabilities, such as domestic demand and
the housing market, have peaked.
The Dutch housing market shows early signs of
recovery. In fact, the decline in home prices in many
parts of the Netherlands has stopped and home prices
were 1.2% higher in 2014 Q1 compared to a year
ago. The gap between initial asking price and closing
price decreased from 10.7% to 7.1% year-on-year,
and the number of home sales increased for the third
consecutive quarter.
The NEVI/Markit’s Purchasing Managers’ Index (PMI)
for the Dutch manufacturing sector fell to the lowest
level in nine months due to decreased growth in
output and new orders. The index stood at 53.4 in
April, compared to 53.7 in March. But still, the index
was above the crucial 50.0 cut-off point for industrial
growth for the eighth month in a row.
According to Statistics Netherlands (CBS), March’s
inflation rate eased further to 0.8%, the lowest level
since June 2010. In February, consumer prices were on
average 1.1% higher than one year ago.
Calculated according to the ILO definition, the Dutch
unemployment rate declined from 7.3% in February to
7.2% in March. The decline was largely due to the fact
that many people withdrew from the labour market,
not because more people managed to find paid jobs.
Special topic: The impact of new business
models on the finance function
Many organizations are transforming their business
model - apparently for different reasons. Some are
positioning themselves for new growth opportunities
or trying to stay ahead of shifting consumer
preferences. Others are restructuring in order to
improve efficiency and reduce costs, or they are
seeking to capitalize on lower labour rates offshore.
Many others are playing catch up on changes that
were put on hold during the downturn and are
now long overdue. However, one thing they have in
common is the desire to dramatically improve business
performance.
CFOs were asked about the impact of the changing
business landscape on finance in terms of the roles to
play and the enablers to change. Changing one enabler
will almost certainly require changes to one or more of
the others.
Key findings of the survey include:
• A majority of 56% of CFOs indicates that the impact
of a changing business model on their finance
function has been (very) high;
• All key enablers had to be adapted to the new
business model;
• After the transformation, focus on the business
decision support and reporting and analysis
functions of finance increased;
• The role of finance changed also, with finance now
being more a business partner (catalyst, strategist)
than a steward and/or operator.
The Dutch Deloitte CFO Survey Sustained optimism
5
Market conditions and the economy
The increased optimism about the general economic
situation is reflected in CFOs’ perceptions of
uncertainty. Now, 66% of CFOs rate the current
financial and economic conditions at a higher than
normal level of uncertainty, down from a peak of 95%
in 2011 Q3.
Chart 1. Uncertainty
Percentage of CFOs who rate the external financial and economic uncertainty facing
their business as above normal, high, or very high
95%
90%
The percentage of CFOs who consider the current
situation as normal, or even below normal, increased
further from 30% in 2013 Q4 to 34% now.
85%
80%
75%
70%
65%
60%
55%
50%
The net percentage of CFOs who are more optimistic
continued its steady upward trend and came in at 41%.
Q1 12
Q2 12
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
Q4 13
Q1 14
Chart 2. Business confidence
Net percentage of CFOs who are more optimistic about the financial prospects for
their companies now versus three months ago
This is the first time since 2012 Q4 that Dutch CFOs are
more optimistic than their UK counterparts (31%).
More optimistic
50%
40%
30%
20%
10%
Less optimistic
0%
-10%
-20%
-30%
-40%
Q1 12
Q2 12
Q3 12
Q4 12
NL
6
Q1 13
UK
Q2 13
Q3 13
Q4 13
Q1 14
Financing conditions improved further. Credit is seen as
being cheaper.
Chart 3. Cost and availability of credit
Net percentage of CFOs reporting that funding for corporates is cheap or expensive,
and funding is easily available or hard to get
Credit is cheap
70%
50%
50%
30%
30%
10%
10%
-10%
-10%
-30%
-30%
-50%
Q1 12
Q2 12
Q3 12
Q4 12
Q1 13
Cost of credit
Q4 13
Q1 14
-50%
Availability of credit
50%
40%
Attractive
Although less preferred, equity has gained favour and
is now seen as attractive. Please note that this is a net
view.
Q3 13
Chart 4. Favoured source of corporate funding
Net percentage of CFOs reporting the following sources of funding as (un)attractive
30%
20%
10%
0%
Unattractive
The good availability of credit is reflected in sources
of funding. Corporate debt is still seen as the most
attractive source of funding, but bank borrowing has
risen very sharply this quarter (from 13% to 31%).
Q2 13
Credit is hard to get
70%
Credit is available
Credit is costly
Credit is also more easily available than at any time
since the beginning of this CFO Survey in 2009 Q1.
-10%
-20%
-30%
Q1 12
Q2 12
Q3 12
Q4 12
Bank borrowing
Q1 13
Q2 13
Corporate debt
Q3 13
Q4 13
Q1 14
Equity
The Dutch Deloitte CFO Survey Sustained optimism
7
Cash flow and risk
As a result of increased optimism and less uncertainty,
risk appetite among CFOs increased again and is
inching closer to 2010 Q4’s high of 39%. Risk appetite
is much stronger than one year ago.
Chart 5. Risk appetite
Percentage of CFOs reporting that now is a good time to be taking greater balancesheet-related risks
60
Still, the vast majority of CFOs (66%) believe that now
is not yet the right time to take greater balance-sheetrelated risk.
40
20
19
0
%
8
16
12
8
-92
-84
-88
-92
Q2 12
Q3 12
Q4 12
31
32
32
34
-69
-68
-68
-66
Q2 13
Q3 13
Q4 13
Q1 14
-20
-40
-81
-60
-80
-100
Q1 12
Q1 13
Yes
No
The percentage of CFOs who expect their cash flow to
increase by more than 10% increased from 29% last
quarter to no less than 53% now. This is the highest
score since the beginning of this survey in 2009 Q1.
Chart 6. Change in cash flows over the next 12 months
Percentage of CFOs who expect their companies’ operating or free cash flows to
increase/decrease over the next 12 months
Some 78% of CFOs expect an increase in operating or
free cash flows.
100%
Only 3% of CFOs expect their cash flow to decline.
9
90%
80%
16
3
18
0
6
16
13
0
4
14
19
25
11
36
10
70%
34
60%
50%
34
47
42
42
44
44
38
28
40%
30%
25
6
32
20%
10%
13
Q1 12
Q2 12
16
10
Q3 12
10
22
29
25
0%
8
19
Q4 12
25
19
24
8
11
8
24
Q1 13
Q2 13
Q3 13
Decline
Remain unchanged
Increase by 1%-10%
Increase by 11%-20%
Increase by more than 20%
Any increase
19
3
Q4 13
Q1 14
CFOs were asked for the internal measures driving their
opinion about changes in cash flow.
Chart 7. Internal drivers of change in cash flows
CFOs’ assessment of internal measures driving a change in cash flows (net
percentages)
Changes in cash flows are primarily driven by further
increased offering of products/services and improved
gross margin.
60%
Increased geographical presence, and working capital
are also driving increased cash flows.
Increase
50%
CFOs also indicated to increase investments, especially
compared to lower capital expenditures six months
ago.
40%
30%
20%
10%
Decrease
0%
-10%
-20%
-30%
-40%
2013 Q2
2013 Q3
2013 Q4
2014 Q1
Products/serv.
Geogr. presence
Gross margin
Headcount
Capex
Working capital
The Dutch Deloitte CFO Survey Sustained optimism
9
M&A
Coming from a record-breaking high last quarter, CFOs’
outlook on M&A activity decreased somewhat.
Now, 75% of CFOs expect corporate M&A to increase
over the next 12 months – versus 91% in 2013 Q4.
The outlook on private equity transactions was also
down, from 86% to 78%.
Chart 8. M&A outlook
Percentage of CFOs who expect M&A activity to increase/decrease in the next 12
months
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Q1 12
Q2 12
Q3 12
Q4 12
Q1 13
Strategic M&A
Asked whether their companies will be involved in any
M&A transactions over the next 12 months, half of
CFOs (50%) expect their companies to enter a strategic
partnership in the next 12 months.
Compared to last quarter, the percentage of CFOs
who expect their companies to make an acquisition
increased from 41% to 44%.
Some 25% of CFOs indicated a divestment of a
subsidiary and/or assets, down from 48% in the
previous edition of this report.
Q2 13
Q4 13
Q1 14
Private equity
Chart 9. Likeliness of M&A activity at a CFO’s company
Percentage of CFOs who expect their company to be involved in a M&A transaction
over the next 12 months
Partnership
50%
Divest
25%
Acquire
44%
0%
10
Q3 13
10%
20%
30%
40%
50%
60%
Special topic
The impact of new business models on the
finance function
Many organizations are transforming their business
model, apparently for different reasons. Some are
positioning themselves for new growth opportunities
or trying to stay ahead of shifting consumer
preferences. Others are restructuring in order to
improve efficiency and reduce costs, or they are
seeking to capitalize on lower labor rates offshore.
Many others are playing catch up on changes that
were put on hold during the downturn and are
now long overdue. However, one thing they have in
common is the desire to dramatically improve business
performance.
To more fully complement a changing business model,
finance will also have to change one or more elements
of its Target Operating Model (TOM). The four key
elements that shape and enable the Finance TOM are:
• Financial systems and information;
• Finance organization;
• Policies & financial processes;
• Finance talent and people.
Most transformations will have a fundamental and
far-reaching impact on the operating model in general
and on the finance function specifically. In fact, along
with a changing business model, CFOs can expect
increasing demand on the finance function to add value
to the business. Not only has the recent shift in external
pressures resulted in the need for leaner and more
responsive back-office functions, but there is also a
growing demand from the business for finance to drive
and monitor performance. This pressure forces CFOs to
increasingly focus on business partnering.
Some 72% indicated that their organization has
undergone significant changes in their business model
in the past five years.
CFOs were asked to answer questions that address
the impact of the changing business landscape on
finance in terms of the roles to play and the enablers
to change. Changing one enabler will almost certainly
require changes to one or more of the others.
That need for partnering will also require CFOs to
change their own focus. Traditionally, their focus has
been on the steward role (preserving the assets of
the organization by minimizing risk and getting the
books right), and the operator role (running a tight
finance operation that is efficient and effective). In
line with changing business models, however, CFOs
have to broaden their roles in two directions: the role
of strategist (helping to shape overall strategy and
direction), and the role of catalyst (instilling a financial
approach and mind-set throughout the organization to
help other parts of the business perform better). These
various roles increase complexity of the CFO’s job more
than ever.
The Dutch Deloitte CFO Survey Sustained optimism
11
The impact of a changing business model on the
finance function has been (very) high, according to
56% of CFOs.
Almost one third indicated that the impact was neither
high nor low, and only a small minority of 13% said
that the impact had been low.
Chart 10. Influence on finance function
Impact of a changing business model on the finance function
60%
56%
50%
40%
31%
30%
20%
13%
10%
0%
High
Actually, all enablers of the finance function had to
be adapted to the changed business model of the
organization.
High nor low
Low
Chart 11. Alignment of finance with the new business model
The extent to which the finance function enablers required changes in order to get
more aligned with the new business model
Financial systems and information appears to be the
most important enabler to align the finance function
with the new business model. Policies and financial
processes was referred to least.
90
80
70
60
High
50
40
30
20
10
Low
0
-10
-20
Financial systems &
information
12
Finance
organization
Policies & financial
processes
Finance talent &
people
Before the change in business model, finance was
focused on transaction processing and to a lesser
extent on reporting and analysis and business decision
support.
Chart 12. Changing focus of finance in new business model
Focus on the finance function before and after the change in business model
The change in business model apparently caused a shift
from transaction processing to reporting and analysis
(slightly), and business decision support (strongly).
60%
50%
50%
40%
38%
29%
30%
32%
31%
21%
20%
10%
0%
Transaction processing
Reporting & analysis
Before
CFOs were asked about the impact of organizational
changes on the finance function through five
statements.
Business decision support
After
Chart 13. Five statements: agree or disagree
CFOs’ response to statements about the impact of changes in the business model on
the finance function
Most CFOs did not agree with the statement that the
finance function now operates more decentralized.
Finance more decentralized
There was more agreement upon:
• improved communication with headquarters;
• accelerated introduction of shared services;
• increased focus on risk and compliance.
Better communication with HQ
Accelerated shared services
Focus on risk increased
Focus on compliance increased
Disagree
Neutral
The Dutch Deloitte CFO Survey Sustained optimism
Agree
13
Before the change in business model, most finance
departments’ service delivery model was based on roles
as steward and operator (84% in these roles).
Once the business model was adapted, the service
delivery model for finance completely shifted towards
strong roles as catalyst and strategist.
This reflects the trend that CFOs increasingly focus on
being a business partner.
Chart 14. Role of the finance function
The role of the finance function before and after the change in business model
45%
42%
40%
36%
42%
33%
35%
30%
25%
20%
20%
15%
10%
11%
9%
6%
5%
0%
Catalyst
Strategist
Before
14
Steward
After
Operator
A note on methodology
To enhance readability not all survey questions will be
reported in each quarterly survey. Survey questions
will be selected in response to the current financial
economic situation. If you wish to receive information
about non-reported questions, please contact us. The
Deloitte CFO Survey is also executed by other Deloitte
countries, for instance the UK. Comparisons will be
made when relevant.
Some of the charts in the Dutch Deloitte CFO Survey
show the results in the form of a net balance. This is the
percentage of respondents reporting, for instance, that
bank credit is attractive minus the percentage stating
that bank credit is unattractive. This is a standard way
of presenting survey data.
Due to rounding answers may not total 100%.
The 2014 Q1 survey took place between 28 March
2014 and 16 April 2014. A total of 32 corporate CFOs
completed our survey, representing a net turnover
per company of approximately EUR 2.1 billion. The
responding companies can be categorized as follows:
less than 100 million (16%), 100-499 million (28%),
500-999 million (19%), 1-4.9 billion (22%), more than 5
billion (12%), and unknown (3%).
The participating CFOs are active in a variety of
industries: Retail/Wholesale, Manufacturing, Energy/
Utilities, Agribusiness, Construction, Real Estate,
Services/Consulting, Communication/Media,
Leisure/Entertainment, Transportation, Healthcare/
Pharmaceuticals, Software, Technology, and Banking/
Finance/Insurance.
We would like to thank all participating CFOs for
completing our survey. We trust the report will make
an interesting read and highlights the challenges facing
CFOs. We also hope it provides you with an important
benchmark to understand how your organization
compares to your peers.
Author:
Harm Drent, Deloitte Research & Market Intelligence
Contacts
Jan de Rooij
Partner Deloitte Core Audit
[email protected]
+31 (0)6 5336 6208
Wilten Smit
Managing Partner Deloitte Financial Advisory
Services
[email protected]
+31 (0)6 5389 7407
Frank Geelen
Partner Deloitte Consulting – CFO Services
[email protected]
+31 (0)6 2239 7053
Peter Meijer
Lead Finance Transformation
[email protected]
+31 (0)6 2708 9815
Harm Drent
Manager Research & Market Intelligence
[email protected]
+31 (0)6 1201 1716
Wilma Bontes
Deloitte Press Officer
[email protected]
+31 (0)6 2127 2102
The Dutch Deloitte CFO Survey Sustained optimism
15
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1301 96721
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