1301 89720 CFO survey report Q4

The Dutch Deloitte
CFO Survey
Ready for growth
2013 Q4 results
January 2014
Contents
Ready for growth
4
Market conditions and the economy
6
Cash flow and risk
9
M&A11
A note on methodology
12
Contacts12
The Dutch Deloitte CFO Survey More optimism, less uncertainty and the return of M&A
3
Ready for growth
We are proud to present our 20th quarterly Chief
Financial Officers Survey in the Netherlands, an initiative
of the Deloitte CFO Program. The survey gauges
attitudes to risk, financing and M&A, and reports trends
and turning points for you and your business.
Key points from the 2013 Q4 Survey
• Dutch CFOs entered 2014 in a good mood:
Optimism about financial prospects for their
companies increased to 35%, equalling UK
CFO’s optimism;
• There is also less uncertainty about the
economy with now 30% of CFOs who
rate the current financial and economic
conditions at a normal level of uncertainty, a
sharp rise since 2013 Q2’s 11%;
• The level of risk appetite has proven to
be sustainable with 32% of CFOs in 2013
Q4 willing to take more balance sheet
related risk;
• The percentage of CFOs expecting their
cash flow to increase by more than
20% came in at 19%, the highest score
since 2011 Q1;
• The main drivers of changes in cash flow
are increases in products and services,
better gross margin and reduction of other
operating expenses;
• CFOs outlook on the M&A market remains
very good;
• Overall, CFOs seem to be ready to walk the
path to growth again.
4
General economic environment
The worst seems to be really over. In fact, the
Netherlands officially got out of recession in the
third quarter of 2013 and there has been a lot of
optimism since then among consumers, corporate
officers, economists and researchers. Moreover, world
indicators reflect similar positive sentiments.
For the first time in three years, the World Bank raised
its forecast for global economic growth, suggesting
that the world is finally breaking free from the long
and sluggish recovery after the financial crisis. Global
GDP growth is projected to rise from 2.4% in 2013 to
3.2% this year, and stabilize at 3.4% and 3.5% in 2015
and 2016 respectively. The acceleration in growth in
2014 is the fastest pace in four years, mainly because
developed countries are joining emerging countries as
engines of growth.
The Eurozone is expected to grow by 1.1% this year,
compared to a contraction of 0.4% last year. The
United States will show a stronger recovery, expanding
at a 2.8% growth rate in 2014.
However, there could be some downside risks that
threaten economic recovery. The most important one is
the Federal Reserve’s decision to withdraw its massive
monetary stimulus to the US economy, which could
result in a too sharp rise of interest rates, leading to a
significant reduction in capital inflows to developing
countries by between 50% and 80% for many months.
In 2013, the euro appeared to be resilient to political
crises in Italy, Portugal and Greece, and to very high
unemployment in Southern Europe. In fact, the
so-called PIIGS countries returned to growth, or at least
were able to stop contraction.
Moreover, in November 2013, Eurozone industrial
production rose at the fastest pace in 3.5 years (3.0%
higher year-on-year and 1.8% higher than in October)
– removing doubts about the sustainability of the
economic recovery.
In the Netherlands, NEVI/Markit’s Purchasing
Managers’ Index (PMI) for the Dutch manufacturing
sector increased from 56.8 in November to 57.0 in
December, a 32-month high and well above the 50
mark that separates expansion from contraction. The
increase was driven by the strongest rise in new orders
during the past 32 months, and also resulted in an
increase in backlogs of work.
In contrast to these global bright prospects, the Dutch
economy is expected to grow by a marginal 0.5%
according to the Netherlands Bureau for Economic
Policy Analysis (CPB). This is mainly driven by exports.
Dynamics on the domestic market will remain limited.
The unemployment rate is expected to remain high
(and even increase to 7.5% this year), and very few new
jobs will be created.
Contrary to Standard & Poor’s, Fitch affirmed its AAA
rating for the Netherlands, but outlook is still negative
due to weak economic growth prospects. Fitch noted
that there had been some signs of recovery in recent
months, but said this is likely to be slow because of
household deleveraging, declining house prices, and
fiscal consolidation. The rating agency forecasts the
Dutch economy to stagnate in 2014 and to grow by 1%
in 2015.
There are worries about the pace of inflation, not only
for the Netherlands but for the Eurozone as a whole.
Surprisingly, Eurozone inflation fell to almost the lowest
point in four years: 0.8%. An inflation rate that is well
below the European Central Bank’s (ECB) target of
close-to-but-below 2% carries risks in the longer term
because it can deflate wages and demand, depressing
the economy. Still, ECB is confident that there are no
signs of deflation or an urgent need for an interest
rate cut. However, ECB’s president Mario Draghi
emphasized recently that it is vital to avoid a scenario
where inflation gets stuck permanently below 1% and
slips into a danger zone for the economy.
Figures from Statistics Netherlands show that the
inflation rate in December was 1.7%. In November,
consumer prices were 1.5% higher than one
year previously.
CFO Survey
In this mixed bag of international optimism, Dutch
modest recovery and warning signals, Dutch CFOs
seem to be in a good mood, given the rise in business
confidence to 35% versus 24% last quarter. This is the
highest score since 2011 Q1.
Some 30% of respondents believe that the general
level of external financial and economic uncertainty
facing their business is normal – the highest score
since 2010 Q4.
Credit is seen as cheap and somewhat available. A net
percentage of 23% of CFO see credit as cheap. The
net percentage who see credit as available, however, is
much lower at only 5%.
Bank borrowing has gained favour again as the
most favoured source of corporate funding, while
equity issuance is still seen as neither attractive
nor unattractive.
It is very unlikely that CFOs will issue equity over the
next 12 months. Compared to the previous quarter, it
has also become less likely that CFOs will attract new or
renew current credit.
The level of risk appetite has proven to be sustainable
since 2013 Q2 and now stands at 32%.
The percentage of CFOs expecting their cash flow
to increase by more than 20% came in at 19%, the
highest score since 2011 Q1. Some 67% of CFOs expect
their free or operating cash flow to increase anyway.
The main drivers of CFOs’ opinion about changes in
cash flow are an increase in products and services, an
increase of gross margin as well as a decrease of other
operating expenses. Some 38% of CFOs expect to hire
new personnel.
CFOs outlook on the M&A market remains very good.
The outlook on the private equity market equalled the
highest score since 2011 Q1: 86%. Some 92% of CFO
expect the corporate M&A market to increase over the
next 12 months.
The Dutch Deloitte CFO Survey Ready for growth
5
Market conditions and the economy
CFOs’ perception of economic uncertainty has fallen
sharply since 2013 Q2. Now, 70% 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.
The percentage of CFOs who consider the current
situation as normal increased again from 24% in 2013
Q3 to 30% now.
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%
85%
80%
75%
70%
65%
60%
Dutch CFOs are now more optimistic about the
financial prospects for their companies than at any
time since 2010 Q4. They have entered 2014 in a
good mood!
Chart 2. Business confidence
Net percentage of CFOs who are more optimistic about the financial prospects for
their companies now versus three months ago.
40%
More optimistic
The net percentage of CFOs who are more optimistic
continued its upward trend and came in at 35%, equal
to their UK counterparts’ optimism.
Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13
30%
20%
10%
0%
Lsse optimistic
-10%
-20%
-30%
-40%
-50%
Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13
NL
6
UK
The cost and availability of credit stabilized compared
to the previous quarter.
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.
Year-on-year, the availability of credit improved, but the
cost of credit fell back. Still, a net percentage of 23% of
CFOs believe that credit is rather cheap.
Cheap/available
80%
60%
40%
20%
Costly/hard to get
0%
-20%
-40%
-60%
Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13
Cost of credit
Corporate debt (i.e. bond issuance) has gained favour
again as the most attractive source of funding. Bank
borrowing is seen as the second-favoured source of
funding.
Availability of credit
Chart 4. Favoured source of corporate funding
Net percentage of CFOs reporting the following sources of funding as (un)attractive.
Equity issuance is still not seen as a favourite source
of funding for corporates. CFOs see equity as neither
attractive, nor unattractive
60%
Attractive
40%
20%
0%
Unattractive
-20%
-40%
-60%
Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13
Bank borrowing
Corporate debt
Equity
The Dutch Deloitte CFO Survey Ready for growth
7
Compared to 2013 Q3, fewer CFOs are likely to attract
or renew (current) credit over the next 12 months. Last
quarter’s 11% was largely driven by renewing current
credit, but hardly any CFOs plan to renew credit now.
Chart 5. Likely to issue debt/equity?
Percentage of CFOs who are (very) likely to issue debt/equity over the next
12 months.
40%
Likely
It is still unlikely that CFOs will issue equity over the
next 12 months. In fact, the trend is down again.
20%
0%
-20%
-40%
Unlikely
-60%
-80%
-100%
Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13
Issue equity
8
Attract credit
Cash flow and risk
The level of risk appetite equalled last quarter and
appears to be stabilized for the third consecutive
quarter.
Chart 6. Risk appetite
Percentage of CFOs reporting that now is a good time to be taking greater balance
sheet related risks.
Some 32% of CFOs say now is a good time to take
balance sheet related risks.
40
20
18
19
-82
-81
12
8
-84
-88
-92
8
0
%
16
31
32
32
-69
-68
-68
-20
-40
-92
-60
-80
-100
Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13
Yes
The percentage of CFOs expecting their cash flow
to increase by more than 20% came in at 19%, the
highest score since 2011 Q1.
But on the other hand, the percentage of CFOs
expecting a decline in cash flow tripled from 8% in
2013 Q3 to 24% now.
Still, the percentage of CFOs expecting any increase in
operating or free cash flow remained essentially the
same (67%).
No
Chart 7. 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.
100%
90%
8
10
80%
3
6
9
16
18
13
16
25
14
11
4
19
36
70%
60%
38
34
42
47
42
44
50%
44
28
40%
30%
21
6
32
29
20%
10%
0%
23
25
13
10
10
22
16
38
10
25
19
24
8
11
8
24
Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13
Decline
Remain unchanged
Increase by 1%-10%
Increase by 11%-20%
Increase by more than 20%
Any increase
The Dutch Deloitte CFO Survey Ready for growth
9
CFOs were asked for the internal measures driving their
opinion about changes in cash flow.
Chart 8. Internal drivers of change in cash flows
CFOs’ assessment of internal measures driving a change in cash flows.
Some 55% of CFOs said that an increase in products of
services offered will drive changes in cash flow.
60
50
40
Increase
Another driver is hiring: 38% of CFOs mentioned a
decrease in workforce as a driver of a change in cash
flow. But 33% intend to cut headcount.
A change in geographical presence, either entering a
new market or withdrawing from it, is still the least
mentioned driver.
30
20
10
0
Decrease
-10
-20
-30
-40
Products/serv.
10
Geogr.
presence
Gross margin
Headcount
Other opex
M&A
CFOs’ outlook on the M&A market maintained its high
levels.
No less than 86% of CFOs see an increase in private
equity activity in the next 12 months, equaling 2011
Q1’s highest score.
Although a little bit down compared to 2013 Q3, 92%
of CFOs expect corporate M&A to increase in the next
12 months.
Chart 9. M&A outlook
Percentage of CFOs who expect M&A activity to increase/decrease in the next
12 months.
100%
80%
60%
40%
20%
0%
-20%
-40%
Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13
Strategic M&A
Asked whether their companies will be involved in any
M&A transactions over the next 12 months, more than
half of CFOs (55%) expect their companies to enter a
strategic partnership in the next 12 months.
Private equity
Chart 10. 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.
Compared to last quarter, the percentage of CFOs that
expect their companies to make an acquisition declined
from 52% to 41%.
Some 48% of CFOs indicate a divestment of a
subsidiary and/or assets.
Partnership
55%
Divest
48%
Acquire
41%
0%
10%
20%
30%
40%
50%
The Dutch Deloitte CFO Survey Ready for growth
60%
11
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 2013 Q4 survey took place between 14 December
2013 and 16 January 2014. A total of 23 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 (22%), 100-499 million (17%),
500-999 million (9%), 1-4.9 billion (39%), more than 5
billion (8%), and unknown (4%).
The participating CFOs are active in a variety of
industries: Retail/Wholesale, Manufacturing,
Agribusiness, Construction, Services/Consulting,
Leisure/Entertainment, Transportation, 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.
12
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
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
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.nl/about for a detailed description of
the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related
entities (collectively, the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. Before making any
decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity
in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.
© 2014 Deloitte The Netherlands
130189720
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 has in the region of 200,000
professionals, all committed to becoming the standard of excellence.

Download Report