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Contents
Introduction Good resilience, but economic slowdown also likely in 2013 Hot topic - Outlook on the Euro situation Business conditions and outlook Prospects and concerns Financing Strategic opportunities An international outlook - Uncertainty takes its toll on optimism Contacts 3 4-5 6 7 8 9 10 11 12
Johan Lindgren Credit Strategist Credit Strategy, Trading Strategy, SEB johan.y.lindgren@seb.se
The Swedish CFO index for September 2012 has a value of 48.3, which reflects slightly negative expectations. The index is based on four components; business conditions, financial position, lending willingness and counterparty default risk. The four components are ranked 42, 52, 55 and 44 respectively.
are pointing at a more marked slowdown. Looking ahead, however, the stronger krona will lead to a further slowdown in Swedish exports. According to historical estimates, a 10 per cent krona appreciation leads to 2.5-3 per cent lower exports, with a lag of about one year. Krona appreciation will slow export growth by 1-2 percentage points during 2012 and 2013. Service exports have performed more strongly than expected, but it is unusual for merchandise and service exports to move in completely different directions. Service exports are expected to slow during the second half of 2012. SEB expects that overall exports will increase by 1 per cent this year, followed by a modest recovery to 3 per cent in 2013 and 4 per cent in 2014.
Business climate
50 70 65 60 Somewhat tighter financial position 55 Actions by central banks have been instrumental 50 during the last years to provide liquidity and to 45 reduce uncertainty. In our survey, there is a con40 tinued drop in financial officers' perception of their 35 financial position. The survey also indicates that 30 the situation 7for companies differ with an increas- 2 1 0 9 8 6 2 1 0 9 8 7 -1 -1 -0 -1 -0 -0 -0 -1 -1 -1 -0 -0 -0 g p p p b b b b ug ep eb eb Se Fe Au Fe Se Au Fe Fe ingSenumberg of Fcompanies Ssaying that Fthe Asituation is Not so favourable at the same time as there are more respondents stating that the situation is Very favourable or Favourable. 45 40
Deloitte/SEB inde
ued to weaken, but their levels signal continued job 35 1 0 7 2 9 8 6 1 9 8 7 -1 -1 -0 -1 -0 -0 -0 -1 -1 -0 -0 -0 growthFefor Athe Fnextep3-4ebmonths.-10Unemployment2 will g g p p p b b b b ug eb Se Au Fe Au Fe Fe Se S F Se eventually climb slightly and that job creation will fall a bit. Our previous forecast that unemployment will climb to about 8 per cent is intact, though we now expect the upturn to begin late in 2012. Affrsklimat Business conditions
70 65 60 55 50 45 40 35 30
p Se
Business climate
Financial position
70 68 66 64 62 60 58 56 54 52 50
p Se 6 -0 7 -0 7 -0 8 -0 8 -0 9 -0 9 -0 0 -1 0 -1 1 -1 1 -1 2 -1 2 -1
6 -0
b Fe
7 -0
g Au
7 -0
b Fe
8 -0
p Se
8 -0
b Fe
9 -0
p Se
9 -0
b Fe
0 -1
g Au
0 -1
b Fe
1 -1
g Au
1 -1
b Fe
2 -1
p Se
2 -1
Finansiell stllning The Riksbank lowered the Repo-rate by 25 basis Financial position points in September to 1.25 per cent and SEB expect another cut in December 2012 to 1.0 per cent. There 70 68 are arguments for a lower Repo-rate such as low 66 inflation pressure, a shaky labour market, continued 64 financial market turbulence and slower increase in 62 lending to households. Expansionary monetary poli60 cies in other countries are also helping make Swedish 58 56 monetary policy appear more restrictive. This, in 54 turn, is instrumental in reinforcing appreciation 52 pressure on the krona, pushing down inflation and 50 1 0 2 9 8 6 2 1 0 7 -1 -1 growth.eb Low-07key08interest9 rates ebinternationallyebare ean -1 -0 -0 -0 -1 -1 -1 -0 -0 g g g p p p p b b b S Au F Au Fe F Se Se Au Fe Fe F Se argument for low Riksbank key interest rates as well. SEB expect the Repo-rate to remain at 1.00 per cent during 2014.
100% 100%
80% 80%
80% 80%
60% 60%
60% 60%
40% 40%
40% 40%
20% 20%
20% 20%
0% 0% Yes Yes No No
0% 0% Yes Yes No No
One out of four of the CFOs answered that their companies had performed some kind of stress test regarding a situation where the Euro does not exist in its present form. Hence, a fair conclusion is that several companies in fact are worried for a collapse of the most important currency for Swedish export. This is probably related to the increased worries for increased interest rates, i.e. macro oriented uncertainties.
Whereas 25% of the surveyed companies having performed a stress test, only 7% of the companies have currently adjusted their operations to a situation where the Euro does not exist in its present form. Only 7% have taken action, which could suggest that companies in general consider the risk of a situation where the Euro does not exist in its present form as fairly low. Another possibility is of course that adjusting operations is impossible or very costly. The pessimistic reader thus could interpret the results as 93% of the companies currently not being prepared for a changed Euro scenario.
The positive trend from February 2012 has in September turned slightly negative. In line with the second quarter results, companies seem to expect more difficult times ahead. Chart 5 However, companies have yet not seen the effects of Chart 5 the weakening sentiment. EUR/SEK SEB forecast
60%
Chart 9
EUR/SEK
ns in s
Nov 2011
9,40 9,20
C
50% 40%
Feb 2012 EUR/SEK budget rate 1. Business conditions for your company in the next 6 months are seen as: 50% 9,00
rable
In February business conditions improved notably 40% Business conditions versus the previous survey. The current sentiment has for your company in 30% again turned more negative with a the next 6 relative share larger months 20% of CFOs finding Business conditions not so favorable (34% in September versus 23% in February). 10% The trend corresponds with the current slowdown in Average 0% Not so Very SwedishVery economy, forecast Average to continue also intoVery 2013. Favourable Not so favourable unfavourable
favourable favourable unfavourable
Sep 2012
Chart 1
What is your Nov 2011 EUR/SEK budget rate for the nancial year 2012 Feb 2012?
Sep 2012
9,40
What is your
How has the level of CFOs budget nancial risk on your rate (median balance sheet estimate) changed over the last 12 months?
SEB forecast
Chart 5
50% 8,40
8,20 40% 8,00 30% 7,80
What is your EUR/SEK budget rate for the nancial year 2012?
H b c l
20% r Ap 10% 0%
11 Ju
l-
11
Oc
t-
11 Ja
12
Ap
r-
7,80 12
2 -1 ul 1 Jr Ap
r2 -1 Ap an
pr
12 J
ul
12
t Oc
-1
2 J an
-1
3 A
pr
13
I si
Very favourable
Favourable
Average
Not so favourable
Very unfavourable
Ap
r-
Chart 6
3. How do you expect operating cash flow in your company to change over the next 12 months?
Chart 10
Assume a current cash surplus position. How would you prefer to use the money in the next 6 Nov 2011 months?
70% 60% 50% 40% 30%
al
50%
Chart 6
40%
Sep 2012
Chart 2
Nov How do you expect 2011 operating cash ow Feb 2012 in your company to change over the next 2012 Sep 12 months?
50%
40%
How do you expect operating cash ow in your company to change over the next 12 months?
50%
40%
Sep 2012
Chart 6
A c p y m m
30%
20%
30% 50%
30%
20%
Sep 2012
How do you expect operating cash ow in your company to change over the next 12 months?
50% 20%
10% 40% 0%
10%
10%
30%
Pa
rable
Average
0%
Average
Not so favourable
Very unfavourable
10%
Increase by 0-10%
Decline by 0-10%
20%
10%
t 13a
The overall outcome of the September survey is that the financial position of surveyed companies largely is unchanged compared to February. Increases in the response alternatives favorable (48%) and average 100% Has your company (34%) are likely related to the weakening business adjusted its operations condition sentiment and might highlight a possible to a situation where 80% Euro time lag and correlation between the Overitsdoes not12 lower business 50% exist in the next present months how do Nov form? Nov 2011 activity and negative financial consequences. you 2011
Chart 13b
Chart 7
CFOs with a view2012 the overall financial position is that Sep 30% 40% very favorable has decreased significantly in the last year and is currently below 4%.
20% 20% 10% 0%
40%
60%
Feb 2012
Chart 3
expect levels of Feb corporate acquisitions2012 and divestments in 2012 Sep Sweden to change? The lending attitude of nancial institutions toward your company
Swedish CFOs remain positive about the cash flow 0% Very Not Very expectations forFavourable twelve monthssoeven though the next Average favourable favourable unfavourable at slightly more moderate levels than in the spring 2012 survey. A majority (56%) of CFO respondents 100% continue to expect cash flow to increase and 9% of Chart 7 CFOs expect a double digit improvement over the 80% next twelve months (versus 63% in February). In 50% 50% Nov 2011 Over the next 12 general monthsSeptember results anticipate slightly lower the how do you Feb 2012 expect levels of 60% 40% 40% cash flows than the spring survey but still remain high corporate acquisitions Sep 2012 and divestments in in most notable change Sweden to change? 40% a historical perspective. The 30% 30% 50% from the spring survey is the decrease in respondents Nov 2011 20% 20% 20% expecting a double digit improvement which could be 40% Feb 2012 a sign of deteriorating market conditions.
10% 0% 30% 0% 20%
10%
Chart 11a
The number of employees working in Sweden for your company is, in the next 6 months
70% 60% 50% 40%
Nov 2011 Feb 2012
0%
T e S c n
Chart 7
Sep 2012
Sep 2012
Over the next 12 months how do you expect levels of corporate acquisitions and divestments in Sweden to change?
50% 0% 40%
Yes
0%
No
Favourable Very unfavourable Average Not so favourable Very unfavourable
Yes
Increase signicantly
No
0%
30%
rable
Average
Increase somewhat
No change
No change
10%
Chart 11b
The number of employees working abroad for your company is, in the next 6 months
Decrease somewhat
Decrease signicantly
20%
10%
60%
0%
50% 40% 30% 20% 10% 0%
T e a c n
4
100%
Nov 2011
Feb 2012
Nov 2011
Sep 2012
Chart 8
How do you Nov 2011 currently rate valuation of Swedish 2012 Feb
60%
Chart 8
How do you currently rate valuation of Swedish
60%
7
Nov 2011
Nov 2011
t6
80%
Chart 11a
11
The number of employees working in Sweden for your company is, in the next 6 months
70% 60%
12
12
crease icantly
Chart 11b
The number of employees working How has the level of abroad for your nancial risk the company is, in on your balance sheet next 6 months
changed over the last 12 months?
SEK
Chart 9
orecast
As in previous surveys, demand is still the greatest concern for Swedish CFOs. Other factors as access to capital, competition and cost of materials remain in line with previous survey results. A growing concern for exchange rates is however seen over the Chart 13a Nov 2011 60% last survey. Companies seem to have underestimated the pace at which the Krona has Feb 2012 Has your company 50% performed any kind of strengthened against key currencies. Furthermore, concerns of interest rates have risen Sep 2012 stress test regarding a situation where the 40% Euro does not exist in in the September survey. its present form?
50% Nov 2011 Feb 2012 100% 40% 80% Sep 2012
Chart
4. 20% What are the greatest concerns for your company in 2012? As before, demand (slightly more than 50%), as well 10% 10% as access to capital (with the share of responses in line with the February survey), are still the greatest 0% 0% Increased Increased No Decreased Decreased Increase slightly Be unchanged slightly Decline signicantly change signicantly concerns for CFOs. However, increasing concerns
20%
30%
30%
Has your com adjusted its op to a situation the Euro does exist in its pres form?
60%
ov n2011 Ja
-1
Ap
r-
13
eb 2012
ep 2012
Chart 12
What are the greatest concerns for your company in 2012?
Chart 10
Assume a current cash surplus position. How would you prefer to use the money in the next 6 months?
Nov 2011
Feb 2012
Very ervalued
Sep 2012
over exchange rates and interest rates are noted. The 20% increasing concern over exchange rates is most likely a result of the strengthening Krona against the Euro 0% and US Dollar (the first and second most important Yes No foreign currencies for Swedish companies). The increasing concern over interest rates is interesting, since current interest rates are at very low levels from a historical perspective. One explanation might be that CFOs fear future inflationary driven interest rate increases, stemming from economic easing activities. As forecasted by SEB key interest rates (i.e. the Reporate) will however remain at low levels throughout 2014.
Nov 2011 Feb 2012 Sep 2012
40%
10%
0%
0%
Demand
to capital
Financial Strategic Financial Dividend investments investments investments to Exchange in Sweden Interest in Sweden shareholders Foreign Skilled abroad
rates
rates
competition
labour shortgage
Labour cost
Other
1
60% 50% 40% 30%
Chart 11a
The number of employees working in Sweden for your company is, in the next 6 months
5. The number of employees in your company in Sweden is, in the next 6 months, expected to:
Chart 5
Ch
What is your EUR/SEK budget Feb 2012 rate for the nancial year Sep 2012 2012?
Nov 2011
Nov 2011
Feb 2012
Sep 2012
Decline
Ap
r-
11 Ju
l-
11
Oc
t-
11 Ja
-1
2 Ap
r-
12 Ju
l-
12
Oc
t-
12 Ja
-1
3 Ap
r-
13
Decrease signicantly
Chart 11b
50%
2
40%
ancial ur
The number of employees working abroad for your company is, in the next 6 months
44% of CFOs answered that the number of employees in their companies will decline in the next six months and the trend over the last surveys seem to accelerate. The share of CFOs that believe the number of employees will be unchanged increased to 51%. Just as in February, Nov 2011 60% this is in line with the Swedish unemploymentFeb 2012 figures.
50% 40% 30% 20% 10% 0%
Chart 6
How do you expect operating cash ow in your company to change over the next 12 months?
Sep 2012
30%
20%
The median EUR/SEK value is 9 and since the average of the ratio during 2012 until early September came in at 8.83, CFOs have clearly overestimated the ratio. The average EUR/SEK level during 2011 was 9.0 and the SEB forecast was a strengthening Swedish Krona during 2012. However, the companies apparently relied on historical values more than the forecast, 50% Nov 2011 budgeted for a EUR/SEK ratio remaining at the 2011 Feb 2012 level and hence overestimated the actual level. The 40% Sep 2012 Krona has strengthened significantly during 2012, 30% leaving exporting companies with a mismatch and most likely losses. 20%
10%
Ch
10%
Increase
Be unchanged
Decline
0%
Chart 12
Very
Favourable
80% Average
Very favourable
Favourable
Average
Not so favourable
Very unfavourable
Ap
r-
50%
40%
Financing
Chart 2
The overall nancial position of your company
Chart 6
Nov 2011 Feb 2012 Sep 2012
How do you expect operating cash ow in your company to change over the next 12 months?
50%
40%
30%
30%
Chart 6
Nov 2011 Feb 2012 Sep 2012
Sep 2012
50%
20%
20%
40%
10%
10%
How do you expect operating cash ow in your company to change over the next 12 months?
50%
40%
30%
0% Very favourable Favourable Average Not so favourable Very unfavourable 0% Increase by more than 10% Increase by 0-10% Remain unchanged from current levels Decline by 0-10% Decline by more than 10%
30%
The lending attitude of financial institutions is20% general seen as favorable to average, in which is unchanged from the latest survey. A larger share of CFOs now forecast the prob10% ability for counterparties default as unchanged, despite current market challenges and 0% Very Favourable Average Not so Very favourable favourable unfavourable generally weakening sentiment.
7. The lending attitude of financial institutions toward your company is seen as: As seen from the graph, the extreme alternatives are Nov 2011 pretty much unchanged from the past surveys where a 40% Feb 2012 small increase in very favorable and a corresponding Sep 2012 small decrease in not so favorable are noted. Alto30% gether, the lending attitude of financial institutions 20% towards companies is now seen asThe lending attitude(37%) favorable of nancial institutions the same and average (37%) and is hence back at toward your company 10% levels as in November 2011. No CFO has chosen the very unfavorable alternative. 0%
50%
20%
10%
0%
Chart 7
Chart 3
50% capital requirements and regulatory standards rather Over the next 12 how do than the monthslevels of you macro environment. Hence, some companies expect 40% corporate acquisitions fund themselves in in bond market rather than using the and divestments Sweden to change? bank credit lines. 30%
Chart 7
Over the next 12 months how do you expect levels of corporate acquisitions and divestments in Sweden to change?
No change Decrease somewhat Decrease signicantly
50%
20%
50%
40%
30%
30%
What is not reflected in this question is the squeezed spread levels in the credit market, making it possible for certain companies to issue bonds at favorable terms. This is likely related to the banks increased
Very favourable
Favourable
Average
Not so favourable
Very unfavourable
20%
20%
10%
10%
0%
8. The probability for counterparties default in the next 6 months is expected to: EUR/SEK
Chart 9
9. How has the level of financial risk on your balance sheet changed over the last 12 months?
SEB forecast
100%
Chart 8
Chart 13a
Has your company performed any kind of Nov 2011 stress test regarding a situation where the 2012 Feb Euro does not exist in its present form? Sep 2012
80%
60%
Chart 4
How has the level of nancial risk on yourNov 2011 balance sheet Feb 2012 changed over the last 12 months? Sep 2012
50%
40%
100%
80%
30%
Chart 8
60%
40%
t 13a
n -1 2 1 r-
20%
2 J
Has your company adjusted its operations Despite the weakening sentiment, 95% of whereCFOs to a situation the 80% the Euro does not believe that the probability for counterparties default exist in its present form? in the next 6 months will be unchanged. In September
100%O
0%2 -1 ul
2 3 -1 -1 n ct Increase Ja
Ap
1 r-
Chart 13b
Be unchanged Decline
Nov 2011
20% 10%
60% 40%
Increased signicantly
Increased slightly
No change
the number was 79%. 8%-units less than in February believe that the probability will increase respectively 40% decline. This is most likely related Assume a current having to the CFOs cash surplus 20% a notion of companies adapting toposition. How would fithe macro- and you prefer to use the nancial environment and if so, it mightinbe interpreted money the next 6 Nov 2011 0% months? as a positiveYes 2012 No factor. Feb
60%
Chart 10
Sep 2012
The majority of the CFOs still believe that balance sheet risk has not changed over the last twelve months. However there has been a shift in sentiment 60% 0% where 36% believe that balance sheet risk has inIncrease Be unchanged Decline 40% creased over the past twelve months versus 19% with 70% the opinion that risk decreased. This indicates that Nov 2011 20% 60% uncertainties remain, despite the improvementFeb 2012 noted in the spring survey. Indeed, the Swedish Riksbank 50% Sep 2012 0% noted Yes considerable uncertainty in economic the No 40% markets in its July policy report.
30% 20% 10% 0% Pay down debt Strategic investments abroad Financial investments abroad Strategic investments in Sweden Financial investments in Sweden
At fair value
Somewhat undervalued
Very undervalued
0%
Nov 2
Dividend to shareholders
e %
Decline by 0-10%
Nov 2011
Feb 2012
Sep 2012
Chart 11a
The number of
70% Nov 2011
Chart 10
v 2011
b 2012
Chart 6
p 2012
EUR/SEK
Nov 2011
30%
Feb 2012 SEB forecast Sep 2012 CFOs budget rate (median estimate)
Chart 9
9,40 9,20
20%
What is your Feb 2012 EUR/SEK budget rate Sep 2012 for the nancial year 2012? How has the level of nancial risk on your balance sheet changed over the last 12 months?
Assume a current cash surplus position. How would you prefer to use the money in the next 6 months?
70% 60% 50% 40% 30% 20% 10% 0% Pay down debt Strategic investments abroad Financial investments abroad
C
Nov 2011 Feb 2012 Sep 2012
Ho n ba ch las
10%
30% 8,20
8,00 20%
Very vourable
Chart 7
50%
7,80 According to the survey, companies prefer parking their money to taking strategic 3 3 2 2 11 11 12 -1 -1 11 12 -1 -1 10%r ttlln n pr pr Ap Ju Ja Oc Ju Ja Oc actions. CFOs give a mixed picture on valuations and the quantityA of deals involving A 0% 3 3 2 12 Chart Increased change Decreased signicantly 11a No al -1Swedish Jatargetr -1remains below the five year average. Acquisition opportunities might Increased Decreased -1 tn Ap Ju Oc signicantly slightly slightly 70% The overall the of emerge as valuations reach more attractive levels and numberworking in survey still suggests employees 60% Sweden for your that the M&A environment will improve over the next twelve months. company is, in the
Increase by more Not so than 10% favourable Increase by 0-10% Very unfavourable Remain unchanged from current levels Decline by 0-10% Decline by more than 10%
0%
next 6 months
v 2011
b 2012
p 2012
40%
Over the next 12 months how do you expect levels of corporate acquisitions and divestments in Sweden to change?
10. Assuming a current cash surplus position, how would you prefer to use the money in the next 6 months? 50%
Nov 2011 Feb How do with 2012 The trend fromNov 2011 previous years continuesyou expect Assume a current the 40% operating cash ow Feb 2012 cash largest share (slightly more than 40%)surplus wouldpreferofHow Sep 2012 CFOs in your company to position. Sep 2012 change over ring to pay down debt in the next 6you prefer to use the months,the next assuming 30% 12 months? money in the next 6 Nov 2011 a cash surplus position. This sharemonths? is pretty much Feb 2012 20% unchanged since February but differs significantly Sep 2012 from November 2011, when credit spreads were wider 10% and the OMXS30 was well below todays level. Today, 0% some CFOs would however prefer to do financial Increase Increase No Decrease Decrease signicantly somewhat somewhat signicantly investments abroad and in change Sweden, which in February Average Not so Very apparently wasunfavourable option. A possible interpretation not an favourable is that companies currently are on hold and park their money safely rather than expand strategically in order Remain Decline Decline unchanged to grow. by 0-10% by more
Chart 6 Chart 10
50% 70%
20% 10% 0%
50%
30%
Nov 2011 Nov 2011 Feb 2012 Feb 2012 Sep 2012 Sep 2012 Increase
As ca po yo m m
Be unchanged
40%
20%
30%
10%
Very vourable
20%
0% Very favourable Favourable
10%
Increase Increase Remain Decline Decline Pay down Strategic Strategic by 0-10% Financial by more by 0-10% Financial unchanged byDividend more debt number of to than 10% investments investments 60% from investments investments than 10% The abroad abroad in in Sweden shareholders current levelsSweden employees working
Chart 11b
abroad for your company is, in the next 6 months
50% 40%
than 10%
Chart 8
50% 40%
v 2011
b 2012
60%
Nov 2011
50% 40% 30% 20%
The number of employees working in Sweden for your Over the next 12 company how do youNov 2011 months is, in the next 6 monthsof expect levels
corporate acquisitions and divestments in Sep 2012 Sweden to change?
Feb 2012
12. Over the next 12 months 30% do you expect how levels of corporate acquisitions and divestments in 20% 70% Sweden to change? Nov 2011
10% 0% Increase
Th em Sw co ne
Be unchanged
p 2012
Chart 12
What are the greatest concerns for your company in 2012?
20% 0%
Chart 9
Favourable
50%
10% 0%
Chart 13a
Increase
Increase Increase Has your companysomewhat signicantly
Decline
Decrease somewhat Decrease signicantly
Chart
Average
nancial risk on your balance sheet changed over the 0% last 12 months? Increase
signicantly
Increase somewhat
100%
80%
60% 60%
Chart 10
cash surplus position. How would you prefer to use the money in the next 6 30% months? 0%
40% 20%
Increase
The new survey indicates that most Swedish CFOs, Sep 2012 45%, still believe companies are fairly valued which is No Decrease Decrease 30% change somewhat signicantly a decrease from the spring survey when 55% thought prices were at equilibrium. On 31 August 2012 the 20% The number of OMX Stockholm 30 index was approx. 7% lower relaemployees working abroad for The 10% tive to the latest survey in February 2012.your most company is, in the significant change since the springnext 6 months that 24% survey is 0% Increased Decreased Decreased of CFOs,Increased an increase No from 11%, consider the valuation signicantly slightly change slightly signicantly of Swedish companies somewhat overvalued. This How do you Nov 2011 currently rate could indicate that the CFOs consider the outlook to valuation of Swedish Feb 2012 be more challenging than the market would suggest. companies? Sep in The uncertainties 2012 the market reflect this change in sentiment where some companies are more affected Nov 2011 by the challenging conditions than others, which may 70% Feb 2012 not have been appropriately priced by the market. Nov 2011
40% Feb 2012
Chart 11b
Chart 8
is 10% slightly weaker compared to60% spring 2012 results. the It is helpful to keep in mind that the quantity of deals 0% Nov 2011 40% 60% involving a Swedish target remainsDemand the five Exchange below toAccess capital rates Feb 2012 50% year average. Based on the recent survey results any 20% Sep 2012 significant changes would be unexpected as uncertain40% 0% ties remain in the market overall. However, acquisiNo 30% tion opportunities might emerge as Yes valuations reach 60% more attractive levels. Notwithstanding the magnitude Nov 2011 20% 50% of static predictions, the survey still suggests that 2012 Feb the 10% M&A environment will improve over the next twelve Sep 2012 40% months. 0%
30% 20% 80% 10%
performed any kind of 30% stress test regarding a CFOs continue to anticipate80%higher level of M&A a situation where the 20% Euro activitydoes not the in over exist next twelve months. Net sentiment its present form?
Has your comp adjusted its ope to a situation w the Euro does n Th exist in its prese em form? ab
co ne
Interest rates
Increase
Be unchanged
Decline
60% 50%
Sep 2012
Chart 12
Feb 2012
W co co
Decline
20% 10% 0%
Sep 2012
70%
0%
60% 50%
Very undervalued
Sep 2012
10
UK/Europe
On average, in Q2 UK CFOs saw roughly a onein-two chance of the recession continuing to the end of 2012 or for the economy to hit a triple-dip recession. CFOs expectations for the Swiss economic outlook improved in Q2 compared to previous quarters; there was a positive net 5% balance of sentiment when looking at the next twelve months. Dutch CFO optimism about the financial prospects of their own company improved since last quarter, but hovered around the zero mark in Q2, meaning CFOs were almost equally positive and negative about their companies financial prospects. Compared with a year ago, UK CFOs are more focussed on reducing leverage and disposing of assets and less likely to be making acquisitions or undertaking capital expenditure. The risk appetite of Dutch CFOs dropped in Q2 to the low levels last seen in the third quarter of 2011 and early 2009. Only 8% of Dutch CFOs thought it was a good time to be taking greater balance sheet related risks. Although the availability of credit in the UK has deteriorated, the overall credit conditions for large corporates did not seem to be especially stringent in Q2. In Q2, Swiss CFOs believed there was an average probability of 55% that at least one of the current members will have to leave the Eurozone within the next five years. In the UK, CFOs saw a 36% probability of one or more countries leaving the single currency, relative to 26% in February of 2012.
Asia/Pacific
China has seen its fifth consecutive quarter of declining GDP growth and Peoples bank of China cut interest rates in June and July of 2012. However factories in Chinas large coastal cities still have trouble fulfilling their labour needs, due to a change in migration trends. Efforts to boost growth have been targeted on tax incentives for consumer spending on automobiles and appliances, as well as loans to small businesses. Stimulus for bigger projects, such as those initiated in the 2008 stimulus efforts, has been largely avoided. The Indian government is walking a tight rope as it attempts to contain inflation while retaining growth and the credit rating agencies have started to view the future more negatively. It is not surprising that in the Q2 survey 46% of Indian CFOs expected the GDP growth rate to taper further. Indeed, 31% of CFOs were optimistic about the performance of their organisations in Q2, relative to 47% in the prior survey. In Australia business uncertainty hit its highest level in more than a year with 87% of CFOs saying uncertainty was above normal. The most significant factors facing companies financial prospects are the European sovereign debt issues, Australian government policy uncertainty, and the potential slowdown in China. Still, the tough times have driven companies there to innovate: two-thirds of Australian CFOs say it is a priority to introduce new products and services or expand into new markets.
North America
In the Q2 survey, nearly half of all North American CFOs mentioned a slowing economy a top concern, generally this sentiment has worsened since Q1 2012. CFO optimism in North America was still positive in Q2 but sequentially decreased on a net basis to +11 points from +48 points in the preceding quarter. This means that optimistic CFOs outnumbered pessimistic CFOs by 11% of the sample. Despite the global economic concerns and declining optimism, North America CFOs continued to enjoy rising expectations for their companies sales performance over next 12 months in Q2. Indeed,
11
Contacts
Deloitte
Andreas Marcetic Partner, Deloitte Financial Advisory amarcetic@deloitte.se 075-246 23 41 Peter Ekberg Partner, Deloitte Audit pekberg@deloitte.se 075-246 30 54 Jan Bckman Partner, Deloitte Consulting jbackman@deloitte.se 075-246 26 89 Lars Franck Partner, Deloitte Tax lfranck@deloitte.se 075-246 21 26
SEB
Johan Lindgren Credit Strategist Credit Strategy, Trading Strategy, SEB johan.y.lindgren@seb.se 08-506 231 64 Daniel Bergvall Economist Economic Research, SEB daniel.bergvall@seb.se 08-763 85 94
SEB is a leading Nordic financial services group. As a relationship bank, SEB in Sweden and the Baltic countries offers financial advice and a wide range of financial services. In Denmark, Finland, Norway and Germany the bank's operations have a strong focus on corporate and investment banking based on a full-service offering to corporate and institutional clients. The international nature of SEB's business is reflected in its presence in some 20 countries worldwide. At 31 December 2011, the Group's total assets amounted to SEK 2,363 billion while its assets under management totalled SEK 1,261 billion. The Group has around 17,000 employees. Read more about SEB at www.sebgroup.com.
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 deep local expertise to help clients succeed wherever they operate. Deloittes approximately 195,000 professionals are committed to becoming the standard of excellence. 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 for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. 2012 Deloitte AB