CFO Survey - Deloitte Netherlands€¦ · the Deloitte CFO Program. The survey gauges attitudes to valuations, risk and financing, and reports trends and turning points for you and

2013 Q1 resultsMay 2013

The Dutch DeloitteCFO SurveyRegulatory compliance incidents as value killers?

Regulatory compliance incidents as value killers? The Dutch Deloitte CFO Survey 3

Contents

Regulatory compliance incidents as value killers? 4

Financial outlook and priorities 6

Risk 8

Funding 9

M&A 11

Regulatory compliance 12

A note on methodology 14

Contacts 14

4

General economic environmentThe European Commission’s Economic Sentiment Indicator (ESI) decreased in both the euro area and the EU in March, putting on hold the recovery that had started in November last year. Sentiment declined by 1.1 points in the euro area (to 90.0) and by 0.6 points in the EU (to 91.4).In April 2013, the European Commission’s flash estimate of the consumer confidence indicator improved by 1.2 points in both the EU (-20.4 up from -21.6 in March 2013) and the euro area (-22.3 up from -23.5 in March 2013).

According to Statistics Netherlands, Dutch consumers were less negative in April than in March. The consumer confidence indicator rose by 6 points, to -35. In March, the mood had also been less negative than in the preceding month. That said, this rise comes on the back of the lowest level of consumer confidence ever recorded and it still remains very low.

The contracting economy in the Netherlands in 2013 will largely result from lagging domestic consumption levels, according to CPB Netherlands Bureau for Economic Policy Analysis figures published on 13 March last. Despite a slight recovery later this year, GDP volume is projected to decline by 0.5% in 2013. S 1% economic growth is projected for 2014. A fragile growth - almost entirely due to the recovering world trade.

On 2 May, for the first time since 5 July 2012, the ECB’s governing council announced to lower its main interest rate by a quarter point to a new historical low of 0.5% in response to a drop in inflation well below its target level, and rising unemployment. The interest rate on the marginal lending facility is now set at 1.0% (effective from 8 May 2013). The interest rate on the deposit facility remains 0.0%.

Regulatory compliance incidents as value killers?

We are proud to present our seventeenth quarterly Chief Financial Officers Survey in the Netherlands, as part of the Deloitte CFO Program. The survey gauges attitudes to valuations, risk and financing, and reports trends and turning points for you and your business.

Key points from the 2013 Q1 Survey• Dutch CFOs’ optimism has slightly risen but

remains low. • Two thirds of CFOs expect an increase in their cash

flows over the next twelve months.• Three quarters of CFOs remain consistent in

striving for organic growth as a strategic priority for their business for the next 12 months.

• The risk appetite levels remain low. Some 92% of the corporate CFOs think now is not a good time to be taking greater balance sheet related risks.

• The overall sentiment regarding the conditions of availability and cost of credit remains negative.

• Corporate debt is perceived to be the most attractive source of funding.

• Around 71% of CFOs expect M&A levels to increase over the next twelve months.

• Half the CFOs rate the impact of potential regulatory compliance incidents on the value of the firm to be high.

• Regulatory compliance incidents are largely perceived as a high risk value killer and CFOs are not all comfortable (21%) with or neutral (21%) about their current compliance controls preventing these value killer risks.


CFO SurveyDutch CFOs’ optimism has slightly risen, but remains low. For nearly half the CFOs (46%) the financial prospects remain unchanged.

Two thirds of CFOs expect an increase in their cash flows over the next twelve months. A quarter of CFOs expects no change.

Organic growth remains a strategic priority. Three quarters of CFOs have selected this strategy to be a strong priority.

The risk appetite remains low; only 8% of CFOs think now is a good time to be taking greater balance sheet related risks.

Corporate debt is now perceived to be the most attractive source of funding this quarter. Funding preferences continue to be of a highly volatile character.

CFOs’ expectations for M&A activity over the next twelve months slightly increase for the third consecutive quarter. Around 71% of CFOs expect M&A levels to increase over the next twelve months. Two thirds of CFOs expect an increase in the Private Equity activity levels.

Regulatory complianceThis quarter’s special topic is about regulatory compliance and how CFOs prioritize it. Companies have to ensure they comply with relevant laws and regulations around the world. Regulatory compliance relates to these efforts. The organization and prevention of compliance incidents is one of the CFO’s areas of responsibility.

Half the CFOs rate the impact of potential regulatory compliance incidents on the value of the firm to be high. These CFOs are fully aware of the potential financial risks and reputational losses that compliance incidents can cause.

Some 57% of CFOs indicate “Safety, Health & Environment” to be the compliance area that can most impact the company’s operational results, followed by “Anti-bribery and corruption” and “Product restrictions”.

When asked whether they feel comfortable about their company’s current compliance controls preventing major regulatory compliance incidents, 58% of CFOs state they do. Being in control requires a constant focus on this topic and always keeping up-to-date with upcoming regulations. Appropriate boundaries are crucial if the company’s strategy is to be accomplished in a compliant way.

CFOs have to make sure they organize, restructure and enhance the regulatory compliance requirements within the firm – varying from insight into current regulations to anticipating upcoming regulations. Only then will they be able to create a sustainable compliance system without hampering day-to-day business.

6

Financial outlook and priorities

Dutch CFO optimism has risen, but only slightly. Nearly half the CFOs (46%) indicate the financial prospects remain unchanged.

In the UK, business confidence has risen for the third consecutive quarter.

Chart 1. Financial prospects NL & UKNet percentage of CFOs who are more optimistic about the financial prospects for their companies now versus three months ago.

-60%

-40%

-20%

0%

20%

40%

60%

80%Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

NL UK

2009 2013 2010 2011 2012

L

ess

optim

istic

M

ore

optim

istic

Two thirds of CFOs expect an increase in their cash flows over the next twelve months. A quarter of CFOs expect an increase by 11 to 20%.

A quarter of CFOs has indicated the expectations remain unchanged.

Chart 2. Change in cash flows over the next 12 monthsPercentage of CFOs who expect their companies’ operating or free cash flows to increase/decrease over the next 12 months.

16

30

10 11

24

11

25 5

1510

23 25

13 10

30

2616

1722

24

18 15 16

1529

21

6 3229

22

3446

49 40

38

55

4130

33

3938

44

3442

13

1620

23 2918 16

28

27

33

15 1016

18 1316

613

7 9 5 9 9 10

22

4 7 8 93 6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%


Decline Remain unchanged Increase by 1%-10%

Increase by 11%-20% Increase by more than 20%

2009 2010 2011 2012 2013

16

22

47

22

47

16

16

22

47

8

25

47

25


Striving for organic growth for their businesses continues to be the prime strategic priority of most CFOs over the next twelve months. Three-quarters of CFOs select this strategy to be a strong priority for their business.

Increasing cash flow continues to be selected by CFOs as the next strong priority.

Chart 3. CFOs' priorities over the next 12 monthsPercentage of CFOs who have selected each of the following strategies as a strong priority for their businesses over the next 12 months.

75

58

38

17

17

4

3

11

16

32

41

72

3

17

10

47

47

67

0

3

9

45

55

67

0% 20% 40% 60% 80% 100%

Raising dividends or share buy backs

Increasing capital expenditure

Expanding by acquisition

Introducing new products/services orexpanding into new markets

Increasing cash flow

Organic growth

2013 Q1 2012 Q4 2012 Q3 2012 Q2

8

Risk

The risk appetite levels remain low. Some 92% of the corporate CFOs think now is not a good time to be taking greater balance sheet related risks, against 8% who think it is.

Chart 4. Attitude towards greater balance sheet related risksPercentage of CFOs reporting that now is a good time to be taking greater balance sheet related risks.

8

-92

2 513

22 22 22 24

39

2719

518 19

816

-98 -95-88

-78 -78 -78 -76

-61-73

-81

-95-82 -81

-92-84

--100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Yes No

2009 2010 2011 2012 2013

12

88

Q1

One third of CFOs report that the level of financial risk on their balance sheet has increased over the last twelve months.

Of the CFOs asked to assess the level of external financial and economic uncertainty facing their businesses, 54% rate this level to be high (not shown in chart).

Another 33% of CFOs rate these conditions to be above normal level (same as in Q4).

Chart 5. Change in financial risk* on balance sheetPercentage of CFOs reporting that the level of financial risk on their balance sheets increased/decreased over the last 12 months.

-29

2009 2010 2011 2012 2013

48

34 3223

20 24

13 13

27

15

39 3641 36

23 21

-30 -33-45

-58-49

-47-49 -49

-46 -41

-22

-36

-25 -26-16

-45

-80%

-60%

-40%

-20%

0%

20%

40%


Increased Decreased

33

*Financial risk could include levels of gearing, uncertainty about the valuation of assets, and interest and exchange rate sensitivity.


Funding

The overall sentiment regarding cost and availability of credit remains negative.

Chart 6. 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.

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%


Cost of credit Availabilty of credit

Cos

tly/h

ard

to g

et

C

heap

/ava

ilabl

e

2009 2010 2011 2012 2013

Most CFOs are not very likely to issue either debt or equity over the next twelve months. The decision whether or not to issue will probably be determined by any prior need.

Chart 7. Likely to issue debt/equity?Net percentage of CFOs who are (not) likely to issue debt/equity over the next 12 months.

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%


Debt Equity

Not

like

lyLi

kely

2009 2010 2011 2012 2013

10

CFOs’ preferences in their favoured source of corporate funding remain volatile. Bank borrowing lost its regained perceived attractiveness, and is considered to be the least attractive source of corporate funding.

Corporate debt is now perceived to be the most attractive source of corporate funding.

Chart 8. Favoured source of corporate fundingNet percentage of CFOs reporting the following sources of funding as (un)attractive.

-60%

-40%

-20%

0%

20%

40%


Bank borrowing Corporate debt Equity

Una

ttra

ctiv

e

Att

ract

ive

2009 2010 2011 2012 2013

The time for issuing debt is perceived to have slightly improved again. CFOs do not think now is a good time to issue equity. However, the net percentage is increasing for the second consecutive quarter and moving towards the zero mark.

This last quarter, the average closing rate of the AEX-index was 348.68 (+4.3% Q4). The lowest closing rate was 335.29 on 26 February, and the highest Q1 closing rate was 358.08 on 29 January.

54% of CFOs expect the AEX index to increase over the next twelve months (64% Q4), 13% expect a decrease.

Regarding the Dutch equity valuations in general, 30% of CFOs perceive these to be (significantly) overvalued and 43% to be (significantly) undervalued. 5% of CFOs perceive the valuations of their own company (if appropriate) to be somewhat overvalued, and 41% as somewhat to significantly undervalued.

Chart 9. Good time to issue debt/equity?Net percentage of CFOs who think now is a good time to issue debt/equity.

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%


Debt Equity

Not

a go

od t

ime

Goo

dtim

e

2009 2010 2011 2012 2013


M&A

Some 71% of CFOs expect M&A activity levels to increase over the next twelve months, while only 4% of CFOs expect M&A levels to decrease further from current levels, which are still considered to be low.

The trend of CFOs’ expectations of Private Equity activity is rather similar to the one shown in the M&A outlook chart (+67%; -13%).

Chart 10. M&A outlook Percentage of CFOs who expect M&A activity to increase/decrease over the next 12 months.

68

8884

9296

8480

100

86

77

3036

66

4145

61

-9

-2 -2 0 0

-9

0 0 0-4

-38

-23

-9 -8-13

-6

71

-4

-40%

-20%

0%

20%

40%

60%

80%


Increase Decrease

2009 2010 2011 2012 2013

The M&A market figures of the first quarter of 2013 are just behind the figures of the first quarter of 2012. When extrapolating these figures, no growth can yet be expected.

Chart 11. Dutch M&A market 2007-2013 Q1Dutch M&A activity expressed in number of deals.

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012 2013 Q1

Number of deals > EUR 500 mln Number of mid market deals

Source: mergermarket

Num

ber

of d

eals

12

Regulatory compliance

Regulatory compliance relates to the efforts of companies to ensure they comply with relevant laws and regulations. Due to the increasing number of regulations, the need for operational transparency and enforcement by regulatory bodies, companies increasingly need to organize ‘compliance’ within their organization. This organization and prevention of compliance incidents is one CFO’s areas of responsibility.

Half the CFOs rate the impact of potential regulatory compliance incidents on the value of the firm to be high to very high. However, more than one third of CFOs consider this impact to be neutral while 13% deem it to be low.

When asked whether they feel comfortable about their company’s current compliance controls preventing major regulatory compliance incidents, 58% of CFOs state they do. 21% state they are not comfortable, and 21% is neutral.

Chart 12. Impact of compliance incidentsPercentage of CFOs who rate the impact of potential regulatory compliance incidents on the value of the firm as high or low.

0%

20%

40%

50%60%

80%

100%

(Very) high Neutral (Very) low

37%

13%

Of the CFOs 61% believe stronger enforcement and penalties will not change or affect the priority for regulatory compliance. For some 30% of CFOs the priority is somewhat higher than today, and for 9% even significantly higher.

Chart 13. Will CFOs priority be affected by stronger enforcement?Percentage of CFOs who state that stronger enforcement and penalties will affect the priority for regulatory compliance over the coming period.

0%

20%

40%39%

60%

80%

100%

Significantly/somewhathigher than today

Broadly unchanged Significantly/somewhatlower than today

Priority will be:

61%

0%


Safety, Health & Environment is indicated by 57% of CFOs as the compliance area that can most impact the company’s operational results, followed by anti-bribery and corruption and product restrictions.

Chart 14. Top regulatory compliance areasPercentage of CFOs rating their top regulatory compliance areas that can most impact the company’s operational results.

0% 20% 40% 60% 80% 100%

Anti-bribery and corruption

Product restrictions

Privacy

Export control & sanctions

Anti-trust

Sales & marketing restrictions

Other

Safety, Health & Environment 57%

48%

43%

35%

30%

22%

22%

13%

Almost half the CFOs (slightly) agree that growth in emerging markets requires more investments to prevent reputational damage.

One third of CFOs do not consider extra investments to be necessary when growing in emerging markets.

Chart 15. Prevention of reputational damage in emerging marketsPercentage of CFOs reporting whether the growth in emerging markets requires more investment to prevent reputational damage.

0%

20%

40%

17%

29%33%

4%

17%

60%

80%

100%

Agree Slightly agree Slightly disagree

Notapplicable

Neutral

14

A note on methodologyTo 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 in 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 sum to 100%.

The 2013 Q1 survey took place between 6 March 2013 and 2 April 2013. A total of 24 corporate CFOs completed our survey, representing a net turnover per company of approximately EUR 2.8 billion. The responding companies can be categorized as follows: less than 100 million (8%), 100 – 499 million (29%), 500 – 999 million (5%), 1 – 4.9 billion (33%), more than 5 billion (17%), and unknown (8%).

The participating CFOs are active in a variety of industries: Retail/Wholesale, Manufacturing Technology Real Estate, Consulting, Entertainment, Communication, Energy & Utilities, Transport, 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 rates among your peers.

SourceDeloitte Research & Market Intelligence

ContactsJan de RooijPartner Deloitte Core [email protected]+31 (0)6 5336 6208

Wilten SmitManaging Partner Deloitte Financial Advisory [email protected]+31 (0)6 5389 7407

Walter SwinkelsSenior Manager Risk [email protected]+31 (0)6 5204 8236

Harm DrentManager Research & Market [email protected]+31 (0)6 1201 1716

Wilma BontesDeloitte Press [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. 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. 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. © 2013 Deloitte The Netherlands

Documents

CFO Survey - Deloitte Netherlands€¦ · the Deloitte CFO Program. The survey gauges attitudes to valuations, risk and financing, and reports trends and turning points for you and