CFO’s are acting, despite lack of optimism» · A net share of 11% of CFO’swithin the Oil...

«CFO’s are acting, despitelack of optimism»

CFO Survey – 3. Quarter 2019

Deloitte & SEB

2

Contents

Economic prospects

Strategic opportunities

Capital structure and risk

Financing

Hot topics

About the survey

Executive summary

CFO Index

RevenuesFinancial prospects

Risk appetite

Uncertainty

Hiring intention

Capex

Inflation rates

Operating margins

StrategiesRisks Climate changes

3

Executive summary (I/II)

«Worried about the future, but still willing to invest»

Weakened economic sentiment

Compared to six months ago, CFO’s are less optimistic about financialprospects. This survey’s CFO Index falls from a level above trend to a level wellbelow the historic average.

The strongest pessimism is seen within Oil industry and Construction. In thesesectors, many CFO’s believe operational margins will be reduced somewhatover the next six months. Despite this, the oil industry believes in increasingthe number of employees, while the rest of the sectors are less optimisticabout growth in employment.

Despite the reduction in expectations since six months ago, overall optimismremain quite strong. CFO’s express a willingness to invest in expandedproduction and they view their own financial position as solid.

Climate action to come

When asked about climate change, we find that CFO’s feel a substantialpressure to act on climate change from a broad specter of stakeholders.It seems like customers, employees, management and civil society are alldriving the pressure to act.

«CFO’s are acting, despite lack of optimism»

4

Executive summary (II/II)

«CFO’s are acting, despite lack of optimism»

A mixed picture

Overall, CFO’s are still quite optimistic, but less than before. They seemworried, but not yet enough to change key business strategies.

Retail shows signs of a comeback

Within Retail, we see substantial improvement compared to six months ago. Alarger share of Retail CFO’s expect favourable future financial development,and the sector expects to increase their number of employees over the next sixmonths.

Scattered opinions on margins

Different sectors have quite different expectations of future operating margins.The Oil industry’s expectations are ticking down from a high level, but thisindustry is the most optimistic compared to other industries. TMT are the mostnegative, with a major share of CFO’s expecting a decrease in margins.

Oil industry and Real estate are investing

The willingness to invest is in general still high, both the Oil industry and Realestate have a large share of CFO’s believing in increased investment. Oil andreal estate CFO’s are expecting increased capex over next six months,contradictory to the sentiment among the oil CFO’s in the rest of the survey.This contrasts somewhat their reduced financial prospect.

5

Sjur GaaseideCEO, Norway

CEO of Deloitte, [email protected]

Thomas EitzenHead of Credit Strategy

Large Corporates & Financial Institutions, [email protected]

Contacts

Ragnar NesdalPartner, Norway

Financial Advisory, [email protected]

Frida BruunCredit Research

Large Corporates & Financial Institutions, [email protected]

6

Weaker economic sentiment

For Q3-19 the CFO Index is at 55.4, down 4.3 pp. sincethe last survey six months ago. The index falls to a levelwell below the historical average, and shows a decline ineconomic sentiment.

We see a broad movement towards a more pessimisticview on stock market performance and credit spreads,and the net share expecting increase in employment isbelow average in all sectors except the Oil industry.

Despite this indication of a weaker economic sentiment,key results are strengthening the picture. The mainshare of CFO’s still believe in increased revenues andmargins. They expect further high investments with afocus on organic growth, but also M&A, and they feelthat adequate financing is available.

CFO Index

40

45

50

55

60

65

70

Norwegian CFO Index

Norwegian CFO index Average

7

49%

-32%

20%

10%

36%

-3%

2%

10%

-25%

-39%

-26%

20%

40%

32%36%

29% 28%

-6%

Net optimism share

Q: Compared to six months ago, how do you feel about the financial prospects for your company?

Lack of optimistic Norwegian CFO’s is the reason for the drop to the lowest level since Q1-16

Economicprospects



Financing Hot topics About the survey

A set back is observed among the CFO's as netoptimism is down to -6% in Q3-19

Six months ago, the CFO’s were optimistic and offensivein their actions in most industries, and seemed to defypolitical concern and act on the basis of a strongeconomic situation. Now, the CFO’s are more concernedand less positive with a net share of 6% beingpessimistic about their financial prospects. The net shareoptimism has not been negative since Q1-16. Note thatthis is compared to six months ago.

It looks like the CFO’s are under the influence of mediaexpressing strong opinions when responding to thesurvey, as it is reasonable to believe that the increasedpessimism is related to increased turmoil around tradewar, Brexit and a slowing global economy1.

However, Norway tends to go against global cycles,which is observed in this survey as the Norwegian CFO’sare more pessimistic on a general level, but are stilloptimistic when it comes to their own company’soperations. The net share is defined as the percentage point difference between positive and

negative respondents throughout this report

1. DNB Markets Economic Outlook (August 2019)

8

-17%

32%

40% 40% 43%40%

0 %

-12 %

11 %

0 %

22 %

-25 %

Retail Manufacturing Oil industry Financialservices

Energyproduction

Construction

Net optimism share

Q1-18 Q3-18 Q1-19 Q3-19

Net optimism share shows a weak sentimentacross the industries, Construction stands out

A net share of 25% of CFO’s within Construction arepessimistic about their financial prospects. The decreasemay be related to the tighten house mortgage-regulations suggested by the Norwegian government,putting a pressure on Construction going forward1.However, construction includes more than housing,suggesting that there may be other reasons counting.

CFO’s within Financial services and Retail report thatthey think their financial prospects are unchanged.However, they have the opposite starting points;Financial services has been optimistic, while Retail hasbeen pessimistic. Last year was a tough one for Retailwith high power prices, increased interest rates and highinflation decreasing spending power. Now, the RetailCFO’s are more optimistic and it is expected increasedconsumption going forward2.

A net share of 11% of CFO’s within the Oil industry arestill more optimistic than six months ago, despite fallinggrowth in demand3. The optimism is down from 40% inQ1-19, and historically, 11% is a low level.

Optimism among CFO’s decreasing significantly in most industries, however, Retail CFO’s go the opposite direction

Q: Compared to six months ago, how do you feel about the financial prospects for your company?

Note that we show the industries that historically has had the highest number of respondents

1. www.regjeringen.no (10.09.19)2. Virke3. E24. 01.10.19

Economicprospects




9

Q: How do you feel about the financial prospects for your company for the next six months?

Favourable financial position at a fairly high level, despite the decreased optimism

Retail takes a turn and are more optimistic aboutthe next six months

A net share of 28% of the responding CFO’s areexpecting a favourable financial development the nextsix months, down from 37% last survey.

Despite the neutral view compared to six months ago, anet share of 25% of the Retail CFO’s are expecting afavourable financial development the next six months.This is somewhat surprising, given the outstandingpessimism among Retail CFO’s the last couple ofsurveys. You can therefore speculate what type of Retailthe responding CFO’s are in, or maybe they haverealized that the fear was bigger than necessary.

Oil industry is pessimistic about the future, with a netshare of 11%, down from an optimistic net share of30%. This may be caused by insecurity around the oilprice, related to oil demand growth falling to the lowestlevel in years1.

68%

30%37%

18%

50%

37% 38%

8%

-7%

0%

-9%

1%

28% 28%

47%

31%37%

28%

Net share expecting favorable future financial development

-8%

42%30% 30%

86%

50%

25 % 29 %

-11 %

29 %

44 %

0 %

Retail Manufacturing Oil industry Financialservices

Energyproduction

Construction

Net share expecting favorable future financial development

1. CNBC 14.06.19, Bloomberg 19.06.19 Economic

prospects Strategic opportunities



10

Price expectations have come down from a recordhigh, but most CFO's believe in price increase tocome

A net share of 48% of the responding CFO's expectprices of their products and services to increase over thenext six months. This is a slightly lower share than wehave seen over the past year, but the level is stillhistorically high.

Over the past six months, the Norwegian ConsumerPrice Index (excluding energy products) has declinedfrom 2.5 in the beginning of Q2 to 2.1 towards the endof Q3. This supports the slight reduction in expectationsof price increase.

Q: What is your view of the general price trend for your company’s products/services for the coming six months?

Most CFO's still expect prices to increase

The figure shows the net percentage of CFO’s expecting prices on their own products to increase.

25%

6%

16%

8%

11%

15%

29%

38%

43%

50% 51%

48%

Q1-14 Q3-14 Q1-15 Q3-15 Q1-16 Q3-16 Q1-17 Q3-17 Q1-18 Q3-18 Q1-19 Q3-19

Net share expecting price increase

Economicprospects




11

Lower inflation expectations in Norway and theEuro-area

Norwegian CFO's expect inflation in Norway to be 2.13%over the upcoming 12 months, down from anexpectation of 2.39% six months ago.

This inflation expectation is in line with Norges Banksexpected inflation over the next year, but somewhatbelow the expectations of Norwegian business leaderswhom expect an inflation rate of 2.5%1.

The expected inflation rate in the Euro-area over thenext 12 months is 1.34%, which is slightly below lastsurvey’s expectation at 1.62%.

Q: What do you think will be the inflation rate in Norway over the next 12 months?

Expected inflation rate in Norway and Euro-area

Q: What do you think will be the inflation rate in the Euro-area over the next 12 months?

2.13% (average)

1.34%(average)

1. Norges Bank expectations survey 2019 Q3 Economic




12

Q: In your view, how are revenues for your company likely to change over the next six months?

Q: In your view, how are operating margins for your company likely to change over the next six months?

CFO’s are keeping up the high revenue expectations, but appear less optimistic about operating margins the next six months

The columns show the net percentage of CFO’s expecting their company to increase revenues over the next six months while the line shows the net percentage of CFO’s expecting their operating margin to increase over the next six months.

The CFO’s expect it to be more expensive to earnmoney going forward

For Q1-19, we stated that the drop in operating marginsshould be considered a moderate fall, and acclaimedthat the reported results should not be interpreted asparticularly dramatic. However, six months later weobserve an even greater decline in operating margins byapprox. 24 pp., thus pointing towards the fact thatCFO's appear particularly skeptical in terms of futureprofitability. While we find great fluctuations acrosssectors, CFO's within the Oil industry and TMT give theimpression of being most concerned.

As we will see later in the report, the CFO’s report anincreased concern regarding personnel costs goingforward, putting a pressure on operational margin-expectations.

Although operating margins are expected to decline, the respondents appear to be relatively comfortable in terms of revenue growth as 57% of the CFO's report that income are most likely to increase.

17%12%

34%

54%

66% 66% 68%64%

57%

-10%

5%

13%

41%

32%27%

50%

36%

12%

Q3-15 Q1-16 Q3-16 Q1-17 Q3-17 Q1-18 Q3-18 Q1-19 Q3-19

Net share expecting revenue/margin increase

Net revenue increase Net operating margin increase

Economicprospects




13

Q: In your view, how are revenues for your company likely to change over the next six months?

Q: In your view, how are operating margins for your company likely to change over the next six months?

Expectations of operating margin is down from last survey in most industries, the exceptions are Retail and Financial services

The columns show six month forward looking expected development in revenues for Q1-18, Q3-18, Q1-19 and Q3-19 and the black line shows the corresponding expectation for the operating margin per industry.

Meanwhile revenues within Retail are expected tosurge, operating margins appear to sore across allsectors except from Financial services

Contrary to the staggering results in the Q1-19 report,Retail CFO’s expect a strong revenue growth butnonetheless unchanged operating margins. Recentstatistics showcase that Retail is appreciating better-than-expected revenues compared to six months agowhich may account for the overall optimism1.

The economic outlook within the Oil industry havesomewhat made a turnaround compared to six monthsago, as CFO’s are expecting diminution in both futurerevenues and operating margins. This is perhapsexpected given the fact that the oil price have slowlydecayed 15% the last six months due to a halteringglobal demand and increasing geopolitical uncertainty2.

CFO’s within Financial services appear to be quiteconfident in terms of future operating margins whichmay be a result of Norges Banks recent positiveadjustment in the policy rate3.

1. SSB and DNB’s website 01.10.192. E24 01.10.193. Norges Banks’ website 01.10.19

83 %

65 %

33 %

71 %67 %

29 %

29 %

33 %

0 %

-17 %

Revenue and margin industry split last four quarters (Q1-18 to Q3-19)

Retail Manufacturing Oil industry Financial services TMT

Economicprospects




14

The stock market sentiment is significantlyweakened

A net share of -7% of CFO's expect a positivedevelopment in OSEBX over the next six months. This isa significantly less optimistic view than in Q1-19, adecrease of 31 pp.

The Norwegian stock marked suffered from a seriouscorrection in the period from October to December2018, followed by a recovery during spring 2019. Sincethen, OSEBX performance have been quite weak, and itseems like uncertainty is weighing down expectations.

The low expectations of future growth in financialmarkets is in line with the CFO's reduced belief inrevenue growth and decreased operating margins.

Q: What is your expectation for the Oslo Børs Benchmark Index (OSEBX) development in the next six months?

Sharp decrease in stock market optimism

The figure shows the net share of CFO’s expecting an increase in the benchmark index at Oslo Stock Exchange (OSEBX) versus the actual development of the index in the six months following the survey publication.

57%

6%13% 13% 14%

37%

27%

-17%

23% 21%

0%

29% 29%

15%

7% 3%

24%

-7%

-22 %

22 %

5 % 6 % 6 %

12 %8 %

2 %

0 %-7 %

8 % 10 %

13 %

3 %

17 %

-8 %1 %

Net share expecting increase in OSEBX vs. Actual

Net share expecting increase OSEBX following 6 months

Economicprospects




15

Q: In your view, how are capital expenditures (CAPEX) for your company likely to change over the next six months?

CFO’s are still expecting high investments going forward, particularly withinthe Real estate, Oil industry and Financial services

Retail stands out with lowest net share expecting anincreased capex the following six months

The last five surveys have all represented an all-time highof CFO’s expecting increase in capex. This time, the netshare is still at a high level, but down on a Q3-17 level with28% expecting an increase in capex the next six months.

A net share of 70% of the CFO’s within Real estate reportthat they expect to increase capex going forward.

CFO’s within the Oil industry are also expecting increase incapex the next six months. This may seem somewhatsurprising given the decreased optimism around futurefinancial development among oil CFO’s. However, theanswers are in line with macroeconomic outlooks and theoil companies themselves, as they projected annualinvestment growth of more than 17% in 20191.

1%

6%

-4%

25%

28%30%

32%

35%

28%

Q3-15 Q1-16 Q3-16 Q1-17 Q3-17 Q1-18 Q3-18 Q1-19 Q3-19

Net share expecting an increase in capex

1. DNB Markets Economic Outlook(August 2019) Economic




16

Despite being fairly negative in terms of theeconomic outlook, Retail are expecting to hire

While the majority of the responding CFO's are expectingan increase in personnel during the next six months, CFO'swithin Financial services and Manufacturing are predictingthe opposite. Considering the fact that Manufacturing CFO’shave given the impression of declining activity anddiminishing returns in addition to the negative evolutionacross global PMI indices, a reduction of employees mayseem latent1.

Retail CFO's expect to increase the number of employeesthe following six months. At glance, this may sound a bitsurprising, however, turnover within ecommerce havegrown 8.3% from Q2-18 to Q2-192. Additionally, theNorwegian economy seems to be steadily growing, whichmay result in stronger household purchasing power andthereby have a positive impact on Norwegian retailers.

As have been the case for several years, Financial servicesis still expected to decrease total workforce, albeit beingoptimistic about future economic outlook. However, theanticipated reduction is far greater than what previoussurveys have depicted.

Q: In your view, how is the number of employees for your company likely to change over the next six months?

Most industries are expecting an increase in employees during the next six months, however Manufacturing and Financial services will not hire

The figure shows net share of CFO’s in each respective sector expecting to increase employees over the coming six months.

1. DNB Markets Economic Outlook2. SSB’s webiste

0 %

5 %

40 %

50 %

-10 %

17 %

-18 %

44 %

17 %

-29 %

22 %

Retail Manufacturing Oil industry TMT Financial services

Net share expecting employee increase

Q1-18 Q3-18 Q1-19 Q3-19 Net share Q3-19

Economicprospects




17

Q: Which of the following strategies are likely to be a priority for your company over the next six months?

CFO's are, and have been for some time, focusing towards expansionary strategies

Retail CFO's reports that cost reduction andorganic growth are key strategies throughcompetition and lessened income

The CFO's appear to be quite stringent on followingupon earlier strategy plans whereby organic growth,cost reduction and focus on core businesses still prevailwith 61%, 54% and 44% respectively. That being said,CFO's within the Manufacturing, Oil service and Energyappear to be quite attentive towards increasingproduction capacity and expansion through acquisitions.This seems legitimate given that equity financing haveincreased over the last course and may be a precursorof M&A activity.

Akin to the survey six months ago, the questioned CFO'sare still focusing on cost reduction, where as much as67% of the Retail CFO's admits that cost reductionremains a vital part of their strategy. Considering themargin squeezes that Retail have experienced, costreduction strategies may still prove imperative to win insuch a competitive market.

The figure shows the strategies CFO’s think will be prioritized over the coming six months. Note that several answers are allowed.

61 %

54 %

44 %

35 % 35 %

24 %21 %

19 % 15 %

3 %0 %

Prioritized strategies

Q3-18 Q1-19 Q3-19

Economicprospects




18

Q: What is the main priority for operating cash flow expenditure for your company over the next six months?

CFO’s will prioritize other investments and focus less on increasing their cash balance

‘Other investments’ has increased the most, and atotal of 35% of responding CFO’s report this astheir main priority for cash flow

Other investments and debt reduction are the twopriorities that are up from last survey, however, otherinvestments stands out with most significant increase. Itis specifically Manufacturing, Energy and Retail that willprioritize other investments.

Based on the previous side, we may assume that otherinvestments are related to organic growth, growth inexisting markets and increased production capacity.

Only 11% reports that acquisitions is their main priorityfor cash flow, which we find contradicting to previousside where 35% of the responding CFO’s will prioritizegrowth through acquisitions.

Most CFO’s in Oil industry will prioritize to reduce debt,however, these CFO’s are also expecting to increasecapex going forward as discussed previously in thereport. The figure shows the strategy most likely to be executed using operating cash flow expenditure for the four most recent

periods.

14 %

18 % 19 %21 %

28 %

11 %

17 %

22 %

16 %

35 %

Acquisitions Shareholderdividends

Debt reduction Increase cashbalance

Other investments

Main priority for cash flow

Q1-18 Q3-18 Q1-19 Q3-19

Economicprospects




19

M&A activity is expected to increase across sectorsalthough the majority of the CFO's report thatorganic growth is part of their strategy plans

M&A activity is expected to increase by 4 pp. relative tosix months ago and is mainly driven by TMT, Oil service,Energy production and Real estate.

As much as 78% of the CFO's within the Energy sectorreport that M&A activity will rally the upcoming sixmonths, which seem plausible given that 55% acclaimthat growth through acquisition is a key strategy of theirbusinesses. One can also expect a high frequency ofacquisitions within TMT in the following six months as allof the responding CFO's report that M&A activity iseither going to ‘increase’ or ‘increase considerably’ in thenear future.

Q: How do you expect the M&A activity in your industry to develop over the next six months?

CFO's expect M&A activity to increase in their industry, but they will not prioritize M&A themselves

34%

61% 46%51%

47%42%

50% 52% 50% 50%

33%36%

44%39%

48%

33%37%

9.0

11.0 11.710.9

12.2 12.3 12.6

13.8

12.5

15.3

16.5

14.9

16.7

15.315.8

15.1

16.5

Net share expecting M&A activity increase

Net share expecting increased M&A activity OSEAX P/E Multiples per end of period

Economicprospects




20

Significant increase in default rate expectations

The probability for counterparties’ default during thenext six months is believed to increase by a net share of12% among CFO's.

Expectations are up 8 pp. from Q1-19, approaching2016 levels which is above the low levels of the past twoand a half years.

The increase in net share expectations of default may beviewed as an extension of reduced net positiveexpectations for price development, capital expendituresand financial markets.

However, the major part of participants asked,approximately 84%, expects the probability ofcounterparties’ default to be unchanged.

Q: The probability for counterparties’ default in the next six months is expected to: (increase, be unchanged, decline)

Higher expectations of increased counterparty default risk

-11%

31%

5%

24%

3%

8%

-7%

14%

20%

30%

13%16%

5%3% 2%

7%

4%

12%

Net share expecting increased counterparty default risk

Economicprospects




21

CFO's continue to expect higher spreads

A net share of 27% of survey participants believe creditspreads will increase over the next six months. This is aslightly higher net share than the 26% of Q1-19. Theshare of respondents saying they believe credit spreadsto increase is 32%, unchanged from six months ago,while the share believing spreads to tighten has gonedown from 6% to 5%.

Increased expectations of widened credit spreads is inline with the weakened belief in OSEBX development,since widening credit spreads often is seen as a leadingindicator for a problem with risk assets.

We have seen credit spreads tighten over the past sixmonths, but normal seasonality would suggest wideningspreads over the upcoming six months. A slight increasein expectations of further widening is hence not a verynegative signal.

Continued and slightly stronger belief in widened credit spreads

Q: Expectation of credit spread development next six months

Figure shows the net share expecting increased credit spreads over the next six months and the actual credit spread development over the same period

-34 %

46 %

19 %

4 %

-3 %

-18 %

-33 %

-2 %

7 %

22 %

16 %

4 %

13 %9 %

24 %

18 %

26 %27 %

2849

-19

-60-73

-12

-29

34

-7

133

-73-62

-15

40

-18

3

-29

Net share expecting increased credit spreads

Net share expecting increase Credit spreads following 6 months

Economicprospects




22

Labour and personnel costs on the rise as potential risks going forward

Since the last survey six months ago, an increased number of CFO's believe lack of competent labour and personnel costs pose significant riskto their business. In addition, the risk of political changes rose five percentage points to 17%, which is close to the level one year from now.This may be explained by the increased threat of hard Brexit, due to Boris Johnson’s Brexit deadline at the end of October.

Political changes poses the largest threat to Norwegian CFO's, followed by decreasing domestic demand. The risk of decreasing domesticdemand has however decreased since the last survey. Now, a net share of 16% view this as the largest concern going forward, down from 24%six months ago.

Decreasing foreign demand and interest rate level is now less of a concern than it was half a year ago. The reduced concern over interest levelis a bit surprising as Norges Bank has increased interest rates over the past six months, but other concerns seem to trump this factor 1.

Increasing concerns about lack of competent labour and personnel costs

Q: Which of the following factors are most likely to pose a significant risk for your business over the next six months?

24 %

17 %

5 % 5 %

9 %4 %

4 %

11 %

2 %

12 %

4 %2 %

16 %

11 %

6 %7 %

13 %

10 %

5 %6 %

1 %

17 %

2 % 2 %

Decreasing

domestic

demand

Decreasing

foreign

demand

Foreign

competition

Raw material

costs

Lack of

competent

labor

Personnel

costs

Access to

capital

Interest rate

level

Currency Political

changes

Other Cyber risk

Largest concern going forward

Q1-18 Q3-18 Q1-19 Q3-19

1. Norges Bank’s website

Economicprospects




23

Cyber attacks and geopolitical turmoil is still amongst the risk factors CFO's believe will have an impact on their businesses

A new Eurozone

crisis

A plunge in asset

prices leading to a

financial crisis

Untimely tightening of

monetary policy

Public debt crisis in a

major economy

Private debt crisis in a

major economy

Hard Brexit

Political turmoil

An inflationary surge in

western economies

Rise of

polarisation/populism

A major cyber-attack

on companies and/or

governments

Rise in protectionism

0%

5%

10%

15%

20%

25%

30%

35%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%Im

pact

if eve

nt

occurs

(%

of

respondents

)

Probability of event occuring (% of respondents)

CFOs assessment of major events

Q: Over the next 12 to 24 months how do you rate these risks to the global economy?

Q: Should one of the following scenarios materialize, how would you rate the magnitude of its impact on the financial prospects of your company?

Cyber attacks and elevated levels of protectionismare still worrying Norwegian CFO's

Similarly to the results achieved in the Q1-19 report, thebiggest threats that can have an impact on global risk isrelated to cyber-attacks and increased protectionism.

Norwegian CFO's are afraid of major cyber attacks, both interms of likelihood and magnitude, which seems legitimateconsidering that Hydro recently admitted a loss of approx.NOKm 550-650 during the cyber attack in March 20191.

Furthermore, the CFO's report that protectionism is morelikely to occur over the next year or two, however, withless impact than anticipated six months ago. Although theongoing trade war between China and the US haveheightened with even greater tariffs, Norwegian CFO's donot seem to be worried about the consequences in relationto their businesses. Additionally, the CFO's report that ahard Brexit is more likely to occur compared to six monthsago. That being said, the perceived impact havemoderately declined which may reflect that the CFO's havebetter understood the consequences of a potential Brexitand that the perceived impact in the Q1-19 report were abit exaggerated.

1. Hydro’s website

Economicprospects




24

Q: The overall financial position of your company is seen as: (Very favourable, favourable, average, unfavourable, very unfavourable)

CFO’s are satisfied with their financial position, despite the decreased optimism

Retail CFO’s are expressing a fairly highfavourable financial position above the historicalaverage

CFO’s are still expressing a favourable financial position,with a net share of 67%, which is above the historicalaverage of 64%.

By sectors, Retail, Construction and Financial service arefairy happy with their financial position. However, CFO’swithin Oil service are more scattered, with a net share of44% expressing a favourable financial position.

84%

54%

60%

55%58%

71%

76%78%

58%

64%

59%

48%

70%

61%

70%

58%

70%

67%

Average

Net share expressing a favourable financial position

Economicprospects




25

Q: How attractive are the following financing sources for Norwegian companies given the current market situation?

Q: How available are the following financing sources for your company given the current market situation?

Bank loans are still preferred financing but bondsand equity attractiveness is rising

Bank loans continues to be the most attractive andavailable source of funding for Norwegian CFO's, butlevels are slightly down since the last survey.

The attractiveness of bonds has gone up, while theavailability has gone down. This is also the case forequity. Six months ago, a net share of 49% of CFO'ssaid bond financing was available or very available. Now,the net share is 41%. The attractiveness has gone froma net share of 33% to 50%.

Similarly, a net share of 33% of CFO's said equityfinancing was available or very available six months ago,and today the net share is 27%. The attractiveness hasgone from a net share of 31% to 37%.

Overall, the access to desired financing remains quitestrong, supporting companies’ expectations of capitalexpenditures and organic growth.

Bank loans are still attractive, but we see a shift towards bonds and equity

The figure shows the net share of respondents describing each type of funding as attractive or available

70%

50%

37%

46%

69%

41%

27%

37%

Bank loans Bonds Equity Internal financing

Attractiveness and availability of financing sources

Attractiveness Availability

Economicprospects




26

Perceived willingness to provide credit at bit down from very high level

Q: How attractive / available are bank loans as a financing source for Norwegian companies given the current market situation?

Bank loans are generally considered available

Perceived bank loan availability decreased to 69% from74% six months ago, which was historically the highestlevel since Q1-2011. The decrease in bank loanattractiveness is a bit down from 77% to 70%, but thisis still a very high net share historically.

If we consider the development of Q3 survey resultssince 2016, we see a continued strong trend. Based onthis, the financing landscape looks promising for growthopportunities and expanded operations.

66% 53% 39% 44% 54% 48% 59% 60% 75% 64% 59% 55% 58% 58% 72% 66% 77% 70%

84%

42%

24%

17% 18%

25%

52%56%

65%67%

30%

63%59%

68% 69%71%

74%

69%

Bank loans - Attractiveness vs. Availability

Economicprospects




27

Bond financing more attractive, but less available

Q: How attractive / available is bond funding as a financing source for Norwegian companies given the current market situation?

Bond financing attractiveness is coming up asavailability is slightly weakened

Bond financing availability has been seen at solid levelsover the past three years, including this quarter even ifthe current level is a bit down since the last survey.Attractiveness has however increased past availabilityand has reached the highest level since 2014.

We see financing interest shifting mainly from bankloans to bond financing, but also towards equityfinancing. The shift of interest from bank loans to bondfinancing may be related to tightening credit spreadsduring the past months, while the decrease inavailability may be explained by the current uncertaintyinfluencing the market sentiment.

40% 49% 54% 42% 54% 10%

-1%

-30%

9% 33% 36% 41% 42% 33% 50%

41%

55% 54%50%

59%

20%

14%

-13%

26%

40%44%

37%

48% 49%

41%

Bond funding - Attractiveness vs. Availability


Economicprospects




28

Equity financing is increasingly attractive

Perceived access to equity down to last falls level

Over the two past years, attractiveness and availabilityof equity financing has been at quite stable levels. Thenet share of CFO's that consider equity attractive hasthis fall gone up to 37% from 31% six months ago. Theavailability has however gone down to 27% from 33%half a year ago.

The combination of relatively high attractiveness andavailability indicates an active use of the equity markedto finance growth plans. The reduction in availabilitymay be caused by uncertainty related to future stockmarket performance, but the level is still quite solid.

As the net share of CFO's expecting increase in M&Aactivity has gone up, we believe acquisitions andcontinued investment drives demand for equityfinancing. We expect the activity in the equity market todepend on the size of companies’ investment programs,in addition to the equity financing availability.

Q: How attractive / available is equity as a financing source for Norwegian companies given the current market situation?

27 % 26 % 24 %29 %

25 %20 %

11 %16 %

21 %

49 %

35 % 36 %32 % 31 %

37 %

-11% -12% 0%-3%

6% 0% -9%-13%

8%

19%

25%

33% 26% 33%

27%

Equity financing - Attractiveness vs. Availability


Economicprospects




29

Companies feel substantial pressure to act on climate change

Q: To what extent does your company feel pressure to act on climate change from the following actors?

9% 5%

20%

9% 9%

21% 19%

20%

38%

29%

52%

33%

38% 34%

53% 55%

34%

43%

19%

36%

41%

34%

25% 24%

19% 23%

10%

22%

12% 11%

4% 2%

-

10%

20%

30%

40%

50%

60%

Shareholders/investors Banks/lenders Clients/customers Competitors Regulators/government Civil society Boardmembers/management Employees

Pressure to act on climate change from the following actors

To a large extent To a moderate extent To a small extent Not at all

Climate change pressure mainly from employees, management and customers

Companies feel pressure to act on climate change from different stakeholders, and mainly from employees, management/board members andcustomers. In addition, civil society has the highest net share of CFO saying that this group puts pressure on their company to a large extent.

Companies feel less pressure from investors, lenders and regulators. This is an interesting result which suggests that civil society and companiesthemselves are taking the lead with respect to climate change action. As we observe increasing interest in climate risk from investors, we expectthis group to exert increased pressure in the time ahead.

Economicprospects




30

Norwegian CFO’s are taking different measures to manage the climate changes

In line with the increased focus on climate changes and the pressure from different actors, the CFO’s are taking actions in ordermeet the challenges

A total of 69% have or are planning to increase the efficiency of energy use. Other actions taken by the CFO’s are to actively assess the risks ofclimate change for the business (59%) and use energy-efficient or climate-friendly machinery, technologies and equipment (56%).

We observe that the firms are giving much attention towards climate change by first of all assessing the risk for their business. Further, manyfirms are also adjusting their resource usage reducing their costs as well.

Q: Is your company taking or about to take any of the following measure(s) to manage, mitigate and/or adapt to climate change?

59 %

49 %

69 %

45 %

56 %

26 %

38 %

8 % 10 %

3 % 3 % 2 %

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

Assess the risksof climate

change for thebusiness

Includemanagement

and monitoringof climate risks

in corporategovernanceprocesses

Increase theefficiency of

energy use (e.g.energy efficiency

in buildings)

Shift operationalenergy usage

towardsrenewable

energy sources

Use energy-efficient or

climate-friendlymachinery,

technologies andequipment

Reduce carbonemissions in theupstream supplychain and/or in

logistics

Develop newclimate-friendlyproducts and

services

Offset carbonemissions, e.g.

by buying carboncredits

Renew facilitiesto make them

resistant toextreme weather

events

Relocate plantsand machineries

in areas lessprone to extremeweather events

Purchaseinsurance

coverage againstextreme weather

risks

Other

Measures towards climate change

Economicprospects




31

A great share of the questioned CFO's admits that they do not have emission targets in place

Norwegian CFO’s have employed differentmeasures to manage climate changes, however,42% of the respondents admit that they do nothave emission targets in place

Despite commencing initiatives to cope with climatechanges, as much as 42% of the responding CFO'sadmit that their companies do not have emission targetsin place as defined by the Paris agreement. However, weobserve that the firms are more engaged when it comesto assessing the risk of climate change for their businessand reporting, than having specific emission targets. Inaddition, emission targets are not relevant for allindustries.

Even more interesting is that 7% of the CFO'sacknowledge that they are unaware of whether theircompanies have employed emission reduction targets tocope with climate changes.

Q: Has your company put in place emissions reduction targets in line with the Paris agreement?

36%

13%

42%

7%

2%

-

5%

10%

15%

20%

25%

30%

35%

40%

45%

We have our own emissiontargets

We have emission targets inline with the Paris agreement

We do not have emissiontargets in place

Don’t know Other

Emission reduction targets

Economicprospects




32

About the survey

General information

The target group comprises of the CFO’s in the largest companies acrossindustries in Norway. The purpose of the survey is to trace thedevelopment of the CFO’s perception of economic prospects, representedamong other by company risk, financing and future revenue potential.Moreover, the survey aims to determine important indicators for thegeneral economic development.

Deloitte and SEB have conducted separate surveys for several years,however the CFO Survey for Q3-16 was the first survey conducted incooperation. This survey was carried out as a web-based questionnaire inSep-19. Historical figures presented are based on previous bi-annualsurveys dating back to Q1-11.

In total, 102 CFO's across key industries responded to the survey duringthe period 18th of September – 25th of September 2019. Given the broadrange of industries and organisations that responded, the survey presentsa transparent, up-to-date image of the financial situation facing the widerNorwegian CFO community.

Please send us your feedback together with any suggestions forimprovement to help us ensure that the Deloitte/SEB CFO Surveyremains an essential resource for your work.

18th of September –

25th of September

Survey period

102

CFO’s

Respondents

Industry %

Manufacturing 17%

Retail 12%

Real Estate 10%

Energy production 9%

Oil industry 9%

Financial services 7%

TMT 6%

Advisory / Services 5%

Automotive 5%

Construction 4%

Public sector 3%

Other 15%

Economicprospects




33

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.no for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte Norway conducts business through two legally separate and independent limited liability companies; Deloitte AS, providing audit, consulting, financial advisory and risk management services, and Deloitte Advokatfirma AS, providing tax and legal services.

© 2019 Deloitte AS

SEB is a leading Nordic financial services group, guided by a strong belief that entrepreneurial minds and innovative companies are key in creating a better world. We are here to help them achieve their aspirations and succeed through good times and bad. We care for ambition. In Sweden and the Baltic countries, SEB 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.

With capital, knowledge and experience, we generate value for our customers − a task in which our research activities are highly beneficial.

Macroeconomic assessments are provided by our Credit Research unit. Based on current conditions, official policies and the long-term performance of the financial market, the Bank presents its views on the economic situation – locally, regionally and globally.

www.seb.no

http://www2.deloitte.com/no/no/pages/about-deloitte/articles/about-deloitte.html

https://seb.no/

CFO’s are acting, despite lack of optimism» · A net share of 11% of CFO’swithin the Oil...

Documents

Transcript of CFO’s are acting, despite lack of optimism» · A net share of 11% of CFO’swithin the Oil...