The Deloitte/SEB CFO Survey Full Steam Ahead...The biggest concern in Finland is the shortage of...

The Deloitte/SEB CFO SurveyFull Steam AheadSpring 2018

The Deloitte/SEB CFO Survey | 2

The Deloitte/SEB CFO Survey

We are excited to present the Spring 2018 results of the new Deloitte/SEB CFO Survey. The report uniquely combines perspectives from CFOs within large and midsized companies in Finland with viewpoints from SEB’s Nordic Outlook, SEB research team’s flagship report on key forecasts, and global economic trends.

The survey was conducted simultaneously in other European countries and thus we were able to make valuable comparisons between Finnish and other European CFOs. The European CFO Survey is part of a global cohort of surveys benchmarking the attitudes and future intentions of Chief Financial Officers, gathering views from over 1,600 CFOs based in 20 European countries.

Tuomo Salmi CFO Program Lead Deloitte

Ville Lähde Financial Strategy SEB

The Deloitte/SEB CFO SurveySpring 2018

Spring 2018

Views were gathered from 1,652 CFOs in 20 European countries


SummaryThe Deloitte/SEB CFO SurveySpring 2018

Summary

Key findings

The spring 2018 shows a continuous trend of positive sentiment towards business prospects in Finland. Unlike most Central European counterparts, Nordic CFOs estimate that the positive business cycle will not soon be over. However, there are signals that we are reaching home stretch of the cycle. In central Europe, CFOs are increasingly concerned about the growth’s stability and believe that the uncertainty facing their business will increase during the next 12 months.

This spring survey focused on risks. According to Finnish CFOs, the risk outlook is rather balanced. Amongst the most significant probable risks in Finland are the rise of protectionism and populism and major cyber-attacks, but these risks would have lower impact on companies than a private debt crisis or a new financial crisis. The two latter risks have low probability of materialising.

Of Finnish CFOs, 64% say that now is the time to take more risk on the balance sheet. This ranks amongst the highest in Europe. Despite the appetite, it is unlikely that there will be a major shift in risk-taking whilst Finnish CFOs believe in organic growth strategies and prioritize capital expenditure lower than most of their European colleagues.

Albeit indications point toward the end of this economic cycle, business performance will remain strong throughout the Eurozone. Companies will continue to reap the benefits of the economic growth over the next 12 months as operating margins continue to improve. More than 80% of the companies in Finland, the Netherlands, Ireland, and Germany will improve their revenues, which adds to the positive short-term economic outlook.

41% of Finnish CFOs say that

they will hire more employees over the

next 12 months

84% of Finnish CFOs expect their revenues to increase over the

next 12 months......However,

Finland remains badly behind

the investment aspirations with

respect to the Euro areaOrganic growth

is seen as the most preferable strategy in all the Nordic countries for

the next 12 months

Finland’s optimism continues to be at

top level in Europe after France and the

Netherlands


SummaryThe Deloitte/SEB CFO SurveySpring 2018

Summary

Finland is among the top players

56%71% 57%are the most optimistic countriesIrelandFrance Finland

83%Netherlands

82%84% 84%expect the revenues to increaseIrelandFinland Germany

100%Netherlands

45%60% 50%are ready to take more risk on the balance sheetFranceSpain Belgium

64%Finland


Hot TopicChart 1. Over the next 12 to 24 months how do you rate these risks to the global economy?

Finnish CFOs see rising protectionism, a major cyber-attack and rise in populism as the most probable risks.


Hot Topic

78%Rise in protectionism

63%Rise of polarisation/

populism

64%A major cyber-attack on companies and/or

governments

Chart 2. Should one of the following scenarios materialise, how would you rate the magnitude of itsimpact on the financial prospects of your company?

A major cyber-attack would have strong or very strong impact on 35% of the companies. The risks with the strongest expected impact have relatively low probability of materialising (private debt crisis and financial crisis).

46%A plunge in asset prices leading to a

financial crisis

45%Private debt crisis in

a major economy

43%A new

Eurozone crisis

43%Untimely tightening of monetary policy


Business ConfidenceChart 3. Compared to six months ago, how do you feel about your company’s financial prospects?

In Finland, optimism has come down a bit from last fall (net optimism 56% vs. 73%). That is understandable considering the global economic uncertainty. However, Finland’s optimism continues to be at top level in Europe after France (67 %) and the Netherlands (83%).

Net optimism (difference between optimistic and less optimistic)

Financial prospects


Business Confidence

Finland+56%

Netherlands+83%

Iceland-5%

Ireland+50%

Denmark+32%

Russia+27%

Sweden+22%

Germany+11%

Poland+12%

Belgium+20%

Turkey+5%

UK-4%

Switzerland+24%

Italy+25%

Norway+36%

Greece+36%

Austria+42%

Spain+45%

Portugal+45%

France+67%


Prospects & ConcernsChart 4. What are the greatest concerns for your company in 2018?

The biggest concern in Finland is the shortage of skilled professionals, which may limit the growth potential of companies. The outlook of the Finnish economy has continued to improve, but growth is still the second-biggest concern.

(In brackets results from The Deloitte/SEB CFO Survey Fall 2017)

Greatest concerns


Prospects & Concerns 22% (29%)

17% (20%)

Shortage of skilled professionals

15% (14%)Increasing regulations

13% (13%)Geopolitical risks

13% (11%)Reduction in demand (foreign/domestic)

Economic outlook/growth


Prospects & ConcernsChart 5. Assume a current cash surplus position. How would you prefer to use the money in the next 6 months?

More than a fifth of companies are considering investing in Finland or abroad. The focus of strategic investment in Finland is a bit greater than that of overseas (24% vs. 22%).


Most preferred way to use money


Prospects & Concerns 24% (29%)Strategic investment in Finland

22% (19%)

Pay down debt

20% (13%)Dividend to shareholders

17% (13%)

Strategic investment abroad

6% (6%)Financial investment in Finland

4% (6%)Financial investment abroad


Prospects & ConcernsChart 6. In your view, how are revenues for your company likely to change over the next 12 months?

The performance of European companies is at the top and the investment plans are on the rise. 84% of Finnish CFOs expect their revenues to increase over the next 12 months (euro area 77%) However, Finland remains badly behind the investment aspirations with respect to the Euro area (Net balance +4% vs. +47%).

Net balance (difference between increase and decrease)

Change in revenues


Prospects & Concerns

Finland+79%

Netherlands+100%

UK+32%

Belgium+54%

Greece+68%

Austria+55%

Denmark+49%

Iceland+53%

Italy+52%

Turkey+61%

Russia+60%

Poland+63%

Switzerland+64%

Norway+66%

Portugal+65%

Sweden+75%

Spain+74%

France+77%

Ireland+78%

Germany+79%


Prospects & ConcernsChart 7. In your view, how are operating margins for your company likely to change over the next 12 months?

As with revenue expectations, the outlook for margins growth is broadly positive. CFOs in the Netherlands, Finland and Spain are the most optimistic. Brexit is hitting UK companies hard and revenue expectations in the UK (-30%) are the most negative.


Change in operating margins



Finland+70%

Netherlands+83%

UK-30%

Norway+27%

Switzerland+21%

Germany+24%

France+27%

Belgium+18%

Ireland+18%

Austria+16%

Iceland+30%

Portugal+29%

Denmark+34%

Poland+11%

Italy+40%

Sweden+39%

Russia+44%

Turkey+44%

Greece+45%

Spain+51%


Prospects & ConcernsChart 8. In your view, how are capital expenditures for your company likely to change over the next 12 months?

Capital expenditure expectations have continued to rise in the EU from +29% to +35%. Finland (net balance 4%) reported the third smallest capex outlook in Europe after the UK, the Netherlands and Iceland.


Change in capital expenditures



Finland+4%

Ireland+62%

UK-22%

France+60%

Netherlands+0%

Switzerland+32%

Norway+30%

Iceland+2%

Poland+30%

Spain+40%

Portugal+39%

Denmark+30%

Russia+9%

Turkey+27%

Greece+28%

Sweden+45%

Austria+47%

Germany+47%

Italy+42%

Belgium+49%


Prospects & ConcernsChart 9. To what extent is each of the following business strategies likely to be a priority for your business over the next 12 months?

Organic growth is seen as the most preferred strategy in all the Nordic countries for the next 12 months (in Finland 70%). Introducing new products and services and cost control are still important for Finnish CFOs.


Priorities in business strategies



70% (68%)Organic growth

38% (36%)Introducing new products/services

20% (32%)Cost reduction

19% (25%)Expanding by acquisition

11% (24%)Expanding into new markets


Prospects & ConcernsChart 10. During the next 12 months, in what region do you expect your company to have the best opportunities for growth?

The Nordic market is still the most important region (49%). Compared to six months ago, the importance of Asia Pacific (20%) and Russia (2%) has remained almost the same. North-America has been seen as the best growth area of 13% of the respondent companies, where no significant changes have occurred in the last three years.


Best opportunities for growth



America

13%(9%)

Other EMEA countries

11%(9%)

Nordics

49%(54%)

Russia

2%(4%)

Asia Pacific

20%(18%)

Other

5%(7%)


Prospects & ConcernsChart 11. In your view, how is the number of employees for your company likely to change over the next 12 months?

41% of Finnish CFOs say that they will hire more employees over the next 12 months. Practically every company plans to hire more or keep its current employees both in Finland and abroad.

Hiring intentions are high throughout Europe. Eurozone CFOs are still more optimistic about the employment outlook in their businesses than other European CFOs. 44% of Eurozone CFOs expect to hire more employees over the next 12 months.

*combined results from questions regarding employees abroad and employees in Finland


Expected change in number of employees



Finland+34%

Ireland+69%

UK-25%

France+48%

Iceland+11%

Germany+31%

Greece+21%

Sweden+46%

Austria+18%

Netherlands+17%

Switzerland+16%

Russia+15%

Spain+24%

Denmark+29%

Norway+28%

Belgium+36%

Portugal+36%

Italy+36%

Turkey+38%

Poland+37%


FinanceChart 12. How do you currently rate bank borrowing as a source of external funding for companies?

Bank borrowing is increasingly attractive in the EU. 73% of CFOs reported a positive outlook for bank borrowing vs 66% in the previous survey.

Net balance (difference between attractive and unattractive)

Attractiveness of bank borrowing


Finance

Finland+44%

Austria+78%

Russia+5%

Poland+41%

UK+78%

Norway+73%

Switzerland+62%

Iceland+11%

Greece+11%

Denmark+30%

Netherlands+50%

Portugal+49%

Belgium+64%

Spain+75%


FinanceChart 13. How do you currently rate corporate debt as a source of external funding for companies?

Finnish CFOs have become less optimistic about the corporate bond market and the net balance has fallen from +40 to +30 compared to the previous survey; still 48% of the CFOs see corporate debt as an attractive funding source.


Attractiveness of corporate debt


Finance

Finland+30%

UK+74%

Russia-20%

Austria+13%

Portugal+25%

Netherlands+25%

Iceland+4%

Greece+9%

Poland+8%

Switzerland+18%

Denmark+18%

Norway+41%

Belgium+40%

Spain+43%


FinanceChart 14. How do you currently rate equity as a source of external funding for companies?

Equity is again the least attractive source of funding for CFOs in Europe. The attractiveness among Finnish companies has risen slightly (net balance from -26% to -22%).


Attractiveness of equity


Finance

Finland-22%

Norway+36%

Russia-31%

Greece+13%

UK+6%

Spain+17%

Austria+23%

Portugal-1%

Poland-1%

Iceland+0%

Denmark+11%

Switzerland+11%

Netherlands+33%

Belgium+31%


FinanceChart 15. How do you currently rate internal financing as a source of funding for companies?

Internal financing keeps its place as the second most attractive source of funding for CFOs in Europe with 58% viewing internal financing as attractive, compared to 11% who consider it is unattractive. In Finland, the net balance has risen from +26% to +36%.


Attractiveness of internal financing


Finance

Finland+36%

Austria+69%

Russia-16%

Belgium+45%

Netherlands+50%

Greece+38%

Switzerland+59%

Poland+29%

Denmark+34%

Portugal+55%

Spain+54%

Iceland+63%


FinanceChart 16. Is this a good time to be taking greater risk on your balance sheet?

Across Europe, risk appetite is low (net balance -30%). In Sweden, Norway, and Iceland, the net balance is lower than the European average. Risk appetite has risen from +25% to +29% in Finland, the highest in Europe. 64% of Finnish companies believe that it is a good time to be taking on greater risk.

Net balance (difference between yes and no)

Taking risks on your balance sheet


Finance

Finland+29%

UK-72%

Belgium-10%

Spain+20%

Iceland-62%

Switzerland-21%

France+0%

Portugal-30%

Poland-26%

Denmark-26%

Italy-19%

Ireland-17%

Austria-14%

Sweden-31%

Norway-31%

Germany-48%

Russia-49%

Greece-49%

Netherlands-50%

Turkey-69%


Macroeconomic ContextChart 17. Industrial production has remained on steady growth

Industrial production is growing in same phase with Eurozone. Year-on-year percentage change.

Source: Eurostat

Industrial production


Macroeconomic Context

Finland

Eurozone

-4

-3

-2

-1

0

1

2

3

4

5

201820172016201520142013


Macroeconomic ContextChart 18. Growth in capital spending has moderated

Capital spending growth peaked in late 2016 after several weak years. Now capital spending is still growing but at lower level. Year-on-year percentage change.

Source: Eurostat

Capital spending



Finland

Eurozone

-6

-4

-2

0

2

4

6

8

10

12

20172016201520142013


Macroeconomic ContextChart 19. The labour market is improving but the decline is slower than in Eurozone

Unemployment rate in Finland is at the same level with Euro area.

Source: Eurostat

Unemployment



Finland

Eurozone

0

3

6

9

12

15

20182017201620152014201320122011201020092008


Macroeconomic ContextChart 20. Industry confidence indicators are at high levels in 10 years comparison

All of the three industry confidence indicators are currently clearly on the positive side.

Source: Macrobond

Confidence indicators



Services Confidence Indicator

Industrial Confidence Indicator

Construction Confidence Indicator

-80

-60

-40

-20

0

20

40

20182017201620152014201320122011201020092008


Macroeconomic ContextChart 21. Consumer confidence has stayed on strong levels

Despite small softening in March and April 2018 the consumer confidence indicator reflects currently very positive expectations.

Source: Statistics Finland

Consumer confidence



Consumer confidence

-10

-5

0

5

10

15

20

25

30

2008 20182009 2010 2011 2012 2013 2014 2015 2016 2017


About the Survey

This is the first-quarter edition survey of Chief Financial Officers and Groups Finance Directors in Finland. The survey is carried out as a web-based questionnaire. 56 CFOs participated, including a good mix of privately held and publicly listed medium, large, and multinational companies across a broad range of industries. 80% of respondents are from companies that have an annual turnover of more than 100 million euros. Just like last fall, CFO Survey was conducted simultaneously in other European countries. The European CFO Survey gathered opinions of 1,652 CFOs in 20 European countries.

Writers & Contributors

The survey was produced by Tuomo Salmi, Partner, CFO Program Lead, Deloitte; and Ville Lähde, Financial Strategy, SEB. The survey was written by Juha Lintula, Deloitte; Piia Inkinen, Deloitte and Ville Lähde, SEB. Visual design was made by Kristina Jalonen, Deloitte.

Please visit www.deloitte.fi or www.seb.fi for the latest and past copies of the survey and other publications.


About the Survey

Contacts

Tuomo [email protected]

Ville Lä[email protected]

http://www.deloitte.fi

http://www.seb.fi

About DeloitteIn Finland, Deloitte Oy is the Finnish affiliate of Deloitte NWE LLP, a member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), and services are provided by Deloitte Oy and its subsidiaries. In Finland Deloitte is among the nation’s leading professional services firms, providing audit, tax, risk advisory, legal, consulting, and financial advisory services through 500 people in 3 cities. Known as an employer of choice for innovative human resources programs, Deloitte is dedicated to helping its clients and its people excel. For more information, please visit our website at www.deloitte.fi.

About SEBSEB is a leading Nordic financial services group. As a relationship bank, SEB in Sweden and the Baltic countries offers financial advice anda wide range of financial services. In Denmark, Finland, Norway and Germany, the bank’s operations have a strong focus on corporateand investment banking based on a full-service offering to corporate and institutional clients. The international nature of SEB’s businessis reflected in its presence in some 20 countries worldwide. The Group has about 16,000 employees. For more information, please visitwww.sebgroup.com.

© 2018 Deloitte Oy. Group of Companies

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