T H E D E L O I T T E C F O S U R V E Y

2 0 1 5 Q 3 R E S U L T S

C F O s O N H I G H A L E R T

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3 The Deloitte CFO Survey 2015 Q3 Results

Contents

Key points from the 2015 Q3 Survey 4 Economic context and special topic 5 The economy and CFOs’ outlook 6 Funding 7 Cash flow and risk 8 M&A 9 Special topic: Technology innovations in finance 10 A note on methodology 12

Key points from the 2015 Q3 Survey

84%rate the general level of

external financial and economic

uncertainty as above normal

Uncertainty returnsSome 84 percent of CFOs rate the general level of external financial and economic uncertainty facing their business as above normal, compared to 46% in 2015 Q2. Only 17 percent believe that the current economic uncertainty is (below) normal (from 54 percent in Q2).

21%believe that now is a good time

to be taking greater risk.

Risk appetite downCompared to last quarter’s record breaking of 54 percent, now only 21 percent believe that this is a good time to be taking greater risk onto their balance sheets.

28%are optimistic about the financial

prospects for their company.

Optimism fades awayThe percentage of CFOs who are optimistic about the financial prospects for their company now stands at 28 percent – compared to 42 percent in Q2.

36%are likely to renew current credit.

Renew current creditAbout 36 percent of CFOs is likely to renew current credit over the next 12 months and 24 percent is likely to attract new credit.

46%believe that disruptive

technologies will reshape the

role of the CFO.

Technology to reshape CFO roleSome 46 percent of CFOs agree that disruptive technologies will reshape their role within and beyond finance.

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Economic context and special topic

Economic contextThere are currently two opposing trends in the global economy. The first trends is the high growth of the US economy, driven by domestic consumer spending. The Economist Intelligence Unit (EIU) revised its economic growth forecast for the US to 2.5 percent in 2015, up from 2.3 percent.

The second trend is the slowdown of emerging markets, China in particular. Having been the primary driver of global growth for more than ten years, China has been hit by economic headwind: a falling stock market, declining exports and capital outflows highlighted structural weaknesses in its economy.

Last September, the Chinese Purchase Manager Index (PMI) came in at its lowest level in six-and-a-half year, mainly because of a steep fall in new export business.PMI in the US and the Eurozone are still above the 50 mark that separates expansion from contraction. In the Netherlands, PMI stood at 53.0, the lowest level in six months.

During the third quarter of 2015, the equity markets were characterized as highly volatile. The Shanghai composite continued its steep decline and lost another 25 percent. The Amsterdam stock exchange reached a quarter’s high at 503.48 on 6 August but ended the quarter at a 16 percent lower level of 421.14.

Global commodity prices were also volatile during the quarter. The oil prices, dated Brent Blend averaged US$47 per barrel in August, the lowest monthly average in more than six years. The sell-off in the oil market has extended to a range of raw materials of which the prices have decreased significantly.

On the third Tuesday in September, the Dutch Cabinet traditionally presented the government’s spending plans for the next year. The Minister of Finance, Jeroen Dijsselbloem, said that the Netherlands has wrestled itself out of the economic crisis. The Dutch government will make 5 billion Euros available to ease burden on working people via income-tax reductions, lower employee costs and more child-care benefits as it aims to reduce unemployment.

The CPB Netherlands Bureau for Economic Policy Analysis revised its economic outlook upwards. The Dutch economy is projected to grow by 2.0 percent this year and by 2.4 percent in 2016. That is the fastest

growth since 2007 when the Dutch housing market collapsed. House prices are now back at their December 2003 level after prices increased with 2.5 percent on average last August compared with 12 months ago.

The base for recovery of the Dutch economy has expanded from exports to consumer spending. According to Statistics Netherlands, Dutch consumer spending on goods and services increased by 1.3 percent in July year-on-year. Spending on durable household goods even increased by 5.4 percent.

Despite widespread optimism about the economic recovery, consumer confidence hardly changed in September compared to August. Statistics Netherlands reported that the consumer confidence indicator was down 1 point to +5 and therewith remained more or less stable for the fourth consecutive month.

Special topic: technology innovations in financeTechnological innovations, including mobile computing, big data platforms, business analytics and social collaboration tools, are contributing to the transformation of business and can also offer new capabilities and tools that can help finance deliver insight, support company strategy and collaborate with the business. CFOs can think of these technologies in two innovation buckets: enabling innovations and disruptive innovations.

Enabling innovations are the technologies that have already begun changing and enhancing the way finance operates. Disruptive innovations are technologies that are fundamentally changing the way business gets done. These technologies may not impact the way finance operates today, but they could greatly influence and even change the way finance operates three to five years from now.

The panelists of our survey indicated that:• the use of enabling technologies in their finance

processes is moderate (40 percent);• disruptive technologies are hardly used yet with only

10 percent using it to a (very) large extent;• some 58 percent agree that disruptive technologies

will improve forecasting capabilities of the finance department;

• about 46 percent believe that disruptive technologies will reshape the role of the CFO within and beyond finance.

5 The Deloitte CFO Survey 2015 Q3 Results

The economy and CFOs’ outlook

The percentage of CFOs who rate the current economic situation as uncertain has increased sharply from 46 percent in the second quarter of 2015 to 84 percent now. This level of uncertainty is the highest since the 2013 Q2.

Business confidence has also fallen: 28 percent of the panellists feel optimistic about the financial prospects for their companies.

Some 44% of CFOs expect to generate more revenues over the next 12 months. In the 2015 Q2 edition of this survey, this metric stood at 74 percent.

Expectations for their companies’ operating margins also deteriorated. Now, 24 percent of CFOs are expecting better operating margins over the next 12 months – versus 41 percent in the previous quarter.

Only 13 percent of CFOs expect an increase in workforce, while 38 percent is expecting personnel reductions.

Chart 1. Economic uncertainty and business confidencePercentage of CFOs who rate the level of economic uncertainty as above normal and percentage of CFOs feeling optimistic about financial prospects

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Level of uncertainty Business confidence

Chart 2. CFOs’ outlook on revenues, margins and workforceExpectation of key metrics for CFOs’ company to change in the next 12 months

Revenues Operating margins Employees

Incr

ease

D

ecra

se

44%

28% 36%

24%

38%

13%

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Funding

CFOs still see bank borrowing as the most favoured source of corporate funding, despite a decrease from 64 percent to 44 percent.

A third of CFOs see corporate debt as their favoured source of funding and there is hardly any appetite for equity (net percentage of -13 percent).

There are now more CFOs likely to renew current credit than CFOs who are going to attract credit.

Some 36 percent of the panellists say that they are likely to renew current credit lines over the next 12 months, while the percentage of CFOs who are likely to attract new credit reduced sharply from 48 percent in 2015 Q2 to 24 percent now.

Only 8 percent of the CFOs is likely to issue equity in the next 12 months.

Chart 3. Favoured source of corporate fundingNet percentage of CFOs reporting the following sources of funding as (un)attractive

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Bank borrowing Corporate debt Equity

Una

ttra

ctiv

e A

ttra

ctiv

e

Chart 4. Likely to issue debt/equity?Percentage of CFOs who are (very) likely to issue debt/equity over the next 12 months

0%

10%

20%

30%

40%

50%

60%

Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Issue equity Renew current credit Attract new credit

7 The Deloitte CFO Survey 2015 Q3 Results

Cash flow and risk

Risk appetite among CFOs has fallen from last quarter’s record-breaking 54 percent to 21 percent now. This 21 percent is considerably below the two year’s average of 37 percent.

Only less than a quarter believe that now is a good time to be taking greater risk onto their balance sheets.

CFOs’ expectations for increase in free or operating cash flows have decreased to 64 percent, from 75 percent last quarter.

The biggest change compared to 2015 Q2 is seen in the number of CFOs who expect their cash flows to increase by 11-20 percent. Now only 20 percent expect an increase of 11-20 percent, versus 33 percent last quarter.

The percentage of CFOs who expect their cash flows to remain the same increased from 21 percent to 28 percent.

Chart 5. Risk appetitePercentage of CFOs reporting that now is a good time to be taking greater balance-sheet-related risks

32 32 34 33 45

28 48 54

21

-68 -68 -66 -67 -55

-72 -52 -46

-79

-100

-80

-60

-40

-20

0

20

40

60

80

Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Yes No

%

Chart 6. 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

0

10

20

30

40

50

60

70

80

90

100

Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Decline Remain unchanged Increase by 1%–10% Increase by 11%–20% Increase by more than 20% Any increase

8

M&A

The outlook for corporate mergers and acquisitions activity remained high but continued its downward trend and now stands at its lowest level since the second quarter of 2014.

Some 78 percent of CFOs expect corporate M&A to increase over the next 12 months – versus 88 percent and 96 percent in Q2 and Q1 respectively.

The outlook for private equity activity decreased from 83 percent to 68 percent, clearly below the 78 percent two year average.

Some 42 percent of the panellists expect their company to realize one or more acquisitions over the next 12 months. This is a decrease of 21 percentage points versus last quarter.

Partnerships, e.g. joint ventures, have become more popular, given the increase from 25 percent to 42 percent.

Chart 7. M&A outlookNet percentage of CFOs who expect M&A activity to increase/decrease in the next 12 months

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Strategic M&A Private equity

Chart 8. Likeliness of M&A activity at a CFO’s companyPercentage of CFOs who expect their company to be involved in a M&A transaction over the next 12 months

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Acquire Divest Partnership

9 The Deloitte CFO Survey 2015 Q3 Results

Special topic: Technology innovations in finance

Technological innovations, including mobile computing, big data platforms, business analytics and social collaboration tools, are contributing to the transformation of business and can also offer new capabilities and tools that can help finance deliver insight, support company strategy and collaborate with the business. CFOs can think of these technologies in two innovation buckets: enabling innovations and disruptive innovations.

Enabling innovations are the technologies that have already begun changing and enhancing the way finance operates. These enabling innovations can improve upon what is already being done today, such as:• Mobility: e.g. to support self-service reporting, remote enablement of business processes and “at the point”

analytics for decision support.• Software as a Service (SaaS): e.g. for cost reduction and efficiency by shifting a portion of IT costs from capital

expenditure to operational expenses. • Visualization: e.g. to uncover previously hidden insights and enhance communication. To gauge relevant metrics

and find new correlations between operational drivers and financial results.• In-memory computing: e.g. to improve data processing times for real-time reporting and to support finance’s need

for depth and granularity of information and analysis

Overall, enabling technologies are widely adopted by CFOs’ companies, but to different levels of extent. The average of moderate use of the combined four categories is 40 percent.

Some 21 percent of the panellists say that mobility is used to a large extent in their companies, but in-memory computing is used to a large extent by only 8 percent. Around of third of respondents do not use in-memory computing at all.

Software-as-a-service is used to a large extent by 13 percent and to a moderate extent by half of the respondents.

Chart 9. Adoption of enabling technologiesExtent to which enabling technologies are currently used in finance processes in CFOs’ companies

21% 13% 9% 8%

33% 50% 48%

29%

29% 21%

26%

29%

17% 17% 17% 33%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mobility SaaS Visualization In-memory computing

Large Moderate Small Not at all

Disruptive innovations are technologies that are fundamentally changing the way business gets done. These technologies may not impact the way finance operates today, but they could greatly influence and even change the way finance operates three to five years from now, such as:• Big data: e.g. use of data from sales, marketing and the supply chain to provide more in-depth, content-rich

analysis and insight into future results and investments.• Predictive analytics: e.g. to enable finance to forecast results by modelling probable outcomes based on real-time

inputs and variables rather than point-in-time assumptions of what are key drivers.• Cognitive analytics: is similar to predictive analytics, but adds in machine learning and natural language processing

technologies to enhance hypotheses identification and simplify access to information. As a result, larger volumes of unstructured data can be efficiently analyzed and applied to organizational decision-making.

• Social media and crowd sourcing technology: e.g. to bring internal and external perspectives from the “wisdom of crowds” to traditional finance processes and capabilities.

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The overall adoption of disruptive technologies in finance is lower than enabling technologies. On average, some 17 percent is using disruptive technologies to a moderate extent, while only 10 percent is using these technologies to a large extent.

Within the categories of disruptive technologies, big data is used most, with only 8 percent of CFOs saying that they do not use it all.

Half of the CFOs say that they do not use social media and crowd sourcing technologies in their finance processes.

Chart 10. Adoption of disruptive technologiesExtent to which disruptive technologies are currently used in finance processes in CFOs’ companies

17% 4% 4%

17%

13%

21% 22% 13%

63% 63%

48%

21%

8% 13% 26%

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Big data Predictive analytics Cognitive analytics Social media/crowds

Large Moderate Small Not at all

When it comes to employing technological innovations in CFOs’ finance departments, in terms of workforce, most CFOs say that they will most likely invest in hiring data analysts (71 percent), followed by controllers (38 percent).

Only 13 percent consider to invest in ethical hackers and some 21 percent will most likely invest in a compliance analyst.

Chart 11. Employing innovations through workforceMost likely employee categories to be invested in to employ innovations in the finance department

71%

38%

29%

21%

13%

Data analyst Controller Systemarchictect/developer

Complianceanalyst

Ethical hacker 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Almost half of the CFOs, namely 46 percent, agree to the statement that the use of disruptive technologies in finance processes is going to reshape the role of the CFO within and beyond finance.

Some 58 percent agree that disruptive technologies will help creating new finance delivery models and value creation. The same percentage agree that disruptive technologies will improve the forecasting capabilities of the finance department.

A small minority of 13 percent believe that disruptive technologies will substitute finance professionals by algorithms.

Chart 12. Agreement or disagreement to statementsPercentage of CFOs that agree or disagree to 4 statements regarding the deployment of disruptive technology in finance

Improve finance’s forecasting capabilities

Help creating new finance delivery modelsand value creation

Substitute finance professionals by algorithms

Reshape the role of the CFO withinand beyond finance

Agree Disagree

11 The Deloitte CFO Survey 2015 Q3 Results

Contacts

Jan de RooijPartner Deloitte Core Audit – CFO Program Lead PartnerJandeRooij@deloitte.nl+31 (0)6 5336 6208

Wilten SmitManaging Partner Deloitte Financial Advisory ServicesWiSmit@deloitte.nl+31 (0)6 5389 7407

Fred van der WaaPartner Deloitte CFO ServicesFvanderwaa@deloitte.nl+31 (0)6 8201 2372

Harm DrentManager ResearchHDrent@deloitte.nl+31 (0)6 1201 1716

Karen van SchieDeloitte Press OfficerKvanSchie@deloitte.nl+31 (0)6 8201 9154

A note on methodology

To enhance readability not all survey questions will be reported in each quarterly survey. Survey questions will be selected in response to the current financial economic situation. If you wish to receive information about non-reported questions, please contact us. The Deloitte CFO Survey is also executed by other Deloitte countries, for instance the UK. Comparisons will be made when relevant.

Some of the charts in the Dutch Deloitte CFO Survey show the results in the form of a net balance. This is the percentage of respondents reporting, for instance, that bank credit is attractive minus the percentage stating that bank credit is unattractive. This is a standard way of presenting survey data. Due to rounding answers may not total 100%.

The 2015 Q3 survey took place between 3 September 2015 and 25 September 2015. A total of 25 corporate CFOs completed our survey, representing a net turnover per company of approximately EUR 2.4 billion. The responding companies can be categorized as follows: publicly listed (48%), privately owned (12%), family owned (16%), cooperation (8%), state or government owned (8%), other and/or unknown (8%).

We would like to thank all participating CFOs for completing our survey. We trust the report will make an interesting read and highlights the challenges facing CFOs. We also hope it provides you with an important benchmark to understand how your organization compares to your peers.

Author: Harm Drent (@hdrent69), Deloitte Research

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