European businesses have ambitious growth plans but risk missing out on new international opportunities unless they restructure their finances, according to a new report by HSBC and PricewaterhouseCoopers (PwC). The report, ‘Forward Thinking Finance: The Growth Challenge’, has identified that €120bn is sitting untapped on the balance sheets of Europe’s mid-market businesses which could be used for growth .
With middle market European firms looking to deliver double digit growth over the next year and chief executive officers (CEOs) now as confident about revenue growth as before the financial crisis, the report investigates the evolving business and financial landscape in which these companies are operating. It identifies that while emerging markets offer unprecedented expansion opportunities, in order to benefit there are key financial challenges that businesses are likely to face. These include increased demand for credit; impending debt repayment dates; new regulatory controls in Europe; working capital that ‘isn’t working’; and a requirement for fresh sources of investment.
To overcome these challenges and finance for growth, the report outlines three key actions for all finance departments:
- Review your existing funding arrangements and how they can best be used to meet the business’ operational, financial and business development priorities.
- Strengthen processes, information and support to provide better insight, control and efficiency.
- Regularly evaluate how effective your finance function is in delivering your objectives.
John Casey, HSBC head of commercial banking, continental Europe, said: “European businesses have a renewed appetite for growth and many are looking to expand far more aggressively than in recent years. There is a real sense of urgency, not just optimism, among many of our customers as we work together to look at how they can restructure their balance sheets and make strategic moves for expansion.
“What is clear from this report and our interactions with customers is that forward-thinking businesses are using finances in a completely different way to before the economic downturn. We are urging European businesses to work in partnership with their bank to consider these new ways of managing debt and equity in order to bolster their financial plans and realise their growth aspirations.”
Chris Jones, UK financial services leader, PwC, said: “Use of debt and credit will determine the future of European companies as their focus shifts back to growth over the coming years. More companies went bust as we emerged from the 1990s downturn than during the recession as directors overstretched themselves to generate higher profits. Boardrooms, and finance groups in particular, must assess how to safeguard themselves from repeating past mistakes and to position themselves to compete for both finance and customers. Responding effectively will mean asking robust questions about the ability of their finance department to support the business.”
The report asserts that the next two years offers a unique window of opportunity – smart CFOs will capitalise now to refinance, restructure or reorganise to drive growth and leave competitors in their wake.
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