The latest survey of Swedish chief financial officers (CFOs), conducted by Deloittte and banking group SEB, shows signs of returning confidence in a stabilising but still-challenging business climate. The
‘Deloitte/SEB CFO index’
for March shows a reading of 49.5; slightly up from the 48.3 recorded in the previous survey in September 2012.
Several key indicators are now pointing upward after companies made adjustments to the weaker economy. According to Sweden-based CFOs, the appetite for mergers and acquisitions (M&As) has also improved.
The Swedish krona (SEK) is expected to strengthen this year, possibly to the detriment of exporters. Financial risk is less of an issue, according to surveyed participants, but defensive strategies to reduce debt remain on top of the agenda. Positive stock market sentiment may spur confidence in deal-making, while the corporate bond market looks poised to continue its growth. There are signs of stabilising employment expectations and less emphasis on staff cuts in the next six months. Weakening demand was deemed as the biggest threat on the horizon.
There are signs of returning confidence after a weak end to last year. While the business climate remains challenging, CFOs expressed cautious optimism on their financial position, cash flows and the availability of financing in the next 12 months. “We see a slightly improving sentiment as companies seem to have adapted to the rather weak economic environment. Several core indicators, such as general business conditions and financial positions, are pointing upwards, albeit from a low level,” says Johan Lindgren, head of credit strategy at SEB.
Recent positive stock market sentiment is expected to further improve over the next 12 months and fuel confidence for once-latent deal activity. Almost 75% of CFOs expect the Stockholm Stock Exchange’s OMXS30 index to increase by 5% or more in the next 12 months. The corporate bond market is also pegged for further growth.
The percentage of CFOs who expect the number of employees in their companies to decline over the next six months dropped from 44% in September 2012 to 35% in the latest survey. Their responses also indicate that balance sheet risk has dropped, although defensive strategies such as paying off debt are still favoured over expansionary strategies. Weakening demand is seen as the greatest threat in 2013, expressed with more emphasis in the March 2013 survey compared to September 2012.
“We see that caution and defensive strategies remain favoured by CFOs in a tough business climate. However, a number of indicators show signs of financial stability and improved sentiment. Increased M&A activity may well trigger confidence to focus on more forward-looking initiatives,” says Tom Pernodd, a partner at Deloitte.
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