11 th Global Capital Confidence Barometer

Transcription

1 11 th Global Capital Confidence Barometer Chile October respondents

2 About the Barometer EY s Capital Confidence Barometer is a regular survey of senior executives from large companies around the world conducted by the Economist Intelligence Unit (EIU). The respondent community is comprised of an independent EIU panel of senior executives and select EY clients and contacts. Our 11 th Barometer provides a snapshot of our findings, gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agenda. Respondent profile EIU panel of more than 1600 executives surveyed in August and September executives from Chile Companies from 62 countries Executives from 18 industry sectors 949 CEO, CFO and other C-level executives More than 800 companies would qualify for the Fortune 1000 based on revenues Page 2

3 Macroeconomic environment Page 3

4 Executives are increasingly confident in the stability of the global economy What is your perspective on the state of the global economy today? 53% 33% Improving 60% Improving 41% 65% 55% 44% 52% Stable 31% Stable 43% 24% 31% 3% 15% Declining 9% Declining 16% 11% 14% Apr-14 Oct-13 While expectations for economic growth have fallen back since April, there has been no resurgence of systemic shocks to any economic or financial system This is supportive of a more stable view on economic growth in the near term Page 4

5 Confidence in Chile s domestic economy is mixed What is your perspective on the state of your local economy today? 34% Improving 46% 39% 32% Stable 35% 29% 34% Declining 19% 32% Apr-14 Oct-13 34% of executives believe the local economy is improving, compared to 46% in April 2014; 32% believe it is stable, a drop from 35% in April Page 5

6 Impact of slowing growth in emerging markets is a top concern in Chile What do you believe to be the greatest economic risk to your business over the next 6 12 months? Increased global political instability 37% 30% Slowing growth in key emerging markets 37% 39% The effects of tapering of quantitative easing 25% 21% Increased global political instability 31% 29% Slowing growth in key emerging markets 15% 26% The effects of tapering of quantitative easing 21% 23% Pace of structural reforms in Eurozone 14% 14% Pace of structural reforms in Eurozone 5% 6% Inflation 7% 6% Deflation 3% 0% Deflation 2% 3% Inflation 3% 3% Apr-14 Globally, geopolitical concerns have increased, especially in the EU, driven mainly by tensions between Ukraine and Russia. The Middle East crisis has also escalated since April Page 6

7 Chilean executives are increasingly less positive across key global economic indicators Please indicate your level of confidence in the following at the global level: % response positive 77% 64% Corporate earnings 65% Corporate earnings 74% 43% 32% Short-term market stability 21% 64% 54% Credit availability 41% 58% 35% 58% 39% Credit availability 54% Short-term market stability 58% 48% 26% Equity valuations/stock market outlook 29% 54% 49% Equity valuations/stock market outlook 31% 29% 59% Apr-14 Oct-13 Corporate earnings were very strong in US in the second half of 2014, with 70% of S&P 500 beating estimates However, the Eurozone and UK were mixed, with currency and regional concerns depressing results Page 7

8 Chile has mixed outlook across key local indicators Please indicate your level of confidence in the following at the local level: % response positive Short-term market stability 34% 54% 68% Credit availability 54% 57% 65% Corporate earnings 40% 51% 74% Equity valuations/stock market outlook 26% 41% 49% Apr-14 Oct-13 Year over year local sentiment has increased on key economic indicators but there is a decline since April Page 8

9 Confidence in economic indicators driving positive hiring intentions With regards to employment, which of the following does your organization expect to do in the next 12 months? oct-14 41% 52% oct-14 46% 41% abr-14 52% 31% abr-14 55% 26% oct-13 41% 48% oct-13 51% 40% Reduce workforce numbers Keep current workforce size Create jobs/hire talent With greater clarity of economic outlook, the credit environment and corporate earnings, companies are more confident in their plans to increase workforce numbers Page 9

10 Changing work patterns affect business and investment strategy Which of the following will impact a) your core business and b) your acquisition strategy most in the next 12 months? Select up to two. Future of work Rethinking government Digital transformation Global rebalancing Resourceful planet Reconfiguring the financial system Cyber security 44% 38% 34% 27% 33% 37% 33% 32% 27% 26% 18% 21% 4% 4% Future of work Resourceful planet Reconfiguring the financial system Rethinking government Digital transformation Global rebalancing Cyber security 49% 31% 33% 18% 23% 28% 23% 28% 23% 28% 18% 31% 8% 10% Business Acquisition The current trend in most major economies for more part-time and self-employed workers is of primary concern to companies Global rebalancing is altering cross-border M&A, with China and Japan increasingly investing overseas Digital transformation is impacting all industries and influencing investment decisions; rethinking government provides opportunities for companies, especially in infrastructure Page 10

11 Corporate strategy Page 11

12 Companies are seeking growth but not at the expense of costs and efficiencies Which statement best describes your organization s focus over the next 12 months? % focused on growth oct-14 15% 35% 49% 80% abr-14 17% 37% oct-13 8% 32% oct-14 18% 55% abr-14 26% 39% 40% 58% 24% 32% 60% 40% 20% 41% 35% 52% 38% 58% 40% 40% 32% 49% 24% oct-13 17% 40% 40% Survival Maintain stability Cost reduction and operational efficiency Growth 0% oct-12 abr-13 oct-13 abr-14 oct-14 Chilean companies are increasingly looking at cost reductions and operational efficiencies Globally, companies are looking to the future while being mindful of lessons learned during the Global Financial Crisis Page 12

13 Organic growth focused on core capabilities What is the primary focus of your company s organic growth over the next 12 months? Changing mix of existing products & services Increase R&D/product introductions Exploiting technology to develop new markets/products Investing in new geographies/markets More rigorous focus on core products/existing markets New sales channels Higher risk 30% 21% 9% 22% 17% 6% 8% 15% 16% 3% 12% 12% Lower risk 23% 24% 40% 14% 11% 17% Changing mix of existing products & services Exploiting technology to develop new markets/products Increase R&D/product introductions Investing in new geographies/ markets New sales channels More rigorous focus on core products/existing markets Higher risk 20% 24% 11% 0% 13% 22% 0% 25% 22% 0% 25% 0% Lower risk 0% 11% 13% 40% 40% 34% Apr-14 Oct-13 Chilean companies are focused on core and new sales channels Page 13

14 Chilean companies pursuing measured and disciplined M&A What percentage of your planned growth for the current fiscal year is explicitly assigned to acquisitions? Less than 25% 55% 69% Less than 25% 59% 70% 25% 49.9% 27% 39% 25% 49.9% 30% 30% Greater than 50% 4% 6% Greater than 50% 0% 11% Apr-14 Companies are not planning acquisitions at the expense of organic growth but they expect to do deals that are aligned to their strategy Page 14

15 Continued balance sheet discipline leads to drop in highly-levered corporates What is your company s current debt-to-capital ratio? Less than 25% 39% 44% 68% Less than 25% 32% 37% 58% 25% 49.9% 24% 33% 32% 25% 49.9% 31% 41% 48% 50% 74.9% 5% 19% 16% 50% 74.9% 8% 10% 11% 75% 100% 3% 9% 8% 75% 100% 3% 10% 11% Apr-14 Oct-13 Companies are well-placed to withstand any increase in interest rates through the early stages of the impending rate hike Page 15

16 Increase in leverage to fund growth strategies How do you expect your company s debt-to-capital ratio to change over the next 12 months? oct-14 36% 46% oct-14 54% 28% abr-14 33% 27% abr-14 42% 6% oct-13 46% 20% oct-13 40% 23% Decrease Remain constant Increase Globally, companies are moving beyond a GFC mindset and looking to the future, not the past Page 16

17 Growth intentions supported by Capital Agenda focus on optimizing and raising capital On which of the following capital management issues is your company placing the greatest attention and resources today? oct-14 abr-14 oct-13 33% 28% 14% oct-14 abr-14 oct-13 15% 23% 52% oct-14 20% oct-14 29% abr-14 35% abr-14 26% oct-13 22% The Capital Agenda oct-13 47% oct-14 abr-14 oct-13 0% 3% 5% oct-14 abr-14 oct-13 52% 46% 29% oct-14 0% oct-14 51% abr-14 3% abr-14 36% oct-13 14% oct-13 17% Companies are adopting a balanced strategy to achieve growth in the near term Page 17

18 Activists influence focus on costs and efficiencies and portfolio reviews Which of the following has been elevated on your boardroom agenda as a result of shareholder activism? Select up to two. Cost reduction 48% Cost reduction 62% Share buy-back 30% Portfolio analysis 26% Cash dividend payments 28% Strategic divestment 23% Strategic divestment 25% Share buy-back 18% Portfolio analysis 20% Acquisition 13% Spin-off/IPO 14% Cash dividend payments 10% Acquisition Our shareholders have not raised these issues We do not have shareholders 11% 5% 1% Our shareholders have not raised these issues Spin-off/IPO We do not have shareholders 10% 8% 0% Activist shareholders are reinforcing the disciplined approach to managing costs to improve profitability Strategic divestments are increasingly driven by shareholder activism Page 18

19 Companies are adopting strategies to prepare for activist shareholders How are you preparing to manage any shareholder activism? Ensuring we have open and proactive lines of communication with our shareholders Monitoring early warning signs for activist pressure Conducting an activist audit continue with improvement around cost, efficiencies and performance Conducting ongoing portfolio review to grow revenue, increase margins and optimize value 18% 17% 17% 18% 24% 21% 22% 22% Nothing: we are confident in our current strategy and not actively preparing for activism among our shareholders Making management changes as a result of activist intervention 9% 8% 8% 10% Not applicable 3% 3% High-profile examples of activist intervention in the US have influenced companies in other markets Page 19

20 M&A outlook Page 20

21 Global M&A deal market continues to stabilize What is your expectation for the global M&A market in the next 12 months? 60% 36% Improve 58% Improve 42% 69% 60% 39% 61% Stay the same 36% Stay the same 55% 26% 34% 1% 3% Decline 6% 5% Decline 3% 6% Apr-14 Oct-13 The positive performance of the deal markets in 2Q14 has helped boost the outlook for M&A The momentum in M&A is across all sectors and geographies in 2014, whereas the stalled market in 2013 was restricted to US and certain sectors The trend toward stability is consistent with the macroeconomic positivity, leading to confidence in future dealmaking Page 21

22 Chilean executives expect domestic M&A to remain stable What is your expectation for your local M&A market in the next 12 months? 38% Improve 39% 53% 47% Stay the same 38% 58% 15% Decline 3% 9% Apr-14 Oct-13 Chilean respondents are positive on the local deal market Page 22

23 Dealmakers assessing more targets to determine best strategic growth opportunities How many deals of all sizes do you have in your pipeline today? >=5 15% 23% >=5 0% 35% 4 8% 10% 4 0% 18% 3 13% 19% 3 12% 62% 2 30% 32% 2 29% 38% 1 26% 24% 1 0% 6% Apr-14 Big shift towards larger pipeline is expected to grow in the near-term and points to pick up in middle-market deals Increasing rigor is requiring bigger pipelines to support the search for strategically aligned deals Page 23

24 Increasing pipelines indicate potential M&A momentum How do you expect your deal pipeline to change over the next 12 months? Increase 29% 66% Increase 13% 53% No change 29% 62% No change 35% 81% Decrease 5% 9% Decrease 6% 12% Apr-14 Correlation between size of current pipeline and intention to grow pipeline shows greatest desire to increase is in smaller current pipelines, which indicates a pick-up in M&A in the mid-term Page 24

25 Companies desire to acquire, but face dealmaking challenges Do you expect your company to pursue acquisitions in the next 12 months? Level of confidence at the global level: 60% Expectations to pursue an acquisition Likelihood of closing acquisitions 44% 32% 42% Likelihood of closing acquisitions 34% 23% 47% 40% 41% 35% 43% 35% 31% 44% 40% Quality of acquisition opportunities 51% 41% 43% Quality of acquisition opportunities 41% 29% 61% 29% 20% 25% 16% 0% oct-12 abr-13 oct-13 abr-14 oct-14 Number of acquisition opportunities 58% 51% 61% Number of acquisition opportunities 43% 48% 50% Apr-14 Oct-13 The desire to pursue acquisitions has rebounded after a dip in early 2014 There is a disconnect between the desire to do deals and the likelihood of identifying appropriate assets and the expectation of completing deals Companies are learning how to transact in a normalized market but within a new regulatory and investor environment Page 25

26 Chilean executives positive on local deal market Please indicate your level of confidence in the following at the local level: % response positive Likelihood of closing acquisitions 25% 34% 40% Quality of acquisition opportunities 35% 34% 39% Number of acquisition opportunities 41% 42% 52% Apr-14 Oct-13 Chilean executives are positive on deal quality, closings and opportunities Page 26

27 Deal value volumes over time indicate that middlemarket deals may pick up in late 2014/early % 35% yoy 15% -5% -25% % -65% Deal size 0 - US$500m US$500m - US$1b US$1b+ Source: Dealogic & EY analysis Excludes real estate asset acquisitions An analysis of yoy changes in deal value range volumes shows that previous upturns have been led by mega and upper middle-market deals and then followed by lower middle-market Page 27

28 Strong shift towards middle-market indicating healthier M&A landscape What is the maximum single deal value expected over the next 12 months? 4% oct-14 31% 10% 5% oct-14 41% 12% 6% abr-14 30% 20% 15% 12% abr-14 60% 20% oct-13 31% 23% 14% 5% oct-13 33% 34% Less than $50m $50m $249.9m $250m $499.9m $500m $999.9m Greater than $1b Shift in middle-market is supportive of desire to pursue bolt-on acquisitions Page 28

29 Modest valuation gap reflects confidence in asset prices How do you think that buyers expectations currently compare to sellers (valuation gap)? Significantly higher (25% or more) 5% Significantly higher (25% or more) 5% Somewhat higher (10-25%) 35% Somewhat higher (10-25%) 21% The gap is small (<10%) 50% The gap is small (<10%) 43% Somewhat lower (10-25%) 8% Somewhat lower (10-25%) 13% Significantly lower (25% or more) 2% Significantly lower (25% or more) 18% A small valuation gap indicates that market is not overheated Page 29

30 Stable valuation gap seen for near term will encourage dealmaking Do you expect the valuation gap between buyers and sellers in the next 12 months to: 11% 5% Contract 25% Contract 23% 16% 11% 74% 79% Stay the same 55% Stay the same 67% 53% 66% 15% 16% Widen 20% 31% Widen 10% 23% Apr-14 Oct-13 Stability in valuations allows more productive negotiations on asset sales Page 30

31 Less volatility in asset valuations expected What do you expect the price/valuation of assets to do over the next 12 months? 33% 21% Increase 45% Increase 29% 42% 29% 59% 58% Remain at current levels 43% Remain at current levels 61% 43% 60% 8% 21% Decrease 12% 15% Decrease 10% 11% Apr-14 Oct-13 As buyers perceive that any newly acquired assets will not lose value in the near- and mid-term, M&A would be expected to increase Page 31

32 Deal financing What is likely to be the main source of your company s deal financing in the next 12 months? Debt 49% Debt 64% Equity 12% Cash 24% Cash 11% Equity 12% Alternate funding 28% Alternate funding 0% Healthy and robust balance sheets will allow deals to be funded through increased leverage Page 32

33 Companies are looking to achieve growth within core businesses What are the main drivers impacting your M&A strategy over the next 12 months? Select up to three. Reduce costs, improve margins Move into new geographical markets Access new technology/intellectual property Improvements to supply chain Move into new product/services areas Gain market share in existing geographical markets Acquire talent Acquire assets at a discount opportunistic M&A Optimize tax efficiencies Navigate regulatory issues Leverage regulatory/legislative opportunities 11% 10% 7% 8% 3% 5% 21% 24% 23% 19% 21% 35% 34% 33% 32% 31% 31% 36% 45% 46% 41% 46% Globally, companies are beginning to look at a range of transaction drivers while remaining mindful of cost discipline Chilean executives are looing to reduce costs and move into new geographical markets Page 33

34 Desire for market share and margin growth reinforces focus on the core sector Are your M&A deals planned in or outside your core sector? We are looking to acquire competitors/similar companies in our core sector 73% We are looking to acquire competitors/similar companies in our core sector 73% We are looking both inside and outside of our core sector 19% We are looking both inside and outside of our core sector 16% We are looking outside of our core sector 8% We are looking outside of our core sector 11% Companies will continue to acquire assets that they are familiar with and can more easily integrate into their existing operations Page 34

35 Strong focus on bolt-on acquisitions; transformative and disruptive deals remain attractive Your planned M&A activity will mostly be: Which statements best describe your M&A plans? Bolt-on (complement current business model) Transformative (high value acquisition which significantly changes the size of acquirer) 63% 59% 37% 41% We will focus on growing the core (expanding your core offering into new markets or products) We will do disruptive deals (innovative investment which shifts scope of buying business could be into another industry sector) We will do defensive deals (ensuring assets don t fall into competitor hands) 59% 47% 23% 35% 18% 18% Companies continue to take less risky options when acquiring assets There is a willingness to make bolder acquisitions when justifiable Page 35

36 Chilean companies see hostile M&A, but less than global respondents Do you expect to see an increase in hostile/contested M&A in the next 6-12 months? Yes 53% Yes 46% No 47% No 54% EY analysis of external data shows that hostile and unsolicited bids are at pre-crisis levels but not at peak levels Page 36

37 Companies searching for measured growth, expressing greater desire to pursue deals across all markets How has your acquisition strategy toward/focus on investing in the following markets changed versus 12 months ago? Increase 46% 50% Increase 29% 33% 52% 30% 50% 50% Stayed the same 46% Stayed the same 53% 45% 67% 4% 21% Decrease 4% 3% Decrease 3% 14% Non-BRIC emerging market BRIC emerging market Developed/mature market Executives indicate that all geographical groupings are being considered for potential investment Page 37

38 Slowing growth concerns are influencing outbound investment decisions fro Chilean executives If you are slowing or stopping your investments into certain markets, to what do you attribute this changing sentiment? Political/regulatory risk in those markets 31% Slowing growth 42% Lack of infrastructure to support growth in those markets 27% Currency risk 21% Slowing growth 21% Lack of infrastructure to support growth in those markets 16% Complexity and transparency 11% Political/regulatory risk in those markets 16% Currency risk 10% Complexity and transparency 5% Globally, political and regulatory risks are the top concerns across all markets Page 38

39 Chilean investment mainly focused on emerging markets Which are the top 5 countries (outside your local market) your company is most likely to invest in the next 12 months? US China Top destinations Global Chile Colombia UK India US China Brazil US Brazil Peru Colombia China Peru Brazil Top 5 destination countries Greater focus overall on neighboring and top-tier emerging markets Page 39

40 Deal execution capabilities challenging dealmaking strategy and success What are the main challenges to your M&A strategy over the next 12 months? Select up to two. Deal execution and integration capabilities Lack of internal resources to handle the deal Valuation gap Lack of managerial focus on M&A Shareholder activism Adverse economic environment Funding availability Regulatory environment Adverse political environment Insufficient opportunities/suitable targets 3% 30% 28% 18% 27% 21% 26% 15% 21% 21% 15% 21% 13% 23% 12% 9% 10% 7% 13% 46% Internal challenges are the main barrier to achieving M&A goals in the near term Page 40

41 Over paying for assets seen as most significant issue when considering recent deals For acquisitions completed recently, what was the most significant issue that contributed to deals not meeting expectations? Strategic value overestimated/purchase price multiple too high 32% 26% Poor execution of integration Product/Sales price and margin deterioration Unforeseen liabilities (tax, HR, pension etc) 5% 17% 17% 21% 17% 13% Sales volume declines/loss of customers 11% 27% Poor operating cost assumptions 6% 8% Chilean executives are also concerned with sales volume declines Page 41

42 Survey demographics Page 42

43 Survey demographics What are your company s annual global revenues in US$? What is your position in the organization? $5b or more 27% $5b or more 18% C-level executive 59% SVP/VP/Director 46% $1b to $4.9b $500m to $999.9m Less than $500m 31% 24% 18% $1b to $4.9b $500m to $999.9m Less than $500m 26% 26% 30% SVP/VP/Director Head of BU/dept. 6% 35% C-level executive Head of BU/dept. 8% 46% What best describes your company ownership? Publicly listed 64% Publicly listed 59% Privately owned 22% Privately owned 33% Private equity portfolio company 9% Family-owned 5% Family-owned Government/state-owned enterprise 3% 2% Private equity portfolio company Government/state-owned enterprise 3% 0% Page 43

44 Proportion of top industries represented Consumer products and retail 15% Automotive and transportation 18% Diversified industrial products 13% Diversified industrial products 18% Automotive and transportation 12% Consumer products and retail 10% Life sciences 8% Construction 10% Financial services 8% Mining and metals 8% Technology 8% Technology 8% Media and entertainment 5% Power and utilities 5% Power and utilities 5% Media and entertainment 5% Oil and gas 4% Other 5% Telecommunications 4% Real estate 3% Page 44

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