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«Actions speak louder than words – the party is still on» CFO Survey – 3. Quarter 2018 Deloitte & SEB

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Page 1: than words the party is still on» - SEB · Respondents in our survey expect inflation in Norway to be 2.32% over the coming 12 months. This is in line with Norges Bank’sexpectations

«Actions speak louder than words – the party is still on»

CFO Survey – 3. Quarter 2018

Deloitte & SEB

Page 2: than words the party is still on» - SEB · Respondents in our survey expect inflation in Norway to be 2.32% over the coming 12 months. This is in line with Norges Bank’sexpectations

2

Contents

Economic prospects

Strategic opportunities

Capital structure and risk

Financing

Hot topics

About the survey

Executive summary

CFO Index

Page 3: than words the party is still on» - SEB · Respondents in our survey expect inflation in Norway to be 2.32% over the coming 12 months. This is in line with Norges Bank’sexpectations

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Executive summary (I/II)

«Actions speak louder than words – the party is still on»

Previous CFO surveys have indicated that the CFO's have been positive onoutlook, but failed to really believe in the blue sky scenario. This time isdifferent. Norwegian CFO’s see the trinity of margins, sales and capex goingup. Adding to the picture, they intend to increase employment as well.

Naturally they have worries; political risk, raw material and labour costs arethe key antagonists, but their actions in terms of hiring and investments speaklouder.

As expected, the Oil production/Oil service sector is positive, having beenthrough a trough, but even Real estate and Construction sees growth intopline, investments and margin. The odd one out is Retail, owing to theirstructural issues.

CFO’s have over consecutive surveys transitioned from conservativestrategies to more offensive-minded strategies

In the past three surveys, cost reduction, typically highly prioritized for a CFO,have emerged as less important. CFO’s are instead focusing on core businessand ramping up production capacity. Fewer CFO’s are also focused onincreasing their cash balance and instead informs us that investing will be theirmain priority going forward. An all-time high share of CFO’s report of increasedcapex, for the fourth survey in a row.

«Actions speak louder than words – the party is still on»

Page 4: than words the party is still on» - SEB · Respondents in our survey expect inflation in Norway to be 2.32% over the coming 12 months. This is in line with Norges Bank’sexpectations

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Executive summary (II/II)

«Actions speak louder than words – the party is still on»

Real estate and Construction surprises with a strong, positive outlook

We expected Real estate and Construction to be fairly flat, worrying aboutcapital costs and lower sales of new housing. Instead, we see a spike inoptimism in Construction and a record-high number of CFO’s in Real estateintending to increase investments going forward. In our opinion, this suggestsa belief that the Norwegian economy is strong and will withstand the effect ofan interest rate increase.

Retail appear to suffer from structural issues and worrying aboutdemand

Retail have for some time been struggling with the structural shift fromphysical stores to a digital presence. Fewer CFO’s expect higher revenue, whichis unusual in this industry. In addition, CFO’s are concerned they are notfinding enough qualified people with technical skills, which likely is referring toIT. The majority of Retail CFO’s also consider falling domestic demand as theirbiggest threat, which we believe is related to expected increases in the interestrate, reducing disposable income for Norwegian households.

Political noise is still a concern, CFO’s are no longer acting reluctantly

In Q1-17, in the aftermath of Brexit, Trump and trade wars became hot topicsand the political uncertainty spiked. However, it looks like the CFO’s are used tothis. The CFO’s are still worried, but are ignoring the level of political noise.While they previously were reluctant, they are now determined to act.

Page 5: than words the party is still on» - SEB · Respondents in our survey expect inflation in Norway to be 2.32% over the coming 12 months. This is in line with Norges Bank’sexpectations

5

Andreas EngerPartner, Norway

Head of Monitor Deloitte, [email protected]

Thomas EitzenHead of Credit Strategy

Large Corporates & Financial Institutions, [email protected]

Contacts

Ragnar NesdalPartner, Norway

Financial Advisory, [email protected]

Mats W. GulbrandsenCredit Research

Large Corporates & Financial Institutions, [email protected]

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6

Stronger economy according to Norwegian CFO’s

For Q3-18 the CFO Index is at 57.5, which is down 0.1from our survey six months ago. The index is slightlybelow the historical average, however the results aresuggesting optimism and expectations of continuedimprovements in the Norwegian economy.

The key observation is that Norwegian CFO’s expecthigher revenues and margins going forward. They intendto increase employees and invest more.

Compared to previous surveys, Oil production/Oil servicestands out as the sector which have become morepositive while Retail believe in a tough market over thenext six months due to structural challenges in thesector.

CFO Index

40

45

50

55

60

65

70

Norwegian CFO Index

Norwegian CFO Index Average

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Q: Compared to six months ago, how do you feel about the financial prospects for your company?

Optimism among Norwegian CFO’s is still high

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

Optimism at a high level historically, downmarginally from last survey

A net share of 29%1 of responding CFO’s of the largestcompanies in Norway are more optimistic about financialprospects compared to six months ago. This ismarginally down from 36% in Q1-18, driven by moreCFO’s being ‘somewhat less optimistic’ than ‘somewhatmore optimistic’. These findings are in line withForventningsbarometeret2, which also decreased slightlyin Q3-18.

We find the results somewhat surprising as macroeconomic factors and most of the rest of the surveysuggest more optimistic CFO’s. However, we do well toremember that even though the expected optimism ismoderately lower compared to six months ago, it is stillat a high level in historical context.

1. The net share is defined as the percentage point difference between positive and negative respondents throughout this report

2. Finans Norge

49%

-32%

20%

10%

36%

-3%

2%

10%

-25%

-39%

-26%

20%

40%

32%36%

29%

Net optimism share

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8

Retail falls to the lowest level historically, whileConstruction optimism spikes

The general sentiment is positive, as there are noindustries with negative net share of optimism, exceptRetail.

Retail has experienced the largest drop in net optimism,as a net negative share of 6% of responding CFO’s feelthe financial prospects for their company is lessoptimistic. We do not find these results surprising, asthe retail industry have been struggling over time withindustrial structural changes. 10 out of 16 Retail CFO’salso report of lower domestic consumption as their mainthreat, perhaps fearing the effect of an increasedinterest rate on household consumption, as Norwegianhouseholds tend to be loaded with debt (SSB1).

Construction CFO’s3 have experienced a leap in optimismsince the last survey, which we find surprising, as houseprice growth is expected to decrease, according toNorges Bank2. Both Real estate and Construction expectto ramp up investments and appear to have a strongbelief in Norwegian assets.

Optimism among CFO’s marginally decreasing in most industries, but the sentiment is still positive

Q: Compared to six months ago, how do you feel about the financial prospects for your company?

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

Note that we show the industries that historically has had the highest number of respondents1. SSB, 27.09.2018 2. DN, 20.09.20183. 4 respondents

36 %43 %

55 %

31 %

75 %

13 %

-6%

27%

54%

22%

86%

50%

Retail/Wholesales

Production/Industry

Oil production/Oil service

Bank/Finance/Insurance

Energy/Powerproduction

Construction

Net optimism share

Q1-17 Q3-17 Q1-18 Q3-18

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9

Bullish on the prices

We observe the highest readings since the start of the survey.

A net share of 50% of the responding CFO’s expectprices of their products to increase over the next sixmonths. We observe a reduction in CFO’s who believe infalling prices and a jump in expectations of more than3% increase in prices.

We also find that CFO’s expect revenues and margins toincrease, and it can be argued that the driver behindthese results is a jump in prices.

Q: What is your view of the general price trend for your company’s products/services for the coming six months?

Expectations of rising prices at record highs

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

The figure shows the net percentage of CFO’s expecting prices on their own products to increase.

25%

6%

16%

8%

11%

15%

29%

38%

43%

50%

Q1-14 Q3-14 Q1-15 Q3-15 Q1-16 Q3-16 Q1-17 Q3-17 Q1-18 Q3-18

Net share expecting price increase

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Bullish on the prices

Respondents in our survey expect inflation in Norway tobe 2.32% over the coming 12 months.

This is in line with Norges Bank’s expectations survey forQ3-18 with an expectation 2.3%.

We stated in the previous page that responding CFO’sexpect higher revenues and margins and that higherprices can be a potential driver. However, expectationsof higher inflation implies higher costs and mutedmargins.

This supports our findings of rising concern for higherraw material costs and personnel costs.

Q: What do you think will be the inflation rate in Norway and the Euro-area over the next 12 months?

Expected inflation rate in Norway and Euro-area

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

Q: What do you think will be the inflation rate in the Euro-area over the next 12 months?

2.32% (average)

1.82%(average)

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11

17%12%

34%

54%

66% 66% 68%

-10%

5%13%

41%

32%27%

50%

Q3-15 Q1-16 Q3-16 Q1-17 Q3-17 Q1-18 Q3-18

Net share expecting revenue/margin increase

Net revenue increase Net operating margin increase

Q: In your view, how are revenues for your company likely to change over the next six months?

Q: In your view, how are operating margins for your company likely to change over the next six months?

Highest expectations for revenues and margin growth since 2015, despite the lower optimism among the CFO’s

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

The columns show the net percentage of CFO’s expecting their company to increase revenues over the next six months while the line shows the net percentage of CFO’s expecting their operating margin to increase over the next six months.

Increase in expected revenues and operating margin growth from an already high level

A net share of 68% of the responding CFO’s believerevenues will increase over the next six months, while50% expect their operating margin to increase. This isthe highest expectations we have recorded, and to thecontrary of the slight decrease in optimism.

Net share expectations in revenues are driven by moreCFO’s answering that revenues will ‘increaseconsiderably’ compared to previous surveys, which is inline with the increasing price trend discussed on page 9.Looking at page 14, the level of capex expectations havebeen high since Q1-17, suggesting that previousinvestments made should eventually pay off.

Further, the CFO’s will focus less on cost reduction(p.16), implying that the steep increase in net shareexpecting increasing operating margins are not drivenby cost reductions. A potential explanation suggested byRegionalt Nettverk1 is increased efficiency as a result ofdigitalization and automatization, which will eventuallyincrease margins.

1. Norges Bank, 11.09.2018

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12

Q: In your view, how are revenues for your company likely to change over the next six months?

Q: In your view, how are operating margins for your company likely to change over the next six months?

Margin expectations increase across all industries, while revenues expectations are taking different directions

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

The columns show six month forward looking expected development in revenues for Q1-17, Q3-17, Q1-18 and Q3-18 and the black line shows the corresponding expectation for the operating margin per industry.

Retail trending downward on revenues, but increased operating margins

Of Retail CFO’s, 56% believe revenues will increase overthe next six months. Historically, this is low in anindustry typically characterized by moderate, but stablegrowth. However, more CFO’s believe in higher margins,suggesting cost reducing may be implemented to alarger degree.

The CFO’s in Oil production/Oil service are very positiveabout revenues and operating margins. A total of 69%within this industry are reporting that the operatingmargins should ‘increase somewhat’, which is confirmedby Norges Bank1 reporting increased activity in the oilindustry. The CFO’s appear confident they will avoidcosts running out of control in the short run.

The expected increase in revenues among CFO’s in theBank/finance/insurance sector is likely explained by theexpected (and now completed) increase in interest rate.Further, we have hypothesized for some time thatincreased digitalization and use of AI is expected todecrease costs and improve efficiency, and henceincrease margins.

1. Norges Bank, 11.09.2018

56 %

73 %

62 %

78 %

67 %

50 %

0 %

69 %

31 %

17 %

Revenue and margin industry split last four quarters (Q1-17 to Q3-18)

Retail/ Wholesale Production/ Industry Oil production/ Oil service

Bank/Finance/Insurance Telekom/Media/Technology

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13

Less bullish than in March

A net share of 3% of CFO’s expect Oslo Børs to show apositive development over the next six months. This isdown from 7% in the previous survey.

The lower net share is driven by 23% of CFO’s expectingthe stock market to increase compared to 30% in Apr-18.

Despite a positive view on the business climate,expectations of increasing revenues and margins, CFO’scontinue to be less bullish on the future development ofthe OSEBX index.

The results can be interpreted as CFO’s believing instrong economic growth for the industry while furthergrowth in financial markets is seen as limited.

Q: What is your expectation for the Oslo Børs Benchmark Index (OSEBX) development in the next six months?

Neutral view of the stock market

The figure shows the net share of CFO’s expecting an increase in the benchmark index at Oslo Stock Exchange (OSEBX) versus the actual development of the index in the six months following the survey publication.

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

57%

6%13% 13% 14%

37%

27%

-17%

23% 21%

0%

29% 29%

15%

7% 3%

-22 %

22 %

5 % 6 % 6 %

12 %8 %

2 %

0 %-7 %

8 % 10 %

13 %

3 %

17 %

Net share expecting increase in OSEBX vs. Actual

Net share expecting increase OSEBX following 6 months

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14

Q: In your view, how are capital expenditures (CAPEX) for your company likely to change over the next six months?

Investments are still expected to increase from an already all-time high level

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

Expected capex at an all-time high for the fourthconsecutive survey

The net share of CFO’s expecting increased capex over thenext six months is slightly up from 30% in Q1-18 to 32%in Q3-18. Historically, this is a high level, supporting that“the party” is still going in Norwegian firms.

In our view, the most surprising is the results forConstruction and Real estate. Net share expecting anincrease in capex in Construction is stable at 25%, andReal estate increased from a net share of 30% in Q1-18 to67% in Q3-18. None of the CFO’s are reporting aboutreduced investments, quite on the contrary. We interpretthis as a sign of confidence in the fundamentals ofNorwegian economy and households ability to endurehigher capital costs.

Investments are moderately down in Retail but still fairlyhigh at a net share of 31%, which we interpret as a sign ofthe prolonged structural change towards establishing anonline presence and moving towards e-commerce.

Oil investments are also still high, at a net share of 31%.

1%

6%

-4%

25%28%

30%32%

Q3-15 Q1-16 Q3-16 Q1-17 Q3-17 Q1-18 Q3-18

Net share expecting an increase in capex

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15

-7 %

19 %

27 %22 %

0 %

25 % 23 %

46 %

67 %

-22 %

Retail/Wholesales Production/Industry

Oil production/Oilservice

Telecom, media andtechnology

Bank/Finance/Insurance

Net share expecting employee increase

Q1-17 Q3-17 Q1-18 Q3-18

Retail expects a significant increase in employees,but are concerned about domestic demand

A net share of 27% of responding CFO’s expectemployees to increase over the next six months, whichhistorically is a high level.

Retail has turned over from a negative net shareexpecting employee increase of 7% to a positive of25%, despite fewer CFO’s expecting higher revenues,possibly hinting towards needing different skills in thefuture. The expected increase in operating marginssuggest that Retail CFO’s are not particularly worriedabout personnel costs.

46% of CFO’s in Oil production/Oil service are expectingemployee increase over the next six months. This is thehighest result since the oil crisis, supporting theincreased optimism and activity in the industry.

The observed upward going trend in net expectingemployee increase over the last three surveys indicate,that in the long run, we may have shortages in skilledlabour.

Q: In your view, how is the number of employees for your company likely to change over the next six months?

Majority of industries are expecting an increase in employees during the next six months

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

The figure shows net share of CFO’s in each respective sector expecting to increase employees over the coming six months.

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16

Q: Which of the following strategies are likely to be a priority for your company over the next six months?

CFO’s are, and have been for some time, shifting towards more expansive strategies

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

CFO’s are focusing more on core businesses, new products and increase production capacity

The most prioritized strategies among Norwegian CFO’sare organic growth, focus on core business and costreduction. Even though it is still highly prioritized, weobserve a steep downward trend in focus on costreduction among Norwegian CFO’s, which is in line withexpectations of increased margins, investments andemployees.

Compared to Q1-18, less CFO’s are prioritizing growththrough acquisitions. However, they believe theexpected M&A activity in their industry will increase,possibly implying an increase in private equity activity.Alternatively, that their competitors will increase M&Aactivity.

All in all, Norwegian CFO’s are being more confident andaggressive in their actions along with the confidence inthe fundamentals of Norwegian economy.

The figure shows the strategies CFO’s think will be prioritized over the coming six months. Note that several answers are allowed.

61 %

43 %

50 %

31 % 31 %

26 % 24 %

15 % 17 %

0 % 2 %

Prioritized strategies

Q3-17 Q1-18 Q3-18

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17

14 %15 %

22 % 22 %

26 %

14 %17 %

22 %

17 %

30 %

Acquisitions Shareholderdividends

Debt reduction Increase cashbalance

Other investments

Main priority for cash flow

Q1-17 Q3-17 Q1-18 Q3-18

Q: What is the main priority for operating cash flow expenditure for your company over the next six months?

CFO’s will focus more on other investments and less on increasing their cash balance

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

Acquisitions are still least prioritized, while ‘Otherinvestments’ has increased the most

Norwegian CFO’s are expecting their main use of cashflow to be in ‘Other investments’, with a small increasefrom last survey. The results are in line with theirincreased focus on new products, continued focus onorganic growth, and less focus on cost reductions.

The reported decrease in ‘Increase cash balance’ andincrease in ‘Other investments’ supports the notion thatNorwegian firms are getting more aggressive.

The least prioritized use of cash flow is still inacquisitions, which is stable at 14%. This is in line withthe results on the previous page, where growth in newmarkets is one of the least prioritized strategies.

We continue to see that CFO’s are growing moreconfident, being more aggressive through investmentsand reducing more defensive strategies.

The figure shows the strategy most likely to be executed using operating cash flow expenditure for the four most recent periods.

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18

Expected M&A activity is increasing, supportingthe growing confidence among CFO’s

48% of responding Norwegian CFO’s are expectinghigher M&A activity over the next six months in theirsector. This is supported by an increased private equity-activity in Norway1, but is a bit surprising giving thefindings on page 16 and 17, where CFO’s are reportingacquisitions are not a prioritized focus area for them.Therefore, it looks like the CFO’s are expecting privateequity-funds or other industrial players in their industryto increase the M&A activity the next six months.

The highest net share expecting M&A activity increase isreported among CFO’s of firms in Energy/powerproduction (86%), Bank/finance/insurance (78%) andTransportation (67%).

There is a possible connection with increased M&Aactivity and more CFO’s reporting that they expect anincrease in counterparty default risk on page 20.

Q: How do you expect the M&A activity in your industry to develop over the next six months?

More CFO’s expecting M&A activity to increase in their industry, but they will not prioritize M&A themselves

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

34%

61% 46%51%

47%42%

50% 52% 50% 50%

33%36%

44%39%

48%

9.0

11.0 11.710.9

12.2 12.3 12.6

13.8

12.5

15.3

16.5

14.9

16.7

15.315.8

Net share expecting M&A activity increase

Net share expecting increased M&A activity OSEAX P/E Multiples per end of period

1. E24, 19.08.2018

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19

Q: The overall financial position of your company is seen as: (Very favourable, favourable, average, unfavourable, very unfavourable)

Favourable financial position decreases to below historical average, but the level is still reasonably high

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

The favourable financial position reflects the CFO’sdecreased optimism

In contrast to the high optimism among CFO’s inEnergy/power, there is only a net share of 29%expressing a favourable financial position. Together withEnergy/power, TMT and Advisory/services are alsoexpressing a low favourable financial position.

These findings are contrary to the other results in thissurvey where the CFO’s are looking very bright at thenext six months with higher revenues, margins,investments and more employees, and a decreasedfocus on cost reduction. Throughout the survey, theCFO’s seem positive when it comes to the questionsregarding specific actions, but more negative whenasking general sentimental questions. We interpret themore concrete factors mentioned above as a strongersign of optimism than this more general question.

84%

54%

60%

55%58%

71%

76%78%

58%

64%

59%

48%

70%

61%

70%

58%

Average

Net share expressing a favourable financial position

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20

Defaults to increase

Compared to our previous survey, an increasing share ofCFO’s believe in higher default rates over the coming sixmonths.

While 90% expect default rates to be unchanged or fall,10% of respondents assume an increase rate of defaultsresulting in an overweight (7%) expecting higher defaultrates.

We notice that respondents expecting higher defaultrates are also optimistic about their own businessclimate going forward and consider their own financialsas satisfactory. Hence it would appear that CFO’s are notworried about the effects of increasing default rates onown financials.

Q: The probability for counterparties’ default in the next six months is expected to: (increase, be unchanged, decline)

Higher net share expecting increased counterparty default risk

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

-11%

31%

5%

24%

3%

8%

-7%

14%

20%

30%

13%16%

5%3% 2%

7%

Net share expecting increased counterparty default risk

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21

-34 %

46 %

19 %

4 %

-3 %

-18 %

-33 %

-2 %

7 %

22 %16 %

4 %

13 %9 %

24 %18 %

2849

-19

-60-73

-12

-29

34

-7

133

-73-62

-15

40

-18

Net share expecting increased credit spreads

Net share expecting increase Credit spreads following 6 months

CFO’s continue to expect higher spreads

In our previous survey, one third of responding CFO’sexpected spreads to widen which we interpreted as areaction to an on-going compression in spreads duringthe 12 months prior to the survey.

In this survey, the share expecting higher spreads isreduced to 23% (net share of 18%). Their view can beinterpreted similarly as in the previous survey. Creditspreads have widened in the past months and thereforeone can argue that likelihood of further widening isreduced.

However, in our view, expectations of higher spreadsmakes sense in light of central banks’ scale back ofasset purchases.

An overweight expecting increased credit spreads

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

Q: Expectation of credit spread development next six months

Figure shows the net share expecting increased credit spreads over the next six months and the actual credit spread development over the same period

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22

Costs and political risk trumps traditional demand risk

Norwegian CFO’s continues to show little fear of traditional demand and supply factors with falling domestic– and foreign demand at record low levels compared to historical surveys. From our previous survey we see increasing concerns about prices of raw materials and personnel costs, while political changes continue to be of relatively great concern. Personnel costs are first and foremost a concern for those who intend to increase the number of employees, while raw material costs are a concern for CFO’s with a relatively less optimistic view on the coming months. As previously mentioned in the report, CFO’s expect prices on their products to boost margins. In light of this, we believe it makes sense to be concerned over higher raw material costs and personnel costs as it would threaten higher margins.

We see a steep increase in political uncertainty in Q1-17, followed by relatively stable, but high political uncertainty. The steep incline happened after Brexit, Trump and a potential trade war. We interpret these results as a sign that this high level of political noise has become the new normal, and the CFO’s are ignoring this noise when making decisions.

Increasing concerns over costs and a high level of political noise is now the new normal

Q: Which of the following factors are most likely to pose a significant risk for your business over the next six months?

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

5.6 %

14.5 %

15.4 %

14.9 %

18.3 %

Political changesQ3-16 Q1-17 Q3-17

Q1-18 Q3-18

21 %

7 %9 %

11 %12 %

2 % 4 %

6 %5 %

7 %

1 %

20 %

8 %

5 %

14 %

10 %

7 %

3 %5 %

3 %

5 %3 %

Decreasingdomesticdemand

Decreasingforeigndemand

Foreigncompetition

Rawmaterial

costs

Lack ofcompetent

labor

Personnelcosts

Access tocapital

Interestrate level

Currency Other Cyber risk

Largest concern going forward

Q1-17 Q3-17 Q1-18 Q3-18

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66%

42%

32%

71%

48%

26%

Bank loans Bonds Equity

Attractiveness and availability of financing sources

Attractiveness Availability

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

Q: How attractive are the following financing sources for Norwegian companies given the current market situation?

Q: How available are the following financing sources for your company given the current market situation?

Funding availability supports growth

Bank loans is still the most attractive and availablefinancing source according to the responding CFO’s. Wealso find that bond financing is considerably moreavailable than in our previous survey. Equity financing isconsidered both slightly less attractive and lessavailable.

Funding continues to be both available and attractive

The figure shows the net share of respondents describing each type of funding as attractive or available

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Perceived willingness to provide credit at highest level since 2011

Q: How attractive / available are bank loans as a financing source for Norwegian companies given the current market situation?

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

Bank loans are generally considered available

CFO’s in our survey are responding that bank loans arereadily available. The attractiveness is slightly lowerfrom our previous survey, but relatively high comparedto historical results.

As in our previous survey bank loans are viewed as bothavailable and attractive and we therefore expect banksto continue to increase their corporate exposure.

66% 53% 39% 44% 54% 48% 59% 60% 75% 64% 59% 55% 58% 58% 72% 66%

84%

42%

24%

17% 18%

25%

52%56%

65%67%

30%

63%59%

68% 69% 71%

Bank loans - Attractiveness vs. Availability

Attractiveness Availability

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Bond financing haven't been this available since 2014

Q: How attractive / available is bond funding as a financing source for Norwegian companies given the current market situation?

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

Bond financing to oil service is back on the table

The availability of the Norwegian bond market as afunding source has increased significantly over the last12 months, while the attractiveness remains solid. Thisis driven by a combination of an increased share ofCFO’s finding it readily available and a reduction inrespondents finding it unavailable.

We are slightly surprised by the results given ourcurrent view of the bond market. Our perceptions is thatbond financing is largely available, however, investorsrequire a higher spread compared to six months ago.

Over the past 12 months, we see the greatestimprovement in availability for companies in oil-serviceand traditional industry.

40% 49% 54% 42% 54% 10%

-1%

-30%

9% 33% 36% 41% 42%

41%

55% 54%50%

59%

20%

14%

-13%

26%

40%44%

37%

48%

Bond funding - Attractiveness vs. Availability

Attractiveness Availability

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Stock market continues to be an attractive source of funding

Easy access to equity financing

While we see another decline in the attractiveness of theequity market in this survey, the result is relativelystrong compared to historical surveys.

At the same time we observe the second highest readingin terms of availability of equity financing. Thecombination of both availability and attractiveness maylead us to conclude that CFO’s will actively use theequity market to fund growth plans.

Q: How attractive / available is equity as a financing source for Norwegian companies given the current market situation?

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

27 % 26 % 24 % 29 %25 %

20 % 11 % 16 %21 %

49 % 35 % 36 % 32 %

-11% -12% 0%-3%

6% 0% -9%-13%

8%

19%25%

33%26%

Equity financing - Attractiveness vs. Availability

Attractiveness Availability

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Technical knowledge is the most difficult skill to find among people when looking for new employees

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

CFO’s struggle to find people with appropriate technical knowledge

The biggest challenges for Norwegian CFO’s are to findpeople with appropriate technical skills and withnecessary work experience. 51% find it hard to findappropriate technical knowledge, mostly withinProduction/industry, Bank/finance/insurance and Retail.When it comes to Retail, this result most likely reflectsthe industrial structural changes towards e-commerce,where new skills such as IT is crucial.

18% find it hard to find people with necessary workexperience, this is most reported among CFO’s in Oilproduction/Oil service. We find this a bit strange, asthousands of people lost their jobs during the oil crisis.However, this may indicate that these people have foundpermanent jobs in other industries.

However, 27% say they do not find it difficult to find theworkers with the skills needed, which is positive findingssupporting the increase in net share expecting employeeincrease on page 4.

Q: What are currently the most difficult skills for your organisation to find?

51 %

27 %

18 %

16 %

14 %

8 %

8 %

6 %

5 %

The right level of education

The necessary work experience

Appropriate technical knowledge

Soft skills

Work ethic

Problem solving/adaptability

We are currently experiencing a labour shortage, not

a skills shortage

We do not find it difficult to find the workers with the

skills we need

Do not know

Most difficult skills to find (%)

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Increased automatization is used to address shortages in skilled labour

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

30% of Norwegian CFO’s use automatization to a large extent to attract the right people

The CFO’s report that they use increased automatizationto a large or some extent to attract the right people fortheir company. This finding is not surprising, given theincreased focus on digitalization the last years. Thesectors that focus most on automatization areProduction/industry, Retail, and Bank/finance/insurance,respectively.

19% are reporting that they are trying to recruit fromdifferent labour pools to a large extent, which is anexplanation of why CFO’s find it challenging to findpeople with appropriate technical skills.

11% will focus on retraining internal staff to a largeextent, also supporting the results on the previous page.

Q: To what extent does your organisation use the following to address shortages in skilled labour?

30 %

11 %

9 %

2 %

1 %

19 %

1 %

8 %

5 %

10 %

Increased automatization

Retrain internal staff

Use temporary resources

Offshore/nearshore business processes

Outsource business processes

Recruit from different labour pools

Lower capability requirements at time og recruitment

Recruit from outside national labour market

Improve remuneration packages

Offer a more attractive working environment

To what extent does your organisation use the following to address shortages in (skilled) labour?

To a large extent To some extent To a small extent

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About the survey

General information

The target group comprises of the CFO’s in the largest companies across industries in Norway. The purpose of the survey is to trace the development of the CFO’s perception of economic prospects, represented among other by company risk, financing and future revenue potential. Moreover, the survey aims to determine important indicators for the general economic development.

Deloitte and SEB have conducted separate surveys for several years, however the CFO Survey for Q3-16 was the first survey conducted in cooperation. This survey was carried out as a web-based questionnaire in Sep-18. Historical figures presented are based on previous bi-annual surveys dating back to Q1-11.

In total, 109 CFO’s across key industries responded to the survey during the period 11 Sept. – 19 Sept. 2018. Given the broad range of industries and organisations that responded, the survey presents a transparent, up-to-date image of the financial situation facing the wider Norwegian CFO community.

Please send us your feedback together with any suggestions for improvement to help us ensure that the Deloitte/SEB CFO Survey remains an essential resource for your work.

Economicprospects

Strategic opportunities

Capital structure and risk

Financing Hot topics About the survey

Industry % #Production / Industry 20% 22

Retail / Wholesale 15% 16

Oil Production and Services 12% 13

Real Estate 8% 9

Banking/Finance/Insurance 8% 9

Energy / Power Production 6% 7

TMT 6% 6

Transportation 6% 6

Advisory / Services 5% 5

Construction 4% 4

Public sector 2% 2

Tourism and travel 2% 2

Food additives industry 1% 1

Leisure 1% 1

Marine 1% 1

Science 1% 1

Other 1% 1

Automotive 1% 1

Health care 1% 1

Aerospace and defense

Employees % #0 - 100 employees 13% 14

100 - 500 employees 26% 28

501 - 1 000 employees 17% 18

1 001 - 5 000 employees 33% 36

> 5 000 employees 12% 13

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Deloitte Norway conducts business through two legally separate and independent limited liability companies; Deloitte AS, providing audit, consulting, financial advisory and risk management services, and Deloitte Advokatfirma AS, providing tax and legal services.

© 2018 Deloitte AS

SEB is a leading Nordic financial services group, guided by a strong belief that entrepreneurial minds and innovative companies are key in creating a better world. We are here to help them achieve their aspirations and succeed through good times and bad. We care for ambition. In Sweden and the Baltic countries, SEB offers financial advice and a wide range of financial services. In Denmark, Finland, Norway and Germany the bank’s operations have a strong focus on corporate and investment banking based on a full-service offering to corporate and institutional clients.

With capital, knowledge and experience, we generate value for our customers − a task in which our research activities are highly beneficial.

Macroeconomic assessments are provided by our Credit Research unit. Based on current conditions, official policies and the long-term performance of the financial market, the Bank presents its views on the economic situation – locally, regionally and globally.

www.sebgroup.com