Highlights from the semi-annual 2016 Middle East CFO Survey:
- CFOs must begin to prepare for introduction of value-added tax (VAT) in Gulf nations by 2018
- Net CFO optimism has fallen to its lowest recorded level in the region.
- Almost 75% of CFOs believe the level of external uncertainty is “high” or “very high.”
- Top CFO priorities are cost reduction, increasing cash flow, and organic growth.
This semi-annual CFO sentiment in the Middle East reflects a more consistent outlook among the eight countries reporting, according to Deloitte’s latest report entitled “Global CFO Signals – Still reluctant to spend.” Optimism stands at a net -2%, which is down from +26% the last time CFOs in the region were surveyed (Q2 2015). What seems clear, however, is that optimism—as well as risk appetite—seems to be correlated with the drop in energy.
“A net 38% do expect energy prices to be higher in six months, which might shift focus toward more strategic priorities for their Middle East corporations. However, oil prices are not returning to $100+ levels any time soon. That gives CFOs the opportunity to incorporate lower prices into forecasts. And combined with continued accessibility to capital, low interest rates, and solid demand, that might just give them the comfort to spend again,” said James Babb, partner and CFO program leader at Deloitte in the Middle East.
VAT introduction consideration
In an effort to diversify revenues and lower dependence on energy-related income, GCC states have agreed to incorporate value-added tax (VAT) at a rate of 5% in 2018. Of those polled, 93% of CFOs expect to see some level of impact upon their business with the introduction of VAT. Still, almost half of polled CFOs shared that their business has a “minimal understanding” of the range of impacts typically associated with the introduction of VAT. Further, 81% are yet to incorporate VAT considerations into their strategic planning processes
Optimism fall and communal uncertainty
Collective skepticism has emerged among Middle East CFOs. Traditionally, perceptions are divided across the region, with Gulf Cooperative Council (GCC) nations reporting higher levels of optimism when compared with countries in North Africa and the Levant. However, GCC states did not remain unscathed from current market and economic conditions. Regarding their company’s financial prospects over the next six months, CFOs’ optimism has fallen to its lowest figure since the survey began in 2009 (net -2%). These sentiments are largely driven by external factors, with 71% of CFOs agreeing that the level of uncertainty in the Middle East is “high” or “very high.” Economic growth/outlook overtook geopolitics as the factor most likely to pose a significant business risk over the next six months. Other areas of concern include reductions in demand (foreign and domestic) and currency fluctuations.
CFOs top strategies for the year ahead
Given the weakened economic sentiment across the region, CFOs are focusing on the business strategies that fall within the financial steward and operator domains. The top priorities for the next 12 months include cost reduction (net 91%), increasing cash flow (net 76%), and organic growth (net 52%). Further, risk appetite has been curbed, as 83% of CFOs believe it is not a good time to add greater risk onto the balance sheet. The regional economic effects are mainly attributed to increased geopolitical concerns and decreased energy prices, typically a stalwart of GCC fiscal policy.
To view the full report please visit the following link: http://bit.ly/1MFlI6z
Siemens Healthineers gains EU nod for $16.4 billion Varian buy
BRUSSELS (Reuters) – EU antitrust regulators on Friday cleared with conditions Siemens Healthineers’ $16.4 billion acquisition of U.S. peer Varian, paving the way for the German health group to become a world leader in cancer care therapy.
The European Commission said Siemens Healthineers pledged to ensure that its medical imaging and radiotherapy equipment will work with rivals in return for its approval, confirming a Reuters story. The pledge is valid for 10 years.
“High quality medical imaging and radiotherapy solutions are crucial to diagnose and treat cancer. The efficiency and safety of treatment relies on the ability of these products to work together,” European Competition Commissioner Margrethe Vestager said in a statement.
Varian is the leader in radiation therapy with a market share of more than 50%. The deal received the U.S. antitrust green light in October last year.
(Reporting by Foo Yun Chee)
Battling Covid collateral damage, Renault says 2021 will be volatile
By Gilles Guillaume
PARIS (Reuters) – Renault said on Friday it is still fighting the lingering effects of the COVID-19 pandemic, including a shortage of semiconductor chips, that could make for another rough year for the French carmaker.
Renault reported an 8 billion euro ($9.7 billion) loss for 2020 which, combined with gloomy take on the market, sent its shares down more than 5% in late morning trading.
“We are in the midst of a battle to try to manage a difficult year in terms of supply chains, of components,” Chief Executive Luca de Meo told reporters. “This is all the collateral damage of the Covid pandemic… we will have a fairly volatile year.”
De Meo, who took over last July, is looking at ways to boost profitability and sales at Renault while pushing ahead with cost cuts. There were early signs of improving momentum as margins inched up in the second half of 2020.
The group gave no financial guidance for this year, although it said it might reach a target of achieving 2 billion euros in costs cuts by 2023 ahead of time, possibly by December.
Executives said they were confident the carmaker could be profitable in the second half of 2021, but that they lacked sufficient market visibility to provide a forecast.
Renault struck a cautious note, saying it was focused on its recovery but warned orders had faltered in early 2021 as pandemic restrictions continued in some countries.
The group is facing new challenges as the European Union tightens emissions regulations and after rivals PSA and Fiat Chrysler joined forces to create Stellantis, the world’s fourth-biggest automaker.
The auto industry endured a tough 2020 but a swift rebound in premium car sales in China helped companies such as Volkswagen and Daimler to weather the storm.
Auto companies globally have since been hit by a shortage of semiconductors that has forced production cuts worldwide.
“The beginning of the year has shown some signs of weakness,” De Meo told analysts, but added the chip shortage should be resolved by the second half of 2021. “We have taken the necessary measures to anticipate and overcome challenges.”
Renault estimated the chip shortage could reduce its production by about 100,000 vehicles this year.
The group was already loss-making in 2019, but took a sharp hit in 2020 during lockdowns to fight the pandemic, which also hurt its Japanese partner Nissan.
Analysts polled by Refinitiv had expected a 7.4 billion euro loss for 2020. The group posted negative free cash flow for 2020.
The 2018 arrest of Carlos Ghosn, who formerly lead the alliance between Renault and Nissan, plunged the automakers into turmoil.
In a further sign that the companies have been working to repair the alliance, De Meo told journalists that Renault and Nissan will announce new joint products together in the coming weeks or months.
Renault has begun to raise prices on some car models, and group operating profit, which was negative for 2020 as a whole, improved in the last six months of the year, reaching 866 million euros or 3.5% of revenue.
Analysts at Jefferies said the operating performance was better than expected. Sales were still falling in the second half, but less sharply.
Renault is slashing jobs and trimming its range of cars, allowing it to slice spending in areas like research and development as it focuses on redressing its finances. It is also pivoting more towards electric cars as part of its revamp.
It was already struggling more than some rivals with sliding sales before the pandemic, after years of a vast expansion drive it is now trying to rein in, focusing on profitable markets.
De Meo told journalists on Friday that the French carmaker will make three new higher-margin models at its Palencia plant in Spain, where manufacturing costs are lower, between 2022 and 2024.
($1 = 0.8269 euros)
(Reporting by Gilles Guillaume and Sarah White in Paris, Nick Carey in London; Editing by Christopher Cushing, David Evans and Jan Harvey)
UK delays review of business rates tax until autumn
LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.
Many companies are demanding reductions in their business rates to help them compete with online retailers.
“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.
Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.
($1 = 0.7152 pounds)
(Writing by William Schomberg, editing by David Milliken)
FTSE 100 ends higher on improving economic activity; gains for the third week
By Shivani Kumaresan, Amal S and Shashank Nayar (Reuters) – London’s FTSE 100 ended higher on Friday after the economy...
European shares end higher on strong earnings, positive data
By Sagarika Jaisinghani and Ambar Warrick (Reuters) – Euro zone shares rose on Friday, marking a third week of gains,...
UK bond yields head for biggest weekly rise since June
LONDON (Reuters) – British government bond prices fell again on Friday as a global debt sell-off continued on expectations of...
Siemens Healthineers gains EU nod for $16.4 billion Varian buy
BRUSSELS (Reuters) – EU antitrust regulators on Friday cleared with conditions Siemens Healthineers’ $16.4 billion acquisition of U.S. peer Varian,...
Teed off: As COVID fuels S. Africa’s housing crisis, golf courses feel the heat
By Kim Harrisberg JOHANNESBURG (Thomson Reuters Foundation) – It sounds like a developer’s dream: A greenfield site in the heart...
UK might need negative rates if recovery disappoints – BoE’s Vlieghe
By David Milliken and William Schomberg LONDON (Reuters) – The Bank of England might need to cut interest rates below...
UK economy shows signs of stabilisation after new lockdown hit
By William Schomberg and David Milliken LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month...
Dollar extends decline as risk appetite favors equities
By Stephen Culp NEW YORK (Reuters) – The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite...
Bitcoin hits $1 trillion market cap, soars to another record high
By Gertrude Chavez-Dreyfuss and Tom Wilson NEW YORK/LONDON (Reuters) – Bitcoin touched a market capitalization of $1 trillion as it...
Shares rise as cyclical stocks provide support; yields climb
By Saqib Iqbal Ahmed NEW YORK (Reuters) – A gauge of global equity markets snapped a 3-day losing streak to...