Latin American Business Outlook Part of the Global
Latin American Business Outlook Part of the Global Business Outlook A joint survey effort between Duke University, Fundação Getúlio Vargas and CFO magazine Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 1
Top Concerns for Latin American CFOs 1. Economic Uncertainty 2. Currency risk 3. Government policy 4. Weak demand for your product/services 5. Corporate tax code (domestic) 6. Inflation 7. Cost of benefits 8. Regulatory requirements 9. Access to capital 10. Employee productivity Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 2
Business Optimism Index CFO optimism moderate in Mexico and Peru, Brazil and Chile remain pessimistic Global Trends Sep 2015 Response Country / Region Country Business Optimism Index 70 60 50 40 Sep 2014 Dec 2014 Mar 2015 Latin America United States Asia Africa Jun 2015 Sep 2015 80 70 60 50 40 30 20 10 0 Europe Brazil Chile Peru Mexico Ecuador Uruguay Own Company Own-Firm Business Optimism Index 70 60 50 40 Sep 2014 Dec 2014 Mar 2015 Jun 2015 Latin America United States Asia Africa Sep 2015 80 70 60 50 40 30 20 10 0 Europe Brazil Chile Peru Mexico Ecuador Uruguay Notes: Presented data are the mean value for each region or country, Scale from 0 -100 Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 3
Expected Increase in Product Prices Latin American inflationary expectations are relatively high overall, driven by Brazil. Global Trends Sept 2015 Outlook Product Prices 10% 5% 5% 0% 0% Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 United Europe States Asia Latin Brazil America Peru Chile Mexico Ecuador -5% Latin America United States Asia Africa Europe -10% Inflation expectations stay flat in Latin America § Latin American CFOs expect significant price increases, due mainly to high inflation in Brazil. CFOs in Europe, US and Asia expect low inflation or deflation. Inflation expectations high in Brazil § Of responding countries, Brazil has the highest inflationary expectations § Prices are expected to increase slowly in Peru and Ecuador. Notes: Presented data are the mean values for each region or country. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 4
Expected Growth in Sales Revenue CFOS in Brazil expect greater than 10% increase in revenues; other Latin American CFOs expect 6% or less. Sept 2015 Outlook Revenue Global Trends 15% 10% 5% 5% 0% -5% Latin American revenue growth rises § Revenue expectations rise up from last quarter’s § 3. 9% expected revenue growth Revenue growth will be the slowest in Asia. ua y ug do r Ur ua o Ec ex ic M Ch ile u Pe r a zil Br a er ic Am tin Europe at Africa St United States Asia d Latin America Un ite -5% As ia 0% La Sep 2015 pe Jun 2015 ro Mar 2015 es Dec 2014 Eu Sep 2014 Ecuador and Mexico expect fastest growth § Among responding L. A. countries, revenues in Brazil will grow the fastest, followed by Mexico. § Net of inflation, Brazil’s sales growth is modest § Ecuador expects revenues to decline over the next year. Notes: Presented data are the mean value for each region or country. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 5
Expected Increase in Capital Spending Latin American capital spending will be flat overall, pulled down by Brazil and Chile Sept 2015 Outlook Global Trends 15% 10% 5% 5% Latin America United States Asia Africa Europe ua y r ug o do Ur ua Ec ex ic ile M Ch Pe ru a Br az il er ic pe ro As ia Am Sep 2015 tin Jun 2015 La Mar 2015 Eu Dec 2014 d Sep 2014 -5% St 0% at es 0% Un ite Capital Spending 15% -10% -15% Capital spending plans remain weak § Latin America expects business spending to stay constant § Business spending is strong in the United State and Europe Business spending varies within Latin America § Capital spending will grow positively in Peru and Mexico § Spending expected to decline in Brazil and Chile. Notes: Presented data are the mean value for each region or country. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 6
Expected Change in Earnings Small earnings growth expected in Latin America Sept 2015 Outlook Global Trends 15% 20% 15% Earnings 10% 5% 5% ua y r ug do Ur o ua ex ic M Ch ile u Pe r il az Br a er ic ia As ro -10% Earnings growth becomes positive this quarter § Latin American earnings growth increases from § Ec Africa -5% tin Asia Europe La United States d Latin America Un ite -5% Am Sept 2015 es Jun 2015 Eu Mar 2015 at Dec 2014 St Sep 2014 pe 0% 0% zero last quarter to 2. 9% this quarter African earnings are expected to increase sharply. Asian earnings growth expect to stay flat. Weaker earnings in surveyed Latam countries § Brazil, Mexico and Peru expect earnings to grow § Earnings in Brazil will not keep pace with inflation § Earnings expectations are negative in Chile and Ecuador. Notes: Presented data are the mean public company value for each region or country. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 7
Moderate Increase in Fulltime Employment Latin American CFOs expect no change in fulltime domestic employment in 2015 Sept 2015 Outlook Global Trends 10% 5% # FT Employees 4% 5% 3% 2% 0% Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 1% Flat employment in Latin America § Latam CFOs expect no employment growth in the § next year. US, Europe and Africa expect positive employment growth. ua y do r ug Ur o ua Ec ex ic M Ch ile u Pe r zil Br a a Am er ic ia pe As tin La -2% ro Africa -1% Eu Asia Europe St United States d Latin America Un ite -5% at es 0% Employment growth varies across L. A. § Brazil, Peru and Chile expect reductions in fulltime employment. § Employment growth moderate in Mexico, at an expected rate of 2. 7%. Notes: Presented data are the mean value for each region or country #FT=Number of Fulltime Employees Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 8
Expected Wage and Salary Increase Wages and salaries are projected to increase by 5. 5% in Latin America. Sept 2015 Outlook Global Trends 15% Wages & Salaries 10% 5% 5% 0% Sep 2014 -5% Dec 2014 Mar 2015 Jun 2015 Latin America United States Asia Africa Sep 2015 Europe Rapid wage growth in emerging economies § Asia and Africa expect wages to rise more than § 5%, which is higher than the overall inflationary expectations in these regions. The US and Europe expect wages to grow by around 3%. 0% United Europe States Asia Latin Brazil America Peru Chile Mexico Ecuador Real wage growth is negative in Brazil § With product market inflation of 9. 6% and wage growth of 7. 3%, wages will not keep up with inflation in Brazil. Similar for Chile. § In Peru and Mexico, wages are likely to increase. Notes: Presented data are the mean value for each region or country Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 9
Difficulty in Filling Key Positions Percentage for finding it is difficult How difficult is it for your firm to fill you key job opening? 80% 60% 40% 20% 0% 0% United States Europe Asia Latin America Africa Many Latam firms have difficulty fillling key jobs • Europe is best able to fill positions, while emerging economies like Asia and Africa have more difficulty. Latin American Business Outlook Brazil Chile Peru Mexico Hiring difficulties vary across Latam countries • Mexican firms have the most difficulty, and Brazilian firms have the least Duke University / FGV / CFO Magazine Sep 2015 10
Merger and Acquisition Activity As a region, Latin American M&A potential activity is below the US, Europe, Asia and Africa. About 17. 7% of Latam CFOs expect their firms to make an acquisition in the next year 40% 35% 30% 25% 20% 15% 10% 5% 0% United States Europe Asia Latin America Africa Brazil Chile Peru Mexico World-wide, slightly more than one-fourth of companies expect to acquire assets of another firm § M&A activity is comparatively lower in Latin America, especially in Peru where only 14. 3% of firms expect to acquire. M&A activity will be highest in Asia and lowest in Latam. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 11
Reasons for Making Acquisitions Why is your firm making acquisition(s)? (Choose 3) 60% 40% 20% 0% Industry position Industry consolidation Geographic diversification Revenue synergies Cost synergies Attractive valuation Latin American firms acquire mainly to improve industry position and consolidation § Cost and revenue synergies also drive acquisitions. § Attractive target valuation encourages firms to acquire. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 12
Has risk management become complacent? Percentage for answering yes Do you believe that firms in your industry have become complacent about the threat of, and potential negative effects of, future economic stress (for example, a recession or crisis)? 60% 50% 40% 30% 20% 10% 0% United States Europe Asia Latin America Africa 40% of Latin American firms are complacent about risk management § Africa is the least complacent § Nearly half of Asian firms are complacent about risk management, highest in the world Latin American Business Outlook Duke University / FGV / CFO Magazine Sep 2015 13
Has risk management become complacent? Do you believe that firms in your industry have become complacent about the threat of, and potential negative effects of, future economic stress (for example, a recession or crisis)? Percentage for answering yes 60% 50% 40% 30% 20% 10% 0% Brazil Chile Peru Mexico Uruguay Level of complacency about risk management varies across Latin America § Peru is the most complacent (48%), followed by Chile and Brazil § Few companies in Uruguay are complacent about managing downside risk. Latin American Business Outlook Duke University / FGV / CFO Magazine Sep 2015 14
Is the stock market overvalued/undervalued? Percentage for overvalued/undervalued I believe that the stock market in my country is: 70% 60% 50% 40% 30% 20% 10% 0% United States Europe overvalued Asia Latin America Africa undervalued Latin American is the only region in which CFOs think the stock market is undervalued § Only 6$% of US firms think the US stock market is undervalued, lowest in the world § Most African CFOs think their stock market is overvalued Global Business Outlook Duke University Sep 2015 15
Is the stock market overvalued/undervalued? Percentage for overvalued/undervalued I believe that the stock market in my country is: 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Brazil Chile Peru Overvalued Mexico Uruguay Undervalued Many Latin American CFOs believe the stock market is undervalued § Brazil has the highest proportion of firms that believe the stock market is undervalued, at 78% § CFOs in Chile and Uruguay believe their stock markets are overvalued Global Business Outlook Duke University Sep 2015 16
Return on Assets (ROA) Profit growth varies by country in Latin America 14% 12% 10% 8% 6% 4% 2% 0% US Europe Asia Latin America Approximate ROA in 2014 Africa Brazil Peru Chile Expected ROA in 2015 Profit margins are expected to rise in all regions, relative to 2014 profits § CFOs in Latin America expect lower ROA improvement than the rest of the world, with Chile expecting the worst return on assets. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 17
Duke/FGV CFO Survey in Latin America Press The Latin American Business Outlook is frequently reported in the press Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 18
Duke/FGV CFO Survey in Latin America Press The Latin American Business Outlook is frequently reported in the press Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 19
Latin American Business Outlook Part of the Global Business Outlook A joint survey effort between Duke University, Fundação Getúlio Vargas and CFO magazine Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015 20
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