Cash reserves of EMEA’s listed companies hit new high – but ‘pivot point’ will herald wave of investment
Listed companies across Europe, the Middle East and Africa have built up cash reserves of almost €1 trillion (€963 billion), according to a new report by Deloitte.
Listed companies across Europe, the Middle East and Africa have built up cash reserves of almost €1 trillion (€963 billion), according to a new report by Deloitte. The 1,200 listed companies in the region have added a further €47 billion to this surplus in the last 12 months alone, whilst the total has increased by around €250 billion since 2007. More than 75% of this sum is held by just 17% of companies, mirroring the global trend where around a third of companies hold 80% of the $3.53 trillion in cash reserves.
In addition to analysing publicly available data for listed companies, Deloitte also surveyed 271 C-level executives at listed (73 respondents) and non-listed companies (198 respondents) in 14 countries. The analysis of listed companies’ cash positions was supported by this survey, as 77% of respondents reported a cash surplus in 2014, with 20% holding more than €250m.
This suggests that both listed and non-listed companies across EMEA have been behaving in a similar fashion, preserving their cash instead of investing. This is a radical change since the financial crisis and a behaviour which looks set to stay. It comes at a time, when business competitiveness in Europe appears to be under threat. Since 2010, a net balance of 41 European companies has exited the Global Fortune 500, the sharpest fall on record.
Double digit growth expected
Jan-Dominik Remmen, Partner Corporate Finance Switzerland, explains: “Our research found that many companies expect double digit revenue growth in the years to come, whilst maintaining a strong presence in the Eurozone, a region identified by most as having relatively low growth prospects. With growth in EMEA subdued, we believe companies will need to invest significantly, both organically and inorganically, to achieve their ambitions.”
Jan-Dominik Remmen adds: “Although we have seen an upturn in the level of merger and acquisition activity globally, in Europe including Switzerland, M&A activity continues to lag behind despite some large transactions, including inverse ones. If European companies want to achieve double digit growth, they need to consider M&A activities as part of their growth strategy also beyond the European borders. Swiss companies still enjoy the benefit of an overvalued Swiss franc.”
59% of our survey intend to invest some of their reserves this year, whilst 31% say their focus will be on continuing to strengthen the balance sheet. Of those companies intending to invest, 54% say that growth will be the primary focus of their investment strategy in the next 12 months. However, one in five companies’ investments will be directed at maintaining existing assets. Staff training and development is seen as an investment priority by 69% of companies, with the same proportion feeling likewise about investing in new markets and 64% intending to invest in new technology.
Our analysis shows that EMEA businesses see their home markets as critical. 35% of our respondents are set to make investments inside the EU in the next 12 months, followed by North America (27%) and China (21%). In contrast, 13% of companies will invest in Brazil, 8% in India and just 4% in Russia.
About Deloitte in Switzerland
Deloitte is a leading accounting and consulting company in Switzerland and provides industry-specific services in the areas of audit, tax, consulting and corporate finance. With more than 1 300 employees at six locations in Basel, Berne, Geneva, Lausanne, Lugano and Zurich (headquarters), Deloitte serves companies and institutions of all legal forms and sizes in all industry sectors. Deloitte AG is a subsidiary of Deloitte LLP, the UK member firm of Deloitte Touche Tohmatsu Limited (DTTL). DTTL member firms comprise of approximately 200 000 employees in more than 150 countries around the world.
Zurich, 16th of September 2014
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