Swiss executives express confidence in their growth ambitions, but concerns begin to rise.
Following a wave of expansion in the first quarter of 2019, the Swiss government recently increased its 2019 economic growth outlook slightly from 1.1% to 1.2%. Based on the results of our latest M&A survey, Swiss executives, who have a bird’s eye view of the economy and are more finely attuned to its direction, were ahead of the government in expressing their confidence.
According to the results of the latest EY M&A survey — the EY Capital Confidence Barometer — which was conducted in February and March 2019, 94% of Swiss executives indicate that the economy is improving at both global and domestic levels. This is significantly higher than 12 months ago.
Strong levels of confidence across a range of macroeconomic fundamentals support these findings, as Swiss executives see significant improvements in corporate earnings, short-term market stability, credit availability and equity valuations globally. Locally, Swiss executives are equally confident — with one exception. While 82% indicate that credit availability is improving, this is down more than 10 percentage points (93%) from a year ago. Meanwhile, 6% say that they are seeing a decline in this area, up from 0% in April 2018.
Could this be a harbinger that the days of easy access to credit may be coming to a close? Certainly, as geopolitical uncertainty, trade tensions and tariff disputes persist, one third (33%) of Swiss executives cite slowing economic activity as the greatest external risk to the growth of their business. However, almost a quarter (23%) say funding costs and availability of credit as the biggest threat they face.
Growth ambitions flourish, despite looming economic risks
If so, Swiss executives are not allowing these risks to dampen their prospects for expansion, as 88% say they expect revenue growth rates of between 6% and 15%. Nearly three-quarters say they see these levels of growth coming from within the organization.
However, for those looking at inorganic growth options, 70% say will be pursing M&A. This is a massive jump from 30% who expressed similar intentions 12 months ago. The hunt for technology, talent, new production capabilities or innovative startups seems to be the primary driver for acquiring, followed by changes in consumer behavior.
In fact, Swiss executives say that when it comes to capital allocation and strategy, transformational investment in digital technology is top-of-mind. Every Swiss executive surveyed indicates an intention of significantly investing in technology in the year to come, with investments focusing on improving internal efficiencies, reducing risks and creating new products and services.
Automation and artificial intelligence (AI) will also be playing a bigger role, with nearly one in five executives saying they want to improve M&A due diligence and increase personalized products and service offerings and improve customer services. 89% and 92%, respectively, say they will be developing these automation and AI capabilities in-house.
Swiss companies lag behind their global peers in portfolio reshaping
Some of these technology investments are pivotal for growth and innovation. Others will help Swiss companies to build resilience against a persistent wave of uncertainties, both current and on the horizon.
In addition to technology investments, an incremental percentage of Swiss companies are stepping up the frequency of their portfolio reviews. However, for Swiss companies to remain competitive, this percentage needs to move from incremental to exponential. Globally, for the first time, more companies are reviewing their portfolios every quarter or more frequently than at any time in the past. However, where 46% of global executives indicate they are reviewing their portfolios every quarter or more, only 27% Swiss executives say the same. Conversely, 40% of Swiss executives (versus 22% globally) say they still only review their portfolios annually. As a result of their most recent portfolio review, 40% of Swiss executives say they reshaped capital allocation across their entire portfolio.
A more sporadic approach to portfolio assessment may catch Swiss companies off guard when the downturn occurs and access to capital dries up. By taking a more active approach to portfolio reshaping, Swiss executives can more proactively identify areas of potential underperformance or emerging growth opportunities ahead of their competitors.
Accelerating portfolio reviews can help to reshape results for better performance
Looking forward, Swiss companies that continue to pursue growth, while accelerating portfolio reviews to build resilience and capture opportunities for restructuring, can reshape their results for better performance. This approach will stand them in good stead as economic prospects look brighter and as they prepare for more uncertain times ahead.