In the latest “EY CEO Outlook Pulse” research conducted by the consulting and auditing firm EY, interviewing 1200 global CEOs, M&A activities have dropped to the lowest level since 2014. Further, in this blog „AI“ buzzword will be put in the context of companies and their development.
EY published its latest „ EY CEO Outlook Pulse” October version. The main theme in the mentioned outlook is M&A, followed by the buzzword „AI“ that we can find anywhere currently. Below you can find how CEOs globally think of it and where they expect further M&A development.
Over two-thirds of CEOs see the need to quickly act on AI. However, a similar proportion of reported CEOs also see uncertainty in the implementation. Bottom line, 99% are planning to invest in AI. Executive directors plan to gain a strategic advantage over competitors through the use of artificial intelligence. Specifically, 70% of executive directors see the need for prompt action regarding generative artificial intelligence, while at the same time, 65% emphasize that the uncertainty associated with GenAI complicates swift action. However, two-thirds also believe that the increase in companies claiming expertise in artificial intelligence complicates decisions in identifying and implementing credible partner ecosystems and acquisition goals. The majority of respondents, 87%, have already completed or are in the process of hiring new talents with relevant skills in the field.
Further, M&A was in focus of the EY report. M&A activities have dropped to the lowest level since 2014, with only 35% of surveyed executive directors planning to carry out M&A activities in the upcoming year. EY notes that the inclination for M&A transactions is significantly higher in the American region, reaching 47%, while in the EMEA region, only 29% of CEOs opt for this type of decision. As stated, in the third quarter of 2023, a strong increase in M&A was observed in America, especially concerning local companies. The slowdown in such transactions in other regions can be attributed to current geopolitical and macroeconomic uncertainties, with key factors including conflicts in Ukraine and the Middle East, tensions between America and China, ongoing high inflation, and the rise in active interest rates. The research indicates that half of the surveyed directors still plan to expand their businesses in the Asia-Pacific region in areas not affected by war. Specifically, this policy applies to investments in China, Australia, India, Japan, and Singapore, which are among the most desirable markets.
Participants were asked how they expect their organization’s revenue growth and profitability will change in 2024 compared to 2023.
Source: EY CEO Outlook Pulse
Overall, in 2024, 66% of surveyed executive directors anticipate higher levels of growth, and 65% expect higher levels of profitability for their companies compared to 2023. This indicates that executives worldwide are ready for investments, despite a relatively unfavorable economic situation. Conversely, for those expecting lower levels of growth, more than two-thirds (68%) are also planning for lower levels of profitability. This will impact their ability to invest to reshape their business in the new cycle.
The outlook emphasized that even with these figures looking promising, they could be weighed down by global real GDP growth expectations. Currently, expectations stand 20% lower for 2024 than in 2019.
Actual and estimated global GDP growth data
Source: EY analysis of Oxford Economics data
On Friday, Petrol’s share price fell 0.8% due to unstable and unpredictable Government regulation. While the selling prices of certain petroleum products in Slovenia and Croatia were set even below their cost for some time in 2022, the regulation is less strict in Slovenia this year. In June 2023, Croatia also eased the regulation. But again, in December 2023 Slovenia deteriorated the terms again and decreased margins by EUR 0.03 per liter. The regulation will enter into force on December 5 and will be valid for three months.
The Slovenian government further cut fuel margins, affecting Petrol’s share price. In the comparable period last year, the government interfered in the market with its regulation, lowering retail prices of certain oil derivatives, with the goal of reducing inflation. However, the Slovenian Government again decreased margins by EUR 0.03 per liter for both diesel & NMB-95. The regulation lowers the maximum allowed margin for diesel, namely to 0.0683 euros per liter and to 0.0694 euros per liter for NMB-95. To remind you of the current context, just last week, Slovenian inflation reported the lowest numbers in almost two years at 4.9% YoY. Also, we emphasize that November is 1st month of CPI reporting a MoM decrease. Consequently, the market recognized government regulation in this context as unpredictable/unstable, which resulted in a further slight Petrol’s share price decrease.
Petrol’s share price development
Source: InterCapital Research, Bloomberg
Regulation of petroleum products
Slovenia
In Slovenia, the price of extra-light heating oil has been regulated since 20 October 2021, with the exception of the period between 22 May and 12 September 2022. The prices of petrol NMB-95 and diesel have been regulated since 15 March 2022, with the exception of a brief period between 1 and 10 May. The retail price limitation was in force until 20 June, after which a Decree was adopted on 21 June and determined the maximum margins for sellers; this Decree is still in force.
The Government of the Republic of Slovenia adopted a new Decree on 15 June 2022, excluding prices of motor fuels at motorway and expressway service stations and premium fuels NMB 100 and iQ diesel from regulation. The retail and wholesale prices at such service stations and of premium fuels were market-determined. The retail and wholesale prices at such service stations were market-determined. The Decree changed a few times since then. On 19 June 2023, the Government of the Republic of Slovenia adopted a new Decree on setting prices for certain petroleum products, pursuant to which margins for diesel have stayed limited at EUR 0.0983 per liter and for NMB-95 at EUR 0.0994 per liter. The regulation excludes prices of motor fuels at motorway and expressway service stations and premium fuels NMB-100 and iQ diesel.
Croatia
In Croatia, prices have been regulated since 7 February 2022. During the first month, the retail prices were capped by a decree and were lower than the cost of the regulated fuels. Since 7 March, the margins have been capped; these enable covering the purchase price, but not also all costs. On 5 June 2023, the Government of the Republic of Croatia adopted the Decree on setting maximum retail prices and determined the maximum margins; it increased the maximum margin for petrol (eurosuper 95) from EUR 0.0995 per liter to EUR 0.1245 per liter, eurodiesel from EUR 0.0995 per liter to EUR 0.1245 per liter, and blue diesel from EUR 0.0531 per liter to EUR 0.0781 per liter. The maximum margin for the propane-butane blend for large gas storage tanks has stayed at EUR 0.3716 per kg and for LPG cylinders (7.5 kg or more) at EUR 0.8229 per kg. The Decree has been in force from 6 June 2023 with bi-weekly validity extensions.
Triglav expects EBT in the range of EUR 100 – 120m in FY 2024.
Triglav Group published its business plan for 2024 according to which they expect the following:
- GWPs: c. EUR 1.6bn
- EBT: EUR 100 – 120m
- Combined ratio: ~ 95%
Given the 9M 2023 results under the impact of CAT claims in Q3 along with the termination of supplemental health (our company note is available to research subscribers), the company also revised their FY 2023 EBT target. Revised EBT stands at around 80% lower than originally planned (the plan was EUR 95 – 110m) under the assumption of normal further claims development in Q4. CAT claims were the most important topic of Q3 results. As anticipated CAT events materialized in this quarter, impacting the Group by EUR 55.1m after taking the reinsurance protection into account, due to the flood, storms, and hails in Slovenia and the region. However, even taking those negative impacts from CAT & government regulation, it should be noted that in 9M 2023, Triglav Group recorded a 12% YoY increase in total business volume, reaching EUR 1.39bn due to price increases and increased business volume. Total business volume is a “new” reporting item, representing values from GWPs, coinsurance, and reinsurance premiums along with other insurance income. The total business volume became another new “top-line” measure as the Group stated and is not a reported item in the P&L, but rather a derived number for an investor to have a sense of development.
Revised Strategy to 2024:
The Group expects a moderate macroeconomic environment in 2024 overall. However, Triglav emphasized that its performance will depend on the termination of supplemental health insurance, reinsurance coverage and the market potential of the region. In other words, the total impact of the termination of supplemental health insurance and reinsurance coverage remains to be seen.
The Group’s total business volume is planned at c. EUR 1.6bn and EBT between EUR 100 – 120m. The Group will aim to ensure a high level of profitability with a target combined ratio of around 95% in non-life & health insurance. Finally, the Group emphasized its dividend policy remains unchanged. Further, by continuing its digital transformation and developing service-oriented business ecosystems, the Group will continue to pursue its main strategic objective – client experience. Finally, long-term this sector should appear appealing due to positive investment results as expectations for interest rates are for rates to be elevated for a longer time period. Triglav has already seen a positive impact from investment result in 9M 2023, so far.