A new mood of confidence pervades the third quarter
CFO Survey. Chief Financial Officers see fewer risks in the
global eco...
20%
25%
30%
35%
40%
13
Q3
13
Q2
13
Q1
12
Q4
12
Q3
12
Q2
12
Q1
11
Q4
11
Q3
11
Q2
11
Q1
10
Q4
10
Q3
Defensive strategies
Exp...
The pressure on companies from institutional investors
to do so is also mounting. Bank of America Merrill
Lynch’s Septembe...
CFO optimism has risen for the fifth consecutive quarter
and is now running close to a three‑year high.
-60%
-50%
-40%
-30...
CFOs’ perceptions of economic uncertainty have
continued to fall.
62% of CFOs report the level of financial and economic
u...
Fears of a euro break‑up have also subsided. CFOs now assign an 8% probability to the euro area
breaking up in the next 12...
Rising risk appetite
Greater optimism and lower uncertainty have
contributed to an increased willingness among
corporates ...
0
1
2
3
4
5
6
7
8
9
10
Uncertainty about the economic and financial environment
Actual or expected
levels of economic
activ...
Corporates turn expansionary
Disposing of assets
Reducing leverage
Raising dividends or
share buybacks
Increasing capital ...
Expectations for capital expenditure, hiring and
discretionary spending over the next 12 months, have hit
three‑year highs...
CFOs are coming under growing pressure from
institutional investors to increase investment.
Bank of America Merrill Lynch’...
In the last six months CFOs have become more
positive on the prospects for economic activity
throughout the industrialised...
Under its new policy of forward guidance, the
Bank of England has indicated that interest rates
are likely to stay on hold...
For the large companies in the CFO Survey credit
conditions have improved continuously for more than
a year.
CFOs now rate...
Bank borrowing has become significantly more
attractive to CFOs in the last two years. CFOs rate bank
borrowing and bond i...
CFOs see benefits from UK membership of the European
Union in all but one of the seven areas covered in this
quarter’s spe...
The macroeconomic backdrop to the
Deloitte CFO Survey Q1 2013
Western equity markets continued to climb in the
third quart...
UK expected to
grow by 1.9% in 2014
Quarter-on-quarter
growth
Year-on-year
growth
20142013201220112010200920082007
-8
-6
-...
CFO Survey: Economic and financial context
VIX Index – a measure of equity market volatility
Financial stress edged lower ...
UK private and public sector job growth (thousands)
-300
-200
-100
0
100
200
300
400
500
Q1
13
Q2
12
Q3
11
Q4
10
Q1
10
Q2
...
UK annual CPI inflation (%)
UK inflation steady, remains above 2% target
0
1
2
3
4
5
6
7
8
9
131109070503019997959391
Source...
Two-chart summary of key survey messages
60%
70%
80%
90%
100%
13
Q3
13
Q2
13
Q1
12
Q4
12
Q3
12
Q2
12
Q1
11
Q4
11
Q3
11
Q2
...
Two-chart summary of key survey messages
0%
10%
20%
30%
40%
50%
60%
07
Q3
08
Q1
08
Q3
09
Q1
09
Q3
10
Q1
10
Q3
11
Q1
11
Q3
...
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, an...
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The Deloitte CFO Survey: 2013 Q3 results

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Find out more at http://www.deloitte.co.uk/cfosurvey

A new mood of confidence pervades the third quarter CFO Survey. Chief Financial Officers see fewer risks in the global economy and greater opportunities for expansion.

Key findings:

- CFOs' perceptions of external macro and financial risk have hit three-year lows.
- The financing environment for corporates has improved still further. Cost of credit is at its lowest and availability at its highest since the survey began in 2007.
- 54% of CFOs say now is a good time to take greater risk onto their balance sheet, a six-year high.
- Austerity is out and expansion is coming in. Cost control and cash conservation are moving out of favour. Expansion is, once again, the top priority for corporates.

About the Deloitte CFO Survey:

The Deloitte CFO Survey, launched in 2007, is a quarterly survey of Chief Financial Officers and Group Finance Directors of major UK companies. Over 300 CFOs, mainly from FTSE 350 companies, have joined the CFO Survey panel. The Survey captures shifts in UK CFOs' opinions on valuations, risks and financing and has become a benchmark for gauging financial attitudes of major corporate users of capital.

The Deloitte CFO Survey has been widely quoted in the media and is firmly established with policymakers. The Bank of England has cited the CFO Survey several times in its publications such as the quarterly Inflation Report and the monthly Trends in Lending report. The findings have also been quoted in the minutes of the Bank's Monetary Policy Committee meetings.

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The Deloitte CFO Survey: 2013 Q3 results

  1. 1. A new mood of confidence pervades the third quarter CFO Survey. Chief Financial Officers see fewer risks in the global economy and greater opportunities for expansion. The defensive strategies of cost-cutting and cash accumulation that saw corporates through the global financial crisis are increasingly out of favour. The priority now is expansion. The balance‑sheet cycle has turned decisively towards growth. CFOs have become markedly more positive on prospects for growth in the developed world. There is greater confidence too, that the euro area will hold together. Emerging markets are a vital source of demand but CFOs are also looking to Europe for expansion. In a reversal of the situation six months ago, CFOs believe that UK growth will have a more positive effect on their investment plans in the next year than growth in emerging markets or in the US, Japan and Asia-Pacific. It is symptomatic of the changed attitude that a record 54% of CFOs say that now is a good time to take risk onto their balance sheet. High levels of corporate cash and favourable credit conditions suggest that major corporates have the firepower to invest. Q3 2013 Priority: Expansion The Deloitte CFO Survey September 2013
  2. 2. 20% 25% 30% 35% 40% 13 Q3 13 Q2 13 Q1 12 Q4 12 Q3 12 Q2 12 Q1 11 Q4 11 Q3 11 Q2 11 Q1 10 Q4 10 Q3 Defensive strategies Expansionary strategies Chart 1. CFO priorities: Expansionary vs. defensive strategies Arithmetic average of the % of CFOs who rated expansionary and defensive strategies as a strong priority for their business in the next 12 months. Expansionary strategies are introducing new products/services or expanding into new markets, expanding by acquisition and increasing capital expenditure. Defensive strategies are reducing costs, reducing leverage and increasing cash flow. The Deloitte CFO Survey
  3. 3. The pressure on companies from institutional investors to do so is also mounting. Bank of America Merrill Lynch’s September fund managers’ survey found that 54% of investors want companies to cut cash levels and boost capital spending, an eight-year high. As BofA/ML notes, for institutional investors, “austerity is out, expansion is in”. The mood among corporates has been transformed in the last year. This quarter’s survey reveals a broad‑based optimism and a new focus on growth among the UK’s largest businesses. Authors Ian Stewart Chief Economist 020 7007 9386 istewart@deloitte.co.uk Debapratim De Senior Economic Analyst 020 7303 0888 dde@deloitte.co.uk Alex Cole Economic Analyst 020 7007 2947 alecole@deloitte.co.uk Contacts Ian Stewart Chief Economist 020 7007 9386 istewart@deloitte.co.uk Mark FitzPatrick Vice Chairman and CFO Programme Leader 020 7303 5167 mfitzpatrick@deloitte.co.uk To access current and past copies of the survey, historical data and media coverage, please visit: www.deloitte.co.uk/cfosurvey The Deloitte CFO Survey
  4. 4. CFO optimism has risen for the fifth consecutive quarter and is now running close to a three‑year high. -60% -50% -40% -30% -20% -10% 10% 20% 30% 40% 50% 13 Q3 12 Q4 12 Q1 11 Q2 10 Q3 09 Q4 09 Q1 08 Q2 07 Q3 LessoptimisticMoreoptimistic Chart 2. Business confidence Net % of CFOs who are more optimistic about the financial prospects for their company now than three months ago Greater optimism
  5. 5. CFOs’ perceptions of economic uncertainty have continued to fall. 62% of CFOs report the level of financial and economic uncertainty facing their businesses is above normal, high or very high, down from 97% two years ago. 60% 70% 80% 90% 100% 13 Q3 13 Q2 13 Q1 12 Q4 12 Q3 12 Q2 12 Q1 11 Q4 11 Q3 11 Q2 11 Q1 10 Q4 10 Q3 Chart 3. Uncertainty % of CFOs who rate the level of external financial and economic uncertainty facing their business as above normal, high or very high Greater optimism
  6. 6. Fears of a euro break‑up have also subsided. CFOs now assign an 8% probability to the euro area breaking up in the next 12 months, the lowest reading in two years. 0% 5% 10% 15% 20% 25% 30% 35% 40% 13 Q3 13 Q2 13 Q1 12 Q4 12 Q3 12 Q2 12 Q1 11 Q4 37% 26% 36% 27% 22% 18% 9% 8% Chart 4. Average probability of euro break-up Probability assigned by UK CFOs to the likelihood of any of the existing members of the euro area not being in the single currency in the next 12 months Greater optimism
  7. 7. Rising risk appetite Greater optimism and lower uncertainty have contributed to an increased willingness among corporates to take risk. A record 54% of CFOs say that now is a good time to take greater risk onto their balance sheets. 0% 10% 20% 30% 40% 50% 60% 07 Q3 08 Q1 08 Q3 09 Q1 09 Q3 10 Q1 10 Q3 11 Q1 11 Q3 12 Q1 12 Q3 13 Q1 13 Q3 Chart 5. Risk appetite % of CFOs who think this is a good time to taker greater risk onto their balance sheets
  8. 8. 0 1 2 3 4 5 6 7 8 9 10 Uncertainty about the economic and financial environment Actual or expected levels of economic activity/GDP growth in the euro area Fiscal consolidation in the UK (tax rises, cuts in public spending) Actual or expected levels of economic activity/GDP growth in the UK Availability of internal finance Cost and availability of external finance Actual or expected levels of economic activity/GDP growth in emerging markets Actual or expected levels of economic activity/GDP growth in the rest of the world (including the US, Japan and Asia-Pacific) Secular or long-term growth for your products or services 2013 Q3 – Effect over last 12 months 2013 Q3 – Effect over next 12 months Chart 6. Factors affecting corporate investment plans CFOs’ assessment of the effect of each of the following factors on their investment plans: On a 10-point scale where 0 implies the most negative effect and 10 the most positive Rising risk appetite Chart 6 shows CFOs’ assessment of how nine key factors have affected their investment plans in the last 12 months and how they are likely to do so in the next year. CFOs think all these factors will offer greater support to investment over the next year. Uncertainty has been the greatest constraint on investment but CFOs expect its influence to weaken. CFOs also believe that growth in the UK and the euro area will exert a significantly more positive effect on investment over the next year. Indeed, in a striking change, UK growth is now seen as being more supportive of investment than growth in emerging markets. CFOs remain most optimistic about prospects for long‑term growth in demand for their own products and services.
  9. 9. Corporates turn expansionary Disposing of assets Reducing leverage Raising dividends or share buybacks Increasing capital expenditure Expanding by acquisition Reducing costs Increasing cash flow Introducing new products/services or expanding into new markets 2013 Q3 2013 Q2 40% 40% 29% 34% 20% 15% 14% 11% 13% 9% 9% 8% 12% 21% 38% 35% Chart 7. Corporate priorities in the next 12 months % of CFOs who rated each of the following as a strong priority for their business in the next 12 months For the first time in a year and a half CFOs have chosen an expansionary strategy – introducing new products and services or expanding into new markets – as their top priority. They are also placing greater emphasis on increasing capital expenditure and have softened their focus on defensive strategies such as increasing cash flow, reducing costs and reducing leverage.
  10. 10. Expectations for capital expenditure, hiring and discretionary spending over the next 12 months, have hit three‑year highs. -100% -80% -60% -40% -20% 0% 20% 40% 60% 13 Q3 13 Q2 13 Q1 12 Q4 12 Q3 12 Q2 12 Q1 11 Q4 11 Q3 11 Q2 11 Q1 10 Q4 10 Q3 DecreaseIncrease Capital expenditure Hiring Discretionary spending Chart 8. Outlook for capital expenditure, hiring and discretionary spending Net % of CFOs who expect UK corporates’ capital expenditure, hiring and discretionary spending to increase over the next 12 months Corporates turn expansionary
  11. 11. CFOs are coming under growing pressure from institutional investors to increase investment. Bank of America Merrill Lynch’s September fund managers’ survey found that 54% of investors want companies to cut cash levels and boost capital spending, an eight‑year high. This is a dramatic change from five years ago when investors wanted companies to repair their balance sheets. 0% 10% 20% 30% 40% 50% 60% 70% 80% Repair balance sheet Return cash to shareholders Increase capex 28% 54% Source: Bank of America Merril Lynch 2009 11%10%11% 70% September 2013 Chart 9. What fund managers want companies to do with cash % of fund managers who would like companies to increase capital expenditure, return cash to their shareholders and repair their balance sheets Investors seek capex
  12. 12. In the last six months CFOs have become more positive on the prospects for economic activity throughout the industrialised world. There has been a particularly strong improvement in sentiment about the UK and US economies. Expectations for emerging economies have, by contrast, deteriorated in the last six months. 91% 83% 52% 48% -42% -60% -40% -20% 0% 20% 40% 60% 80% 100% Emerging markets and developing economies JapanEuro areaUSUK Chart 10. Prospects for economic activity Net % of CFOs reporting an improvement in prospects for economic activity over the last six months in the UK, US, euro area, Japan and emerging markets Investors seek capex
  13. 13. Under its new policy of forward guidance, the Bank of England has indicated that interest rates are likely to stay on hold until late 2016. CFOs seem sceptical; most expect UK interest rates to rise by 2015. 0% 20% 40% 60% 80% 100% After 2016 2016 By 2015 4% 15% 82% Chart 11. Rate rise expectations % of CFOs who expect the Bank of England’s Bank Rate to rise by 2015, in 2016 and after 2016 Investors seek capex
  14. 14. For the large companies in the CFO Survey credit conditions have improved continuously for more than a year. CFOs now rate credit as being cheaper and more available than at any time in the last six years. -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% CreditischeapCreditiscostly CreditishardtogetCreditisavailable -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 07 Q3 08 Q1 08 Q3 09 Q1 09 Q3 10 Q1 10 Q3 11 Q1 11 Q3 12 Q1 12 Q3 13 Q1 13 Q3 Cost of credit (LHS) Availability of credit (RHS) Chart 12. Cost and availability of credit Net % of CFOs reporting credit is costly and credit is easily available Easy credit
  15. 15. Bank borrowing has become significantly more attractive to CFOs in the last two years. CFOs rate bank borrowing and bond issuance as being equally attractive. Equity issuance has moved back into favour as a source of funding for the first time in four years. -60% -40% -20% 0% 20% 40% 60% 80% UnattractiveAttractive Equity issuance Bank borrowing Bond issuance 07 Q3 08 Q1 08 Q3 09 Q1 09 Q3 10 Q1 10 Q3 11 Q1 11 Q3 12 Q1 12 Q3 13 Q1 13 Q3 Chart 13. Favoured source of corporate funding Net % of CFOs reporting the following sources of funding as attractive Easy credit
  16. 16. CFOs see benefits from UK membership of the European Union in all but one of the seven areas covered in this quarter’s special question. The exception is the EU’s legal, regulatory and compliance framework where CFOs are, on balance, fairly negative. -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% The legal, regulatory and compliance framework The success of UK financial services UK influence in and connections with the rest of the world The free movement of people Attracting foreign direct investment Facilitating corrections with other euro area nations UK export performance 51% 61% 77% 80% 89% 27% -64% Chart 14. Benefits of European Union membership Net % of CFOs who rate the following as benefits to UK business and the UK economy of European Union membership Easy credit
  17. 17. The macroeconomic backdrop to the Deloitte CFO Survey Q1 2013 Western equity markets continued to climb in the third quarter and government bond yields edged higher. Economists’ forecasts for GDP growth in the industrialised world rose. The euro area emerged from recession and the UK posted stronger than expected growth in the second quarter. The outlook for emerging market economies softened, with a number suffering capital outflows and a weakening of their currencies. Under its new policy of forward guidance the Bank of England indicated that UK interest rates are likely to stay on hold until late 2016. The US Federal Reserve surprised markets in mid September by announcing it is not yet ready to slow the pace of Quantitative Easing. CFO Survey: Economic and financial context
  18. 18. UK expected to grow by 1.9% in 2014 Quarter-on-quarter growth Year-on-year growth 20142013201220112010200920082007 -8 -6 -4 -2 0 2 4 6 Forecasts UK GDP growth: Actual and forecast (%) Source: ONS, consensus forecasts from The Economist and Deloitte calculations CFO Survey: Economic and financial context
  19. 19. CFO Survey: Economic and financial context VIX Index – a measure of equity market volatility Financial stress edged lower in the third quarter 0 10 20 30 40 50 60 70 80 90 2013201220112010200920082007 Greaterfinancialstress
  20. 20. UK private and public sector job growth (thousands) -300 -200 -100 0 100 200 300 400 500 Q1 13 Q2 12 Q3 11 Q4 10 Q1 10 Q2 09 Q3 08 Q4 07 Q1 07 Private sector hiring offsets public sector job losses Public sector Source: ONS Private sector CFO Survey: Economic and financial context
  21. 21. UK annual CPI inflation (%) UK inflation steady, remains above 2% target 0 1 2 3 4 5 6 7 8 9 131109070503019997959391 Source: ONS CFO Survey: Economic and financial context
  22. 22. Two-chart summary of key survey messages 60% 70% 80% 90% 100% 13 Q3 13 Q2 13 Q1 12 Q4 12 Q3 12 Q2 12 Q1 11 Q4 11 Q3 11 Q2 11 Q1 10 Q4 10 Q3 Uncertainty % of CFOs who rate the level of external financial and economic uncertainty facing their business as above normal, high or very high Uncertainty at 3-year low
  23. 23. Two-chart summary of key survey messages 0% 10% 20% 30% 40% 50% 60% 07 Q3 08 Q1 08 Q3 09 Q1 09 Q3 10 Q1 10 Q3 11 Q1 11 Q3 12 Q1 12 Q3 13 Q1 13 Q3 Risk appetite % of CFOs who think this is a good time to taker greater risk onto their balance sheets Risk appetite at 6-year high
  24. 24. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms. Deloitte LLP is the United Kingdom member firm of DTTL. This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication. © 2013 Deloitte LLP. All rights reserved. Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198. Designed and produced by The Creative Studio at Deloitte, London. 29820A About the survey This is the 25th quarterly survey of Chief Financial Officers and Group Finance Directors of major companies in the UK. The 2013 third quarter survey took place between 6th and 23th September. 116 CFOs participated, including the CFOs of 28 FTSE 100 and 42 FTSE 250 companies. The rest were CFOs of other UK‑listed companies, large private companies and UK subsidiaries of major companies listed overseas. The combined market value of the 81 UK‑listed companies surveyed is £554 billion, or approximately 27% of the UK quoted equity market. The Deloitte CFO Survey is the only survey of major corporate users of capital that gauges attitudes to valuations, risk and financing. To join our panel of CFO respondents and for additional copies of this report, please contact Tulaine Trimble on 020 7007 1684 or email ttrimble@deloitte.co.uk

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