The Deloitte CFO Survey: 2013 Q4 results
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The Deloitte CFO Survey: 2013 Q4 results

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

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

With low levels of uncertainty, improved access to finance and greater confidence in the Bank of England's policies, Chief Financial Officers (CFOs) are gearing up for expansion, investment and hiring in 2014.

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 Q4 results The Deloitte CFO Survey: 2013 Q4 results Presentation Transcript

    • Q4 2013 The Deloitte CFO Survey 2014 outlook: Expansion, investment and hiring The Chief Financial Officers of the UK’s largest companies enter 2014 in buoyant mood. A record 57% of CFOs say this is a good time to take risk and business optimism is running at the highest level in three-and-a half years. Uncertainty and credit shortages, two major blocks to business activity, have eased substantially. CFOs’ perceptions of financial and economic uncertainty have dropped to the lowest level in more than three years. CFOs attach a 16% probability to the UK falling back into recession in the next two years, down from 40% a year ago. Large corporates have good access to capital and CFOs are more positive about financing their businesses with equities or bonds than at any time in the last six years. The banking system is working again and a record 80% of CFOs say that bank credit offers an attractive source of finance. December 2013 The top priority for CFOs in 2014 is expansion, whether through introducing new products or services or moving into new markets. CFOs are also placing greater emphasis on capital spending and 88% expect M&A activity to increase over the next 12 months. Our index of corporate expansion is back to levels last seen in early 2011 when the UK looked set for sustained recovery. CFOs say that the policies of the new Bank of England Governor, Mark Carney, have made them more positive about the outlook for the UK economy. But a majority believe that inflation will be running well above the Bank’s target in two years’ time and most CFOs expect the Bank to raise interest rates by the middle of 2015.
    • The Deloitte CFO Survey The message from this survey is that the UK’s largest companies are gearing up to expand, invest and hire. This quarter’s findings bode well for the broad‑based recovery policymakers hope to see in 2014. To access current and past copies of the survey, historical data and media coverage, please visit: www.deloitte.co.uk/cfosurvey Authors Contacts Ian Stewart Chief Economist 020 7007 9386 istewart@deloitte.co.uk Ian Stewart Chief Economist 020 7007 9386 istewart@deloitte.co.uk Debapratim De Senior Economic Analyst 020 7303 0888 dde@deloitte.co.uk Mark FitzPatrick Vice Chairman and CFO Programme Leader 020 7303 5167 mfitzpatrick@deloitte.co.uk Alex Cole Economic Analyst 020 7007 2947 alecole@deloitte.co.uk
    • The Deloitte CFO Survey Chart 1. Risk appetite % of CFOs who think this is a good time to taker greater risk onto their balance sheets 60% 50% 40% 30% 20% 10% 0% 2007 Q3 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3
    • Buoyant optimism UK CFOs enter 2014 in more optimistic mood than for three-and-a-half years. Chart 2. Business confidence Net % of CFOs who are more optimistic about financial prospects for their company now than three months ago Less optimistic More optimistic 70% 50% 30% 10% -10% -30% -50% -70% 2007 Q3 2008 Q2 2009 Q1 2009 Q4 2010 Q3 2011 Q2 2012 Q1 2012 Q4 2013 Q3
    • Buoyant optimism This rise in optimism has been matched by a gradual fall in CFO perceptions of economic uncertainty over the last year. 60% of CFOs report that the level of economic and financial uncertainty facing their businesses is above normal, high or very high – the lowest reading in more than three years. 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 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4
    • Buoyant optimism CFOs’ views on the likelihood of a euro break‑up remain largely unchanged. They now assign a 10% probability to the euro area breaking up in the next 12 months, marginally higher than last quarter’s estimate but well below the average reading in 2012. Chart 4. Average probability of euro secession 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 40% 37% 36% 35% 30% 27% 26% 25% 22% 20% 18% 15% 9% 10% 8% 2013 Q2 2013 Q3 10% 5% 0% 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q4
    • Positive on revenues The UK economy grew at a faster‑than‑expected pace in the first three quarters of 2013. Activity is widely expected to accelerate in 2014. Fears that the UK could slide into another recession have eased. On average, CFOs assign a 16% probability to the UK falling into another recession in the next two years, down from 40% a year ago. Chart 5. Average probability of a renewed recession Probability assigned by UK CFOs to the likelihood of a renewed recession in the next two years 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
    • Positive on revenues CFOs’ expectations for revenues and profits are at the highest level in three-and-a-half years. Chart 6. Outlook for corporate revenues and margins Net % of CFOs who expect UK corporates’ revenues and margins to increase over the next 12 months 100% Increase 80% 60% Revenues 40% 20% Decrease 0% -20% Operating margins -40% -60% -80% 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4
    • Positive on revenues Executives of small businesses seem to share the growing optimism of the CFOs of the UK’s largest companies polled in this survey. Business optimism among small enterprises has hit a 25‑year high according to the Confederation of British Industry’s (CBI) Industrial Trends Survey. Chart 7. Small business optimism CBI Industrial Trends Survey: Net % of small businesses expressing an improvement in optimism over their financial prospects 60% 40% 20% 0% -20% -40% -60% -80% 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
    • Few capital constraints Financing conditions remain benign for the UK’s largest corporates. The cost of credit hit a new six‑year low in the fourth quarter and credit availability is close to a six-year high. 80% 60% 100% Cost of credit (LHS) 60% 40% 40% 20% 20% Credit is cheap 0% 0% -20% -20% -40% -60% 80% -40% Availability of credit (RHS) -80% -60% -80% -100% 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 -100% Credit is hard to get Credit is costly 100% Credit is available Chart 8. Cost and availability of credit Net % of CFOs reporting credit is costly and credit is easily available
    • Few capital constraints For the first time since the financial crisis, CFOs report that bank borrowing is the most attractive source of funding. Equity issuance has also continued to gain favour as a source of corporate funding. Chart 9. Favoured source of corporate funding Net % of CFOs reporting the following sources of funding as attractive Attractive 100% Bond issuance 80% 60% 40% Bank borrowing 20% 0% Unattractive -20% -40% -60% Equity issuance -80% -100% 2007 Q3 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3
    • Few capital constraints CFOs expect all forms of capital raising – bond issuance, bank borrowing and equity issuance – to increase in 2014. According to the Bank of England’s latest Credit Conditions Survey, capital investment and commercial real estate activity are the biggest factors driving demand for credit among corporates. Chart 10. Outlook for bond issuance, bank borrowing and equity issuance Net % of CFOs who expect bond issuance, bank borrowing and equity issuance by UK corporates to increase over the next 12 months 60% 48% 50% 45% 40% 35% 30% 20% 10% 0% -10% -20% Bond issuance 2013 Q4 2012 Q4 Bank borrowing Equity issuance
    • Expansion is the top priority Introducing new products or services or expanding into new markets is the top priority for CFOs in 2014. CFOs are placing greater emphasis on cost reduction, but also on expanding by acquisition and increasing capital expenditure. Chart 11. 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 40% 40% Introducing new products/services or expanding into new markets 35% 35% Increasing cash flow 34% Reducing costs 29% Expanding by acquisition 20% Increasing capital expenditure 15% Raising dividends or share buybacks 11% 9% 9% Disposing of assets Reducing leverage 15% 7% 2013 Q4 9% 2013 Q3 20% 23%
    • Expansion is the top priority CFOs enter 2014 with a clear focus on expansionary strategies. Chart 12. CFO priorities: Expansionary vs. defensive strategies 39% 37% 35% 33% Defensive strategies 31% 29% 27% 25% Expansionary strategies 23% 21% 19% 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 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.
    • Corporates planning to spend CFO expectations for growth in hiring, capital expenditure and discretionary spending hit three‑and-a-half-year highs this quarter. Chart 13. 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 Increase 80% Hiring 60% 40% Capital expenditure 20% 0% Discretionary spending Decrease -20% -40% -60% -80% -100% 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4
    • Corporates planning to spend In this quarter’s special questions we asked CFOs about monetary policy. A strong net balance of CFOs say the policies of the new Bank of England Governor, Mark Carney, have made them more positive on the UK economy. But most expect the Bank to raise interest rates by mid-2015 and almost a quarter expect rates to rise in 2014. Chart 14. Rate rise expectations % of CFOs who expect the first increase in the Bank of England’s interest rate to occur at the following times 40% 36% 35% 33% 30% 25% 21% 20% 15% 10% 5% 0% 5% 2% 2014 H1 3% 0% 2014 H2 2015 H1 2015 H2 2016 H1 2016 H2 After 2016
    • Corporates planning to spend CFOs are sceptical that the Bank of England will be able to hit its inflation target. A majority expect consumer price inflation to be significantly above the Bank’s 2.0% target in two years’ time. Chart 15. Inflation expectations % of CFOs who expect consumer price inflation in the UK to lie between the following ranges in two years’ time 60% 50% 45% 48% 40% 30% 20% 10% 0% 0% Below zero 5% 2% 0-1.5% 1.5%-2.5% 2.5%-3.5% Above 3.5%
    • CFO Survey: Economic and financial context The macroeconomic backdrop to the Deloitte CFO Survey Q4 2013 Business confidence in most of the industrialised world improved while prospects for growth in many emerging economies softened. In December, the US Federal Reserve announced that it would start to slow the pace of its programme of Quantitative Easing. UK data were generally stronger than expected with a number of consumer-related sectors faring well. The Bank of England Governor, Mark Carney, said that recovery “is taking hold” in the UK and the Bank raised its forecast for UK growth in 2014.
    • Economic and financial context UK GDP growth: Actual and forecast (%) 6 UK to see continued recovery in 2014 Forecasts 4 2 0 Quarter-on-quarter growth -2 -4 Year-on-year growth -6 -8 2007 2008 2009 2010 2011 2012 Source: ONS, consensus forecasts from The Economist and Deloitte calculations 2013 2014
    • Economic and financial context VIX Index – a measure of equity market volatility 90 80 Low levels of financial stress Greater financial stress 70 60 50 40 30 20 10 0 2007 2008 Source: Thomson Reuters Datastream 2009 2010 2011 2012 2013
    • Economic and financial context UK private and public sector job growth (thousands) 500 Public sector 400 Private sector Private sector hiring offsets public sector job losses 300 200 100 0 -100 -200 -300 Q1 2007 Source: ONS Q4 2007 Q3 2008 Q2 2009 Q1 2010 Q4 2010 Q3 2011 Q2 2012 Q1 2013
    • Economic and financial context UK annual CPI inflation (%) 9 8 7 UK inflation down significantly from 2011 peak 6 5 4 3 2 1 0 91 Source: ONS 93 95 97 99 01 03 05 07 09 11 13
    • Two-chart summary of key survey messages Uncertainty % of CFOs who rate the level of external financial and economic uncertainty facing their business as above normal, high or very high 100% 95% 90% 85% 80% Uncertainty at 3-year low 75% 70% 65% 2013 Q4 2013 Q3 2013 Q2 2013 Q1 2012 Q4 2012 Q3 2012 Q2 2012 Q1 2011 Q4 2011 Q3 2011 Q2 2011 Q1 2010 Q4 55% 2010 Q3 60%
    • Two-chart summary of key survey messages CFO Priorities: Expansionary vs. defensive strategies 39% Expansion is top priority for 2014 37% 35% 33% Defensive strategies 31% 29% 27% 25% Expansionary strategies 23% 2013 Q4 2013 Q3 2013 Q2 2013 Q1 2012 Q4 2012 Q3 2012 Q2 2012 Q1 2011 Q4 2011 Q3 2011 Q2 2011 Q1 2010 Q4 19% 2010 Q3 21% Arithmetic average of the % of CFOs who rated expansionary and defensive strategies as a strong priority for their business in the next 12 months.
    • About the survey This is the 26th quarterly survey of Chief Financial Officers and Group Finance Directors of major companies in the UK. The 2013 fourth quarter survey took place between 22nd November and 9th December. 122 CFOs participated, including the CFOs of 32 FTSE 100 and 41 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 84 UK‑listed companies surveyed is £641 billion, or approximately 30% 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 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. © 2014 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. 32112A