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The Deloitte CFO Survey: 2013 Q1 results


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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.

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The Deloitte CFO Survey: 2013 Q1 results

  1. 1. The fog of economic uncertainty which has been adominant feature of the CFO Survey for the last fiveyears showed some signs of clearing in the first quarter. Chief Financial Officers’ perceptions of macroeconomicand financial uncertainty have dropped to a two-and-a-half-year low. And, despite the crisis in Cyprus, CFOs aremore confident that the euro area will hold together.Lower uncertainty has lifted business confidence for athird consecutive quarter and corporate appetite for riskis not far off the peaks seen in early 2011 when Europelooked set for a sustained recovery.Reduced stress in financial markets has deliveredimprovements in credit conditions for large UK corporates.CFOs say credit is more available and cheaper than at anytime since the survey started in September 2007.CFOs have edged away from their previous emphasison cost control and cash flow. Our index of corporatedefensiveness, having trended higher for two-and-a-halfyears, has declined sharply.Q2 2013Fewer risks, greater optimismThe Deloitte CFO SurveyMay 2013
  2. 2. Chart 1. Uncertainty% of CFOs who rate the level of external financial and economic uncertainty facing their business as above normal,high or very high7277828792972013Q12012Q42012Q32012Q22012Q12011Q42011Q32011Q22011Q12010Q42010Q3The Deloitte CFO Survey
  3. 3. British business looks set to benefit from a less risky,and improving, global economic backdrop. UK-basedbusinesses with strong overseas exposure are shiftingtowards more expansionary policies. UK-focusedbusinesses remain defensive, but optimism among thesecompanies has risen too. Overall this quarter’s survey shows a strikingly broad-based rise in confidence among the UK’s largestbusinesses.AuthorsIan StewartChief Economist020 7007 DeSenior Economic Analyst020 7303 ColeEconomic Analyst020 7007 StewartChief Economist020 7007 FitzPatrickVice Chairman andCFO Programme Leader020 7303 Deloitte CFO Survey
  4. 4. Optimism risesCFO optimism about financial prospects for their owncompanies has risen for the third consecutive quarter.Companies that generate a large share of their revenuesabroad and those that are more UK-focused have bothbecome more optimistic.Chart 2. Financial prospectsNet % of CFOs who are more optimistic about financial prospects for their company now than three months agoLessoptimisticMoreoptimistic-70-50-30-101030507013Q112Q312Q111Q311Q110Q310Q109Q309Q108Q308Q107Q3
  5. 5. Greater optimism among CFOs is also reflected in thecontinued easing of their fears of a euro breakup,despite the crisis in Cyprus.CFOs now attach an 18% probability to the eurobreaking up in 12 months – exactly half the levellast summer.Chart 3. Average probability of euro secessionProbability assigned by UK CFOs to the likelihood of any of the existing members of the euro area not being in the singlecurrency in the next 12 months (%)2013 Q12012 Q42012 Q32012 Q22012 Q12011 Q437%26%36%27%22%18%Optimism rises
  6. 6. Our panel of CFOs, mostly representing large UKcorporates, also report a continued improvement incredit conditions.CFOs report credit is cheaper and more easily availablenow than at any time in the past five years.Chart 4. Cost and availability of creditNet % of CFOs reporting credit is costly and credit is easily availableCost of credit (LHS)Availability of credit (RHS)CreditiscostlyCreditischeapCreditisavailableCreditishardtoget-100-80-60-40-20020406080100-100-80-60-40-2002040608010013Q112Q312Q111Q311Q110Q310Q109Q309Q108Q308Q107Q3Optimism rises
  7. 7. Investment driversThis section compares CFO sentiment on nine keydrivers of corporate investment today and six monthsago. The big message is that improving macroeconomicand financial conditions are easing the constraints onbusiness investment.The radar chart below rates CFO sentiment on a scoreof zero to ten, with ten the most positive. The blue linedepicts CFOs’ assessment six months ago; the green lineshows the current position. CFOs are more positive oneight out of the nine drivers, thus the green line almostenvelops the blue line.CFOs’ biggest worries, denoted by low absolute scoreson the lines, relate to economic uncertainty, theweakness of the euro area and fiscal consolidation inthe UK. But, encouragingly, they are less worried todayabout weak growth in Europe and uncertainty than sixmonths ago. Concerns about UK fiscal consolidationhave increased, but only marginally.CFOs are most optimistic, and increasingly so, aboutprospects for long-term growth in demand for their ownproducts and economic activity in emerging markets, theUS and the Asia-Pacific region. Sentiment on the cost andavailability of finance has also improved, and CFOs donot see credit conditions exerting a dampening effect oninvestment.
  8. 8. Chart 5. Factors affecting corporate investment plansCFOs’ assessment of the effect of each of the following factors on their investment plans: Q3 2012 (blue line) and Q1 2013(green line). On a 10-point scale where 0 implies the most negative effect and 10 the most positive.Economic and financial uncertaintyGrowth in the euro areaFiscal consolidationin the UKGrowth in the UKCost and availability of external financeAvailability of internal financeQ3 2012Growth in emergingmarketsGrowth in the USand Asia-PacificSecular or long-term growthin demand for companies’productsQ1 201312345678910Investment drivers
  9. 9. Rising risk appetiteIn recent months investors have increasingly turned torisk assets, such as equities, in search of higher returns.The S&P 500 has gained 10% this year hitting anall-time high in the first week of April.Chart 6. Standard & Poor’s 500 equity indexSource: Thomson Reuters Datastream60080010001200140016002013201220112010200920082007
  10. 10. CFOs’ attitudes to risk tend to mirror those of investors.Corporate risk appetite rose to almost a two-year high inthe first quarter.Companies that derive most of their revenues fromforeign markets display a significantly greater appetite forrisk than their UK-facing peers.Chart 7. Risk appetite% of CFOs who think this is a good time to take greater risk onto their balance sheets0102030405013Q112Q312Q111Q311Q110Q310Q109Q309Q108Q308Q107Q3Rising risk appetite
  11. 11. Expectations for an increase in corporate revenues also rose in the first quarter.Chart 8. Outlook for revenue growthNet % of CFOs who expect UK corporates’ revenues to increase in the next 12 monthsIncreaseDecrease-35-25-15-5515253545556513Q112Q412Q312Q212Q111Q411Q311Q211Q110Q410Q3Rising risk appetite
  12. 12. CFOs are placing less emphasis on defensive strategies,such as reducing costs and increasing cash flow, than inthe previous quarter.Nonetheless, cost reduction and increasing cash flowremain the top two priorities for corporates, albeit by anarrowing margin.Chart 9. 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 monthsDisposing of assetsIncreasing capitalexpenditureReducing leverageExpanding byacquisitionRaising dividendsor share buybacksIntroducing new products/services or expandinginto new marketsIncreasing cash flowReducing costs42%39%35%18%17%13%15%6%50%49%34%8%17%11%20%8%2013 Q12012 Q4CFOs less defensive
  13. 13. Our index of corporate defensiveness, having trended higher for two-and-a-half years, has dropped sharply.Chart 10. CFO priorities: Expansionary vs. defensive strategiesDefensiveArithmetic average of the % of CFOs who rated expansionary and defensive strategies as a strong priority for theirbusiness in the next 12 months. Expansionary strategies are introducing new products/services or expanding intonew markets, expanding by acquisition and increasing capital expenditure. Defensive strategies are reducing costs,reducing leverage and increasing cash flow.Expansionary19%21%23%25%27%29%31%33%35%37%39%13Q112Q412Q312Q212Q111Q411Q311Q211Q110Q410Q3CFOs less defensive
  14. 14. International companies, those deriving more than 70%of their revenue from outside the UK, have decisivelyshifted from a defensive to an expansionary stance.UK-facing corporates, those deriving less than 30% oftheir revenues from abroad, remain defensive.Chart 11. Index of corporate expansion: International & UK-facing corporatesDifference between the arithmetic averages of the % of CFOs who rated expansionary anddefensive strategies as a strong priority for their business in the next 12 months.Defensive and expansionary strategies defined under Chart 10.InternationalUK-facingExpansionaryDefensive-30%-20%-10%0%10%20%30%13Q112Q412Q312Q212Q111Q411Q311Q2Overseas markets beckon
  15. 15. Lower costs and improved availability of credit haveensured that raising debt, through bond issuance orbank borrowing, remains the most attractive form offinancing for our panel of large corporates.Equity issuance has also gained favour among CFOs.Chart 12. Favoured source of corporate fundingNet % of CFOs reporting the following sources of funding as attractiveBondissuanceBankborrowingEquityissuanceAttractiveUnattractive-60-40-2002040608013Q112Q312Q111Q311Q110Q310Q109Q309Q108Q308Q107Q3Overseas markets beckon
  16. 16. CFOs consider equities to be overvalued for the firsttime in three years.Government bonds continue to be seen, as they havebeen for five years, as the most overvalued asset.Chart 13. UK valuationsNet % of respondents who think the following assets are overvaluedGovernment bondsCommercialreal estateEquitiesOvervaluedUndervalued-80-60-40-2002040608010013Q112Q312Q111Q311Q110Q310Q109Q309Q108Q308Q107Q3Overseas markets beckon
  17. 17. The macroeconomic backdrop to the Deloitte CFO SurveyQ1 2013Economic activity in the UK and the euro area appears tohave stagnated in the first quarter and growth forecastsfor 2013 have drifted lower. However, the BritishChambers of Commerce reported a rise in optimismamong small UK companies. Market nerves about the USdeficit eased and US housing and employment activityimproved. The outlook for growth in emerging marketsimproved as fears of a ‘hard landing’ eased. The boldmonetary and fiscal stimulus policies introduced byJapan’s new government led to a strong rally in Japaneseequities and boosted confidence about Japan’s growthprospects. Financial markets continued to strengthen,with the UK FTSE 100 up 8.7% between January and theend of March, and the S&P 500 and Dow Jones IndustrialAverage reaching all-time highs. Financial marketoptimism was only briefly dented by the €17 billionbailout of Cypriot banks. The episode set new precedentswith private depositors being forced to contribute to therescue and the imposition of capital controls.Economic and financial context
  18. 18. Economic and financial contextUK GDP growth: Actual and forecast (%)-8-6-4-202462013201220112010200920082007UK growth to see weak recoveryQuarter-on-quartergrowthForecastsYear-on-yeargrowthSource: ONS, consensus forecasts from The Economist and Deloitte calculations
  19. 19. Economic and financial contextVIX Index – a measure of equity market volatility01020304050607080902013201220112010200920082007Financial stresshas easedSource: ONS, consensus forecasts from The Economist and Deloitte calculationsGreaterfinancialstress
  20. 20. UK private and public sector job growth (thousands)Source: ONSPrivate sector hiring offsets public sector joblossesPrivate sector-300-200-100010020030040050012Q412Q111Q110Q109Q108Q107Q1Public sectorEconomic and financial context
  21. 21. Economic and financial contextUK annual CPI inflation (%)0123456789121008060402009896949290UK consumer price inflation has edged up recentlySource: ONS
  22. 22. Two-chart summary of key survey messagesUncertainty% of CFOs who rate the level of external financial and economic uncertainty facing their business as above normal,high or very highSharp fall in uncertainty72778287929713Q112Q412Q312Q212Q111Q411Q311Q211Q110Q410Q3
  23. 23. Two-chart summary of key survey messagesCFO priorities: Expansionary vs. defensive strategiesDefensiveCFOs less defensiveArithmetic average of the % of CFOs who rated expansionary and defensive strategies as a strong priority for their business inthe next 12 months.See page 10 for definitions of expansionary and defensive strategies.Expansionary19%21%23%25%27%29%31%33%35%37%39%13Q112Q412Q312Q212Q111Q411Q311Q211Q110Q410Q3
  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 memberfirms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structureof 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 setout will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining fromacting 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 thispublication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refrainingfrom 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 at2 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. 26539AAbout the surveyThis is the 23rdquarterly survey of Chief Financial Officers and Group Finance Directorsof major companies in the UK. The 2013 first quarter survey took place between 14thand28thMarch. 120 CFOs participated, including the CFOs of 26 FTSE 100 and 44 FTSE 250companies. The rest were CFOs of other UK-listed companies, large private companies andUK subsidiaries of major companies listed overseas. The combined market value of the 69UK-listed companies surveyed is £671 billion, or approximately 32% of the UK quoted equitymarket.The Deloitte CFO Survey is the only survey of major corporate users of capital that gaugesattitudes to valuations, risk and financing. To join our panel of CFO respondents and foradditional copies of this report, please contact Tulaine Trimble on 020 7007 1684 or visit for current and past copies of the survey,historical data and coverage of the survey in the media and elsewhere.