Deloitte CFO Global Insights

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Deloitte CFO Global Insights

  1. 1. CFO Global Insights What CFOs around the world are thinking and doing Third Quarter 2010 Deloitte CFO Surveys: North America, United Kingdom, Ireland, Spain, Belgium, Netherlands, Switzerland, Middle East, Australia, South KoreaDeloitte’s CFO Global InsightsDecember 2010
  2. 2. About Deloitte’s Global CFO Program ContactsThe Global CFO Program aims to position Deloitte to be thepreeminent advisor to the CFO. Recognizing that the CFOs role Paul Robinsonhas evolved rapidly over the last few years, the Program focuses Managing Director,on building relationships and eminence and has successfully Global CFO Programcaptured the attention of the CFO community through surveys, 416-874-3317forums and executive development programs. The Program hasalso produced a rich library of intellectual property, newsletters probinson@deloitte.caand podcasts used to deliver key insights to CFOs in manydifferent countries. Dave Walker Program Manager,About Deloitte’s CFO Surveys Global CFO ProgramSeventeen Deloitte member firms have launched CFO Surveys in 514-390-1732recent years. The objective of the surveys is to collect CFOs’opinions on a range of areas including economic outlook, financial davewalker@deloitte.camarkets, business trends, their organizations, and CFO careers.The focus of each member firm’s survey may vary.The composition of the respondent group may vary between For additional copies of thissurveys. For example, more than 70% of respondents for theNorth American CFO Survey are from companies with more than report, please emailUS$1 billion in annual revenue and 75% are listed companies. GlobalCFOProgram@deloitte.comThe respondent group from other surveys may have a differentcomposition. Please refer to the reports from individual CFOsurveys for details on their participants.About Deloitte’s CFO Global InsightsThe goal of the Deloitte CFO Global Insights report is to providehighlights of recent CFO survey results from Deloitte memberfirms. This issue includes the results of the third quarter 2010CFO Surveys from the following Deloitte member firms:• North America: The tide is turning toward pessimism, but not for everyone• United Kingdom: Cost control is still king• Ireland: Uncertainty rises• Belgium: Optimism confirmed by good results• Netherlands: Change in funding preferences• Switzerland: More appetite for risk• Spain: Insufficient measures to combat stagnation• Middle East: Resilience for growth• Australia: The long haul to recovery• South Korea: Optimism in a time of ambiguity Contents Summary 1 North America 2 United Kingdom 3 Ireland 4 Belgium 5 Netherlands 6 Switzerland 7 Spain 8 Middle East 9 Australia 10 South Korea 11 Deloitte CFO Surveys 12© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights i
  3. 3. CFO Global InsightsSummary for Third Quarter 2010CFO sentiments in the third quarter generally reflect the current Gauge of CFO Sentiment*state of their countries’ economies and opinions about the paceof recovery. The uncertainty in the global economy hascontributed to the tide turning toward pessimism in North OptimisticAmerica and the UK, while other countries in the Eurozone and SwitzerlandAustralia have a generally positive financial outlook. Netherlands BelgiumCFOs surveyed in Ireland and South Korea appeared more Middle Eastcautious in the outlook for their companies. However, recent Australiadevelopments around the financial bailout for Ireland and thetense political situation in the Korean peninsula may portendincreasing pessimism for both these countries. CautiousIn North America, the UK, and other areas where optimism Irelandpersists, CFOs report improved access to capital and reduced South Koreaconcerns about debt and liquidity. There is an increasedappetite for risk; increased gearing is anticipated in the next yearby UK and Australian CFOs due to positive views on arrangingnew credit or issuing debt. The ability to service debt has alsoimproved for many. Not surprisingly, CFOs in Ireland and Spainraise concerns about the availability of new credit and difficulty inobtaining funding. Pessimistic North AmericaDespite a continued focus on cost control, many CFOs are United Kingdomconsidering strategies to grow revenues. There is also a desireto increase their involvement in the strategic decisions of theircompanies. *At the time of respective CFO Surveys in the period© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 1
  4. 4. North AmericaThe tide is turning toward pessimism, but not for everyoneOne clear message from our second quarter survey was that, Highlights from the 3rd Quarter Northdespite considerable uncertainty, CFOs were predominantlyoptimistic about their companies’ prospects. Although still . American CFO Survey:present, that sentiment is not as strong as it was in our previous • Nearly half of CFOs are more optimistic this quartersurvey. The primary reason: much more somber assessments of about their company’s prospects, but pessimism iswhat’s happening in companies’ external business growing.environments. • Unemployment concerns rose sharply, topping the list ofSobering global economic conditions economic concerns.Since the last survey, sluggish consumer spending, declining • Sales and earnings expectations are even moreeffects of government stimulus, and stagnant job markets in the optimistic than last quarter, but variability is rising. abilityU.S. and across most of North America, have contri contributed to a • Costs are still a heavy focus, but revenueslowing economic recovery and volatile equities markets markets. growth/protection is gaining focus.Sovereign debt crises and a weakening euro have changed the • Competition appears to be heating up with increasedeconomic landscape in Europe, and China’s tightening of challenges around pricing trends, new competitive tacticsmonetary policy has raised further fears that global economic and M&A.growth will slow. • Government is still a major focus with changing regulatory requirements topping career and industryComing to grips with slowdown implications concerns.CFOs are clearly concerned about these developments developments. • CFOs are not very concerned about debt and liquidity. FOsUnemployment, which wasn’t at the top of many lists of concernslast quarter, jumped to the top of this quarter’s concerns concerns.Contributing to this sentiment is increasing unemployment ntapproaching double digits and a decline in housing prices. Still optimistic, but for how much longer? Despite rising worries about the economy, companies in thisWorries about the impact of unemployment and housing prices survey are still projecting growth on the whole. Year-over-year wholeon consumer spending are reflected in companies’ increasing sales are expected to increase roughly 11% on average, withfocus on revenues. Companies’ concerns about ra raising and earnings increasing almost 20%. But there is increasingmaintaining demand jumped this quarter, with revenue growth variability across companies. While these numbers are fairlygetting a larger share of their strategic focus. Competition for . optimistic even when adjusted for volatility, they mask the fact rrevenues also seems to be heating up, with growing concerns that many companies still have a long way to go beforeabout pricing trends, new competitive tactics, M&A, and the returning to their pre-recession trends.success of new initiatives.With the slowdown of global economies has come increased The blurry road aheadfear of a volatile or prolonged recovery. The good news is that Variability in companies’ outlooks obscures the picture of whatCFOs don’t consider a W or “double-dip” recovery a likely dip” to expect next. Whom should we believe – those whosescenario in their business planning (only 9% do) The “less- do). optimism is still rising, or those who are becoming moregood” news is that they don’t generally expect the faster pessimistic?recoveries associated with a “V” or a “U,” either More than half either.expect a “bathtub” shaped recovery (a “U” with a wider bottom) bottom). As employment and economic recovery sputter, pessimismOne in ten expects an “L” recovery. seems to be gaining more momentum than optimism does. Are does these just the first people to reach the top of the rollercoaster rollercoAll eyes are still on government, both because of the effects and see the decline ahead?policy will ultimately have on the broader economy, but alsobecause of the effects it will have on competitive environments An equally strong argument might be made for why awithin and across industries. substantial portion of companies will not only survive but thrive during a period of cheap capital, effective austerity measuresLittle concern about debt and liquidity and substantial long-term growth opportunities (both organic term opportunit and inorganic). Could this be a retrenchment andCFOs – at least those of very large companies – are not overly se strengthening period that leads to bigger and better things forconcerned about debt and liquidity. Fewer than one one-third place some companies?capital availability and cost in their top three economic concerns concerns.Only one in ten CFOs names sourcing capital a top three Based on this survey, we could well be seeing a bifurcation ofcompany challenge. Fewer than half of CFOs indicate they have the business environment, where large, healthy companiesdebt-reduction strategies that rely most heavily on cash reserves reduction (like the majority of those involved in this survey) have superiorand operating cash flows (rather than asset sales and equity capital access and costs that provide substantial competitiveofferings). advantage.© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 2
  5. 5. United KingdomCost control is still kingThe 2010 third quarter Deloitte CFO Survey, published on 11th Highlights from the 3rd Quarter UK CFO ighlightsOctober 2010, shows that CFOs believe their businesses arefacing elevated levels of economic uncertainty. Their optimism Surveyabout the financial outlook for their own business dropped in the • Optimism has declined for the third consecutive quarter. quarterthird quarter to the lowest level since 2009 spring. CFOs believe their business face elevated levels ofWhile the economic outlook is uncertain, credit conditions have economic uncertainty.continued to improve. CFOs now see the cost of new credit as • The credit and financial crisis for the larger UKbeing lower than at any time since the CFO Survey started in the corporates seems to be over. Corporate creditthird quarter of 2007. Perceptions of credit availability rose availability rose at the fastest pace since the Survey hesharply in the third quarter. For the first time, more CFOs have e started in the third quarter of 2007.rated credit as being “available” than “hard to obtain”. • Debt capital is seen as cheap and increasingly attractive. attractiveCFOs think that excessive leverage in the corporate sector as a CFOs are increasingly willing to contemplate raisingwhole has been largely eliminated. With interest rates seen as gearing.being at very low levels and credit increasingly available, CFOs vels • CFOs are positive about revenues, margins and cashexpect to increase their demand for credit over the next year. flow, but are cautious about hiring and discretionary e spending.Over the last year, the UK has seen an economic recovery,which, by historical standards, has been fairly robust. • For a majority of CFOs, cost control remains the top orNonetheless, CFOs have remained cautious about the utious priority.sustainability of the recovery. As a result, CFOs have maintaineda strong focus on controlling costs. This remained CFOs’ toppriority in the third quarter. Cash flow is a lesser concern than ayear ago, a change which reflects improved c credit availabilityand stronger corporate cash flow. Expansionary strategies,including introducing new services and expanding by acquisition,feature as prominent priorities and testify to a continued searchby the corporate sector for growth opportunitie opportunities.Despite all the uncertainties, CFOs are positive on the outlookfor corporate revenues and profit margins over the next 12months. CFOs also see capital expenditure rising over the nextyear. But, with cost control at the fore, the balance of opinion isthat hiring and discretionary spending will shrink over the nextyear.So, overall, the good news from this quarter’s CFO Survey isthat large UK corporates are finding it easier to raise capital.CFOs are positive on the outlook for corporate revenues an andprofits; many are looking for growth opportunities. Yet one of thedominant features of this Survey during the recession persists ayear into the recovery - in an environment of uncertainty costcontrol is king.© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 3
  6. 6. IrelandUncertainty risesDark clouds Highlights from the 3rd Quarter Ireland CFOThe key challenges to the Irish economy are well documented at Survey:this stage – the budget deficit and the cost of bailing out banks.Some clarity is being brought to the scale of these challenges • Market risk is the biggest concern: 58% of respondentsand, over the coming months, the measures that will be put in identify market risk as their most worrying risk. worrplace to redress them will be revealed by Government. The most • Expectations of revenue and turnover still broadlysignificant event in the coming quarter will be the announcement positive: almost 60% of CFOs are anticipating increasesof the Budget 2011, in addition to a four year austerity plan to in turnover over the next six months, while 30% arebring the country’s finances back into order. The budget, which projecting no change.is being signaled as one of the toughest in years, will now seekto exceed its initial €3bn deficit reduction target with figures of • Cost and availability of credit: the cost of credit remains€4bn to €5bn being quoted. on an upward trend, with 50% of CFOs expecting market interest rates to increase over the next 6 months. monthsCompetitiveness is also a key challenge but also one of the • Selective recruitment and high skills availability: over half electiveenablers of a return to growth. The Annual Competitiveness of respondents indicated that their companies areReport 2010, prepared by the National Competitiveness Council currently recruiting; however, in many cases this is for manin July had some positive messages but gains have to be very specific roles, rather than large scale increases inmaintained and interest and exchange rates pose additional staff numbers.threats. As for profit, a significant proportion (61%) of CFOs surveyedWhile the Government has been able to raise bonds on the anticipates some continuing improvements in profitability,international market, these have been at substantially higher again continuing the positive trends of previous quarters. Onlycosts with ratings agencies again downgrading Ireland’s ratings ngs 9% of respondents are anticipating a decrease in profitability.status. With the Government not needing to return to the bondmarket until Spring 2011, budget measures over the next fewmonths are critical to ensure a stable supply of funds. Cost and availability of credit continues to clog up the system... with a silver lining? We have consistently highlighted in our surveys that the highIt’s not all doom and gloom out there though. Our topical s cost and lack of availability of credit is hindering business inquestions this month show that in terms of competitiveness, the the Irish market, particularly smaller companies, and thisIrish labour market is at last starting to readjust to expected quarter is no exception. While the Deloitte UK CFO Survey fornorms with 88% of CFOs stating that salary expectations are Quarter 3 has shown a dramatic rise in credit availability and aaverage or low. The survey results also indicate that CFOs ow. reduction in cost in the UK, our survey reports that Irish repbelieve that the quality of available resources is also high. companies continue to be challenged by the availability of newStandard and Poor’s have further highlighted this perception by credit and that there is widespread difficulty in obtainingstating that Ireland’s economy will recover more quickly than funding, be it from banks, equity release or bonds.several other European countries as our competitiveness an Respondents rated domestic banks as the most challengingimproves due to the flexible labour market. Also, the agency source of credit with 54% of CFOs considering that it is stilldoes not detect ‘reform fatigue’ in Ireland’s politicians, and very hard or somewhat hard to obtain credit domestically.believes that concerns about fiscal and political risks to thecountry are exaggerated. Market risk is the key worryAlongside this, 24% of CFOs are now looking to reverse some of side Market risk has emerged as the key concern facing CFOs withthe cost reduction measures implemented during the initial 58% ranking it as their highest concern. Respondents cited Respondenstages of this recession. CFOs are also still confident in their fears of a double dip, deterioration in customer confidence,own company’s ability to return to growth in the short term with lack of credit, the impact of Budget 2011, and confidence in theover 40% stating that their company has already done so. Irish economy as just some of the key market risks companies are currently managing. Strategic, operational and financial risks were significantly less of a priority for CFOs.Expectations of revenue and turnover stillbroadly positive What to expect from next quarter will be a key milestone in our country’s economic landscape. The budget that will beAlmost 60% of CFOs are anticipating increases in turnover over announced in December 2010 will have significant implicationsthe next six months, while 30% are projecting no change. for all of our economic futures. Our survey will have a budget icAnother positive finding is a fall in the number of CFOs focus with topical questions covering some of the key issuespredicting a decrease in turnover. These figures continue the surrounding Budget 2011 and will contain key insights fromtrend in previous quarters with a broadly positive outlook for CFOs on the impact of the budget on their companies and thegrowth in turnover, perhaps reflecting the high percentage of the economy.respondents whose businesses trade internationally. However, eanalysis of the underlying data indicates that no CFO expectssignificant turnover growth in the next six months, demonstratingthat optimism is being tempered by continuing uncertaineconomic conditions and the expectation tha Budget 2011 could thathave a negative impact on consumer confidence and spendingpower in the domestic market.© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 4
  7. 7. SpainInsufficient measures to combat stagnationFragile economic recovery Highlights from the CFO survey for theCFOs have not changed their views on Spain’s economic period March 2010 - September 2010:situation, since 84% of them continue to believe that it is poor orvery poor. In addition, macroeconomic indicators point to a delay • 84% of CFOs consider Spain’s economic situation to bein economic recovery. The survey conducted in March 2010 bad or very bad, while 61% expect recovery to begin inshowed that 84% of CFOs expected recovery to take place 2012.before 2012 (during second half 2010 and 2011), but now, 61% nd • Three quarters of the respondents believe that thebelieve that Spain’s recovery will occur in 2012 or later. Spanish economy will remain in a stage of stagnation or recession for the next 12 months despite a recovery inMoreover, from a global perspective, 76% of CFOs expect the the global economy.Spanish economy to be in a stage of stagnation or recession forthe next 12 months, while almost all respondents anticipate that • 40% of respondents indicated that the yields on yieldthe global economy will begin to recover. sovereign bonds are at high or very high levels. ry • CFOs considered government reform in the labor marketInadequate or inappropriate measures to be "adequate but insufficient", and would like to seeAlmost half of all respondents consider measures taken by the more market flexibility.government in response to the Spanish economic situation as • Most respondents feel that the fiscal policy measures are"appropriate but not sufficient”, while 45% believe that they “are ficient”, inadequate and call for reducing the tax burden. burdnot appropriate." • In the area of public expenditure, it is necessary toCFOs believe it is necessary to have greater labor market deepen the cut in current operating expenses and toflexibility, increased training, and reform in the education system. increase investment in productivity.They also propose reducing the tax burden, increasing control of • With respect to the financial system, initiatives tocurrent expenditure at all levels of government, and increasing urrent enhance liquidity and access to finance are consideredinvestment in infrastructure. necessary to complete the process of sector reform.Regarding the financial system, Financial Directors propose • Default risk is perceived to be the greatest risk tomeasures to facilitate access to financing and improved flow of operations of companies in the coming months. The ies Tliquidity, to increase control and transparency, and to complete nsparency, financial position of the public sector is one of thethe process of financial sector reform. greatest concerns. • Expectations of the ability to repay debt in the next three payThe Public Sector financial position increases years have improved.the risk of default • The demands on the CFO and the challenges that he financial departments face are mainly related to businessMost respondents did not see signs of decline in major risk strategy and operational priorities, as well as liquidity andfactors affecting the operations of their companies companies. obtaining funding.Specific risks are still concentrated in the areas of access tocapital, economic recovery, falling demand, and consumer ,confidence and default. This last factor is the main concern in Challenges of the Finance Function engesfinancial management, with many respondents citing the difficult As operations and results become stabilized, financialfinancial situation in the Public Sector as one of the reasons for ial departments must confront the challenge of participating in thethe risk. decision-making process.Confidence in debt repayment ability Thus, according to respondents and in line with the risks identified, the main challenges facing Financial Directors are allengesMost respondents felt that their ability to repay debt will increase encouraging and influencing decisions on business strategyin the next three years. This will be driven by anticipated cash and operational priorities, and seeking financing whileflow generated from disposal of assets, companies and maintaining an acceptable cost of capital.businesses.© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 5
  8. 8. BelgiumOptimism confirmed by good resultsHigher confidence and good actuals Highlights from the 3rd Quarter Belgium omFinancial optimism decreased somewhat as compared to the CFO Survey:previous survey, but remains strong. Belgian CFOs almostunanimously expect sluggish but albeit sustained recovery of the • The growing optimism the survey has reported since theeconomy. More than 80% of CFOs report the actual financial he first quarter of 2010 remains strong and has translatedresults of their organizations are on budget. As in the previous into good financial results. More than 80% of CFOsquarter, 40% of CFOs report having outperformed their company report the actual financial results of their organizations organizatibudgets. The proportion of CFOs expecting declining cash flows are on budget. 40% have exceeded expectations.continues to shrink quarter by quarter. • The demand for product and services started to accelerate last quarter for a third of the surveyedThe growing optimism the survey has reported since the first rowing organizations. For the first time since the launch of thequarter of 2010 has translated in good company results results. survey, expectations related to the timing of demand deDemand for products and services have started to accelerate in acceleration have not been pushed backwards in time.the third quarter for 1/3 of the surveyed organisations For the organisations.first time since the launch of the survey the expectations on the ce • The financial repair which started slowly in the beginningtiming of accelerated demand for products and services did not of this year has further strengthened. Contrary to whatmove backwards. At present, the majority of CFO’s expect the CFOs expected in the 2009 editions of the CFO survey,acceleration in demand before or in the second half of 2011. credit is widely available and bank borrowing is a very d attractive source of financing.Financial repair accelerates • The outlook for corporate financing in the coming years isContrary to CFO expectations as reported in the 2009 editions of positive, with a majority of CFOs expecting a stable andthis study, the financial repair that had started slowly in the relatively low cost of capital, and an increasing availabilitybeginning of this year is further strengthening Credit conditions strengthening. of equity capital.have continued to improve faster than initially anticipated. • Expansion and growth are high on the agenda of the surveyed CFOs, with 35% of CFO’s considering anCFOs now see the cost of new credit as being lower than at any acquisition or merger. Although expectations on M&Atime since the CFO survey started. For the first time since the activity have been bullish for 18 months already, cheaplaunch of the survey, more CFOs have rated bank borrowing as financing and strong cash positions might finally boost finabeing “cheap” rather than “costly”. transactions.The credit crunch seems to have come to an end as well: • CFO confidence in domestic politics has plummeted inperceptions of credit availability rose sharply in the third quarter quarter. the last quarter, with the political standstill seen as aWith interest seen as being at very low levels and credit missed opportunity. 80% see room for government toincreasingly available, corporate demand for credit is starting to stimulate the economy. Two third of surveyed CFOsrise. The attractiveness of bank borrowing is still at its highest s report the political uncertainty will impact their businesslevel since the start of the survey. negatively. • Coming out of the recession, the role of the CFOs shiftsOptimization of corporate financing from operator and steward (guiding their organisationsThe downturn period witnessed significant changes in the through the turbulence) towards strategist and catalystbalance sheets with corporates running higher levels of cash roles, influencing the company’s overall direction and oveand liquid reserves and relying more on equity and corporate nd instilling a financial mindset to execution and risk-taking riskbonds finance. As a consequence of better credit conditions, the throughout the business.attractiveness of bank borrowings as a source for corporatefinancing augmented. That might change. More than half of the CFOs expect their organization to be engaged in corporate activity in the next 12The general outlook for the future cost of capital stays is months. Expansion and growth are high on the agenda of the owthoptimistic. Half of the CFO’s expect a limited increase in surveyed CFOs: 40% are considering an acquisition or merger,the Cost of capital (WACC) over the next 5 years, due to while 10% are looking into strategic alliances.an augmentation of the long term interest rates Both debt rates. Debt is cheap and with better than expected company results,and equity are expected to be available in the future. many organisations are building up strong cash positions. posi CFOs that are considering corporate activity report they plan to finance their transactions by means of existing debt facility,M&A new bank loans or existing cash or operating cash flow.M&A expectations have been bullish for the past 18 months, and llishremain strong. In the third quarter, also expectations on private Going forwardequity activity marked a significant increase. Until now, these .bullish expectations have not yet translated into a very active So overall, the good news from this quarter’s survey is that surveM&A market. CFO confidence remains strong and that actual results are overall in line – or even better – than expected. Many CFO’s expected are looking for growth opportunities, and the necessary financing is again available and attractive. attractive© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 6
  9. 9. NetherlandsChange in funding preferencesFinancial outlook Highlights from the 3rd Quarter SwitzerlandFinancial optimism among CFOs recovered this third quarter, CFO Survey:returning to the level of 2010 Q1. The cash flow outlook of CFOsfor the next 12 months increased, although the expected • CFO optimism about their financial prospects hasincrease is relatively modest. recovered from a dip in Q2. • 80% of the CFOs expect their company’s cash flow to pectOptimism of CFO’s, about the financial prospects for their increase over the next 12 months.company, has recovered this quarter since the level droppedsignificantly in Q2. Remarkable is the break between the Dutch • Corporate debt is perceived as the most attractive sourceand the UK figures. Dutch CFO’s are far more optimistic about of funding.their prospects. • For the first time, since this survey started, bank borrowing is favoured over equity as a funding source.CFO optimism about their free cash flow expectations has alsorecovered in comparison to last quarter. 80% of CFOs expect • 60% of the CFOs expect to arrange new funding over thetheir free cash flow to increase over the next 12 months. 55% next 12 months.expect an increase of 1% - 10%. • Three-quarters of the CFOs will refinance (parts of) quarters current debt positions over the next three years.Risk • The level of risk appetite remains unchanged for theThe risk appetite remains at the same level for the fourth fourth consecutive quarter; one-quarter of CFOs consider quarterconsecutive quarter. Given the current market circumstances, . now a good time to take more risk on the balance sheet.CFOs have no interest in taking more risk on their balance sheet • The outlook for M&A remains high over the next 12 hethan one year ago. About one-quarter of CFOs consider now to quarter months, but expectations slightly dropped since the lastbe a good time for more risk taking on the balance sheet The n sheet. quarter.others appear to be awaiting better times.Almost half of the CFOs continued to reduce their balance sheetrisks over the last twelve months. The number of CFOs whoraised their balance sheet risk over the past year has decreasedsubstantially. Risk control remains a priority.FundingAccording to the CFOs, funding has become less costly incomparison to the last quarter. Almost half of the CFOsconsider funding to be easily available. This is due in part tointerest rates remaining low and some banks lowering their ingsurcharge.The attractiveness of equity as a favourable source of fundingdropped below bank borrowing for the first time since this surveystarted. Corporate debt remains the favoured source of funding.60% of the CFOs are likely to issue debt over the next twelve FOsmonths. Refinancing of current debt positions does contribute tothis, because three-quarters of CFOs expect to refinance (parts quartersof) current debt positions over the next three years.M&AThe outlook of CFOs for mergers and acquisitions is still very spositive, but expectations about its growth are slightly down incomparison to the last quarters. The CFOs’ expectations forPrivate Equity activity also decreased slightly slightly.CFOs’ valuations of equity in general and of their own company ralhave also not changed much since last quarter Most CFOs rate quarter.equity in general and equity of their own company asundervalued.Dutch corporate activity is still low with a moderate number ofdeals and low transaction values on average However, private average.equity activity increased since last quarter according to marketfigures.© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 7
  10. 10. SwitzerlandMore appetite for riskStable economic outlook and cautious Highlights from the 3rd Quarter Switzerland omfinancial prospects CFO Survey:The last survey, conducted in June 2010, reported a decline in • Economic optimism among CFOs is broadly unchangedconfidence amongst CFOs. Various macroeconomic events in the third quarter. 65% judge the economic outlook forinfluenced the mood of the CFOs and led to deterioration in Switzerland over the next 12 months to be positive. positivelevels of optimism. • Financial optimism regarding their own business hasIncreasing concern about growth across the industrial world has risen slightly.led to a new wave of pessimism during the last three months months. • Growth is currently CFOs’ top priority but some defensiveDespite this increasingly negative sentiment Swiss CFOs are strategies such as cost, cash flow and risk managementoptimistic about their future prospects. are still considered to be very important. importantAfter a drop in optimism in Q2, the CFOs’ opinion of the Swiss 2, • Exchange rate risk is seen as a high-impact higheconomy has stabilised and a majority is positive about macroeconomic risk.economic development in the next 12 months Asked about the months. • Credit conditions continue to be seen as very attractive. attractiveprobability of a “double dip”, an average of only 20% believes CFO sentiment about credit availability is at its highestthis to be a realistic scenario. level since the CFO survey began. 62% describe creditFinancial confidence rebounded after the steep decline last as cheap.quarter. The level of confidence amongst CFOs is consistent • The process of deleveraging seems to be over. Risk he overwith the cautious mood in financial markets and the concerns appetite has risen and CFOs on balance plan to raiseabout renewed global economic weakness that would also affect leverage for the first time this year.Switzerland.One of this quarter’s special questions concerned the most hisimportant issues on CFOs’ agendas for the next 12 months It is months. Raising credit demandinteresting that “growth” was voted top, showing that many CFOs are becoming much less “anti” debt. 38% expect their debtbelieve in a continued recovery. However, the fact that more demand for new credit to increase over the next year. Only yeardefensive priorities (cost, cash flow and risk control) are also s 18% anticipate a decrease in demand. 98% expect their ability abilconsidered crucial shows that CFOs are hedging their strategies to service their debt-levels to increase or stay the same over levelsagainst a potential downside. the next three years.Responses to the question about current high high-impact risks The last three quarters have been a period of volatility. CFOs volatilityshowed that macro – not financial – risks dominate the min of minds have now found new optimism after the decline in confidenceCFOs. In particular, a strong Swiss Franc is still seen as a big last quarter. What emerges from this quarter’s survey is that quartthreat to their own businesses. they are looking for opportunities such as growth and at the same time hedging against a possible setback because ofAttractive credit conditions and increasing continued uncertainties on a macroeconomic levelappetite for riskEnthusiasm for bank borrowing and corporate bonds as a sourceof finance is at a high, stable level. Credit conditions are furtherimproving and a majority rate credit as available and cheap.The corporate sector in Switzerland is seen as correctlyleveraged by 86% of CFOs. Corporates have further de de-riskedtheir balance sheets but to a much lesser extent than in the lastthree quarters. The process of deleveraging seems to be over over.Instead, an increased appetite to risk can be observed and ashift in attitude towards higher gearing which is a clear sign ofrising optimism.© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 8
  11. 11. The Middle EastResilience for growthThe results of the third quarter survey indicate that despite the Highlights from the 3rd Quarter Middle Eastrising geopolitical tensions, the region is moving forward withplans for growth and optimism remains high. GDP growth is CFO Survey:expected to continue and increase into 2011 supported by • Optimism among Middle East CFOs edged downstrong spending from the regions’ governments in terms of slightly; however, this is considerably higher than theinfrastructure development, underpinned by resilient oil prices sentiments of CFOs in western countries.which have increased over the past year into the $80 range. • 78% of CFOs expect demand for their companies’CFO optimism remains high products to accelerate by the end of 2011. • CFOs are now significantly less risk averse than anyMiddle East CFOs are very optimistic compared to CFOs in the time in the past year. A net balance of 43% think now isWest. Optimism among Middle East CFOs edged down a good time to take greater risk onto their balanceslightly, with respondents reporting greater optimism dropping sheets, compared to 36% in Q1 2010 and 27% in Q3from 55% in Q1 2010 to 52% in Q3 2010. However, this is 2009quite high compared to the general level of optimism amongCFOs of western countries such as the UK and North America. • Companies are not planning to reduce spending and investment as aggressively as they did in the previousMore than three quarters of CFOs expect demand for their quarters.companies’ products to accelerate by the end of 2011. • CFOs have become much more positive about current debt levels and their debt repayment ability.Strategies aimed at cost control have • Despite a slight fall, Bank borrowing continues to be thereduced in importance most attractive source of financing for CFOs.CFOs have become markedly less risk averse over the last • A majority of the CFOs are planning to take on moreyear. A net balance of 43% think now is a good time to take debt. Two thirds of CFOs plan to raise financial leveragegreater risk onto their balance sheets, compared to 36% in Q1 over the next 12 months and are likely to issue debt or2010 and 27% in Q3 2009. arrange new facilities over the next 12 months.Companies are not planning to reduce spending and • The majority of CFOs are positive on M&A and privateinvestment as aggressively as they did in the previous quarters. equity activity in the next 12 months, but this majority73% of the respondents plan to reduce discretionary spending has shrunk since last year.in the latest survey, compared to 90% in the Q1 survey. Only • Market risk and operational risks are of the highest58% now plan to reduce capital spending, compared to 67% in concern for CFOs. These risks are largely managed bythe Q1 survey. Chief Risk Officers who report to CEOs.Confidence in debt repayment ability fallen in the last year from 51% to 42%. In contrast, there areCFOs have become much more positive about debt levels. now more CFOs who think equities and government bondsOnly a net balance of 29% of CFOs now think Middle Eastern are overvalued.companies are overleveraged compared to 42% in Q1 2010. Anet of 70% of CFOs expect their ability to service their The majority of CFOs are positive on M&A and private equitycompanies’ debt to improve over the next three years, with the activity in the next 12 months, but this majority is smallersame percentage believing the availability of debt capital will compared to one year ago. 61% of CFOs now expect M&Aincrease over the next 5 years. activity to increase in the next 12 months, compared to 71% one year ago. The proportion of CFOs expecting privateDespite a slight fall, Bank borrowing continues to be the most equity activity to increase in the next 12 months fell sharplyattractive source of financing for CFOs. A net balance of 41% from 70% to 49%. Almost a quarter of the respondents arerate bank borrowing as attractive, compared to 28% for equity considering M&A activity over the next 12 months, with 23%issuance and 26% for corporate bond issuance. There has also considering a strategic alliance and 21% considering a jointbeen a sharp rise in the attractiveness of corporate bond venture.issuance, from net 10% to net 26%. Understanding Risk in the RegionA majority of the CFOs are planning to take on more debt. Twothirds of CFOs plan to raise financial leverage over the next 12 Risk categories which currently concern CFOs the most aremonths, and are likely to issue debt or arrange new facilities market risks (39%), followed by operational, strategic, andover the next 12 months. A net of 35% of CFOs expect an financial risks.increase in debt on their balance sheets over the next threeyears. 52% of the survey respondents indicated that risk management is led by Chief Risk Officers who report toMarket outlook – Increase in M&A activity CEOs, while 37% report that CFOs have this responsibility.expectedA large proportion of CFOs consider commercial real estate tobe overvalued. However, the balance taking this view has© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 9
  12. 12. AustraliaThe long haul to recovery? oConfidence up but CFOs concerned about Highlights from the 3rd Quarter Australia ighlightseconomic recovery CFO Survey:The Deloitte CFO Survey has found that CFOs are more • 55% of CFOs are more optimistic about their financial coptimistic about the financial prospects of their companies than prospects than they were three months ago (40% in Q2). Q2)they were three months ago (55% compared to 40% in Q2). • A slow return to growth is expected by the majority ofWhile confidence has risen compared to last quarter, CFOs are CFOs (64%). Fewer expect a V-shaped economic shapedless optimistic about the overall pace of economic recovery in recovery; more now see a ‘bathtub’ shape. shapethe medium term. A majority (64%) expect a slow and possibly • 9 out of the top 10 risks are seen as external and beyonderratic return to growth. There has also been a significant CFOs’ control.downward shift to 16% (from 28% last quarter) in the number ofCFOs who expect a quick or ‘V-shaped’ recovery shaped’ recovery. • A third of CFOs believe tax reform should be the newly elected government’s top economic priority. priorityA key contributing factor to CFOs’ views about the pace of • 94% of CFOs expect M&A levels to increase over theeconomic recovery is the sense that many of the risks to which next year.their businesses are exposed are outside their direct control ide control.The survey revealed that 9 of the top 10 greatest risks seen by • 43% of CFOs said it is likely they will undertake anCFOs are external to their business. The highest nominated risk acquisition in the next 6 months.among CFOs was economic recovery, cited by 25% of • 61% of CFOs expect demand for credit to rise over therespondents. This risk was followed by performance, regulatory next 12 months and 49% aim to increase their level ofchange, the possibility of an economic slow-down in China, down gearing.increasing sovereign risk, the impact of a minority government,and concern over increasing interest rates. • Most CFOs are upbeat about their companies’ cash flow prospects.Asked to name what they believed should be the top economic • 60% of CFOs said it was not a good time to be taking 0%priority for the new government, a third (33%) selected tax ew greater risk onto their balance sheet.reform. CFOs identified the Mineral Resource Rent Tax,corporate tax levels and arrangements to establish a price for The percentage of CFOs who believe credit is costly hascarbon. Other economic priorities identified were managing the almost returned to levels recorded in 2009. Regardless, their 2009budget by returning to surplus and reducing government debt d views on arranging new credit or issuing debt continue to be(15%) and ensuring a stable economic recovery (14%) There (14%). positive, and this quarter’s survey saw a marked rise in thewas also strong recognition of the need for the government to number of CFOs who said they were likely to do so.focus on infrastructure spending (15%). The future of capital: a longer termM&A on the rise perspectiveThe optimism around M&A activity over the next year continuesthis quarter with 94% expecting an increase in M&A levels What levels. In our Australian survey for Q3 2010, the majority of CFOsis particularly interesting is that 43% of CFOs say that their expect to increase their total balance sheet debt. Growing debtcompany was either ‘extremely likely’ or ‘somewhat likely’ to financial optimism is reflected in the finding that 77% expectundertake an acquisition in the next 6 months This response months. their ability to service debt to increase over the next threeindicates the possibility of a strong uplift in the level of M&A years, 38% significantly so. Only 1% said that their capacity toactivity in the new year. service debt would decline. Where CFOs suggested that they would reduce debt in the future, using cash reserves ratherThe lack of suitable targets (41%) is one of the main hindrances than selling assets or raising equity was the preferred option.to undertaking an acquisition, followed by the pricingexpectations of vendors (32%). When considering acquisitions, ideringthe top three priorities for CFOs were alignment with strategy(92%), the impact on EPS (64%) and the impact on cash flows(39%). Revenue (6%) and market share (5%) were the lowestranked priorities.Financial strategies and views on fundingThe expected rise in M&A is further supported with 61% ofrespondents forecasting an increased demand for credit in thenext 12 months. CFOs remain upbeat about their companies’cash flow prospects. 74% were confident that their cash flow willincrease in the coming year, further reinforcing their plans to easeraise gearing levels. Since Q4 2009, there has been little changein the percentage of CFOs who plan to reduce gearing levels levels.There is a growing expectation that gearing levels will increase,potentially to fuel increasing aspirations for growth Despite growth.these positive signs, 60% of CFOs said now is not a good timeto take greater risk onto their balance sheets sheets.© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 10
  13. 13. South KoreaOptimism in a time of ambiguityCFOs of top South Korean companies are predominantly Highlights from the 3rd Quarter South Koreaoptimistic about their companies’ prospects despite considerablechange and uncertainty on government policies and currency Survey:exchange rates. This is particularly evident in the impact of • There is a general consensus of optimism amongstgovernmental policy during the economic recession, which CFOs regarding their companies’ prospects but they areresulted in more negative than positive opinion. North American cautious of the potential impact of government policiesCFOs had a similar negative outlook towards the impact of and changes in currency exchange rates.governmental policy. • The outlook for company performance is generallyAcross industries, CFOs are projecting substantial growth in optimistic, with both revenues and earnings expected toboth revenues and earnings (16% and 23%, respectively on increase.average), while costs are expected to be held to a 4-6% • There is consensus amongst CFOs that their financeincrease. This substantial growth of performance would enable organizations need to be more involved in strategiccompanies to invest more aggressively, resulting in increases in decisions; but over 40% of them place a larger focus ondividends, capital spending and domestic employment (6%, 17% funding and liquidity management.and 7%, respectively on average). The optimism in South Koreais similar to North American results, but stands in contrast to • The changing business environment (e.g., M&A) is theEurope, where sovereign debt turmoil is substantially disrupting top job stress for over 60% of CFOs.economies and capital markets. • The challenges of CFOs vary by industry; over 50% of CFOs in the manufacturing and construction industriesOver 50% of CFOs believe that one of their top challenges is believe that competition with foreign companies is theirensuring an appropriate level of involvement in strategic top challenge, while over 50% of CFOs in other industriesdecision-making by either participating directly or providing indicated that it is industry regulation/legislation.information indirectly to decision makers; however, due to theeconomic uncertainty, over 40% of CFOs place a largeremphasis on ‘ensuring funding, liquidity, and acceptable costs ofcapital’. 54% of CFOs believe debt will increase over the nextthree years, but 72% also believe that the ability to service debtwill increase, resulting in an overall view that the level of debt willbe manageable.Over 60% of CFOs believe that ‘major change initiative (e.g.,M&A)’ is a leading cause of job stress, while about 50% of CFOswere in agreement that ‘an insufficient support staff (e.g.,shortage of number)’ is a concern. Additionally, there isagreement that significant time must be devoted to supportdecision-making processes, one of the key capabilities of the‘strategist’ role.Some CFOs from varying industries have shown differentopinions regarding their challenges. Over 50% of CFOs in themanufacturing and construction industries indicated that ‘foreigncompetition’ is their top industry challenge, while over 50% ofCFOs from other industries believe it is ‘industryregulation/legislation’.Consumer, retail and services industry CFOs have morepessimistic views about their industry prospects.© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 11
  14. 14. Deloitte CFO SurveysAbout Deloitte CFO SurveysSeventeen Deloitte member firms have launched CFO Surveys in the past few years. The objective of the surveys is to collect CFOs’opinions on a range of areas including economic outlook, financial markets, business trends, their organizations, and CFO careers. Thefocus of each member firm’s survey may vary.Outlined below are the member firms that currently conduct CFO surveys and their frequency. Click on the country name to be directed tolatest survey results where available. Region Country Frequency Europe, Middle East Belgium Quarterly and Africa Denmark* Bi-annual Ireland Quarterly Israel* Quarterly Middle East Bi-annual Netherlands Quarterly South Africa Annual Spain Bi-annual Sweden* Bi-annual Switzerland Quarterly United Kingdom Quarterly Americas North America Quarterly (Canada, Mexico, United States) Asia Pacific Australia Quarterly South Korea Annual Japan (foreign companies only)* Quarterly*Contact the Global CFO Program for further information, email GlobalCFOProgram@deloitte.com© 2010 Deloitte Global Services Limited Deloitte CFO Global Insights 12
  15. 15. This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms,or their related entities (collectively the “Deloitte Network”) is, by means of this publication, rendering professionaladvice or services. Before making any decision or taking any action that may affect your finances or your business,you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any losswhatsoever sustained by any person who relies on this publication.www.deloitte.comDeloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. Witha globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep localexpertise to help clients succeed wherever they operate. Deloittes approximately 170,000 professionals are committed to becomingthe standard of excellence.Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network ofmember firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detaileddescription of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.© 2010 Deloitte Global Services Limited

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