Loading ...CFOs’ optimism about the financial outlook for their companies has deteriorated markedly, and at the fastest rate since the credit crisis began, according to the latest Deloitte CFO Survey.
Margaret Ewing, Deloitte partner and vice chairman, comments: “CFOs are preparing for a more prolonged period of distress in credit markets than they had earlier expected, with cost cutting and cash preservation coming to the fore. There is also a growing readiness to contemplate more radical options such as off-shoring and dividend cuts, a reflection of the growing intensity of the slowdown.”
Corporates see the biggest risk to their business being posed by a continuation of financial stress and a weaker economy.
Ian Stewart, UK economist and director at Deloitte, comments: “In the era of low economic volatility and strong growth corporates did not have to worry too much about such macroeconomic risks. Now they are at the forefront of their concerns.
“Despite a weaker economic outlook sentiment on mergers and acquisitions (M&A) turned positive in the third quarter. 48% of CFOs expect M&A to increase with only 26% expecting a fall. Sentiment about private equity activity has also improved”.
Less credit, pricier credit
Almost all CFOs are now reporting that credit is costly and hard to obtain. 97% of respondents said credit was costly, up from 89% in June and 59% a year ago. 89% of respondents said credit was hard to obtain, up from 77% in June and 48% a year ago.
While the supply of credit available to corporates has clearly contracted, so too has credit demand. For the first time since the Survey started, more CFOs plan to reduce gearing over the next year than to raise it. This fits with the results of the latest Bank for England Credit Conditions Survey which found that the only source of strong demand for credit came from corporates seeking to restructure their balance sheets.
Margaret Ewing comments: “Non financial corporates appear to be following banks in cutting expenditure and strengthening their balance sheets”.
Cash preservation and cost cutting
Most CFOs think that credit conditions are unlikely to improve before the second half of 2009. Indeed, just over half, 53%, expect the recovery to come in 2010 or later. Back in March, the overwhelming majority of CFOs expected conditions to have improved by the middle of 2009.
More than half of CFOs plan to cut current employee numbers and capital spending, up from less than half six months ago. 70% expect to cut future hiring and 82% to reduce discretionary spending such as travel, hotels, entertainment and training.
The biggest increase has been in the proportion of CFOs contemplating moving capacity offshore (more than doubling from 13% to 29%) and reducing dividends (a five fold rise to 16%).
Download the full report: The Deloitte CFO Survey - Digging in for the downturn: 2008 Q3 results.
ENDS
Notes to editors:
About the Deloitte CFO Survey
This is the fifth quarterly Deloitte survey of Chief Financial Officers and Group Finance Directors of major UK companies. The Deloitte CFO Survey is the only survey of major corporate users of capital which gauges attitudes to valuations, risk and financing. The 2008 Q3 Survey took place between 12 and 30 September. This predates the launch of the UK bank rescue but was a period of immense financial market turbulence including the failure of Lehman, the nationalisations of AIG and the launch of the US bank rescue scheme. 105 CFOs, including those of 28 FTSE100 companies and a further 42 FTSE250 companies, participated in this survey. The rest are from a combination of FTSE Small Cap companies, private companies and major UK subsidiaries of companies listed overseas. The combined market capitalisation of the listed companies surveyed is over £370 billion.
About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country’s leading professional services firms. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (”DTT”), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other’s acts or omissions. Services are provided by member firms or their subsidiaries and not by DTT. Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.
