Highlights first-quarter edition
Deloitte Belgian CFO Survey Q1-2011
CFOs had entered 2011 in a buoyant mood with a new focus on growth and revenue, but have left the first quarter in a somewhat more cautious mood. CFO caution coincides with the increased uncertainty at the global political and economical forum, fuelled by the crisis in the Middle-East and the nuclear crisis in Japan.
In the second half of 2010, Belgian CFOs were hardly considering an economic double dip scenario, a situation in which the economy would fall into a new recession following last year’s strong economic recovery. Today however, as was the case in the first half of 2010, over 20% of CFOs evaluate the possibility of a double dip scenario as high. Also, elevated energy prices and increased inflation have moderated the contiously strengthening optimism that we have witnessed since the beginning of 2009. Overall CFOs remain optimistic about the financial perspectives of their own organization, but the optimism has dropped markedly from the highs in the third and fourth quarter of 2010.
Half of our respondents reported demand for their products and services had already accelerated in the second half of 2010. An additional 25% expect demand to pick in 2011. That the mood is cautious, but far from negative, is also reflected in the further steady increase in the risk appetite of CFOs. Many surveyed organizations have decreased the financial risk on their balance sheet over the past 12 months.The majority of CFOs report the balance sheet is currently appropriately leveraged. 40% report it is again a good time to take on additional risk on the balance sheet.
As opposed to some initial fears of deflation the recent past, Belgian inflation increased significantly in the past year, reaching 3.5% year on year in February – just prior to the launch of the first quarter survey. The Federal Planning Bureau predicts similar inflation percentages going forward. Most CFOs however expect inflation to be lower – 2 tot 3% - and hence somewhat closer to the ECB’s target of just under 2% for the Eurozone’s target inflation.
Contrary to the countries that do not have automic wage indexation, the biggest reported threat of inflation in Belgium is by far higher labor costs. The upside is that – again as opposed to countries that do not have automatic wage indexation – Belgian CFOs see a squeeze on consumer spending power as a minor threat. Rising input or raw material costs are the second most important threat of inflation. Rising interest rates leading to a rise in the cost of capital close the top three.
All forms of financing remain attractive, although as in the previous quarters, bank borrowing and corporate debt are rated as far more attractive than equity. Credit is still widely available, but it seems as if the contious improvement of credit conditions in the past 2 years might come to a soft landing: intrest rates are rising, the cost of credit is increasing again and half of the surveyed CFOs expect further price increases and more stringent lending terms going forward.
With the growing confidence in the balance sheet, the continued optimism on the demand side and the availability of attractive financing, expansion is high on the corporate agenda. Making acquisitions, organic growth and increasing capital expenditure are increasingly popular strategies.
The vast majority of CFOs are bullish about revenue growth over the next 12 months, still in line with the results of the previous surveys. Expectations on margins however have tempered in the first quarter: concerns about inflation and the resulting increases in labour costs, raw materials and higher interest rates might leave little room for margin increases. Cashflow management and cost reduction remain the top priority for Belgian CFOs throughout 2011.