The Deloitte CFO Survey: 2009 Q2 results
No return to business as usual
About the Deloitte CFO Survey
The Deloitte CFO Survey, launched in September 2007, is a quarterly survey of Chief Financial Officers and Group Finance Directors of major UK companies. 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.
Over 200 CFOs, mainly from FTSE350 companies, have joined the CFO Survey panel. 117 CFOs accounting for approximately 30 % of the quoted UK equity market took part in the latest survey, carried out in June 2009.
The Deloitte CFO Survey has been widely quoted in the media and is firmly established with the policymakers. The Bank of England has cited the CFO Survey in its Inflation Report and the findings have been quoted in the minutes of the Bank's Monetary Policy Committee.
A summary of the current Deloitte UK CFO Survey
2009 Q2 results: No return to business as usual
The latest Deloitte UK Chief Financial Officer Survey, published on 14th July 2009, shows CFO optimism strengthening for the second consecutive quarter, taking it to the highest level since the survey started two years ago. Most CFOs expect the UK economy to recover during 2010, but believe the recovery will be marked by sluggish growth, a strong focus on cost control and tight lending conditions – hardly a return to “business as usual”
No return to boom
In June CFO sentiment about prospects for their own companies saw the biggest ever increase, taking it to the highest level since the CFO Survey started two years ago. Most CFOs now expect a recovery to unfold in 2010, although a substantial minority, 23%, do not expect a return to growth until 2011 or later.
While sentiment has strengthened, perhaps reflecting an improvement in credit conditions, most CFOs, 59% see no revival in demand for at least a year. A majority of CFOs also think the upturn will be sluggish and credit conditions will remain tight. Such expectations help explain why most CFOs expect corporates to maintain a strong focus on cost control as the economy recovers.
Credit conditions – deleveraging ahead
In the latest survey, CFOs reported a further improvement in credit conditions, suggesting that government action to stabilise the financial system is having an effect. Nonetheless, the overwhelming majority of CFOs still rate credit as being scarce and expensive and expect credit conditions to remain difficult through at least the first year of the recovery.
Past financial crises have generally triggered a long process of consumer and corporate deleveraging, reflecting a drive to strengthen balance sheets. In addition, the private sector almost always has to contend with much reduced credit as banks themselves de-risk and de-leverage their balance sheets. CFOs assume these patterns will repeat in this cycle. Some 80% of CFOs expect deleveraging to continue through the recovery and almost half of the CFOs polled plan to reduce gearing in their own companies over the next 12 months.
Equity is back
The CFO Survey also shows that CFOs are increasingly looking towards equity and bond markets for finance. Equity has emerged as the most popular form of finance among CFOs and bank borrowing as the least popular, a reversal of the situation in 2007 and 2008. Official data show that a major change is already underway. Net bank borrowing has collapsed in the UK in the last year, while net equity issuance has turned positive after several years of declining issuance. This combination of reduced debt levels and rising equity issuance suggests that at least the early phase of the recovery will be marked by falling corporate gearing in the UK.
Expectations for M&A, perhaps the most cyclical element in corporate expectations, have also risen very sharply.
Download the full report: The Deloitte CFO Survey 2009 Q2 results (PDF, 459KB).