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The Deloitte CFO Survey: 2010 Q2 results

Confidence dips

The Deloitte CFO Survey: 2010 Q2 results

The 2010 second quarter Deloitte Chief Financial Officer Survey, published on 5th July 2010, indicates that recent volatility in financial markets and concerns about fiscal tightening at home and abroad have weighed on UK CFO sentiment. Optimism among UK CFOs has declined for the second quarter running, reaching a 12 month low. CFOs now see a 38% chance of a “double dip”, up from 33% in the first quarter of this year.

While the external environment looks less positive, some pressures on corporates’ balance sheets are easing. CFOs are more bullish about prospects for their own operating cash flow than at any time in the last two years. Financial risk appetite among CFOs has not, so far, been dented by doubts about the recovery. Crucially, credit conditions are getting better. CFOs’ sentiment about credit availability is now at the highest level since the survey started in the third quarter of 2007. Bank borrowing has regained its pre-recession appeal to CFOs as a source of funding. CFOs see a more attractive and available supply of bank credit driving growing demand for bank borrowing over the next year.

Cost control remains the top priority for UK CFOs, as it has been for the last two years. With fears of a double dip increasing, CFOs are maintaining a strong focus on costs. Yet cash flow is no longer the central pre-occupation that it was and has dropped down CFOs’ list of priorities. Expansionary strategies, including capital spending, expanding into new markets and launching new products and services, have shifted up the priority list.

Two of this quarter’s special questions set out to gauge the likely effects of fiscal tightening on UK corporates and reveal that CFOs see fiscal tightening bringing more direct risks than benefits for UK corporates. Two thirds of CFOs expect tighter fiscal policy to have negative effects on their companies, particularly relating to concerns about reduced consumer spending and job losses in the public sector. However, the clearly stated view of CFOs in last quarter’s CFO Survey conducted just before the General Election, was that fiscal consolidation is essential, with 85% of respondents saying that deficit reduction should be the new government’s top priority. Encouragingly, 31% foresee benefits in the long term, such as a reduction in business red tape and a lower tax burden.

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About the Deloitte CFO Survey

The Deloitte CFO Survey, launched in 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 300 CFOs, mainly from FTSE 350 companies, have joined the CFO Survey panel. In the latest survey, covering the second quarter of 2010, 125 CFOs participated, including CFOs of 32 FTSE 100 and 44 FTSE 250 companies. The rest were CFOs of other UK listed companies, large private companies and UK subsidiaries of major companies listed overseas. The combined market value of the 93 UK listed companies surveyed is £446billion, or approximately 28% of the UK quoted equity market.

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 several times in its publications such as the quarterly Inflation Report and the monthly Trends in Lending report. The findings have also been quoted in the minutes of the Bank's Monetary Policy Committee meetings.

For more information on the survey, please contact Ian Stewart, Chief Economist at Deloitte Research or Ravi Komatireddy, Economics analyst.

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