State visits to boost FDI, perception of Ireland abroad and tourism - Deloitte CFO Survey
CFOs of major Irish companies have given an overwhelmingly positive response to the visits of HRH Queen Elizabeth II and President Barack Obama with no respondent viewing the visits as having any negative impacts, according to the Deloitte Q2 2011 CFO Survey. The overall view of CFOs is that they will have a positive impact on FDI (66%), the perception of Ireland abroad (96%) and tourism (95%).
However, there has been a readjustment of expectations in the ability of the new Government to effect change in a short period of time – always likely after the initial honeymoon period. 62% of Irish CFOs still believe the new Government will have a positive impact on international confidence in the Irish economy, although this is down from 78% last quarter. 46% of CFOs believe that the Government’s performance in relation to fiscal and economic matters has been positive. Last quarter, 65% indicated that they thought the new Government would have a positive impact in this area.
With regards to the banking reform measures announced in Q2 2011, 54% of respondents believe that these have had a positive impact internationally. However, 55% believe that they will have a negative impact on competition in the domestic market.
These are some of the findings of the latest Deloitte CFO Quarterly Survey, which seeks to provide a barometer of business trends and economic outlook among publicly quoted companies, large private companies, and Irish subsidiaries of multinational companies.
With regards to sentiment about their own companies, 39% of respondents believe that their company has already or will return to growth by the end of 2011. This figure is down from the previous quarter when 62% of respondents believed that their company had already or would return to growth by the end of the year. That said, 41% of CFOs believe that their company’s turnover will increase in the next six months, consistent with last quarter’s figure of 40%. The number of CFOs who believe profitability will increase over the next six months has increased by 8% to 42%.
Consistent with previous quarters, respondents believe that the economy will return to growth slower than their companies are returning to growth. One third, 33%, believe that a return to growth in the Irish economy is as far away as 2013. A majority, 61%, of respondents believe that the economy will return to growth in 2012, down from 81% last quarter. Just 2% of respondents believe that the economy has already returned to growth.
Revenue maintenance/growth (33%) and maintaining profit margins (22%) are the top two financial challenges facing CFOs. Cost management is in third position, as identified by 14% of respondents.
Commenting on the findings, Shane Mohan, Partner, Deloitte said: “The visits of HRH Queen Elizabeth and President Obama have been overwhelmingly well received and look set to provide a badly needed fillip to tourism and also to foreign direct investment. But the Government will be equally aware that the honeymoon period may be coming to an end. There has been a dip in confidence among executives as CFOs recognise that it will take many months and years of effort ahead to achieve economic stability, although this is likely to be a reality check as opposed to an indictment of government policy. Sentiment with regards to company outlook is cautiously optimistic – this quarter’s survey findings show that there is an increase of 9% of CFOs who are more optimistic about the financial prospects of their company. But there is still a high degree of uncertainty out there.”
Continuing on from last quarter, exchange rate risk continues to rise. 41% of CFOs identified exchange rate risk as the highest risk to their companies, up from 35% last quarter. This has risen steadily over the last four quarters (14%) and is moving towards its peak in Q1 2010. Concern in this area is likely to be increasing due to the recent volatility in the Eurozone and concern over member states’ potential sovereign debt default.
Market risk, when compared to financial, operational and strategic risk, remains the key worry among respondent CFOs. In fact, concerns have risen sharply this quarter. 75% of respondents cited this as a key concern, compared with 57% last quarter. This has surpassed its previous highest point of 60% in Q4 2010. These concerns are unlikely to abate until there is greater financial stability in international markets. Interestingly, perceived financial risk has dropped from 16% to 9%, illustrating the gradual optimism amongst CFOs regarding their companies’ financial outlook.
On the topic of interest rates, a net 36% of respondents considered short term interest rates high in Q2 2011, up from 14% last quarter. This view clearly links to signals from the ECB. Interestingly, there was a considerable drop in the net number of CFOs who believe real estate to be overvalued – from 46% in Q1 2011 to 17% this quarter.
“The upbeat mood reflected in the Q1 survey has dissipated somewhat as uncertainty in the Eurozone continues and the reality of the situation facing the new Government becomes clearer. Rising ECB interest rates and exchange rate risk are also of concern. That said, the mood of Irish CFOs remains cautiously positive, and it may well be the case that they have adopted President Obama’s parting words to the Irish people – ‘Is feidir linn’,” concluded Mohan.
About the survey
This is the eighth in a series of quarterly surveys by Deloitte of Chief Financial Officers of listed companies, large private companies and Irish subsidiaries of overseas multi-national companies. The survey was conducted in June 2011. The Deloitte CFO Survey is the only survey that seeks to establish the views of CFOs in relation to relation to the financial markets, economic outlook and business trends.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/ie/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
The information contained in this press release is correct at the time of going to press.
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