Growth forecasts still positive but domestic market risks the key concern – Deloitte CFO Survey
Over half of respondents currently recruiting again on lower wage demands
58% of Chief Financial Officers (CFOs) believe that their companies’ turnover will grow over the next six months, according to the Quarter 3, 2010 Deloitte CFO Survey. A similar number (61%) are also anticipating a corresponding improvement in profitability. While these numbers are down marginally from the Quarter 2 Survey (from 61% and 65% respectively) they do indicate that CFOs remain optimistic about their companies’ prospects, despite increasing uncertainty in the domestic market.
41% of the CFOs surveyed indicated that their company has already returned to growth, with the balance predominantly anticipating a return to growth in 2011. It is not surprising that many of the respondents were active in the internationally traded goods and services area.
The positive findings are in contrast to CFOs’ views on the macro economy. The survey found that Irish CFOs continue to believe that it will take longer for Ireland to return to economic growth. 33% believe that it will be second half of 2011 before the economy recovers, while a further 22% believe the recovery will not come until the first half of 2012.
Market risk emerged as the key concern facing CFOs - 58% ranked it as their most pressing concern. Respondents cited fears of a double dip, deterioration in customer confidence, lack of credit, the impact of Budget 2011, confidence in the Irish economy and interest rates as just some of the key market risks companies are currently managing. These pose a greater concern than other areas such strategic risk (18%), operational risk (18%) and financial risk (6%). Revenue maintenance/growth (30%) and cost management (24%) remained the key financial challenges facing CFOs in Q3.
These are some of the findings of the latest quarterly CFO survey for Q3 2010 by Deloitte, which looks to establish the views of CFOs of larger Irish based companies in relation to financial markets, the economic outlook and business trends.
Commenting on the results Shane Mohan, Partner in Deloitte said: “Overall, the message from the survey is that Irish CFOs remain broadly confident in the ability of their individual companies to return to growth. Given ongoing concerns around domestic market risks, the improvement in global economies is critical to the success of large corporates. CFOs have also highlighted that availability of credit continues to be an issue. Their view is that while NAMA will assist the banks in restoring their credibility, the setting up of the agency and ongoing recapitalisation of the banks is not yet translating into an increase in the availability of credit by domestic banks to Irish businesses,- and this is further contributing to uncertainty in the domestic market.”
In terms of employment, 52% of respondents highlighted the fact that their organisations are currently recruiting. 75% of respondents state the availability of resources is high. This availability is further classed as being high in terms of quality, skills and experience (69%). 88% of CFOs also categorise current salary expectations of available resources as either ‘average’ or ‘low’. Based on feedback from CFOs it is clear that, in the 52% of companies that indicated some recruitment, it is selective and focused on key positions.
With regards to cost management measures introduced in their companies, CFOs have highlighted that some measures introduced already have (22%) or will (24%) be reversed. Respondents indicated that they have already restored working weeks, bonuses, pay levels and recruitment.
This quarter’s survey also looked at CFOs’ opinions on M&A activity. 64% currently believe that their markets will experience an increase in M&A activity over the next 12 months. That said, a similar majority (63%) indicated that strategic transactions will not apply to their company. Those respondents that do expect to be involved in such transactions have identified existing or operating cash flow as their preferred source of finance for the transaction.
“The clear message that emerges from this quarter’s survey is that CFOs feel considerably more confident in their own companies’ outlook than that of the general economy. This is emphasised by the fact that over half of the respondents’ organisations are recruiting for key positions and some cost reduction measures have or may be reversed. However, it should be noted that this survey focuses on larger corporates who are typically in a position to benefit earlier from improvements in the global economy. It is clear that many smaller businesses are still struggling. Given the developments over the last quarter - including the costs of bailing out the banks and the size of cuts needed to reduce the budget deficit - uncertainty regarding the general economy is still high. All eyes are now firmly focussed on Budget 2011 and how the measures introduced will affect individuals and business,” concluded Mohan.
About the survey
This is the fifth 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 September 2010. 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.
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