Mixed reaction to Budget 2012 - Deloitte CFO Survey

Nine out of 10 CFOs believe Budget 2012 did not go far enough in delivering on public sector reform and that the increase in VAT will have a negative impact on the economy. The findings from the latest Deloitte Q4 2011 CFO Survey also reveal an overwhelming majority of our country’s top financial executives opposed to the Government ceding control of the national Budget to the EU.

The Government did come in for considerable support elsewhere with the number of CFOs who believe that the Government has been influential in restoring fiscal stability standing at 73%. 55% of CFOs surveyed still believe that Government has performed positively in relation to economic and fiscal matters to date, although it is down from the Q3 figure of 64%.

Significantly at a macro level, 68% of CFOs believe it will be 2013 before the economy returns to growth, pushing the recovery further out into the future when compared to previous surveys.

With the on-going uncertainty in the Eurozone, the numbers of respondents who believe that a break-up of the Eurozone is unlikely has fallen 8% to 62%. Corresponding to this, there has been an increase of 7% to 19% in the number of respondents who believe a break-up is now quite likely. In light of proposed changes to enforce EU wide budgetary discipline, 85% of CFOs are in favour of the Government retaining control of budgets while only 11% are of the view that they should be managed at European level.

Interestingly, with St Patrick’s Day just around the corner, this quarter's survey shows strong support for ministerial overseas trips, particularly those in relation to St Patrick’s Day, which are deemed either very important (19%) or important (66%).

These are some of the findings of the latest Deloitte CFO Quarterly Survey, the tenth survey in the series, 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.

Commenting on the findings, Shane Mohan, Partner, Deloitte commented: “On the whole, CFO sentiment around the Budget has been mixed. The results show that CFOs would like the Government to focus on particular areas, such as reform of the public sector and measures to help people under the age of 25 enter the workforce. This mixed reaction is most likely a reflection of the fact that the Government’s hands are tied somewhat and that there were challenging circumstances in which to strike a balance between incentivising growth and revenue raising measures.”
 
Encouragingly, the gap between a negative and a positive outlook for growth has narrowed. 43% of CFOs have stated that their company had already returned to growth by the end of 2011, up from 40% in Q3.  The survey results do show that 52% of CFOs expect their company’s turnover to decrease in the next six months, a drop of 11% in quarter 3. 41% of respondents expect their turnover to remain broadly unchanged. However, this quarter’s results also show that 48% of CFOs expect their profitability to increase over the next 6 months, an increase of 9%.

In terms of CFO sentiment with regards to the overall economy, while 43% of respondents believe that the economy has already returned to growth, 35% believe that the economy will not demonstrate growth until H2 2013.

Market risk, when compared to financial, operational and strategic risk, continues to dominate as the most significant worry amongst CFOs. 62% respondents highlighted this as a key concern, compared with 57% in Q3. Revenue maintenance/growth remains the leading challenge for one third of CFOs, followed by maintaining profit margins (27%).

Concerns over exchange rate sensitivities had stabilised somewhat in Q3 2011. However, this quarter’s survey shows that there has been a significant increase in the net perception of exchange rate risk, rising 19% to 58%. This increase is likely due to the continued volatility on global markets, with concerns over the euro to the fore. 70% of respondents believe that both sterling and the dollar will strengthen further against the euro in the next six months.

“Irish CFOs are reporting that while turnover expectations are falling, their outlook on profitability is still largely positive. This is encouraging and shows that companies are becoming more resilient to the effects of prolonged economic uncertainty and even the looming possibility of a double dip recession. It’s clear that focussing on efficiency and minimising costs is reaping rewards.  Operating in an ongoing uncertain environment is now the norm for Irish CFOs,” concluded Mohan.   

For full details of the Deloitte Q4 2011 CFO Survey, please visit www.deloitte.com/ie/cfo-survey.

About the survey
This is the tenth 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 December 2011 and January 2012.  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.