CFOs expect slow recovery, says Deloitte survey

There is a growing sense of optimism among UK chief financial officers (CFOs), according to the findings of the latest quarterly CFO Survey by Deloitte.

But while there is clear, though not universal, conviction among CFOs that the economy will recover during the next year, most expect the recovery to be marked by sluggish growth, a strong focus on cost control and tight lending conditions.

Seventy-three per cent of those surveyed expect a recovery to unfold in 2010, while 23 per cent do not expect a return to growth until 2011 or even later. As far as their own business is concerned, 59 per cent see no revival in demand for at least another year.

Richard Edwards, Deloitte Midlands practice senior partner in Birmingham, said: “It seems that some optimism is returning, but nobody is getting carried away.

“The survey shows that CFOs believe that conditions for UK corporates will remain tough even as the economy recovers and it will be a very different environment going forward. CFOs don’t see a return to the robust growth of late 2006 and early 2007.

“With CFOs assuming that growth will be weak and cost reduction a priority, it is unsurprising that 85 per cent think unemployment will continue to rise through at least the first year of recovery.”

According to the Deloitte survey, despite a slight improvement in credit availability, bank borrowing is out of favour. CFO sentiment about issuing equity and corporate bonds hit its highest level since the survey began two years ago. Equity is seen as the most popular form of finance, and bank borrowing the least popular, a complete reversal of the situation in 2007 and 2008.

Mr Edwards said: “The end of the credit boom has caused a big shift in the way in which corporates plan to finance their businesses, with CFOs increasingly looking towards equity and bond markets for finance. Half of the CFOs surveyed also expect to reduce gearing in their own companies over the next year. The strong message from this survey is that CFOs think debt reduction has further to run.”

CFOs have become increasingly bullish about M&A activity, with 83 per cent expecting M&A activity to rise over the next year. Sentiment on private equity activity has also turned positive for the first time in two years. A more positive view on M&A seems to reflect an improved economic outlook, depressed asset valuations, and a better financing environment.

Mr Edwards said: “Whilst the signs of possible recovery remain fragile, it is great to see CFOs feeling more optimistic and starting to look to the future. There will be winners in these challenging markets, and I expect it to be those who positively position themselves now who will emerge from this recession ahead of the pack.

“Winning businesses will be distinguished by those willing to take bold action and capture opportunities. Recessions create real opportunities for those prepared to be proactive and decisive while keeping an intelligent focus on operational imperatives such as costs.”

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