Confidence rebounds as CFOs plan for growth in 2011

Chief finance officers (CFOs) at major UK companies entered 2011 in a more buoyant mood with a new focus on growth, according to the findings of the latest Deloitte CFO Survey.

CFO confidence rebounded in the fourth quarter of 2010, regaining much of the ground lost in the second and third quarters. Fears of a double dip have abated from the levels seen earlier in the year.

According to the Deloitte survey, finance chiefs are shifting from defensive to expansionary strategies including taking on new staff and undertaking capital expenditure. Corporate risk appetite has risen even more rapidly than optimism, reaching the highest level since the survey started in the third quarter of 2007. Growing appetite for risk is leading to a willingness to embrace more expansionary balance sheet strategies.

Chris Loughran, Midlands practice senior partner at Deloitte, said: “If 2010 was the year of balance sheet rebuilding and cost cutting, then 2011 looks set to be the year in which corporates start spending again. A new emphasis on expansion by the UK’s large companies lends support to the idea that the recovery is likely to broaden out during 2011 aided by growth in private sector hiring and capital spending.”

The most frequently cited opportunities are investing or undertaking acquisitions at lower prices, growing organically and expanding in emerging markets.

Thirty nine per cent of CFOs expect the UK to make the biggest contribution to the growth in their company’s revenues in 2011, while 34 per cent see emerging markets as the biggest contributor.

Mr Loughran said: “These results testify to the way in which larger UK corporates are strongly connected to the global economy and highly dependent on developments in overseas markets. Interestingly, risk appetite is higher among corporates with significant levels of overseas earnings than among UK-focused corporates.”

Cost control has now dropped from first to third priority for CFOs, with introducing new products or services or expanding into new markets as the new focus.

Improving credit conditions are also likely to have contributed to rising optimism and risk appetite. Debt finance fell out of favour with CFOs during the recession, however, improving credit availability and lower cost of borrowing have led to a marked change in attitudes. In Q4 2010, bank borrowing and bond issuance were as popular as they were before the credit crunch started, in 2007. After a period of aggressive corporate debt reduction CFOs believe that the UK corporate sector is no longer over leveraged.

“Against a backdrop of constrained credit supply and weak top line growth the focus for UK corporates over the last two years has been on strengthening balance sheets and cutting costs,” said Mr Loughran. “Those strategies have worked. Profitability has risen sharply, debt levels have declined and companies have generated big increases in cash flow. The evidence from this quarter’s Deloitte CFO Survey is that from this position of strength corporates are increasingly planning for growth in 2011.”