- The fourth quarter Deloitte Survey of UK Chief Financial Officers is published this morning. This is the 22nd CFO survey and it shows how major UK corporates plan to navigate the risks and opportunities of 2013.
- 112 CFOs, including 36 at FTSE100 companies, took part in the survey between 25th November and 11th December. Respondent companies account for 35% of the quoted UK equity market. The full survey report is available at:
- CFO optimism has risen for the second quarter and CFOs enter 2013 in more positive mood than they entered 2012. Fears of recession and, in particular, of a euro breakup, have receded. On average CFOs assign a 22% probability to the euro area breaking up in the next 12 months, down from 37% a year ago.
- Credit is seen as being plentiful and cheaper than at any time in the last 5 years. CFOs are much less worried about company-specific issues such as margins, cash flow and credit availability than they are about the economy.
- The big concern for CFOs is the economy, just as it was at the start of each of the last four years. Perceptions of economic and financial uncertainty remain high and the greatest worries for CFOs are the weakness of the euro area and UK economies.
- As a result large companies enter 2013 with a greater focus on cost control and cash flow than at any time in the last two years. CFOs seem to be constrained by low growth and uncertainty rather than weakness in business models or capital availability.
- Nonetheless, almost half of CFOs think a difficult economic environment creates opportunities for their business – to expand capacity, market share and output and to implement overdue change.
- This quarter's special question asked CFOs about the appropriateness of current UK government policy. Monetary policy gets the highest scores, suggesting that CFOs think the Bank of England is doing a good job. The labour market and tax policy also achieve high marks. The areas of greatest concern for CFOs relate to the micro rather than the macro side. The biggest worries are here are around the general level of regulation, infrastructure, energy and immigration policy.
- The good news from this survey is that optimism has risen and many CFOs continue to see opportunities in the current tough market conditions. Large corporates have pretty strong balance sheets and good access to capital. The worst fears of CFOs a year ago – of a breakup of the euro area - have not been realised.
- The problem is economic weakness and uncertainty. CFOs cannot bank on the up escalator of economic growth to deliver rising revenues. CFOs may be more optimistic, but they have become more defensive in the way they run their balance sheets. They have to work harder for, and carefully judge the risks of, expansion.
- How CFOs run their balance sheets, and in particular, their appetite for expansion, holds the key to corporate investment, M&A and hiring. The Head of Global Strategy at Standard Life, Andrew Milligan, wrote in December that one of the signals for turning more positive on risky financial assets would be a shift from defensive to expansionary strategies in the Deloitte CFO Survey (see chart 2 in the report).
- We agree with Standard Life that the key issue is whether greater optimism translates into corporate expansion. CFOs were wrong footed by the economic slowdown which hit the global economy in the summer of 2011. That experience may mean that CFOs need more evidence that growth is on track before stepping up spending.
MARKETS & NEWS
The UK's FTSE 100 ended last week up over 2.0% and at four
and a half year high boosted by positive US economic data and the
Congressional deal on the US fiscal cliff.
Here are some recent news stories that caught our eye as
reflecting key economic themes:
KEY THEMES
- US payrolls rose by 155,000 pointing to continued but not strong growth in US employment – US economy
- The UK services sector contracted in December for the first time in 2 years according to surveys of Purchasing Managers – slowdown
- US auto sales in 2012 reached their highest level since 2007, driven by strong sales of luxury foreign brands including BMW – US growth
- Sales of Ferraris in Italy fell 57% and Maseratis sales were down 72% in 2012. Last year total car sales in Italy fell to their lowest levels since 1979 – euro austerity
- German retail sales rose 2.1% in 2012 according to the German Federal Statistics Office – German resilience
- Portugal's President said that this year's controversial austerity budget will be sent to the Constitutional Court to examine its fairness – budget politics
- The yield on 10-year UK gilts rose to 2.107% on Friday 4th January, compared to a rate of 2.106% for France - the first time since April 2011 that UK borrowing has been more costly than France's – costs of borrowing
- British retailer Waitrose announced that sales broke the £300m mark for the first time in the 12 days of festive trading, helped partly by strong champagne sales – festive fizz
- 2012 saw an 11.4% increase in downloads of videos, music and games in the UK, with digital sales reaching £1bn for the first time, although physical sales of CD's, DVD's and video games fell – digital revolution
- In the Greek port city of Volos approximately 1,300 residents have adopted their own alternative currency known as the Tem, with an online bartering system to protect against wage cuts and rising taxes – crisis solutions
- Italy's central bank has suspended card payments in Vatican City, until it is satisfied EU directives on money laundering can be met – cash city
- Russian President Vladimir Putin granted French movie star Gerard Depardieu a Russian passport, following the actors' criticism of France's proposed 75% tax on millionaires – Leaving Card
Regards,
Ian
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