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| New government boosts confidence amongst CFOs |
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By
Deloitte
May 17, 2011 |
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Over three quarters (78 percent) of Irish CFOs believe the new government will have a positive impact on international confidence in the Irish economy, according to the Deloitte Q1 2011 CFO Survey. Respondents to the survey also felt that the new government would have a positive impact on political reform (76 percent), job creation (76 percent) and fiscal policy (65 percent).
In contrast, the findings of the survey show that Irish CFOs are somewhat more sceptical that the new coalition will effect change to the cost of credit (11 percent), the levels of taxation (19 percent) or to credit availability for small businesses (32 percent). The three most pressing measures that CFOs believe the government should concentrate on as a matter of priority are - public sector reform, cost cutting and job creation.
These are some of the findings of the latest Deloitte CFO Quarterly Survey, 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.
With regards to sentiment about their own companies, there are some mixed signals. Some 62 percent of respondents believe that their company has already returned to growth or will have returned to growth by the end of 2011. However, 40 percent of CFOs believe revenues will increase in the next six months, down from 46 percent in Q4 2010. The number of CFOs who believe profitability will increase has dropped by 8 percent to 32 percent, likely reflecting higher oil prices and interest rates.
In line with previous findings the survey continues to show that CFOs are more confident in the abilities of their own companies than that of the overall economy – a reflection perhaps that many of the companies surveyed are benefitting from the buoyancy of export markets. Overall 81 percent believe that it will now be 2012 before the economy returns to growth, with 43 percent believing it will be H2 2011. In contrast to last quarter, only 3 percent believe the economy has already begun to grow, a drop of 9 percent.
Revenue maintenance/growth (32 percent) and maintaining profit margins (23 percent) are the top two financial challenges facing CFOs. Interestingly cost management has returned to the top three challenges facing Irish CFOs. Last quarter’s results suggested that this was no longer a major focus for CFOs. However it appears that with oil prices rising, costs are once again coming under scrutiny.
In fact, 43 percent of CFOs believe rising oil prices will force an increase in the prices their companies charge for goods and services over the period, while 31 percent indicated that they have already passed on the increase. Almost half (47 percent) of CFOs are taking measures to reduce their company’s exposure to fluctuating oil prices.
Commenting on the findings, Shane Mohan, Partner, Deloitte said: “Last quarter we observed a noticeable fall in sentiment among CFOs. This seems to have stabilised in the first quarter of 2011 which is another indication that the presence of the new government has inspired some confidence. However, it’s clear that the uncertainty that was so pronounced in previous quarters is still being felt and still lingers. Rising interest rates, political uncertainty in North Africa, rising oil prices and the impact of the Japanese earthquake on the global economy are all contributing to this.”
This quarter’s findings also show that exchange rate risk is on the rise again. 35 percent of CFOs identified exchange rate risk as the highest risk to their companies’ balance sheets. Uncertainty around equity prices, consumer demand and international commodity prices has increased sensitivity to exchange rate fluctuations on international markets.
Market risk, when compared to financial, operational and strategic risk, has remained the predominant worry among CFOs since Q3 2010, and this trend has continued into Q1 2011. However, Q1 2011 marks a slight decline in the perceived concern of market risk to 57 percent since its highest point at 60 percent in Q4 2010. Until international financial markets stabilise, it is likely that this will remain the dominant concern among CFOs, while strategic (19 percent), operational (8 percent) and financial risk (16 percent) continue to remain less of a concern.
“Q1 2011 has also proved to be a tumultuous quarter both in Ireland and around the globe. The boost that a new government has given to Irish business is to be welcomed. CFOs are more confident that the new administration can effect change in a number of key areas. With the results of the bank stress tests now known, and the subsequent plan to completely overhaul the banking sector in Ireland, it will be interesting to see how CFOs react to government policy in this area. Next quarter’s survey will give us a clearer picture on business reaction to these measures, but for now, Irish CFOs are closely monitoring events both at home and abroad,” concluded Mohan.
About Deloitte
Deloitte’s 1,100 people in Dublin, Cork and Limerick provide audit, tax, consulting, and corporate finance to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world class capabilities and deep local expertise to help clients succeed wherever they operate.
Deloitte,
Earlsfort Terrace,
Dublin 2.
Phone number : 01 417 2200
Fax number : 01 417 2300
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