Deloitte Monday Briefing: Corporate Strategies for Uncertainty

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Deloitte Monday Briefing: Corporate Strategies for Uncertainty


* The third quarter Deloitte Survey of UK Chief Financial Officers is published this morning. Today’s edition marks the fifth anniversary of the CFO Survey. The survey provides a striking picture of the attitudes of the UK’s largest corporates to risk, strategy and financing.


* 133 CFOs, including 35 at FTSE100 companies, took part in the survey between 11th and 26th September. Respondent companies account for 34% of the quoted UK equity market. The full survey report is available at:


* CFO optimism has made up some of the record losses sustained in the second quarter as the euro crisis intensified. Spirits seem to have been lifted by the recent promise of more aggressive action from the Federal Reserve to support growth and from the European Central Bank (ECB) to strengthen the single currency.


* Yet while central bank activism helped fuel a strong, 16% rally in global equity markets between June and mid September CFOs take a more cautious longer term view.


* CFOs believe an unpredictable economic and financial environment is the single biggest factor constraining investment. 90% of CFOs rate the economic uncertainties facing their business as being above normal and 43% expect the UK’s recession to run on or recur within the next two years.


* So, despite a pickup in business confidence, CFOs have continued to shift to more defensive balance sheet strategies, a process that has been underway since the start of the year. Increasing cash flow, cutting costs and reducing leverage are stronger priorities than at any time in the last two years; conversely capital spending is a lower priority than at any time in the last two years.


* Recent announcements from the ECB have eased, but not dispelled, CFOs’ worries about the single currency. On average CFOs see a 27% probability of one or more countries leaving the single currency in the next 12 months. CFOs rate the weakness of the economies of the euro area as second only to macroeconomic uncertainty in its dampening effect on business investment.


* While the macroeconomic risks abound, the internal story for large companies looks pretty healthy, partly because of a favourable financing environment. Credit is rated as being cheaper than at any time in the last five years and financing costs are expected to stay low. For the large companies surveyed the cost and the availability of external finance rate as weak constraints on investment. CFOs report that long term growth in demand for their products and services is providing support for capital spending. It is striking too, that, despite worries about growth, only one in five CFOs expect revenues to decline over the next year.


* The CFO Survey reveals that big corporates are increasingly focussing on managing and mitigating economic risks. The challenge is to do so and, at the same time, to capitalise on strong corporate balance sheets to build new sources of growth.




The UK’s FTSE 100 ended the week up 2.2%.


Here are some recent news stories that caught our eye as reflecting key economic themes:



* The US unemployment rate fell to 7.8% in September, its lowest rate in almost 4 years – US growth

* UK consumer spending rose at a monthly rate of 3.0% in September, according to Visa Europe’s expenditure index, its biggest rise since May 2009 – consumer spending

* Ireland’s manufacturing output increased for the fifth consecutive month in September, rising to a two-month high according to purchasing managers data and bucking the downtrend in much of the rest of Europe – Ireland

* Survey data showed that US manufacturing activity expanded in September, ending 3 consecutive months of contraction – US growth

* Eurozone unemployment hit a record 18.2m in August, according to data from Eurostat – unemployment

* Olivier Blanchard, The Chief Economist of the International Monetary Fund (IMF), said that it will take “at least a decade from the beginning of the crisis for the world economy to get back to decent shape” – slowdown

* The Greek government is to build a race track in Xalandritsa to potentially host Formula One racing one day, at a total cost of €94.6m (£75.6m) – Greece

* French Finance Minister Pierre Moscovici said the government would “probably have to change” planned increases to capital gains taxes, following protests from French business owners – France

* The price of gold hit a record high in euros, driven in part by rising fears about the inflationary impact of global monetary easing policies – commodity prices

* Open trading in the Iranian rial was suspended and traders arrested in an attempt to halt the sharp slide in the currency – Iran

* India’s National Stock Exchange was forced to halt trading briefly after 59 erroneous orders caused the index to drop by almost 16% within minutes – algo trading

* Samsung Electronics reported record operating profits of $7.3bn for Q3 2012, driven by strong sales of high-end TVs and smartphones – digital revolution

* Ratings agency Moody’s gave the University of Cambridge a “triple-A” credit rating, being the only European university to be ascribed the top rating – top of the class

* Saudi Arabians have organized a “Let It Rot” social networking campaign to discourage the buying of chicken, in protest at price rises of up to 40% in recent weeks – food prices

* A graduate with a degree in music and English is putting his skills to use in a Norfolk field after being employed as a human scarecrow. Jamie Fox, 22, who graduated from Bangor University, will earn £250 a week and will play the ukulele, accordion and cowbell to frighten away partridges – labour market flexibility

* A restaurant in Brighton has banned two men from the all-you-can-eat buffet after they ate too much – overconsumption

* Chocolate-maker Cadbury’s won a high-court ruling allowing it to trademark the colour “Pantone 2685C”, which the court ruled has been distinctively theirs since 1914 – the colour purple






Ian Stewart

Chief Economist

Deloitte LLP