RTTNews - Tuesday, results of a quarterly survey of chief financial officers and financial directors of major UK companies showed that optimism about the financial prospects of the UK corporate sector surged to the highest level in two years, though with significant caution.
The second quarter CFO Survey by the business advisory firm Deloitte showed that 73% of CFOs expect a recovery to unfold in 2010 and a substantial minority, 23%, do not expect a return to growth until 2011 or even later.
That said, 59% do not expect an acceleration in demand for their own companies' products and services for at least another 12 months.
The latest survey, eighth in the series, was carried out between June 12 and 26 among 117 CFOs.
Deloitte partner and vice chairman Margaret Ewing said, This is hardly a return to 'business as usual'. It seems that optimism is returning, but nobody is getting carried away. While CFOs may believe the end of the recession is in sight, they are of the opinion that the business environment will remain very difficult during the first year of any recovery.
The survey showed that credit conditions improved for the second consecutive quarter, but remain tough. The CFOs expect this situation to persist well into the recovery. In response, corporates are likely to reduce debt levels and cut costs. Eighty five percent of financial directors expect unemployment to rise for at least a year into recovery.
It will be a very different environment to the last years of the boom - CFOs don't see a return to the robust growth of late 2006 and early 2007, Ewing said.
Though financial conditions have improved, CFOs believe one of the underlying causes of the credit crisis, excessive debt, persists. Eighty percent of CFOs expect deleveraging for corporates to continue throughout the recovery, with twice as many CFOs planning to reduce gearing in their own companies compared to those planning to increase it.
Clearly, bank borrowing is out of favor as the CFO sentiment regarding issuing equity and corporate bonds hit its highest level since the CFO Survey began two years ago. The survey showed that equity is the most popular form of finance, and bank borrowing the least popular, a complete reversal of the situation in 2007 and 2008.
The strong message from this survey is that CFOs think debt reduction has further to run, Ian Stewart, chief economist at Deloitte said.
However, CFOs have become increasingly bullish about M&A activity, with 83% expecting M&A activity to rise over the next year. Sentiment on private equity activity has also turned positive for the first time in 2 years. A more positive view on M&A seems to reflect an improved economic outlook, depressed asset valuations, and a better financing environment, he noted.
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