Deloitte Belgium publishes results of its CFO Survey for the first quarter of 2011 : Call for caution

Belgian CFOs are more cautious about their financial prospects compared to the beginning of the year.
17 May 2011

Brussels, 17 May 2011 – Belgian CFOs are more cautious about their financial prospects compared to the beginning of the year. Yet with balance sheets largely in shape, demand up and financing widely available, their appetite for risk is growing. Moreover, CFOs continue to foresee revenue growth over the next twelve months. However, margins might come under increased pressure. These are some of the findings of the first-quarter Deloitte CFO Survey, "Call for caution", conducted between 22 March and 8 April, and published today.

Call for caution

CFOs in Belgium may have entered 2011 in a buoyant mood with a new focus on growth and revenue. But they exited the first quarter with somewhat more caution. "This change coincides with increased global political and economic uncertainty, fuelled by the ongoing troubles in the Middle East and the nuclear crisis in Japan," observed Thierry Van Schoubroeck, the partner at Deloitte Belgium who conducts the quarterly survey.

The possibility of an economic double-dip scenario, hardly considered in the second half of 2010, is now seen as high by over 20% of CFOs. Elevated energy prices and increased inflation have moderated the continually strengthening optimism the survey had witnessed since the beginning of 2009. CFOs do remain upbeat about the financial perspectives of their own organisations, but the optimism has dropped markedly from the highs in the third and fourth quarters of 2010.

Risk appetite rising

Despite the growing caution, Thierry Van Schoubroeck pointed out that the mood among Belgian CFOs is far from negative. "Half our respondents reported that demand for their products and services had already accelerated back in the second half of 2010, and an additional 25% expect demand to pick up in 2011," he explained. In addition, over the past twelve months many surveyed organisations have decreased their financial risk. And the majority of CFOs report that their balance sheets are now appropriately leveraged. Add to this the perception of widely available credit (with bank borrowing and corporate debt still being rated as far more attractive than equity).

These trends are putting expansion high on the corporate agenda. "Fully 40% of our respondents say it is again a good time to take on additional risk," Thierry Van Schoubroeck remarked. Acquisitions, organic growth and boosting capital expenditure are increasingly popular strategies.

Contrary to some deflation fears twelve to eighteen months ago, Belgian inflation actually increased significantly, reaching 3.5% year-on-year in February, just prior to the launch of the first-quarter survey. The Federal Planning Bureau predicts similar figures going forward. Still, most CFOs expect inflation to be only 2-3%, somewhat closer to the ECB's Eurozone target of just under 2%. In Belgium the biggest reported inflation threats are higher labour costs, followed by rising prices for raw materials and other inputs, and finally mounting interest rates leading to more costly capital.

Bullish revenue outlook

In line with the previous surveys, the vast majority of CFOs are bullish about revenue growth over the next twelve months. Expectations on margins, however, have tempered in the first quarter. Concerns about inflation and the resulting rises in labour costs, raw material prices and interest rates might leave little room for margin increases. "What are the top priorities for Belgian CFOs throughout 2011? Our survey indicates they will continue to be cash flow management and cost reduction," concluded Thierry Van Schoubroeck.

Highlights of the first-quarter 2011 CFO Survey for Belgium

Global insights

On a global level, the first quarter of 2011 was marked by volatility and dramatic changes to the environmental and geopolitical landscape of the world, such as the earthquake in Japan and significant political uprisings in the Middle East. Sentiment in the Eurozone remained positive. Half of the countries within the Eurozone have a more positive view, while the other half show signs of diminished optimism. This divergence from a historically optimistic outlook may be largely due to country-specific factors like for instance the automatic wage indexation and higher than average inflation in Belgium, and an overwhelming lack of confidence in the Spanish government's ability to effectively improve the economic conditions. In North America, CFO optimism is being buoyed by improving assessments of both the macro-business environment and company-specific factors. In contrast, the UK economic outlook weakened somewhat in the first quarter of 2011.