Mid-year results are good but Belgian CFO's increasingly fear an economic double dip

At a turning point
1 August 2011

Diegem, 1 August 2011 – During the second quarter of 2011, Belgian CFOs reported their financial results are good, with 70% of CFOs reporting results are on budget, 35% even outperformed the budget. Business optimism remains positive, but has declined further for the second quarter in a row, which brings the optimism back to the same level as after the recession 2 years ago. CFOs fear the scenario of a double dip and 32% of CFOs reported the Belgian political uncertainty has a negative on their business. Almost 75% of the CFOs do not believe a new government will be in place before the end of 2011. Close to 60% thinks we are heading towards new elections. These are some of the most important conclusions of the second quarter edition of the Deloitte CFO Survey, conducted between 16th of June and the 8th of July 2011.

Following the "call for caution" the survey reported in the first quarter after a buoyant optimism at year-end 2010, the positive trend we have witnessed coming out of the crisis since 2009, has decreased since the end of 2010, going from 53% to 8%. Belgian CFOs manage to cope with the current economic and financial uncertainty, notwithstanding worrying about the global macroeconomic backdrop. Expectations related to the financial prospects of their organisations are stable and two quarters down the year, financial results are overall in line with budgets. Highlights of the second-quarter 2011 CFO Survey for Belgium are:

Optimism is on same level as after recession two years ago

The decline in business optimism seen in the first quarter has continued to drop, and is at present again at the levels Deloitte witnessed coming out of the recession 2 years ago. This decline reveals that CFO's have not become more optimistic in the second quarter of 2011, compared to three months ago.

70% of financial results are on budget, 35% even outperformed the predictions

70% of CFOs report their organizations' financial results are on budget two quarters down the year. Even more positive: 34% report actual performance in the first two quarters of the year has outperformed company budgets. However, last year 80% was on budget, and the business context is also different: when 2011 budgets were prepared (at the end of 2010), optimism peaked. Thierry Van Schoubroeck, the partner at Deloitte Belgium who conducts the quarterly survey, however warns: "As the year now progresses, optimism has weakened. For the organisations that are now behind plan, 2011 might turn out to be a difficult year: taking into account the present cautious climate and lower optimism, catching up in the second part of the year might be tough".

External financing remains widely available and attractive

All three forms of finance – equity, bank borrowing and corporate debt – remain attractive: external financing remains in favour. Also, credit conditions remain favourable and bank credit is widely available. Thierry Van Schoubroeck: "although the cost of credit has increased over the past 12 months, it remains a very attractive form of financing". Over the past 12 months, and following the attractive credit conditions over the last year, the average Belgian CFO has increased demand for new credit. Van Schoubroeck: "looking forward, the demand for credit is to further rise, despite of the potential higher price terms or harder lending terms".

Expansionary strategies remain high on the agenda, and surplus cash will be re-invested in the business

Many companies have accumulated cash over the past two years, and are cash rich. The surplus cash generated by the company will most likely be used for investment in the business, at home or abroad. Defensive strategies, including cost reduction and cash flow remain important, but expansionary strategies including growth by acquisition or organic growth, introduction of new products and services and expansion into new markets are high on the agenda.

Increased fear for economic double dip

Given the macro-economic backdrop in the second quarter, it is not a surprise that the fear for an economic double dip – a new period of several months in which the Belgian economy would contract– surfaces again, with almost one third of CFOs assigning high probabilities to this economic downturn scenario. Thierry Van Schoubroeck: "The economic recovery and the impact on the company's performance are - across all industry sectors - seen as the main concern going forward. For financial services organisations, the increase in sovereign risk is the top risk. For companies in the manufacturing industry, the evolution of the commodity prices is seen as the main concern".

Little hope for new government in 2011

During the second quarter of 2011, only 32% of CFOs reported the Belgian political uncertainty has a negative impact on their business, down from 66% a year ago and 45% in the first quarter of 2011. Thierry Van Schoubroeck: "Almost 75% of the CFOs do not believe a new government will be in place before the end of 2011. Close to 60% thinks we are heading towards new elections".