Deloitte Belgium publishes results of its CFO Survey for the third quarter of 2011

Economic and financial uncertainty keeps going up; Belgian CFOs report their organisations are below budget
12 October 2011

Brussels, 12 October 2011 - Today, Deloitte announces the results of the third quarter of its quarterly Belgian CFO Survey, conducted between September 13th and September 23rd 2011. These results feature the current pessimistic view of the Belgian CFOs: the economic and financial uncertainty that has built up gradually since January, has hit the performance of the Belgian corporate sector in the third quarter. Optimism has fallen to levels not seen in the past 2 years. The decline on financial optimism Deloitte had witnessed already in the first and the second quarter has translated into the financial results: 50% of surveyed CFOs report their organisations are below budget at the end of the third quarter. Moreover, Belgian CFOs judge the likelihood of a new recession as high, and the current situation has already impacted corporate funding: bank borrowing has become more difficult to obtain in the third quarter and has lost much of its appeal.

According to the survey, more key indicators suggest many organisations are facing turbulent times:

65% of surveyed CFOs think a new recession is very realistic

The decline in business optimism seen in the first quarter and the second quarter has continued, and is at present even lower than the level that Deloitte witnessed coming out of the recession 2 years ago. Two thirds (65%) of the surveyed CFOs today think the likelihood that our economy will enter into a new recession is quite high – up from 30% only three months ago.

Thierry Van Schoubroeck, partner at Deloitte, indicates: "Risk appetite - gradually increasing since 2009 and stabilizing in the beginning of this year – has now dropped. The economic recovery and the impact on the company's performance are - across all industry sectors - seen as the main concern going forward".

Disappointing financials: half of the surveyed corporations have not made the budget end of Q3

CFOs have reported growing concerns related to their company financials since the beginning of the year. Third quarter actual results suggest they were right. The general level of financial and economic uncertainty worries CFOs, but the disappointing financial results at the end of the third quarter add to the pessimism: revenue growth has been significantly weaker than planned and operating margins have decreased. On average, inventory levels have gone up. As a result, whereas at the end of the second quarter only 30% of surveyed organisations were behind budget, that number has increased to 50% end of September.

Pessimistic outlook: Key financial indicators are expected to further weaken next twelve months

Revenue growth has been significantly weaker as planned; operating margins have decreased for 45% of respondents in the first 9 months of 2011. Key financial indicators are expected to further weaken in the next twelve months.

Thierry Van Schoubroeck: "Following the strong decline in financial optimism it is unlikely that organisations that have not met their financial objectives now will be able to catch up in the last quarter. And going forward, the average CFO currently expects key financial performance indicators to further weaken in the next twelve months".

Financial stress levels go up: availability of bank borrowing in sharp decline

The sovereign risk crisis and the impact on the banking sector have increased the financial stress levels and have already impacted corporate funding: bank borrowing has become more difficult to obtain in the third quarter and has lost much of its appeal. Although the perceived cost of bank borrowing has remained favourable and stable for the last 12 months, the perceived availability of bank borrowing has seen a sharp decline since the beginning of 2011.

60% of respondents expect higher spreads and fees; and lending terms (e.g. collateral requirement) going forward. The attractiveness of the other forms of corporate funding has also decreased significantly in the last quarter. Equity and corporate debt are significant less in favour.

ThierryVan Schoubroeck adds: "Following the deleveraging that took place in 2009 and 2010 and the growing confidence in balance sheets as a result, CFOs were expecting re-leveraging and further credit expansion. It remains uncertain to what extent this evolution might be halted".

Growth strategies remain important, but M&A activity expectations are in sharp decline

Within the current environment, it is no surprise that cost reduction remains very high on the CFOs agenda. But growth strategies, including organic growth but also expansion into new markets are important. Expectations related to M&A activity have seen a significant decrease, and are at the lowest level since the launch of the survey two and a half years ago.