The Di Rupo cabinet has failed its first test with the Belgian CFOs

Deloitte Belgium publishes results of its CFO Survey for the first quarter of 2012

Brussels, 30 March 2012 – Today, Deloitte announces the results of its quarterly Belgian CFO Survey, conducted between March 9th and March 20th 2012. The survey reveals that CFOs are in fact riding the waves of volatility. The general level of economic and financial uncertainty is still significantly above normal levels and this drives the overall optimistic or pessimistic mood of CFOs in shortening cycles. CFO optimism was very high end of 2010 and then plummeted at the end of 2011 to levels Deloitte had not witnessed since the launch of the survey in 2009, in the backdrop of the euro crisis, the banking crisis and the negative world economic outlook. Three months later, anxieties have eased somewhat and optimism has recovered. But plenty of risks remain, and appetite to take risk remains low. The timing and the pace of the economic recovery and the impact of Belgian financial and economic policy making are the CFOs key concerns. Moreover, it appears that the Di Rupo cabinet has failed its first test: only 20% of the respondents are positive about the priorities set by the Di Rupo cabinet for economic and financial policy making, versus 52% that are negative.

After one quarter, about one fourth of the CFOs report company financials exceed expectations. But it is worrying to note that almost 40% of the respondents reported that their organisation is already underperforming as compared to budget. Other important conclusions of this quarter's survey are as follows:

The Di Rupo cabinet has failed its first test with the CFOs

In the midst of the fourth quarter survey period, the new Belgian federal government Di Rupo I was inaugurated. Four months later, the Di Rupo cabinet appears to have failed its first test. The European Commission has formulated a list of 6 recommendations for the government. Last quarter, 63% of the surveyed CFOs felt the reduction of the public deficit was with distance the first priority of these recommendations. After the budget review, the public deficit remains the number one priority for CFOs with 40%, but closely followed by the reform of the system of wage indexation with 33% (up from 18% last quarter). Thierry Van Schoubroeck, Partner at Deloitte Belgium and responsible for this quarterly survey, indicates: "One possible conclusion is that now that the most urgent issues related to the public deficit have been addressed, the revision of the wage indexation mechanism is the next top priority".

CFO optimism, one of the key indicators of the Deloitte survey, recovered strong in the first quarter of the year but remains low

CFOs are in agreement that the Belgian economy will only see little if any growth in 2012. But consumer confidence does seem to pick up again, and it is encouraging to note that on average CFOs are more optimistic for the prospects of their own company, as they are for the economy as a whole: 60% now expect demand for their company's products and services to strengthen already in the course of 2012, up from only 25% three months ago. And where three months ago CFOs almost universally expected decreasing margins in 2012, the average CFO does not expect further erosion of margins.

Thierry Van Schoubroeck adds: "At the end of the first quarter, about one fourth of our respondents report their company has performed better than budgeted in the first quarter – both in terms of turnover as margin. But 40% report first quarter financials are already behind expectations. Taking into account the extreme pessimism among CFOs at the time the (hence likely prudent or conservative) budgets were made end of 2011; this does not look good for the remainder of the year". Not surprisingly, CFOs are today most concerned about the timing and the pace of the economic recovery (36%). But CFOs see the potential (negative) impact of Belgian financial and economic policy making as the second most important risk. Higher interest rates and access to capital – part of the top three risks only three months ago – do no longer seem to concern CFOs to the same extent.

CFOs are less concerned about access to capital and financing than they were three months ago

In the previous survey, Deloitte reported that – taking into account the sovereign debt crisis, the banking crisis and the stricter capital requirements for banks going forward – a credit crunch scenario could not be ruled out for 2012. Today the picture looks somewhat more optimistic: The European Central Bank's LTROs have provided cheap liquidity to banks and have eased the euro area debt crisis. The European Central bank has not ruled out the possibility of a third Long Term Refinancing Operation, if necessary. CFOs are less concerned about access to capital and financing. All major forms of financing - equity, corporate debt and bank borrowing - have gained attractiveness in the first quarter, but are not yet at the levels prior to the second quarter of last year. Equity remains unattractive as a means of financing and is considered undervalued. Bank borrowing is again an attractive means of financing and marked the biggest improvement. Notwithstanding, bank credit is still reported hard to obtain.

Thierry Van Schoubroeck: "Our survey results do not reveal significant differences in the availability of bank borrowing to smaller versus larger organizations. Both small and large organizations seem to have equal access to bank credit. As opposed to last quarter, the majority of CFOs do no longer expect higher price terms and stricter lending terms going forward".

Only 10% of CFOs think the likelihood of a member state leaving the eurozone in the next 12 months is high

The measures recently taken by the European Central Bank seem to have reassured the vast majority of CFOs that the euro crisis is under control. Today, only 10% of CFOs think the likelihood of a member state leaving the eurozone in the next 12 months is high. As a consequence, whereas end of the year one third of the CFOs reported their organizations were changing their plans or making new plans to address the euro crisis, it is less than 15% now. Van Schoubroeck: "Three months ago 80% of respondents reported the euro crisis impacted their companies businesses negatively; this has dropped to 50% now".

Appetite for risk remains low and capital expenditure is still not prominent on the agenda

Appetite for risk remains low, but the negative trend of the past two quarters has not continued. Capital expenditure is still not prominent on the agenda. But the proportion of companies that will reinvest excess cash in the business - rather than accumulate financial assets or distribute cash to shareholders - has gone up. Expectations for merger and acquisition activity are likewise up again, but are nowhere the highs yet witnessed in 2009 and 2010, coming out of the 2008 recession. Expansionary strategies as there are organic growth or expansion into new markets or products remain a priority for one third of survey respondents, but with full attention on defensive strategies such as cost reduction and cash flow strengthening at the same time.

About the survey

The 2012 first-quarter edition of the Deloitte Belgium CFO Survey was conducted between March 9th and March 20th, 2012. A total of 52 CFOs completed the survey. The participating CFOs are active in variety of industries. 38% of the participating companies have a turnover of over 1 billion, 36% of between 100 million and 1 billion and 26% of less than 100 million.

For more details on the results, please check