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Optimism among Ireland’s CFOs falls on EU debt deal concerns

1 February 2013 - Optimism amongst finance leaders in Ireland continues to fluctuate, according to the Q4 2012 Deloitte CFO survey, falling in Q4 after oscillating markedly throughout 2012.

Optimism amongst CFO respondents now stands at net 17%, down from a net 31% on last quarter when optimism had risen in the wake of the agreement with EU partners in July that bank and sovereign debt should be decoupled. The findings appear to tie in closely with Ireland’s prospects of securing a deal on the legacy bank debt.

While just 10% of respondents believe that the Irish economy had returned to growth by the end of 2012, confidence in their own companies’ prospects remains more robust. A net 27% believe that their company had returned to growth in Q4 2012. However, a net 24% of respondents believe their turnover will increase in the next 6 months compared to a net 38% of respondents in Q3 2012. A net 37% of CFO respondents expect increased profitability within the next 6 months, broadly in line with Q3 2012. And no less than 8 out of 10 CFOs believe the EU Presidency will boost their business in the first half of 2013.

Shane Mohan, Partner, Deloitte commented: “All business leaders require certainty, however it is clear from this quarter’s findings that this remains as elusive as ever. There appears to be a direct correlation between CFO confidence and Ireland’s efforts to secure a deal with the EU to lighten the legacy bank debt burden.  A deal on the bank debt may be the green light that many Irish businesses are waiting for before enough confidence is restored for companies to begin investing again. With current noises about a debt deal more hopeful in recent days, it will be interesting to see if CFO optimism rises again in the first quarter of 2013.”

Ireland continues to rank poorly in comparison with its European counterparts in terms of cost and availability of credit. In terms of cost, Ireland ranks bottom of the six countries surveyed. Availability of credit is perceived as most difficult in the Netherlands with a net 37% of respondents finding credit hard to get, however Ireland ranks just above this at net 23%.

Despite these findings, it was noticeable in the quarter that funding from domestic banks rose markedly to 46% of all external sources of funding, up from 35% in the prior period signalling that the domestic Irish banks may be lending again.

Shane Mohan commented further: “It’s encouraging that confidence in the domestic capital markets is on the rise. However this quarter’s report does highlight the trend that CFOs are decreasingly depending on credit as their primary source of funding – 48% of respondents expect the total debt on their company’s balance sheet to decrease over the next three years. Lending institutions are no longer seen as a certain source of funds. This is resulting in increased internal sources of funding and a reduction in balance sheet gearing.”

This quarter’s survey also shows that 9 out of 10 CFOs do not believe that Budget 2013 went far enough in terms of job creation initiatives. Similarly, 83% of respondents believe that the Budget did not go far enough in delivering real reform of the public finances. Conversely, the increase of the cash receipts basis threshold for VAT was deemed positive – 75% believe that this will improve cashflow within their companies. Overall, the majority of CFOs (66%) had a neutral reaction to the coalition’s second budget.

These are some of the findings of the latest Deloitte CFO Quarterly Survey, which seeks to provide a barometer of business trends and economic outlook among publicly quoted companies, large private companies, and Irish subsidiaries of multinational companies.

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About the survey
This is the 14th in a series of quarterly surveys by Deloitte of Chief Financial Officers of major Irish based companies. The survey was conducted in December 2012. The Deloitte CFO Survey is the only survey that seeks to establish the views of CFOs in relation to the financial markets, economic outlook and business trends on a quarterly basis.

Many of the charts in the Deloitte CFO Survey show the results in the form of a net balance. This is the percentage of respondents reporting, for instance, that bank credit is attractive less the percentage saying bank credit is unattractive.

 

About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/ie/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

The information contained in this press release is correct at the time of going to press.

Deloitte’s 1,200 people in Dublin, Cork and Limerick provide audit, tax, consulting, and corporate finance services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges.

Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence.

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