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UK balance sheets underleveraged, say CFOs


For the first time since 2008 CFOs plan to increase gearing in a sign of growing confidence about balance sheets

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More CFOs now think UK balance sheets are underleveraged, marking a major change in opinion from when corporates were overloaded with debt in 2007, new research revealed on Monday.

For the first time since 2008, a positive balance of CFOs plans to increase their company’s gearing in a sign of growing confidence about balance sheets, according to Deloitte’s latest quarterly CFO survey.

This renewed sense of confidence in balance sheets is reflected in CFOs’ attitude to risk, which has risen to the highest level since the survey started in the third quarter of 2007, with 41 percent of finance chiefs saying that this is a good time to take risk on to the balance sheets. Risk appetite is however strongest among the largest companies.

Expansion has now become the top corporate priority over the next 12 months, making acquisitions and raising capital expenditure increasingly popular strategies. For now at least, financial conditions are favourable for larger companies.
CFOs see bank borrowing and bond issuance as being as attractive to corporates as they were in 2007, well before the credit crunch. Equity issuance continues to be seen as less attractive than debt issuance.

But the study found that finance chiefs reported the first increase in the cost of credit in more than two years this quarter. This fits in with the rise in corporate bond yields seen since October last year, as markets increasingly price in higher short rates, the survey said.

Optimism has fallen among CFOs, yet they expect revenue to continue to rise over the next 12 months. High levels of inflation and rising raw materials costs however mean that finance chiefs are less upbeat on the outlook for profit margins.

Optimism seems to be influenced more by external events and movements in financial markets. Risk appetite, on the other hand, seems also to reflect a series of factors where CFOs take a more positive view: longer term judgement about opportunities, the strength of balance sheets and financial prospects, the study found.

In Deloitte’s 15th quarterly CFO survey of major companies in the UK  a total of 137 CFOs participated including 46 FTSE 100 CFOs, 46 FTSE 250 CFOs with CFOs from other major UK listed companies, large private companies and UK subsidiaries of major companies listed overseas making up the balance. The combined market value of the 105 UK listed companies surveyed is £728 billion or approximately 37 percent of the UK quoted equity market.

Read also:

Peter Williams' blog on the wall of refinancing

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