Companies turn inward to help turn a profit


By Neil Amato

The sputtering, unpredictable global economy is causing financial executives to focus on factors they can control.

Deloitte’s quarterly CFO Signals survey, an unscientific poll of 93 CFOs from the US, Canada and Mexico, showed that falling sentiment has prompted plans to rein in costs by improving processes.

More than 80% said those efficiency efforts have been effective at reducing direct and indirect costs, especially in the US, where survey respondents reported earnings growth remaining fairly high, at 12.3%.

In addition to focusing on efficiency, companies have bolstered margins by raising prices (according to 65% of respondents), and about half (48%) said they will focus less on lower-margin businesses or customers. But only one-third of CFOs think earnings growth can outpace sales growth for more than a year.

That internal focus is necessary given the uncertainty of the economy around them, the CFOs said. Nearly half said US or global economic conditions are their most worrisome risk, and of those, about 75% specifically cited Europe, where the debt crisis is sharply weighing down sentiment.

Similar view in UK

Financial executives in the UK also appear increasingly poised to cut costs to stem losses. A Deloitte survey of 70 UK CFOs showed that 54% of respondents were optimistic about revenue growth over the next 12 months, down from 70% a year ago.

The results also revealed shifts in strategies to deal with slower business. While revenue growth remained the top priority for UK CFOs in the next 12 months (40%), 24% said protecting margins through cost-cutting was the top priority, up from 11% in 2011.

“The results of the survey very much reflect current market sentiment, and we have seen a dip in the overall outlook for the coming months,” Emma Cox, lead partner for Deloitte’s private-equity-backed business team, said in a statement.

CGMA outlook

The Deloitte surveys line up with a similar but broader barometer released this week.

The second-quarter CGMA Global Economic Index, released Tuesday, showed that projections for revenue and profit are down among a group of 609 finance decision-makers such as CFOs, CEOs and controllers.

In Asia, for example, projections for revenue increases for the next 12 months dropped from 4% in the first-quarter survey to 3.1% in the second. Projected profit increases fell from 3.4% to 1.5%. Asian respondents are significantly less confident about domestic economies, with optimism dropping from 46% to 31%. Their optimism in the global economy dropped from 12% to 7%.

The expected revenue increase for all regions in the next 12 months is 2.7%, down from 4.1% in the first quarter. Projections for profit increases fell from 3.5% to 2%, and the number of employees is expected to grow just 0.6%. In Europe, companies expect to cut staffing by 1.1%.

Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.

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