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July/August: Corporate profits dip, but there’s still hope for M&As

Pension pain
Rising inflation expectations are likely to have an adverse impact on defined
benefit FTSE-100 pension schemes even though they are now showing an aggregate
surplus of £6bn. Aon Consulting warns that inflation expectations are now at a
ten-year high of 3.75% and that scheme benefits are usually linked to inflation.
Separately, PricewaterhouseCoopers says that the rate at which companies are
limiting or shedding their pension scheme liabilities is accelerating.

Many happy returns
Company profitability has dipped slightly but remained strong despite the credit
crunch, according to ONS data. The net rate of return on assets for non-North
Sea oil companies was 13.6% in Q1, down from 14.0% in the previous quarter. UK
Continental Shelf companies saw returns rise from 51.3% to 57.6%.

Hope for M&A
Corporate and advisory executives are still optimistic when it comes to mergers
and acquisitions, despite less than encouraging figures: 58% believe the amount
of cash-backed M&A will increase over the next 12 months in Europe, with
only 19% believing it will fall, according to research compiled by mergermarket
which was commissioned by Merrill DataSite. M&As have declined by 11% in the
past 12 months to June 2008, compared with the same period on the previous year.

Blow to the mid-range
Mid-range private equity buyouts have dropped to a four-year low according to
figures from the Centre for Management Buy-out Research which was founded by
Deloitte and Barclays. Mark Pacitti, corporate finance partner at Deloitte said,
“Deals at the top end of the market were hit hard last year and the mid-market
range had proved more resilient. However, the latest figures show that the
private equity market is now feeling the credit crunch.”

Role to far
The expanding role of CFOs is not sustainable according to an Ernst & Young
survey, What’s next for the CFO. Around 88% of respondents found that
being good with numbers is no longer enough. A survey by Accenture, The
changing role of the finance organization in a multi-polar World
, also
found that few finance executives believed their finance function performed at
its highest level.

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