CFOs 'returning to the defensive' - Deloitte

Financial planning
By Eleanor O'Neill, CA Today

29 July 2016

UK CFOs are making defensive strategies their top priorities for the first time in over a year, according to Deloitte.

The 2016 Q2 Deloitte CFO Survey has revealed that strategies involving expenditure or taking risk at major UK corporates have been in sharp decline, something not seen since the first quarter of 2015.

The quarterly research is intended to gauge attitudes to valuations, risk and financing and included the CFOs of 25 FTSE 100 and FTSE 250 companies.

47% of respondents said reducing costs is a strong priority in the coming year and 41% are looking to increase cash flow in the wake of the EU referendum.

David Sproul, Senior Partner and Chief Executive at Deloitte, commented: “This survey was conducted immediately after the referendum, against a backdrop of historical political upheaval and financial uncertainty.

"The faster-than-expected appointment of a new Prime Minister removes one source of uncertainty, now the government must set out its vision for the UK’s future relationship with the EU to provide further stability and reassurance.

"As companies begin to feel the environment stabilising, we may see confidence improve in next quarter’s survey."

At the moment, optimism and risk appetite within businesses are at an unsurprisingly low level, reflecting the results of Deloitte's European CFO Survey earlier this year.

CFO Survey Results 2016 Q1-Q2

  2016 Q1 CFO Survey 2016 Q2 CFO Survey
Above normal level of uncertainty 83% 95%
Optimistic about financial prospects 68% 27%
Good time to consider risks 25% 8%
Expect firm revenue to decease 11% 63%

When asked what steps the government should take to support economic activity in the UK, 91% said that a strong signal of the government’s aims in the negotiations with the EU should be a priority.

88% said that maintaining the solvency and liquidity of the banking system was essential and 25% said that the government should continue with a deficit reduction plan.

Just 9% believe tax cuts would help economic activity, though 54% expect interest rates to be below 0.5% in a year’s time.

Other key findings

Post-Brexit outlook

CFOs were asked what effect they expected the UK’s exit from the EU to have on their spending plans over the next three years.

58% expected capital spending to be somewhat or significantly lower over this period, 66% expected hiring to be lower and 74% saw discretionary spending being lower.

Overall, 68% of CFOs believe that leaving the EU will lead to a deterioration in the UK business environment in the long term. 20% expect little change and 13% expect an improvement.

Hiring and spending plans

82% of CFOs expect their firms to shrink capital spending in the next year, with 83% forecasting a slowdown in hiring. Both are the highest level recorded by Deloitte’s survey and up significantly from 34% and 29%, respectively, in Q1.

The proportion forecasting a cut in discretionary spending (82%) is the highest since Q4 2011.

David concluded: “The UK remains a vibrant, innovative and highly-skilled economy and I continue to believe it can navigate through a time of change, retain its global influence and remain a magnet for international talent and investment.

"My own conversations with chief executives and chairmen also provide reassurance that some priorities haven’t shifted. Businesses are still looking to take advantage of advances in technology and digital and increasing productivity.

“They must play their part in the coming years, being proactive in finding ways to boost productivity and drive growth, manage the risks Brexit poses, take advantage of the opportunities it creates and make their voices clearly heard in the debates around the UK’s future relationships with Europe and the wider world.”

Source: Deloitte


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