Key research shows
Optimism among Chief Financial Officers (CFOs) has recovered from its post-election low and is close to levels seen at the end of last year, according to Deloitte’s latest CFO Survey.
However, while perceptions of uncertainty have eased, corporate risk appetite remains below its long-term average and CFOs maintain a focus on defensive strategies.
102 CFOs of FTSE 350 and other large private companies participated in the Q3 2017 CFO Survey. The combined market capitalisation of the 75 listed companies who participated is £416bn, approximately 16 per cent of the UK quoted equity market.
Optimism and risk appetite edge upwards
27 per cent of CFOs say they are more optimistic about the prospects for their company than they were three months ago, up from 18 per cent in Q2, while 27 per cent say they are less optimistic, down from 42 per cent.
34 per cent say that the level of uncertainty facing their business is high or very high, down from 43 per cent last quarter and almost half the level seen immediately after last year’s EU referendum.
24 per cent say now is a good time to take risk onto their balance sheet, up slightly from 22 per cent in Q2 and three times the level seen after the referendum.
Defensive measures remain high on the agenda
Reducing costs remains CFOs’ top priority, with 41 per cent citing it as a key focus, down from 46 per cent last quarter. This is followed by introducing new products and services (39 per cent, down from 42 per cent) and increasing cash flow (35 per cent, down from 36 per cent).
17 per cent say they plan to increase capital expenditure, unchanged from three months ago, while 20 per cent say they plan to expand by acquisition, down from 25 per cent.
Looking across the corporate sector as a whole, 22 per cent of CFOs say they expect businesses to increase capital spending in the coming 12 months, up from 14 per cent last quarter. 12 per cent say they expect hiring to increase, up from 9 per cent.
Brexit concerns moderate but remain top of CFOs’ worry list
60 per cent of CFOs say the business environment will be worse when the UK leaves the EU, down from 72 per cent in the previous quarter. 14 per cent now say they see a better long term business environment, up from 8 per cent last quarter.
30 per cent say that capital spending by their business will be lower as a consequence of Brexit, down from 33 per cent in Q2, while 36 per cent say hiring will slow as a result of leaving the EU, down from 38 per cent.
However, Brexit still ranks as the top concern CFOs say their business faces, giving it (on a scale of 0-100) a ranking of 58, down from 60 last quarter. Brexit is followed by weak demand in the UK (53, down from 57) and the prospect of higher interest rates in the UK and US (49, down from 50).
Similarly to Q2’s results, UK domestic concerns were ranked highest with concerns about geopolitics and global growth all ranking lower.