CFO backing for the UK remaining a member of the European Union (EU) has risen, according to research from Big Four firm, Deloitte.
It’s latest CFO Survey for Q1 2016 of 120 FTSE 350 CFO’s and other large private companies, found the business environment has become more challenging, with CFO perceptions of uncertainty up sharply and risk appetite at three year lows. CFOs are also prioritising defensive strategies and plans for hiring and capital spending have dipped.
Some 75% are in favour of the UK remaining in the EU, up from 62% in Q4 2015 and 74% in Q2. Meanwhile, just 8% say UK business would benefit from Brexit, up 2% to 6% in Q4 2015 and 2% in Q2.
Almost one in five (17%) were uncertain of their position or preferred to keep mum, up from 4% in Q4.
When quizzed on how they believe EU membership has benefited the UK economy and its businesses, 89% say it has helped UK export performance and 86% claim it has attracted foreign direct investment. Some 71% say membership has contributed to the success of UK financial services, while 68% say it has boosted the UK’s influence and connections with the rest of the world. All these measures are broadly unchanged since this question was asked in the Q2 2015 Survey.
Almost eight out ten (78%) of CFOs say the UK benefits from the free movement of people, but this has dropped from 87% in Q2 2015.
The legal, regulatory and compliance framework aspects of UK membership ranked lowest with just 15% of CFOs saying these benefit the UK, down from 18% in Q2 2015.
The EU referendum was ranked as the biggest risk CFOs’ businesses face. On a scale of 0 to 100 (where 100 is the greatest risk) CFOs gave it a risk rating of 54, up from 50 in Q4 2015. The EU referendum ranked ahead of economic weakness in the euro area (48), weak demand in the UK (46) and the prospect of higher interest rates in the UK (44).
Just over a quarter (26%) said their organisation has made, or is in the process of making, contingency plans for a possible British exit of the EU. Despite such commendable forward-looking, a more cavalier 53% have made no such plans.
Ian Stewart, chief economist at Deloitte, said: “A fog of uncertainty has descended on the corporate sector. Perceptions of financial and economic uncertainty are back to levels last seen in early 2013 as the euro crisis abated. Now the dominant concern is the EU referendum, which tops the corporate worry list, eclipsing longstanding concerns about emerging markets and growth in the euro area.
“Rising uncertainty has eroded corporate risk appetite. Corporates are pulling in their horns, with expectations for hiring and capital spending at three year lows.”
Some 83% of CFOs say the level of uncertainty facing their business is above normal, high or very high, up dramatically from 64% in Q4’s Survey and the highest level since Q4 2012.
And 75% of CFOs say the present is a bad time to rake risk onto their balance sheets, up from 63% in Q4 and the highest level since Q4 2012.
CFOs continue to focus on defensive balance sheet strategies with just 18% say they plan to ramp up hiring within their companies, down from 40% in Q4 and the lowest level since Q4 2012. Some 13% say asset disposals are a priority, up from 12% in Q4 and the highest level since Q1 2013.
CFOs continue to place less emphasis on expansionary strategies. 16% say increasing capital expenditure is a strong priority, the third consecutive drop and the lowest level since Q2 2014. For the fourth Survey in a row, CFOs’ focus on expanding by acquisition has fallen, with just 18% saying this is now a high priority.
Almost eight out of ten (77%) of CFOs say now is a bad time for UK corporates to issue equity, up from 49% in Q4 and the highest level since Q2 2013. A quarter (26%) say that equity offers an attractive source of external funding for their business, down from 37% in Q4. This is the third consecutive quarter this has fallen and it is at its lowest level since Q4 2012.
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