UNCERTAINTY LEVELS are still high among CFOs since the Brexit result, Deloitte’s latest quarterly survey has revealed.
Even though sentiment has improved slightly following a sharp fall post-EU Referendum, uncertainty and pessimism are still near their highest rates among the senior finance community since Deloitte began its survey 37 quarters ago.
Nine out of ten CFOs (88%) say the level of uncertainty facing their business is above normal, high or very high, down from 92% last quarter. Some 82% say now is a bad time to take risk onto their balance sheet, down from 95%. Half (47%) say they are less optimistic about the financial prospects for their company, down from 73%.
Ian Stewart, chief economist at Deloitte, said that Brexit continues to “loom large” for the UK corporate sector.
“Since our last survey we’ve seen the appointment of a new prime minister, a strong rally in equity markets and a solid run of UK economic data. But CFOs continue to see significant risks in the economic environment and perceptions of uncertainty remain elevated,” said Stewart.
CFOs were asked to rate, on a scale of 0-100, what they see as the biggest risks to their business. The effects of Brexit rated highest at 57, up from 46 in Q2. Concerns about poor productivity in the UK also saw a large increase over the past quarter, 46 up from 36. Other risks cited by CFOs also included, deflation and economic weakness in the euro area, 50, the prospect of tightening monetary conditions, 47, and the US presidential election, at 45.
A quarter (24%) of CFOs said they expect corporate revenues to decrease over the next 12 months, down from 63% in Q2, while 44% expect operating margins to decrease, down from 70%. Despite improving over the last quarter, 58% of CFOs still expect UK corporates to cut capital spending in the next 12 months, down from 82% in Q2. Half (51%) said hiring will slow, down from 83%, and 64% expect discretionary spending will slow, down from 82%.
David Sproul, senior partner and chief executive of Deloitte, said: “There is some caution as we look ahead to next year but I also remain a long-term optimist about the UK economy. The UK’s move up the World Economic Forum’s competitiveness league, to seventh place, underscores its strength.”
Defensive balance sheet measures continue to dominate corporate plans. The top priority is cost reduction, with 47% of CFOs rating reducing costs as a strong priority, unchanged from Q2. Increasing cash flow is rated as the second highest priority, with 42% saying they plan to increase cash flow. Some 39% plan to introduce new products and services, up from 27% in Q2.
Four in ten (40%) said capital expenditure will decrease as a result of Brexit, down from 58% in Q2. 46% expect hiring will slow, down from 66%, and 55% expect discretionary spending to decrease, down from 74%. Overall, 65% predict the long term business environment will be worse when the UK leaves the EU, down from 68% in Q2.
The Q3 2016 CFO Survey ran from 12 to 26 September and is the 37th quarterly survey of CFOs and group FDs that has been carried out by Deloitte on UK companies. Its Q1 Survey had found strong support among CFOs for the UK remaining in the EU.