Uncertainty is causing a majority of CFOs to focus on cost control over the next year, according to Deloitte’s 2019 CFO survey, which looks to understand the attitude of CFOs among the UK’s largest businesses.
Across the 91 CFOs surveyed by the professional services firm, 58% said that cost reduction was a strong priority for their business, which is the highest in ten years, while 65% reported high or very high levels of financial and economic uncertainty.
Increasing cash flow is a strong priority for 48% of CFOs, up from 42% last quarter, and reducing leverage is a priority for 19%, up from 17%. In addition, 70% of CFOs expect hiring to reduce in the next 12 months and just 3% expect it to rise.
Ian Stewart, chief economist at Deloitte, said: “Perceptions of uncertainty are elevated and corporate risk appetite is vanishingly low. The priority appears to be curbing costs, not expansion. With Brexit cited as the biggest risk businesses face, the last quarter has also seen heightened concern over slowing growth in the UK and Eurozone and CFOs are tightening their purse strings in response.”
While Brexit continued to be perceived as the largest risk facing businesses – up marginally from 65 last year to 66 (on a scale of 0 to 100), domestic economic conditions were found to also be of a greater concern this year.
Weak demand in the UK economy was the second largest risk, up from a risk rating of 54 in Q2 to 62 in Q3, the highest rating in five years. Poor productivity and weak competitiveness in the UK rose from 46 to 53 in the same period.
There were also concerns raised over European growth with the rating for deflation and economic weakness in the euro area, and the possibility of a renewed euro crisis, up from 42 to 51.
Brexit and corporate risk
The survey saw a small increase in CFOs saying that Brexit has shifted their plans, with 28% saying it has curtailed merger and acquisition activities, up from 25% in Q2. 45% say capital expenditure will slow (down from 47% in Q2). 60% predicted a decrease in hiring rates, which is down from 62% in Q2.
Richard Houston, senior partner and chief executive of Deloitte North and South Europe, said: “Corporate risk appetite is being suppressed both by Brexit and macro-economic uncertainty, but there are some positives: unemployment has fallen and earnings are rising at the fastest rate in more than a decade.
“While it’s unclear whether these trends will be sustainable, I do take confidence from the fact that businesses in the UK have long shown themselves to be adaptable and resilient to change. We now need clarity on what that change looks like.”
Of the 91 CFOs included in the survey, 59 represented FTSE350 companies (23 FTSE 100 and 36 FTSE 250), and the combined market value of the listed companies that participated was £468billion, approximately 19% of the UK quoted equity market.