CFO optimism falls to lowest level since 2009

OPTIMISM among the chief financial officers of the UK’s largest companies has fallen for the third quarter in the row, slumping to its lowest level since early 2009, a study published by Deloitte has found.

Mounting uncertainty about the global economic outlook has resulted in 43% of CFOs believing the UK will fall back into recession – up from 33% in the previous quarter – according to the accountancy firm’s quarterly CFO survey.

The proportion of CFOs who said that external financial and macroeconomic uncertainty was ‘high’ or ‘very high’ has almost doubled to 46%, from 26% in the previous quarter.

The weaker and more uncertain backdrop has also dented corporate appetite for risk. After peaking in the first half of 2011, risk appetite has fallen at its fastest rate since the Deloitte CFO survey began in 2007.

The shift in risk aversion has led to a change in balance sheet strategies employed by CFOs. For the first time in a year cost control is the top priority for CFOs, and capital expenditure and acquisitions have taken a back seat.

Margaret Ewing, a senior Deloitte partner and former FTSE 100 CFO, said the world has become riskier and more uncertain for corporates.

“Uncertainty and weaker growth have had a marked effect, not just on corporate sentiment but also on priorities. Most think a period of margin expansion is drawing to an end. CFOs are responding with a renewed focus on cost control. Expectations of a revival in corporate capital spending and hiring are fading,” Ewing said.

On a positive note, companies that derive 70% or more of their revenues from outside the UK still see expansion as their top priority. However, even among this group defensive strategies such as reducing costs and increasing cashflow have gained importance.

“It’s a case of overseas expansion and domestic caution. The bottom line is that finance chiefs see the greatest opportunities for growth lying outside the UK,” said Ian Stewart, chief economist at Deloitte.

The uncertain economic outlook has made CFOs more cautious about corporate expenditure. While CFOs entered 2011 anticipating that corporate hiring and investment would rise over the coming year, the majority now expect hiring and investment to decline over the next 12 months.

“Finance chiefs have become more bearish on the outlook for profits. Most see profit margins contracting over the next year – a marked change from the optimism we saw in profits a year ago,” Ewing added.

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