BY Fraser Tennant
A cautious mood currently pervades the chief financial officers (CFOs) of the UK’s largest companies, according to Deloitte’s new Q4 2015 CFO Survey - widely accepted as a key barometer of the sentiment and strategies of the UK’s corporate world.
The survey, the 34th focusing on the views of CFOs and group finance directors of major UK companies, features three key findings: (i) risk appetite has shrunk and business confidence has fallen back to 2012 levels; (ii) support among CFOs for UK membership of the EU has narrowed, although a majority still favour UK membership; and (iii) CFOs’ balance sheet strategies are more defensive now than at any time in the last three years.
When quizzed about their company’s prospects for growth in 2016 compared to three months ago, 30 percent of CFOs said they were less optimistic (up from 20 percent in Q2), while 12 percent said they were more optimistic (down from 36 percent six months ago).
“UK corporate sector risk appetite has fallen to a three and a half year low mirroring the loss aversion and caution being seen in financial markets," said Ian Stewart, a chief economist at Deloitte. “With a much sharper focus on cost control and less emphasis on growth through acquisitions and capital spending, CFOs’ strategies are more defensive than at any time in the past three years.
“The surge in business confidence that started in late 2012 went into reverse in 2015. CFOs are reacting to uncertainties abroad by cutting back on risk taking and sharpening their focus on cost reduction. The more defensive stance by CFOs points to a softening in the growth of corporate hiring and capital spending in coming months.”
In terms of whether it is in the interests of UK businesses for the UK to remain a member of the EU, 62 percent of CFOs said they were in favour of the UK remaining in the EU (down from 74 percent in Q2). Furthermore, 28 percent made it clear that their decision will depend on the outcome of the prime minister’s renegotiation of UK membership.
“A clear majority of CFOs continue to favour the UK remaining in the EU, but the proportion of those expressing unqualified support has fallen," said David Sproul, senior partner and chief executive of Deloitte. “This mirrors what we have seen from the broader public in opinion polls in the last six months."
The 2015 Q4 survey involved 137 CFOs, including the CFOs of 24 FTSE 100 and 62 FTSE 250 companies, and took place between 11 November and 2 December 2015.