RiskBrexitCFOs more upbeat despite Brexit

CFOs more upbeat despite Brexit

Deloitte’s latest survey of UK chief financial officers show optimism at a 21-month high, but risk appetite still muted.

The confidence of the UK’s chief financial official officers (CFOs) has continued to build post-Brexit, although their appetite for risk remains muted, according to Deloitte.

The accountancy group reports that the mood last month among CFOs who decide investment plans at the UK’s major companies was the most optimistic since June 2015. Its survey found that 31% of CFOs who participated said they were more optimistic about the prospects for their company than three months earlier, was up from 27% in December and only 3% immediately after the June 2016 referendum.

“CFOs believe the Brexit headwinds have eased and see far less damage to their spending plans than earlier expected,” said Ian Stewart, chief economist at Deloitte.

“While most still see Brexit having an adverse effect on the business environment, even here the degree of negativity has fallen.”

However, the rebound in business optimism to levels before the European Union (EU) referendum started to weigh on corporate sentiment contrasts with risk appetite, which shows fewer signs of recovery.

Just over a quarter (26%) of CFOs surveyed said they still expected to reduce capital spending because of Brexit and 30% plan to slow hiring, although the percentages are down from an outright majority who planned to cut investment and jobs just after the referendum.

Over the same period, the number who agree that now is a good time to take a risk has recovered from only 3% to 26%, but this percentage is still well down from the 51% who were prepared to add risk to their company’s balance sheet in when Deloitte reported in June 2015.

The group’s most recent survey was conducted between March 8 and March 22 and was based on responses from 130 CFOs, including 25 of the UK’s 100 largest listed companies, and 53 mid-cap firms. Other participants included finance directors of large, privately held companies and British subsidiaries of foreign firms.

Brexit is still their top concern, with 60% of respondents saying the business environment will be worse when the UK leaves the EU

Last week UK prime minister Theresa May formally notified the EU that she wanted to start two years of exit talks.

“Businesses will hope that the UK can secure the best possible deal on trade and market access, but must continue to plan for an exit in 2019, several years of trade negotiations, and a transitional phase to bridge the two,” said David Sproul, a senior partner at Deloitte.

Tasja Botha, capital markets and corporate treasury lead for Europe, the Middle East and Africa (EMEA) at software and support services provider OpenLink added: “Despite Brexit, this Deloitte study clearly shows confidence is on the up. But as CFOs begin to increase their risk, they will also need to find smarter ways to manage it.

“The reality is that all CFOs face a highly volatile global macro and geopolitical climate – which is putting a huge strain on annual capital allocation. Therefore, understanding how much cash is at risk is a perennial concern of any big corporate, as numerous events could hit the balance sheet at any given time.

“The key issue facing CFOs over the coming months is getting the right level of insight to appease shareholder concerns. This is why, to forecast the capital that needs to be allocated during times of stress, any CFO looking to increase risk needs to have full visibility of its existing exposure across the business.”

Whitepapers & Resources

Transaction Banking Survey 2019

Transaction Banking Survey 2019

TIS Sanction Screening Survey Report

Payments TIS Sanction Screening Survey Report

Enhancing your strategic position: Digitalization in Treasury

Payments Enhancing your strategic position: Digitalization in Treasury

Netting: An Immersive Guide to Global Reconciliation

Netting: An Immersive Guide to Global Reconciliation