Business confidence has seen its largest quarterly fall on record, according to Deloitte’s latest CFO survey. This reversal comes after the Q4 2019 survey showed the largest increase in sentiment in the wake of the general election.
Deloitte CFO Survey: Business confidence hits record low
- CFOs expect corporate revenues to drop 22% in 2020 vs pre-COVID-19 plans
- Revenues expected to pick up in the second half of the year, with no quick snap back anticipated
- Financial leaders report sharpest squeeze in credit conditions
- Flexible working anticipated to be the big winner from the crisis
The Deloitte CFO survey for Q1 2020, which gauges sentiment amongst the UK’s largest businesses, took place after the UK was placed into lockdown between 8 and 22 April.
A total of 104 CFOs participated in the latest survey, including CFOs of 23 FTSE 100 and 43 FTSE 250 companies. The combined market value of the UK-listed companies that participated is £418 billion, approximately 21% of the UK quoted equity market.
Optimism, revenue and risk appetite
In Q1 2020, 84% of CFOs report that they are less optimistic about the prospects for their company than they were three months ago. This is the lowest business confidence reading on record and, in stark contrast to Q4 2019 where a majority (53%) of CFOs said they were more optimistic about the financial prospects of their company.
Business sentiment around revenues has fallen markedly. In Q1, 97% of CFOs say they expect UK corporates’ revenues to decrease in the coming 12 months. CFOs expect their own businesses’ revenues to be 22% lower on average this year, than estimated in their pre-COVID-19 plans.
CFO perceptions of external uncertainty have risen to the highest level in the history of the survey. The majority of CFOs surveyed (89%) now feel there is a high or very high level of uncertainty facing their business, a sharp increase compared to 34% in the previous quarter.
The COVID-19 crisis has taken a heavy toll on economic activity. In Q1, 94% say they are unwilling to take risk onto their balance sheets. This is the second-lowest reading for risk appetite on record, the lowest level having been observed during the 2008 financial crisis.
Despite policy action to support corporate financing, CFOs from the survey’s panel of large businesses reported the sharpest squeeze in credit conditions on record, with a marked deterioration in the availability and cost of debt in the last three months.
Almost all CFOs (98%) expect UK corporates to reduce capital expenditure in the next 12 months, in contrast to 38% anticipating an increase in Q4 2019. Hiring expectations are also significantly more pessimistic, with 98% of CFOs expecting a slowdown in hiring in the next year. In the previous quarter, 27% of CFOs predicted hiring would increase over the year.
COVID-19 and the economy
Amid the COVID-19 pandemic, 53% of CFOs are expecting the UK economy to see a deep and prolonged economic downturn that lasts until the end of 2020.
Most CFOs expect demand in their own sectors to start to revive later this year. However, over half (53%) do not expect demand to recover to pre-pandemic levels until after Q2 2021.
Looking ahead to the long-term impact of COVID-19, 97% of CFOs believe the crisis will lead to an increase in pandemic planning, while 89% believe it will lead to a diversification and strengthening of supply chains. CFOs believe the post-COVID world will see a greater role for the state and higher levels of corporate and household taxation.
Ian Stewart, chief economist at Deloitte, commented: “The COVID-19 pandemic has seen business confidence drop from an all-time high to an all-time low in just three months. CFOs expect the lockdown to ease in May and June and demand in their own sectors to start recovering later this year. But there is no expectation of a quick snap back in activity, with most CFOs assuming revenues will not return to pre-crisis levels for at least a year.”
Strategy and spending
CFOs are focusing on more defensive strategies than at any time since the survey began, with 76% rating reducing costs and 68% rating increasing cash flow as strong priorities.
CFOs are also taking specific actions to address challenges posed by the COVID-19 pandemic. Almost all CFOs (99%) have introduced or are planning to introduce alternative working arrangements such as flexible and remote working, 59% are furloughing employees, 52% are reducing output or shutting down factories and 30% have or intend to access the Bank of England’s COVID Corporate Financing Facility.
Paul Schofield, Deloitte South East East, Practice Senior Partner and Cambridge Office Senior Partner (pictured) said, “Finance leaders are facing the toughest challenges in decades. This is a time where strong and proactive management is all the more important and I have seen, in several regional business meetings that we have strong leadership in the region. Most expect demand to start to come back this year and are already thinking beyond the downturn and how to adapt and prosper in a changed world.
"Almost all finance leaders believe that flexible working will gain ground in the wake of this crisis. We have an opportunity to re-think the future of work in a way that boosts opportunity and innovation.”
Background to the survey
This is the 51st quarterly survey of Chief Financial Officers and Group Finance Directors of major companies in the UK. The 2020 first quarter survey took place between 8 April 2020 and 22 April 2020. 104 CFOs participated, including the CFOs of 23 FTSE 100 and 43 FTSE 250 companies. The rest were CFOs of other UK-listed companies, large private companies and UK subsidiaries of major companies listed overseas. The combined market value of the 72 UK-listed companies surveyed is £418 billion, or approximately 21% of the UK quoted equity market.
Launched in 2007, the Deloitte CFO Survey is the only survey of major corporate users of capital that gauges attitudes to valuations, risk and financing.
For copies of previous CFO surveys, please visit www.deloitte.co.uk/cfosurvey.
For information about the latest Deloitte Consumer Tracker, which showed consumer confidence falling to a record low in Q1 2020, see here.
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