Optimism among the chief financial officers of the UK’s largest businesses has declined for the third consecutive quarter to the lowest levels since spring 2009.
According to the latest Deloitte CFO Survey, three-quarters of those surveyed believe now is not a good time to take risks and, as a result, their priorities are reducing costs and increasing cash flow. The remaining 25 per cent disagree, saying that now is an opportunity to introduce new products and services or expand, either into new markets or by acquisition.
Irrespective of risk appetite, cash is less of a concern for large corporates than it was a year ago, reflecting improvements in credit availability and stronger corporate cash flow.
CFOs now see the cost of new credit as being lower than at any time since the third quarter of 2007. Perceptions of credit availability also rose sharply and, for the first time, more CFOs rated credit as being “available” than “hard to obtain”.
Chris Loughran, Deloitte Midlands practice senior partner, said: “UK corporates entered 2010 with a cautious view on the sustainability of the recovery and have stuck to this view. The dominant themes we saw in the first half of 2010 continue into the second half of the year. Financial optimism among CFOs has dipped further and although credit conditions have continued to improve, corporates remain strongly focussed on cost control.
“The financial and credit crisis may seem to be over, but the headwinds from the recession, especially in the form of overleveraged consumer and government sectors, are leaving CFOs cautious on the recovery. They are reacting by cutting discretionary spending and holding back on hiring.”
Despite all the uncertainties, CFOs are positive on the outlook for corporate revenues and profit margins over the next 12 months. Fifty-nine per cent see revenues rising over the next 12 months, while only 17 per cent expect a decline. They are slightly less positive on profit margins, which may reflect expectations of rising material, wage and other costs.
Mr Loughran said: “Overall, the good news from this quarter’s CFO Survey is that large UK corporates are finding it easier to raise capital. Nevertheless, in an environment of uncertainty cost control is king.”