CFOs look to raise cash levels to ‘bullet-proof balance sheets’ amid uncertainty
Eight in ten CFOs – 81% – expect the long-term business environment to be worse as a result of the UK leaving the EU and are raising cash levels to “bullet-proof” balance sheets.
According to Deloitte’s Q1 CFO Survey, it was the highest measured level since the EU referendum in 2016. The survey gauges sentiment amongst the UK’s largest businesses in the wake of Parliament’s rejections of Theresa May’s Brexit deal. Eighty nine CFOs participated, including CFOs of 48 FTSE 100 and FTSE 250 companies. The total market value of the listed companies that participated is £377bn, approximately 15% of the UK quoted equity market.
Stuart Cottee
It found that CFOs are placing greater emphasis on cash accumulation than at any time since 2010, with 52% stating that increasing cash flow will be a strong priority over the next 12 months. This is in line with data at the end of 2018 revealing that UK corporates held a record £747bn of cash, equivalent to 35% of GDP and almost one third higher than in early 2016.
Stuart Cottee, practice senior partner at Deloitte in Yorkshire and the North East said: “Large businesses are clearly looking to protect themselves against risk by raising cash levels and bullet-proofing balance sheets. They appear to be battening down hatches for tougher times ahead.
“While last week’s announcement on a further deferral of the UK’s departure from the EU removes an immediate unknown, the continuation of uncertainty is causing much frustration for UK businesses. As well as stashing cash, many continue to delay investment. Businesses remain in a period of further limbo.”
The survey shows that pessimism about the short-term effects of Brexit remains elevated, with 49% of CFOs expecting to reduce their own capital expenditure and 22% cutting M&A as a consequence of Brexit. Around half (53%) of CFOs also expect to reduce hiring due to Brexit – the highest level in more than two years.
However there has been little change in confidence and risk appetite among CFOs. Of those surveyed, 13% say they are more optimistic about the prospects for their company than they were three months ago, compared to 10% in Q4 2018. In addition, 9% of CFOs now agree it is a good time to be taking greater risk onto their balance sheets, up from 7% last quarter.
Ian Stewart, chief economist at Deloitte, said: “Put mildly, it’s been a turbulent few weeks and there’s been little change in confidence and risk appetite among CFOs, as many priced in a tougher environment at the start of the year. They went into March braced for tough times and the latest round of Brexit uncertainties have not materially changed that picture. When expectations are already low, it’s harder to be disappointed.”
