Credit, Collections & Insolvency News
A survey from Deloitte has shown that CFOs do not expect businesses to see a quick bounce back from the coronavirus crisis, with many saying demand is unlikely to recover until the second half of 2021.
The survey saw 49% of finance bosses say they do not expect demand at their firm to return to pre-pandemic levels until after Q2 2021, while 78% expect revenue at UK firms to dip over the next 12 months – down on the 97% who said the same in a Q1 poll.
Some 80% of CFOs said there is a high or very high level of uncertainty facing their business, while 65% said they have been forced to reduce capital spending. Respondents ranked the effects of the pandemic as the greatest risk facing their business, followed by geopolitics, Brexit and economic weakness in the US.
In Q2, 78% of CFOs expect UK corporates’ revenues to decrease in the coming 12 months, the second-highest reading on record. This has eased slightly from Q1 where almost all respondents (97%) anticipated revenues to drop over the year ahead.
Perceptions of external uncertainty remain elevated. The majority of CFOs surveyed (80%) now feel there is a high or very high level of uncertainty facing their business, slightly lower than the record-high reading (89%) in the first quarter.
The COVID-19 pandemic is continuing to take a heavy toll on economic activity. In Q2, 82% of finance leaders say they are unwilling to take risk onto their balance sheets. This is a slight improvement from the first quarter which saw the second-lowest reading for risk appetite on record.
CFO expectations for dividend payments and share buybacks remain close to their lowest level in ten years, as corporates look to shore up their balance sheets. The majority (86%), said dividend issuance and share buybacks by UK businesses will decrease over the next year.
The same number (86%) expect UK corporates to reduce capital expenditure in the next 12 months, maintaining the sentiment seen in Q1, where almost all (98%) anticipated a decrease. In Q2, hiring expectations remain pessimistic, albeit slightly improved from Q1, with 90% of CFOs expecting a reduction in hiring over the next year.
Business investment, which has slowed dramatically since the EU referendum, is expected to see a continued squeeze. Almost two-thirds of CFOs (65%) expect their capital expenditure to decrease over the next three years due to the COVID-19 pandemic or the UK leaving the EU. A quarter (25%) attribute this reduction to both the pandemic and Brexit.
CFOs rank the effects of COVID-19 as the greatest risk facing their businesses, while geopolitics ranks second, with Brexit taking the third spot, and economic weakness in the US.
Ian Stewart, chief economist at Deloitte, said “Major corporates are expecting a long haul back to pre-COVID levels of revenue. Almost half of them believe their own revenues will not recover for at least a year. COVID-19 overshadows all other sources of risk for UK CFOs, and by a wide margin.”
CFOs are heavily focused on defensive balance sheet strategies with 61% rating reducing costs and 52% rating increasing cash flow as strong priorities over the next 12 months.
Richard Houston, Senior Partner and Chief Executive of Deloitte UK, said “While CFOs are still focused on the impact of the pandemic, many are accelerating their adoption of new technologies and adapting their businesses to different ways of working.”
“As the recovery begins, we expect all businesses will be looking for new opportunities and areas of growth.”
The Deloitte CFO survey for Q2 2020, which gauges sentiment amongst the UK’s largest businesses, took place between 26th June and 8th July 2020.
A total of 109 CFOs participated in the latest survey, including CFOs of 23 FTSE 100 and 45 FTSE 250 companies. The combined market value of the UK-listed companies that participated is £404 billion, approximately 19% of the UK quoted equity market.