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.
In Q1 2020, 84 per cent of CFOs report that they are less optimistic about the prospects for their company than they were three months ago. This is in stark contrast to Q4 2019, where a majority (53 per cent) of CFOs said they were more optimistic about the financial prospects of their company.
Despite this, 89 per cent of CFOs believe the long-term impact of the crisis will lead to a diversification and strengthening of supply chains.
CFOs are also taking specific actions to address challenges posed by the COVID-19 pandemic. Almost all CFOs (99 per cent) have introduced or are planning to introduce alternative working arrangements such as flexible and remote working, 59 per cent are furloughing employees, 52 per cent are reducing output or shutting down factories and 30 per cent have or intend to access the Bank of England’s COVID Corporate Financing Facility.
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 per cent of the UK quoted equity market.
Business sentiment around revenues has also fallen markedly. In Q1, 97 per cent of CFOs say they expect UK corporates’ revenues to decrease in the coming 12 months. CFOs expect their own businesses’ revenues to be 22 per cent 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 per cent) now feel there is a high or very high level of uncertainty facing their business, a sharp increase compared to 34 per cent in the previous quarter.
The COVID-19 crisis has taken a heavy toll on economic activity. In Q1, 94 per cent 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.
Amid the COVID-19 pandemic, 53 per cent 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 per cent) do not expect demand to recover to pre-pandemic levels until after Q2 2021.
Jodi Birkett, partner at Deloitte in the North West, commented: “Finance leaders are facing the toughest challenges in decades but most expect demand to start to come back this year. Leaders are already thinking beyond the downturn and how to adapt and prosper in a changed world, with an increased focus on strengthening the supply chain and planning for future disruption. 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.”