The quarterly CFO Survey is firmly established with media and policy makers as the authoritative barometer of UK corporatesâ sentiment and strategies. It is the only survey of major corporate users of capital that gauges attitudes to valuations, risk and financing.
UK CFOs grow more cautious on risks to global recovery as risk appetite declines
1. Support among the Chief Financial Officers of the UKâs
largest corporates for staying in the EU has narrowed,
mirroring a drift towards greater scepticism on the part of
the UK public in the second half of 2015. A clear majority
of CFOs continue to favour remaining in the EU, but those
expressing unqualified support for membership fell from
74% in the second quarter to 62% in the fourth quarter.
Just 6% of CFOs favour leaving. But 4% did not express an
opinion, and a sizeable minority, 28%, say their decision will
depend on the results of the Prime Ministerâs renegotiation
of the UKâs membership of the EU. The outcome of these
discussions is likely to emerge following the European
Council meeting in February. With almost a third, or 32%,
of CFOs undecided or undeclared, an eventual deal could
significantly affect business attitudes to EU membership.
UK CFOs are downbeat about the outlook for growth in
the euro area in 2016 despite a stronger than expected
acceleration in activity seen in the region in 2015.
Indeed, CFOs are more pessimistic about prospects
for the euro area this year than for emerging market
economies. CFO sentiment is most positive on the US
and the UK economies. Nonetheless, doubts about
the pace and sustainability of the global recovery are
weighing on business sentiment. CFO confidence fell
through 2015 and ended the year at its lowest level
since the second quarter of 2012, when the euro area
was in recession.
Q4 2015
The year ahead: A cautious start to 2016
The Deloitte CFO Survey
January 2016
2. The Deloitte CFO Survey
Chart 1. CFO attitudes to EU membership
% of CFOs who gave the following responses when asked whether it is in the interests of UK businesses for the UK to
remain a member of the EU
0%
10%
20%
30%
40%
50%
60%
70%
80%
Don't know,
no strong opinion,
prefer not to say
Too early to say:
Depends on results
of renegotiation
NoYes
2015 Q2 2015 Q4
74%
62%
2%
6%
23%
28%
1%
4%
3. Corporate risk appetite often reflects trends in financial
markets. Thus the decline in the FTSE100 UK equity
index since last summer has been accompanied by a
softening in corporate risk appetite.
The proportion of CFOs who think now is a good time
to take risk dropped to 37% in the fourth quarter, down
from 47% in the third quarter and a peak of 72% in late
2014.
Such large moves in risk appetite feed through
to the way in which companies run their finances. CFOsâ
balance sheet strategies have become more defensive,
with a sharper focus on cost control which now tops
CFOsâ list of priorities. Meanwhile CFOs are placing less
weight on growth through acquisitions and on capital
spending.
In recent months uncertainties, especially in emerging
markets, have prompted the Bank of England to push
back the timing of UK interest rate rises. The consensus
in financial markets in mid-December was that the Bank
will start raising interest rates in the second half of 2016.
The Deloitte CFO Survey
The pace of tightening is expected to be gentle, with
three-month interest rates rising by a total of about
100bp, from a current 0.6% to 1.6% at the end of 2018.
The corporate sector seems well positioned to cope with
this sort of trajectory with 64% of CFOs reporting that
a 100bp rate rise would have no effect, or a positive
effect, on their plans for investment or employment.
The surge in CFO confidence and risk appetite that
started in late 2012 went into reverse in 2015. CFOs are
upbeat about prospects for the US and UK economies,
but see more risks elsewhere, especially in emerging
markets and the euro area. CFOs have reacted by cutting
back on risk-taking and sharpening their focus on cost
control. This more defensive stance by the corporate
sector points to slower growth in corporate hiring and
capital expenditure in coming months.
4. Authors
Ian Stewart
Chief Economist
020 7007 9386
istewart@deloitte.co.uk
Debapratim De
Senior Economic Analyst
020 7303 0888
dde@deloitte.co.uk
Alex Cole
Economic Analyst
020 7007 2947
alecole@deloitte.co.uk
Contacts
Ian Stewart
Chief Economist
020 7007 9386
istewart@deloitte.co.uk
Richard Muschamp
CFO Programme Leader
020 7007 0724
rmuschamp@deloitte.co.uk
For current and past copies of the
survey, historical data and coverage of
the survey in the media and elsewhere,
please visit:
www.deloitte.co.uk/cfosurvey
The Deloitte CFO Survey
5. Public support for the UKâs
membership of the EU fell in
the second half of 2015.
Between the end of May and
the beginning of July four
major opinion polls gave the
âInâ camp an average lead of
18 percentage points. In the
fourth quarter the same four
polls showed the lead had
been reduced to six percentage
points.
This decline in public support
for the EU has coincided with
a narrowing in support among
CFOs.
Europe
Chart 2. UK public opinion polls on EU membership
Mid-year polling (May to July)
  In Out Donât Know Lead (In)
ICM 31 May 47% 33% 20% +14
Ipsos Mori 14-16 Jun 66% 22% 12% +44
YouGov 19-24 Jun 44% 38% 18% +6
Survation 29 Jun-6 Jul 45% 37% 18% +8
Average  51% 33% 17% +18
End-year polling (October to December) Â Â
Ipsos Mori 17-19 Oct 52% 36% 12% +16
Survation 16-17 Nov 43% 40% 18% +3
YouGov 19-24 Nov 40% 38% 22% +2
ICM 6 Dec 43% 39% 17% +4
Average  45% 38% 17% +6
6. CFOs are positive about prospects for growth in the US and the UK in 2016.
But CFOs are strikingly downbeat about the euro area. Levels of pessimism about euro area growth in 2016 are
greater than for emerging marketsâ growth.
Chart 3. Growth prospects
Net % of CFOs who are optimistic about prospects for growth in the following regions in 2016
-40%
-20%
0%
20%
40%
60%
80%
100%
USUKChinaJapanEmerging markets
including China*
Euro areaEmerging markets
excluding China*
-25%
-18%
-27%
-6%
68%
82%
-5%
*GDP-weighted estimate based on CFO readings for emerging markets excluding China, and for China
Europe
7. Although CFOs are negative about prospects for the euro area, activity in the region picked up through 2015,
and at a rather faster rate than expected.
German business confidence ended 2015 at higher levels than at the beginning of the year. Meanwhile US
manufacturing activity dropped to a six-and-a-half year low in November.
Europe
Chart 4. German and US business conïŹdence
German Ifo Business Climate Index and US ISM Purchasing Managers Index (Manufacturing)
80
85
90
95
100
105
110
115
120
Dec
15
Dec
14
Dec
13
Dec
12
Dec
11
Dec
10
Dec
09
Dec
08
Dec
07
Dec
06
Dec
05
US ISM (RHS)
German IFO (LHS)
30
35
40
45
50
55
60
65
8. Other than a brief, post-election bounce, corporate risk appetite has been trending down for over a year. Just 37% of
CFOs say that now is a good time to take greater risk onto their balance sheets, down from a peak of 72% in Q3 2014.
Risk appetite wanes
Chart 5. Risk appetite
% of CFOs who think this is a good time to take greater risk onto their balance sheets
0%
10%
20%
30%
40%
50%
60%
70%
80%
15
Q3
15
Q1
14
Q3
14
Q1
13
Q3
13
Q1
12
Q3
12
Q1
11
Q3
11
Q1
10
Q3
10
Q1
09
Q3
09
Q1
08
Q3
08
Q1
2007
Q3
9. The fall in corporate risk appetite has been mirrored by a decline in investor risk appetite.
The second half of 2015 saw a rise in risk aversion among investors, as they moved from riskier assets including
equities into safer government bonds.
Risk appetite wanes
Chart 6. CFO and investor risk appetites
% of CFOs who think this is a good time to take greater risk onto their balance sheets (LHS) and change in UK equities
over bonds (RHS)
30
35
40
45
50
55
60
65
70
75
Sep
15
Jan
15
Sep
11
Sep
13
Jan
11
Sep
09
Jan
09
May
08
Sep
07
Jan
07
% CFOs saying now is a
good time to take risk (RHS)
Equities vs bonds (LHS)
0
10
20
30
40
50
60
70
80
Jan
13
May
12
Mar
10
Mar
14
10. Sentiment among large corporates has declined for the third consecutive quarter. CFO optimism is at its lowest level
since the second quarter of 2012, when the euro area was in recession and gripped by concerns that the single
currency might break up.
Risk appetite wanes
-80%
-60%
-40%
-20%
0%
20%
40%
60%
MoreoptimisticLessoptimistic
Chart 7. Business conïŹdence
Net % of CFOs who are more optimistic about ïŹnancial prospects for their company now than three months ago
15
Q4
15
Q1
14
Q4
14
Q1
13
Q4
13
Q1
12
Q4
12
Q1
11
Q4
11
Q1
10
Q4
10
Q1
09
Q4
09
Q1
08
Q4
08
Q1
07
Q4
2007
Q3
11. For the first time in a year CFOs rate
cost reduction as their number one
priority for the next 12 months.
CFOs are also placing greater
emphasis on other defensive
strategies such as increasing cash
flow, disposing of assets and
reducing leverage.
In contrast, CFOs are placing
rather less emphasis on growth
strategies such as introducing new
products and services, expanding
by acquisition and increasing capital
expenditure.
0% 10% 20% 30% 40% 50%
Reducing leverage
Disposing of assets
Raising dividends or
share buybacks
Increasing capital expenditure
Expanding by acquisition
Increasing cash ïŹow
Introducing new products/
services or expanding
into new markets
Reducing costs
2015 Q32015 Q4
44%
34%
38%
39%
37%
34%
19%
17%
22%
19%
14%
8%
13%
9%
12%
10%
Chart 8. Corporate priorities in the next 12 months
% of CFOs who rated each of the following as a strong priority for their business
in the next 12 months
Focus on cost control
12. The increased focus on defensive
strategies means that CFOs are more
defensive than at any time in the last
three years.
19%
21%
23%
25%
27%
29%
31%
33%
35%
37%
39%
Chart 9. CFO priorities: Expansionary vs. defensive strategies
Defensive
strategies
Expansionary
strategies
2015
Q4
2015
Q1
2014
Q4
2014
Q1
2013
Q4
2013
Q1
2012
Q4
2012
Q1
2011
Q4
2011
Q1
2010
Q3
Focus on cost control
Arithmetic average of the % of CFOs who rated expansionary and defensive strategies as
a strong priority for their business in the next 12 months.
Expansionary strategies are introducing new products/services or expanding into new
markets, expanding by acquisition and increasing capital expenditure.
Defensive strategies are reducing costs, reducing leverage and increasing cash flow.
13. Inflation and interest rates
CFOsâ expectations for inflation
fell between the third and fourth
quarters of 2015.
A narrow majority (51%) now expect
inflation to remain below 1.5% in
two-yearsâ time.
The fall in CFOsâ expectations for
inflation coincided with downgrades
to both market and Bank of England
forecasts for inflation in 2016.
Chart 10. CFO inïŹation expectations
% of CFOs who expect consumer price inïŹation in the UK to lie between the
following ranges in two-yearsâ time
0%
10%
20%
30%
40%
50%
60%
Above 2.5%1.6%-2.5%0-1.5%Below zero
2015 Q3 2015 Q4
39%
1%
51%
5% 4%
56%
44%
14. Inflation and interest rates
As inflation forecasts have fallen so, too, have financial market expectations for future interest rates.
Expectations for UK interest rates at the end of 2016, 2017 and 2018 are now lower than they were in the summer
of 2015.
0.0
0.5
1.0
1.5
2.0
2.5
Chart 11. Financial market expectations for UK interest rates
UK market rate expectations for end-year three-month interest rates
at Dec â18 1.6%
at Dec â17 1.3%
at Dec â16 0.9%
Now 0.6%
Dec
15
Nov
15
Oct
15
Sep
15
Aug
15
Jul
15
Jun
15
15. Inflation and interest rates
The corporate sector seems fairly well positioned to cope with the cumulative 100bp rate rise priced in by financial
markets in the next three years.
Almost two-thirds of CFOs say that interest rates would have to rise by more than 100 basis points before their
businesses cut planned investment or employment.
Chart 12. Effect of rate rises on corporate spending
% of CFOs reporting that the Bank of Englandâs base rate could rise by the following amounts before their business
responds by cutting planned investment or employment
0%
5%
10%
15%
20%
25%
30%
A rise in
interest
rates
would be
good for
my business
More than
300 basis
points
300 basis
points
200 basis
points
100 basis
points
50 basis
points
25 basis
points
8%
2%
26%
21%
10%
24%
10%
36% say rate rises of
â€100bp would affect
investment/jobs
64% say rates
would have to
rise by >100bp to
affect investment/
jobs
16. Weaker margins
Expectations for revenue and margin growth dipped in the second half of 2015.
While a majority of CFOs still expect UK corporate revenues to increase over the next 12 months, the outlook for
revenues and margins is at its weakest for two-and-a-half years.
-70%
-50%
-30%
-10%
10%
30%
50%
70%
90%
15
Q4
15
Q3
15
Q2
15
Q1
14
Q4
14
Q3
14
Q2
14
Q1
13
Q4
13
Q3
13
Q2
13
Q1
12
Q4
12
Q3
12
Q2
12
Q1
11
Q4
11
Q3
11
Q2
11
Q1
10
Q4
2010
Q3
IncreaseDecrease
Chart 13. Outlook for corporate revenues and margins
Net % of CFOs who expect UK corporatesâ revenues and margins to increase over the next 12 months
Revenues
Operating margins
17. Weaker margins
Our panel of large corporates continues to enjoy good access to credit.
The cost of credit is not far off its lowest reported levels, while credit availability is near to all-time highs.
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
CreditiscostlyCreditischeap
CreditiscostlyCreditischeap
Chart 14. Cost and availability of credit
Net % of CFOs reporting credit is costly and credit is easily available
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
15
Q4
15
Q1
14
Q4
14
Q1
13
Q4
13
Q1
12
Q4
12
Q1
11
Q4
11
Q1
10
Q4
10
Q1
09
Q4
09
Q1
08
Q4
08
Q1
07
Q4
2007
Q3
Cost of credit
(LHS)
Availability of credit
(RHS)
18. Weaker margins
Bank borrowing remains the most attractive source of funding for CFOs, with a significant majority (86%) viewing it
as an attractive source of external funding.
As has been the case for the last five years, CFOs view equity issuance as a less attractive source of funding than
bond issuance or bank borrowing.
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
AttractiveUnattractive
Chart 15. Favoured source of corporate funding
Net % of CFOs reporting the following sources of funding as attractive
Bank
borrowing
Equity
issuance
Bond
issuance
15
Q4
15
Q1
14
Q4
14
Q1
13
Q4
13
Q1
12
Q4
12
Q1
11
Q4
11
Q1
10
Q4
10
Q1
09
Q4
09
Q1
08
Q4
08
Q1
07
Q4
2007
Q3
19. The macroeconomic backdrop to the Deloitte CFO
Survey Q4 2015
The International Monetary Fund cut its forecast for
global growth in 2015 and 2016. Activity in emerging
markets continued to disappoint, with economists
nudging down their forecasts for growth in most
emerging economies. Growth in the advanced
economies continued and broadened, though indicators
of industrial activity have generally softened, partly
as a result of weaker export market demand. After a
short-lived market rally in October, equities, especially
those in emerging markets, lost value towards the end
of the year. In early December the oil price fell below
$40, to the lowest level in seven years; metals prices
also softened. Inflation remained close to zero in the
US, the euro area and the UK and inflation forecasts for
2016 continued to decline.
The European Central Bankâs announcement of a
further round of Quantitative Easing fell short of market
expectations, though the ECBâs President subsequently
reassured markets that there were âno limitsâ to the
tools the ECB could use to fight deflation. As widely
anticipated the US Federal Reserve raised interest rates
on 16th December, the first time US interest rates have
been increased in almost ten years.
CFO Survey: Economic and financial context
20. CFO Survey: Economic and financial context
-7%
-5%
-3%
-1%
1%
3%
5%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
UK GDP growth: Actual and forecast (%)
Quarter-on-
quarter growth
Year-on-year
growth
Source: ONS, consensus forecasts from The Economist and Deloitte calculations
Forecasts
24. Two-chart summary of key survey messages
CFO attitudes to EU membership
% of CFOs who gave the following responses when asked
whether it is in the interests of UK businesses for the UK to
remain a member of the EU
0%
10%
20%
30%
40%
50%
60%
70%
80%
Donât know,
no strong
opinion,
prefer not
to say
Too early
to say:
Depends on
results of
renegotiation
NoYes
2015 Q2 2015 Q4
74%
62%
2%
6%
23%
28%
1% 4% 19%
21%
23%
25%
27%
29%
31%
33%
35%
37%
39%
CFO priorities: Expansionary vs. defensive strategies
Defensive
strategies
Expansionary
strategies
15
Q4
15
Q1
14
Q4
14
Q1
13
Q4
13
Q1
12
Q4
12
Q1
11
Q4
11
Q1
10
Q3