Debt is out of favour Deloitte CFO Survey: 2023 Q3

DELOITTE

Deloitte’s Q3 CFO survey shows finance leaders are becoming more positive about the potential of AI. Most CFOs (54%) were optimistic that AI can deliver improvements to business performance and 86% reported that their understanding of AI and its uses has increased.

The survey, which captures sentiment amongst the UK’s largest businesses, was conducted between 19 September and 2 October 2023. A total of 70 CFOs participated, including the CFOs of 13 FTSE 100 and 26 FTSE 250 companies.

Rachel Charlton, UK consulting strategy and innovation leader at Deloitte said: “New technology and the transition to net zero will reshape the economy and play a major role in driving growth. Finance leaders believe that the application of artificial intelligence will lift productivity and that the energy transition will create significant business change and new business opportunities. As consultants, we have an opportunity and a responsibility to guide organisations through these changes to ensure they are delivering value for their customers, people and other stakeholders.”

The CFO survey also showed that levels of business confidence rose in the third quarter and are running slightly above average, with a net 9% feeling more optimistic about the financial prospects for their company than three months ago.

CFOs’ attitudes to financing their businesses have shifted and they now see equity financing (net -10%) as being more attractive than debt financing, either in the form of bank borrowing (net -37%) or corporate bond issuance (net -39%). Between 2009 and the start of this year, finance chiefs have rated equity ahead of both bank borrowing and corporate bond issuance in only one quarter (Q2 2009).

CFOs have also become more cautious about taking on debt, with a net balance of 15% seeing UK corporates’ balance sheets as being overleveraged. Debt reduction is rated as a strong priority at 30%, the highest level recorded outside of the exceptional circumstances during the early stages of the pandemic.

Ian Stewart, chief economist at Deloitte commented: “Higher interest rates have flipped a decade-old consensus which was previously in favour of debt finance. This shift in thinking means that equity finance, which has been out of favour for years, is now seen as being more attractive than debt finance. Finance leaders are preparing for a period of high interest rates, with predicted rates falling only slightly over the next year. If realised, this would represent a period of tight monetary policy, the likes of which has not been seen since 2008.”

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