Deloitte CFO Survey Q1 2015

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CFO optimism surges as dollar tumbles

Deloitte CFO Survey – Q1 2015

23 April 2015: After a sluggish 2014, optimism among Australian CFO has made a significant comeback in the first quarter of 2015.

A net 21% of CFOs have a more positive attitude about the prospects of their companies than three months ago and are more prepared to take on financial risk. And according to the results of Deloitte’s Q1 2015 CFO Survey, a lower Australian dollar and record low interest rates appear to be the main driver of the shift in sentiment.

Key survey findings include:

  • 74% of respondent CFOs cited the value of the Australian dollar as a positive influence on their optimism, and 57% cited low interest rates
  • More than 50% believe now is a good time to take on risk, with gearing intentions up from a net negative 17% last quarter (an indication of more CFOs reducing gearing), to a net positive 15% (an indication of more increasing gearing)
  • Federal government policy and leadership uncertainty, and the slowing Chinese economy, continue to weigh on optimism, but their negative impact has reduced.

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Deloitte Assurance & Advisory partner Stephen Gustafson said: “According to our survey respondents, genuine CFO optimism has returned.

“It hasn’t reached the levels of a year ago, but it’s a very significant improvement on what was a subdued mood for much of 2014.

“And this change certainly begs a question – has a tipping point been reached in terms of more positive sentiment and an associated shift in corporate investment and growth strategies?”

The dollar and interest rates

“While risk aversion and an overall sense of caution had been recurring themes for much of 2014, net optimism has grown since, from 6% in the fourth quarter of last year, to 21% in the first quarter of 2015,” Gustafson said.

“This is great news, and the underlying story appears to be the Australian dollar falling 15% in the last six months to below the US$0.80 mark, and interest rates at record lows, and possibly heading lower still.

“The dollar in particular appears to be the silver lining to the dark cloud of the slowing resources sector. While over 40% of CFOs feel that declining commodity prices have had a negative impact on optimism, the impact of a lower dollar is clearly a positive for many corporates operating outside mining, oil and gas.”

Increased appetite – for risk and gearing

“In a really encouraging development, more than 50% of CFOs believe now is a good time to be taking on risk – up 24% from the previous quarter. This suggests that other drivers of uncertainty, such as Canberra and China, haven’t negated strong underlying economic drivers,” Gustafson said.

“And just as striking is the shift in CFO plans to increase gearing. This is nearly double that of the previous quarter, and a level we haven’t seen before in several years.

“Credit is cheap, and intentions on the gearing front would appear to herald real action. Based on our survey responses, the dollar and interest rates are now so low that CFOs are more actively pursuing growth.”

Bank borrowing has increased its lead as the most attractive source of funding, while reliance on corporate debt and internal funding is less appealing.

Is this a good time to be taking greater risk onto your balance sheet?

Canberra concerns remain

Gustafson said that in contrast to the confidence boosting power of the dollar, concerns around federal government policy and stability remained.

“Policy uncertainty, budget repair, leadership instability, and hesitation regarding the reform agenda continue to have an impact on business confidence, and were a negative factor for net 55% of CFOs,” he said.

Uncertainty, but not pessimism

“While CFOs are optimistic, that doesn’t mean that uncertainty levels have fallen. In fact, they remain high. Net uncertainty is marginally below last quarter, but the proportion of CFOs who perceive ‘high’ or ‘very high’ levels of uncertainty has increased,” Gustafson said.

“But perceived uncertainty hasn’t overly dampened business spirits. This again suggests that Australia may have arrived at an economic tipping point where, despite this uncertainty, underlying conditions are positive enough that CFOs are willing to take on risk and invest in growth.

“The remainder of 2015 will be interesting in terms of whether this CFO ‘dial shift’ has some life in it.”

About the survey: The Deloitte CFO Survey targets the CFOs of major Australian listed companies. It has been conducted on a quarterly basis since the third quarter of 2009. This survey covers the first quarter of 2015 and took place between 17 March 2015 and 3 April 2015. 52 CFOs participated, representing businesses with a combined market value of approximately $251 billion, or 14.28% of the Australian quoted equity market.

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