Chief Financial Officers more hungry for risk
17 April, 2014: The Q1 2014, Deloitte Quarterly survey of Chief Financial Officers of listed Australian companies reflects a strengthening outlook, with net 36 per cent of CFOs feeling more optimistic than they did three months ago.
Buoyed by improved revenue and cash flow expectations more than half (55 per cent) of CFOs agree that now is the right time to take more risk on to their balance sheets, up from 44 per cent who had this view last quarter.
According to Deloitte chief operating officer, Keith Skinner, “This is a real milestone for the survey. For the first time in three years the majority of chief financial officers are prepared to increase the level of risk on their balance sheets. Now the big question is whether this appetite for risk translates into increased business investment this year?”
“Many of the external issues that may have previously dampened their outlook are fading, with concerns about domestic and international economic uncertainty falling away to their lowest level in almost three years,” continued Mr Skinner. “Looking at their own businesses, there is an overwhelming expectation amongst CFOs that they will enjoy revenue growth (82 per cent) and operating cash flow will improve for a significant majority (68 per cent) too.”
The improved confidence being enjoyed by CFOs is attributable to a weakening Australian dollar (32 per cent), record low interest rates (25 per cent) and strong economic tailwinds from the United States (64 per cent) and Europe (34 per cent).
However, this quarter has seen a significant (48 per cent) negative swing in relation to the impact that China has on CFO optimism. Last quarter it was a positive influence for 25 per cent and this has dropped away to a negative influence for 23 per cent this time.
Fundamentals for growth
Australian corporate balance sheets have been bolstered with significant cash reserves and credit remains cheap and available, should they need it to fund growth strategies. However, the majority (64 per cent) prefer to use their own cash reserves to fund growth rather than bank borrowings (63 per cent) or issue more equity (18 per cent).
When asked about the key levers for achieving sustained growth for their company, 61 per cent of Australian CFOs identified improved productivity as their top priority, followed by investing in technology and product development (55 per cent) and reducing input costs such as wages (39 per cent).
Mr Skinner commented, “The top three growth levers for CFOs are those they can control and relate to improving productivity and driving down inefficiencies in one way or another. In the next 12 months, the most popular type of growth remains organic expansion (76 per cent) followed by introducing new products, services and expanding into new markets (63 per cent). Plans to undertake more M&A activity (54 per cent) remains the third most popular option with CFOs.”
Hiring intentions remain consistent
For the fourth consecutive quarter, the percentage of CFOs indicating they will increase headcount has exceeded those planning to cut back, supporting the view that underlying economic conditions are stable and that confidence is sound despite a spate of high profile job losses.
Overseas, the results of the Deloitte UK CFO Survey show that 71 per cent of CFOs consider now a good time to take risk onto their balance sheet. More than twice the level of a year ago, that result is a six and half year high for the UK. Meanwhile Deloitte America’s CFO Signals report shows that CFOs have a bias toward “pursuing opportunity” over “limiting risk”. This reflects that the positive momentum being experienced in Australia is mirroring similar positive sentiment in major global economies also.
About the survey: 56 chief financial officers completed the survey from ASX listed companies between 13 March 2014 and 28 March 2014.
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Last Updated: Thursday, 17 April 2014
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