Deloitte CFO survey reveals increased confidence in combatting risk

This quarter’s Deloitte survey shows that Australian CFOs are optimistic about their company’s financial prospects and are more confident about combatting risk.

The Deloitte CFO survey, which questions CFOs of major Australian companies, has been conducted on a quarterly basis since 2009. The 52 CFOs participating in this quarter’s survey represented businesses with the combined market value of $251 billion.

The survey results showed that CFOs are more optimistic following three slow previous quarters, with a rise in respondent confidence levels from 6% to 21%. The Deloitte report states that the pessimism surrounding the Chinese economy and the recent fall of the Australian dollar, which led to lower interest rates, is the reason for the increase in confidence from CFOs.

Alongside this, 51% of Australian CFOs see the US economy as a “source of confidence” and remain positive about the strength of the North American recovery from the financial crisis. However, there are still concerns about the unreliability of federal government policies and 66% of CFOs questioned said they saw this to be a negative factor for their business.

Despite governmental uncertainty, more than 50% of CFOs believe that now is a good time to be combatting risk, an increase of 24% since the last survey. The Deloitte report shows that this could be because of low interest rates and the falling exchange rate, but support from the government is important.

CFOs that participated in the survey said that governmental leadership and policy stability were important to them and said they would not lose momentum in areas such as tax reform and competition policy.

Bank borrowing is now the most popular source of funding for corporations because credit is cheap and CFO’s are able to manage the threat of risk better now. A move away from a reliance on corporate debt and internal funding could mean that the Australian economy is in a good place and will gradually get better, according to Deloitte.

CFOs also intend on changing their strategy by increasing gearing, which is the ratio of a company’s debt to the value of its ordinary shares and according to Stephen Gustafson, partner of Deloitte’s Assurance and Advisory, “CFOs have long reported that they see corporate Australia as under-geared. However, CFOs have also consistently expressed a lack of intent to increase their own level of gearing. This represents a very conservative market and no strong appetite to change.”

Gustafson also said that this attitude has changed as “Q1 saw the highest net percentage of CFOs intending to raise their own gearing that we have seen in several years. So while some negative headwinds remain, the positive credit conditions of much of 2014 may have reached a tipping point. If so, we may well see a greater willingness of CFOs to invest in growth in the year ahead.

The survey also revealed that 80% of respondents predict that cash exchange rates will be at or below their current level in a year’s time and 60% anticipate further cuts in 2015, however, very few expect these cuts to affect their financial and investment decisions.

The Deloitte first quarter survey report showed that CFOs are more prepared to combat financial risk because of low interest rates and therefore, have a more positive attitude about the financial future of their companies than they did three months ago.


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