CFO confidence hits political speed bump
Deloitte Quarterly Chief Financial Officer surveyDOWNLOAD
15 July 2014: For the fourth straight quarter, optimistic chief financial officers outnumber their pessimistic peers, according to the latest Deloitte Quarterly CFO survey. However, the net percentage of CFOs who were more optimistic about their company’s prospects than they were three months ago, fell from 36 per cent to just 6 percent this quarter.
Federal Government policy uncertainty rose substantially in the period and was the single biggest factor to negatively impact CFOs in Q2.The value of the Australian dollar has also weighed heavily on optimism this quarter, crashing 45 percentage points, from plus 25 per cent to minus 20 per cent.
According to Deloitte chief operating officer, Keith Skinner, “Australian chief financial officers are definitely feeling the drag of political uncertainty. Be it concerns over the implications of the budget initiatives or uncertainty over their passage through the Senate, business confidence has undeniably hit a speed bump this quarter taking the edge off the impressive positive trajectory we have seen over the past three quarters.”
“The recent uptick of the Australian dollar is putting another downer on CFO optimism,” said Mr Skinner. “However, despite these macro concerns we can take comfort in the fact that the vast majority of ASX listed company CFOs we surveyed, still expect to see their revenues (80 per cent) and operating cash flows (72 per cent) to increase over the next 12 months.”
Taken from Deloitte Q2 2014 CFO survey, the chart below shows the impact of the value of the Australian dollar, Federal Government policy and Australian share market performance on CFO optimism since the second quarter of 2013:
Mr Skinner said: “CFOs expressed mixed sentiment in respect of the federal budget announcements this May. The Government has chosen to follow a path of fiscal constraint, a route that is supported by the majority of CFO’s with 54% of CFOs agreeing with the speed of fiscal repair proposed by the budget. A further 18% of CFOs feel the pace of repair should be even faster.
“CFOs who took part in our survey believe that the budget includes some tough medicine, but it is medicine the Australian economy, and in particular the forward budget position, needs.”
Taken from Deloitte Q2 2014 CFO survey, the chart below shows the impacts of the Federal Budget on CFO growth prospects:
Despite their expectations for future revenue and cash flow growth, the appetite for risk amongst CFOs has softened since the previous quarter, perhaps a reminder of how fragile the sentiment is amongst Australian CFOs. Only 44 per cent of surveyed CFOs believe now is a good time to take greater risk on to their balance sheets, compared with 55 per cent last quarter.
Mr Skinner said: “This risk aversion may explain why there has been so little merger and acquisition activity among leading corporates in the past quarter. Considering how much capital they have sitting on their balance sheets and the continued positive sentiment, we are hopeful it will turn into action in the coming months.”
For the first time Deloitte has mapped CFO sentiment against the quarterly Australian Bureau of Statistics (ABS) business indicators survey. For the past three quarters the change in sentiment amongst CFOs tracks the growth or contraction in company profits captured by the ABS.
Commenting, Mr Skinner said: “For each of the past three quarters changes in CFO sentiment have mirrored changes in the ABS survey of business profits (see chart below). If this alignment continues then the expectation would be to see profits soften somewhat when the June quarter results are released in September.”
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 second quarter of 2014 and took place between 11 June 2014 and 30 June 2014. 50 CFOs participated, representing businesses with a combined market value of approximately $382 billion or 23 per cent of the Australian quoted equity market.
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