Confidence amongst CFOs remains strong, as pressure to optimise capital buildsDOWNLOAD
24 January 2014: Last quarter’s rebound in confidence levels amongst Australian chief financial officers has been sustained according to the latest survey from Deloitte. Stable economic conditions at home and the strengthening US and UK economies have helped to maintain the positive sentiment amongst CFOs of ASX listed companies*.
In another positive sign the percentage of CFOs who are prepared to take more risk onto their balance sheets has increased to 44 percent up from 24 percent six months ago.
Commenting Deloitte chief operating officer, Keith Skinner said: “It’s very encouraging that the leap in confidence last quarter has been backed up with another positive result. Nearly a quarter (23 percent) of CFOs are feeling even more optimistic than they did last time we carried out the survey with half (49 percent) unchanged.”
“Although business felt a boost with the end of minority government which increased confidence last quarter, CFOs are acutely aware that the fundamentals of the economy have not changed. Even with further easing in the strength of the Aussie dollar and low interest rates, it remains a challenging environment. So, although revenue growth is expected they continue to be cautious around significant capital investment and M&A,” said Mr Skinner.
Are you experiencing pressure from institutions, the media and analysts to optimise capital through growth initiatives or return cash to shareholders and has that pressure changed in the last 12 months?
Despite the encouraging outlook seven out of 10 CFOs are feeling pressure from institutions, the media and analysts to optimise capital through growth initiatives or return excess cash to shareholders. At the same time, 50 percent of CFOs agree that this pressure has been increasing over the last 12 months.
Commenting on the increased pressure to optimise capital, Deloitte National Leader of Corporate Finance, James Riddell said: “The last three years have seen Australian companies build up vast war chests of capital which has been applauded by shareholders as they sought uniform investment de-risking off the back of the global financial crisis. But now they are starting to question the returns being generated and the pressure is on for companies to either do something or give it back.”
“CFOs have three options in the current environment; sit on their hands and retain excess free cash balances for opportunities that are yet to present themselves, take the pragmatic approach of returning excess funds to shareholders through buyback arrangements, or directly address capital optimisation by divesting non-core assets and redeploying capital through M&A and expansionary capex programs.”
The last quarter of 2013 also saw a continuation of the positive views on the cost and availability of credit, reflecting the stability of the official cash rate over the period. Overall, 44% of respondents reporting credit to be cheap (44% in Q3) and 78% describing credit as available (up from 76% in Q3).
It’s not just Australian chief financial officers who are feeling more optimistic. The fourth quarter CFO survey carried out by Deloitte in the UK, shows that expectations for revenues and profits amongst corporates are at the highest level in three-and-a-half years. Encouragingly 57 percent of UK CFOs say this is a good time to take on risk.
On the other side of the Atlantic, North American CFOs remain positive. This quarter, 26 percent classify the North American economy as good, continuing the positive momentum evident throughout 2013.
*Sixty four chief financial officers completed the survey from ASX listed companies between 9 December 2013 and 10 January 2014
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