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CFO optimism dented by sovereign risk and the increased cost of credit


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26 July 2010: Global sovereign risk has been highlighted as a key concern in the latest Deloitte Quarterly CFO survey with a majority (88%) of the participating Chief Financial Officers (CFOs), indicating that they believe it has negatively impacted Australia’s economic recovery, with 76% saying it would damage their own company’s ability to access new credit and capital markets.

Cost of credit

Seventy-five percent of CFOs surveyed this quarter agreed that credit is costly, compared to 62% in the previous quarter.

Although credit has become more expensive for CFOs this quarter, the trend over four consecutive quarters has been towards a greater availability of credit. Only 29% of CFOs stated that new credit was hard or somewhat hard to get this quarter, down from 48% who shared this view in quarter three of 2009 when the Deloitte CFO Survey began.

Performance remains strong

Deloitte chief operating officer, Keith Skinner said, “Although sovereign risk and the increasing cost of credit have added to the economic uncertainty amongst CFOs, 83% of respondents said their own company’s last quarter performance was in line or above expectations. This quarter, only 17% stated that their revenues were worse than expected which was down from 23% the previous quarter. 

While 40% of CFOs are more optimistic than they were three months ago, this is down from 57% who shared this view last quarter. The number of CFOs who are less optimistic than they were three months ago has more than doubled, up from 6% to 14%.

“Although CFOs remain positive about their company’s future financial performance the survey indicates confidence remains somewhat fragile,” said Mr Skinner.

Acquisitions still slow to materialise

When asked to choose their top priorities the majority related to pursuing growth strategies. Growth by acquisition was the top priority according to 46% of CFOs, followed by increasing current market share (43%) and reducing costs (37%).

Deloitte Assurance & Advisory partner, Stephen Gustafson said, “Although CFOs are telling us growth through acquisition is top of their agenda, the momentum for M&A activity has not really emerged as yet. I believe CFOs are looking for a few more deals to go through before confidence strengthens and others follow through on their intentions.”

Equity valuations

The number of CFOs who believe Australian equity valuations are undervalued has jumped from 35% last quarter to 63% this quarter.

“There has been a significant shift in the number of CFOs who think Australian equities are undervalued which is not surprising, given the market falls experienced during the last quarter.

“However, with credit availability improving, balance sheets conservatively leveraged and 51% of CFOs expecting to increase demand for credit in the next 12 months, many CFOs are well positioned to pursue their growth intentions,” said Mr Gustafson.

About The Deloitte CFO Survey

This is the fourth quarterly survey of CFOs of major Australian listed companies. The survey took place between 17 June and 7 July 2010. Eighty-nine CFOs participated, representing businesses with a combined market value of $219 billion, or approximately 15% of the Australian quoted equity market.

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Contacts

Name:
Johnny Sollitt-Davis
Company:
Deloitte Australia
Job Title:
Corporate Affairs & Communications
Phone:
Tel: +61 3 9671 6177, Mobile: 0431 134 850
Email
jsollittdavis@deloitte.com.au
Name:
Keith Skinner
Company:
Deloitte Australia
Job Title:
Chief Operating Officer
Phone:
Tel: +61 2 9322 7580
Email
kskinner@deloitte.com.au
Name:
Stephen Gustafson
Company:
Deloitte Australia
Job Title:
Partner, Assurance & Advisory
Phone:
Tel: +61 2 9322 7325
Email
sgustafson@deloitte.com.au

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