Australian CFOs geared for growth: but not at any costDOWNLOAD
The second quarterly Chief Financial Officer (CFO) survey from professional services firm Deloitte shows that the trend of releasing new equity peaked late last year and is now on the decline. Compared to last quarter when half (49%) the CFOs surveyed said they were planning to issue equity in the next 12 months, only 30% are now planning to do so. The issues that top the CFO’s agenda for the next three months are hiring more staff, increasing capital spend and making acquisitions.
Deloitte chief operating officer, Keith Skinner said, “The fall in equity raising intentions is a reflection of the success that Australian CFOs had raising funds to pay down debt and lessen the risk in their balance sheets in 2009. They are now geared for growth but not at any cost.”
“The Reserve Bank of Australia’s data shows that listed companies issued $15 billion of new equity during the December quarter, resulting in a record issuance of $70 billion for 2009. This suggests that most Australian companies have taken this opportunity to restructure their balance sheets”, continued Mr Skinner.
Geared for growth
In fact 25% of the CFOs surveyed believe Australian balance sheets have been restructured to such an extent that they are now under-geared. The majority (81%) of CFOs see their free cash flow increasing over the next 12 months with 54% expecting an increase of more than 10%.
Mr Skinner said, “Although they are substantially more risk-averse than there were before the downturn, many CFOs have positioned their businesses to take advantage of growth opportunities as they arise. They have built in financial headroom that will enable them to be agile when it comes to making acquisitions and capital investments, while limiting their exposure to capital markets.”
Bank funding is also relatively less attractive to CFOs, with only 39% naming this as an attractive funding option, compared to 43% in the prior survey.
CFO priorities for 2010
Stephen Gustafson, Deloitte Assurance & Advisory partner said, “Gone are the days of growth at any cost. Today’s companies have adopted a more conservative approach to debt. This is evidenced by the fact that 52% of Australian CFOs rate growth as their company’s number one priority but balance it with a need to manage cost (47%).”
In line with this rating, CFOs expect M&A activity to increase significantly, up from 7% in Q3 to 23% in Q4.
The top three strategies for CFOs to position their companies for recovery in 2010 are:
“As Australia emerges from the downturn we could very quickly return to a skills shortage,” said Mr Gustafson.
“Despite the fact that CFOs are concerned that hiring additional people could lead to upward pressure on salaries as well as inflating costs, it is important to put additional focus on talent management, training and development.
“When asked how they were positioning their company for the upswing, CFOs stated they needed to adopt a hard line approach to spending. Only 12% indicated that they were planning to increase discretionary spend,” said Mr Gustafson.
CFOs were also conservative when asked about their predicted timeline for recovery, some 17% (up from 9 % last quarter) pushed recovery out to early 2011.
However, only 61% stated they were more optimistic about the financial prospects of their company, down from 72% three months ago.
According to Mr Gustafson, “We have seen a subtle shift in CFO sentiment since last quarter’s survey. Whether this is just a bump in the road, or a more permanent reality check we will have to wait and see.”
About The CFO Survey
The CFO Survey: 2009 Q4 Geared for Growth questioned major corporate users of capital, gauging their attitudes to economic conditions, risk and financing. The fourth quarter survey took place between November 2009 and January 2010 with 66 CFOs from the ASX 300 participating in the research.