Confidence surges amongst CFOs, as business outlook improvesDOWNLOAD
15 October 2013: The latest Deloitte Quarterly Chief Financial Officer survey reveals confidence amongst Australian Chief Financial Officers (CFOs) has rebounded to its highest level since early 2011, driven by the end of the minority Federal Government and strengthening economic indicators from Europe, North America and China.
The net percentage of CFOs who felt more optimistic about their company’s future financial prospects than they did three months ago, has surged to 41% up from minus 11% last quarter.
For the past year uncertainty around Federal Government policy has consistently had the most negative impact on CFO optimism. The change of Government has seen a dramatic turnaround with more than two thirds (68%) of CFOs now stating that government policy is having a positive influence on optimism.
Commenting Deloitte chief operating officer, Keith Skinner said: “After a long slog, confidence is back in fashion amongst Australian CFOs, the question is, will it be sustained and translate into increased business activity?”
“We are currently enjoying the highest level of optimism since early 2011. Even more encouraging is the fact that 38% of CFOs believe now is a good time to take more risk onto their balance sheets, the highest level in two years. This could be an early sign that the defensive strategies which have prevailed post the global financial crisis, could soon be replaced by more proactive growth strategies such as mergers and acquisitions (M&A).”
CFOs call for Tax reform
When asked about tax reform an overwhelming majority of CFOs (90%) said that it was an important or very important issue. According to the CFOs questioned, the specific areas of taxation that require reform are company tax (60%), GST (42%), superannuation (38%) state and territory (17%) and employment tax (21%).
Commenting on tax reform Deloitte Access Economics partner, Professor Ian Harper said: “With the current budget deficit and the economically challenging transition from the construction to the production phase of the mining boom, the chances of a corporate tax rate cut in this term of Government are minimal. However, there may be some opportunities for the Government to reduce red tape, regulation and compliance burden on business, which could have a positive but less direct impact on their balance sheets.”
Offshore interest in M&A could stimulate activity
According to Deloitte National Leader of Corporate Finance, James Riddell, “We are starting to see an uptick in M&A activity, a significant rise in companies looking to access the IPO market and the amount of inbound capital looking for acquisitions in Australia seems like it is at its highest level since the GFC. Areas where we are seeing the most activity include Chinese interest in the real estate sector, private sector trading of infrastructure assets and acceleration by Australian state governments assessing asset disposal opportunities.”
“This uptick led by offshore interest in M&A could be the jolt, corporate Australia has long needed. For too long post the GFC, corporate Australia has chosen to focus organically rather than on capital optimisation to drive growth; Accordingly, we think the biggest risk to corporate Australia is ‘missing the boat’. Pressure on C-suite executives from foreign competition and equity analysts is likely to increase and force a shift towards addressing capital optimisation or return the “war chests” of unutilised capital to shareholders if they miss their opportunities,” said Mr Riddell.
Positioning for prosperity
Looking beyond the mining boom CFOs nominated gas as a major driver of economic growth in the next two decades, followed by agribusiness, tourism, higher education and construction as the top five sectors.
Professor Harper continued, “This closely aligns with Deloitte’s assessment in the recently released Building the Lucky Country #3: Positioning for prosperity? Catching the Next Wave. We also believe wealth management has high growth potential driven by an ageing Asian middle class. Collectively we expect the top five sectors we identified could even be as big as the mining boom. The challenge facing CFOs is how they can influence business strategy to be best positioned for the next waves of growth and prosperity.”
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