CFOs predict a long haul to recoveryDOWNLOAD
Monday, 18 October 2010: In the latest Deloitte CFO Quarterly Survey, nearly two-thirds (64%) of Australian CFOs expect a sustained and possibly erratic economic recovery over the next two years.
The percentage of CFOs who expect a quick or ‘v-shaped’ recovery has dropped significantly in the last three months, down to 16% from 28% last quarter.
Deloitte chief operating officer, Keith Skinner said, “The survey tell us that the bullish outlook shared by 28% of CFO’s last quarter has subsided and been replaced with a more conservative view. The CFOs predict Australia is facing a long haul to recovery.”
“The softening outlook is further evidenced by the community of CFOs who share the view that Australia is now facing a sustained flat period of growth before gradual recovery, which has increased from 3% to 15% in the last quarter.”
Meanwhile the percentage of CFOs who are more optimistic about their own company’s financial prospects than they were three months ago has increased from 40% to 55% this quarter.
“Whilst concern remains about the speed of recovery in the medium term, it’s pleasing to see confidence recover from the low levels of last quarter”, said Mr Skinner.
“Confidence last quarter was hit hard by a number of factors including the ongoing resources tax debate, the (then) forthcoming election and concerns about the impact of European sovereign debt issues.”
The single biggest threat to their business is the sustainability and speed of the economic recovery, according to 25% of CFOs. A further 8% selected the impact of a slowdown in China’s growth.
“The clear message from this quarter’s survey is that CFOs are more optimistic about the performance of their own companies compared to last quarter. However, they are acutely aware that the biggest threats to company performance remain out of their control, which could be negatively impacting their outlook for the overall economy.”
Other than the economic recovery and China’s growth, the external issues that are dominating CFOs minds this quarter include; changes in regulation (9%), increasing sovereign risk (8%) and the impact of a minority government (8%).
Tax is the top economic issue
Mr Skinner continued, “According to a third of CFOs the top economic priority for the new government should be providing business with certainty around a number of key tax issues such as the minerals resource rent tax and corporate taxation levels.
“Second on the list of economic priorities identified by 15% of CFOs was reducing government debt levels.”
M&A expectations remain high
Deloitte Assurance & Advisory partner, Stephen Gustafson said, “Expectations of increased Merger and Acquisition (M&A) activity have been a constant theme over the first 12 months of the Deloitte Quarterly CFO Survey.”
“This quarter is no different with 94% of CFOs expecting M&A levels to increase across Australia, albeit from a fairly low base. What is extremely encouraging is that 43% of CFOs are likely or very likely to undertake an acquisition in the next six months.”
This quarter 41% of the CFOs surveyed remain concerned about the availability of suitable targets and nearly a third (32%) identified price expectations of vendors as an impediment to M&A.
“Despite the lack of targets and high pricing expectations, as the pressure to deliver growth intensifies in the coming quarters, we expect many of these M&A intentions will turn into action sometime in the New Year.”
About The Deloitte CFO Survey
This is the fifth quarterly survey of CFOs of major Australian listed companies. The survey took place between 9 September and 24 September 2010. Eighty five CFOs participated, representing businesses with a combined market value of $220 billion, or 15% of the Australian quoted equity market.