CFOs appetite for risk grows as performance remains strongDOWNLOAD
Monday 18 April 2011: For the first time in 12 months the majority (52%) of Chief Financial Officers (CFO) taking part in the Deloitte Quarterly CFO Survey believe that now is a good time to take additional risk onto their balance sheets.
Deloitte chief operating officer, Keith Skinner said, “CFOs see 2011 as the year to invest in their businesses to deliver growth. Another key indicator of confidence levels is the fact that 61% of CFOs are planning to increase capital expenditure (cap-ex), with 26% planning to do so by 20% or more compared to the previous year.”
Underlying confidence in their own business performance continues to grow with over 81% of CFOs believing their operating cash flow will increase over the next 12 months.
54% of CFOs are more optimistic about the financial prospects for their company than they were three months ago.
“Despite a number of shocks at home and abroad, CFOs are enjoying a period of good performance and this is contributing to increased confidence and a renewed appetite for risk,” said Mr Skinner.
A price on carbon
When asked about the potential impact of a price on carbon, the vast majority (84%) of the survey respondents expected it to make Australia less competitive globally. However, when asked about the impact on their own company’s financial performance, the CFOs were split with 44% believing it would have no impact and 52% predicting a negative impact.
The majority of CFOs were in agreement when asked about the impact on consumers with 98% agreeing that it would increase costs for Australians. A similarly high percentage (95%) think corporate profit margins will decline, possibly indicating that companies would not be passing on all of the cost implications of a price for carbon.
Deloitte Climate Change & Sustainability leader, Brad Pollock said, “There is still significant uncertainty about the shape of the final legislation however, at this point CFOs are expecting to pass on most of the carbon price to consumers, or will be lobbying Government for assistance if they are trade exposed. The sector and the price elasticity of demand for their products will dictate just how much will be passed on to consumers.”
“The good news for the policy makers is that 73% of CFOs do expect the price on carbon to drive increased investment in low carbon and renewable energy and three quarters (76%) expect it to drive a demand for low carbon products.”
“Although initially there may be upward pressure on prices, I expect many businesses to be working hard behind the scenes to become more energy efficient whether that is through process re-engineering or innovation around less emissions intensive sources of energy,” continued Mr Pollock.
Merger and acquisition activity is expected to rise with 52% of CFOs likely to pursue M&A opportunities in the next six months. However the main driver for growth will continue to be organic expansion with 62% of CFOs identifying this as a strong business priority in the year ahead.
The greatest hindrance to acquisition activity was the lack of availability of suitable targets (45%) and the high pricing expectations of vendors (28%). Meanwhile, the percentage of CFOs planning to raise capital has almost doubled from 8% to 15%.
Rate rise expected but not yet
A third of CFOs are predicting an increase in interest rates from the Reserve Bank of Australia in the third quarter of this year (July-Sept) with 24% expecting the next rate rise to occur in the fourth quarter (Oct-Dec).
About The Deloitte CFO Survey
The Deloitte CFO Quarterly survey captures the opinions of the CFOs of major Australian listed companies, it has been conducted on a quarterly basis since the third quarter of 2009. Eighty-five CFOs participated in this survey, representing businesses with a combined market value of approximately $397 billion or 26% of the Australian quoted equity market.