CFOs optimism rebounds despite ongoing uncertaintyDOWNLOAD
24 April 2012: Optimism levels amongst Chief Financial Officers (CFOs) improved during the last quarter according to the latest Deloitte CFO Survey. The survey recorded its most positive sentiment readings in a year, with 38% of CFOs saying they were more optimistic about their company’s financial prospects than they were three months ago.
Deloitte’s Chief Operating Officer, Keith Skinner, said that view was reflected across many parts of the survey with the perceived levels of higher than normal external and financial uncertainty also dipping for the first time in a year, falling to 69% from 79% last quarter.
“Even though CFOs are still expressing some concern about the uncertainty and volatility in international markets, the firming US economy and signs of greater stability in Europe seem to have injected some long overdue confidence at home,” he said. “No one is under any illusions about how long it will take for Europe to sort itself out or that the US recovery is going to continue to send out mixed signals for some time, but it’s looking increasingly less like the global recession that everyone had feared.”
Mr Skinner said that measured optimism could also be seen in the Reserve Bank’s decision to leave interest rates unchanged for the past four months.
“This quarter’s survey indicates a more confident attitude by CFOs, with a higher per cent (46%) now saying it was a good time to take risk onto their balance sheets (up from 27%).
“We have been looking for this change in attitude by CFOs for a long time. Unfortunately, it doesn’t necessarily mean an immediate return to previous levels of optimism, but hopefully we’ll see it translate into some real activity,” Mr Skinner said.
“Given the structural changes that are occurring as a result of our two speed economy, we would expect to see ongoing consolidation in some sectors, with more acquisitions in industries not able to attain the level of growth and productivity they need through organic means alone.”
“The latest survey seems to support this with 71% of CFOs saying they expect M&A activity to increase over the coming year and 65% saying that expanding by acquisition is their key priority with 52% saying they are considering an acquisition in the next 6 months,” Mr Skinner said.
“Interestingly we have seen this finding in previous surveys, yet the investment activity has failed to materialise. However, this new upswing in optimism could be the difference between talking about and actually doing it. Many companies have been so risk averse for so long that they now have solid cash reserves, increasingly available credit and greater confidence that a global collapse isn’t as likely as they once thought, so there’s a lot of impetus in the market to support an upswing in M&A activity.”
Mr Skinner said that many CFOs understand that difficult economic times are not necessarily all downside.
“More than two thirds (69%) of CFOs said they saw opportunities in the challenging economic environment. Three quarters (76%) said they saw the current climate as a chance to acquire companies or other assets at a discount and half (51%) saw the chance to build market presence in anticipation of improved market conditions.”
However, some concerns remained, including the ongoing strength of the Australian dollar.
“With a decline in uncertainty, it’s not surprising that one of the biggest concerns remains the strength of the dollar. Finding ways of mitigating that risk includes increasing productivity which, in the current environment, is most likely to be achieved by consolidation.”
Further highlighting the positive sentiment, 40% of CFOs said they were looking to hire new staff over the next 12 months and only 26% said they were expecting to spend less on new hires in the coming year (down from 47% last quarter).
“It’s not clear sailing and we’ve still got a long slow bumpy recovery ahead, but I think CFOs are now indicating a more positive attitude than they have had for quite some time,” Mr Skinner finished.