|According to a recent Deloitte survey, a strong first half of 2018 for both the global and Australian economies is supporting ongoing positive sentiment among Australia’s CFOs, whose appetite for risk also remains strong.
The report, entitled ‘Solid on outlook, positive on risk’ listed the following key points:
· 75% of CFOs are optimistic about the financial prospects of their company;
· Positive confidence results have now been recorded for five years – since H1 2013;
· Risk appetite remains strong, with a record 64% comfortable with taking on more balance sheet risk (up two points on the previous result of 62% in the last half-year); and
· 42% are interested in taking on risk in the form of additional investment if tax cuts are legislated, while only 11% are looking to pay down debt.
Deloitte CFO Program leader Steve Gustafson expands on the data: “Strong global economic conditions are flowing through to the Australian economy, and this is elevating CFO optimism.
“Just over 75% are either optimistic or highly optimistic about the financial prospects of their companies and, encouragingly, a larger proportion – 21% compared to 12% six months ago – are at the highly optimistic end. Net optimism regarding change in prospects also jumped to 29%, from 17% in the second half of 2017.
“This may have been on the back of strong jobs growth in 2017, and while there has been some softening on this front since, the Australian economy has still added over 100,000 jobs up to June. And in a sign of confidence, many of these were full-time, permanent additions to the workforce.”
While global and Australian economic conditions have given CFOs a future-looking green light, there is still a perception that conditions could deteriorate with little notice.
“CFOs are clearly optimistic, but still a little wary of something tipping the scales, and since our last survey covering the second half of 2017, net uncertainty has increased by 10%,” Gustafson continued. “That said, it’s still low, with 37% of CFOs rating that the general level of financial and economic uncertainty facing their company is normal. As we’ve said before, managing in uncertain times has just become a case of BAU.
“Despite the increase in uncertainty, many CFOs are more willing to open up their company wallets. Close to two thirds agreed it’s a good time to take greater risk on their balance sheets, supported by stronger business conditions and the possibility of corporate tax cuts.
“CFOs expect strong economic conditions will continue to support share markets and investment, while a depreciating Australian dollar will improve the competitiveness of Australian exporters.
“But in spite of positive growth conditions, and equally positive sentiment, they are wary of potential risks that threaten the business outlook. This includes trade tariffs and interest rate hikes, as well as continued business disruption.
“Nearly 60% want the Federal Government to reduce the budget deficit faster as insurance for the future and they also expect interest rates to start increasing. In fact, higher rates are by far the most important scenario they feel they need to consider when it comes to strategic decision-making.
“And they are keeping an eye on international trade tensions, particularly between China and the US. Over 50% believe a trade war will negatively impact their business in the short-term, rising to 70% over the medium-term.”
Digital transformation to address disruption and risk
CFOs continue to prepare for, and manage, disruption…and digital transformation is front of mind.
On this observation, Gustafson said: “There’s no denying that digital, both disruptive and transformative, is on CFO minds, and just under 30% are focusing on updating core systems and existing capabilities, recognising that legacy systems need to be replaced.
“Digital and cyber-risk also go hand-in-hand, and given the growing frequency and cost of cyber-attacks, CFOs are committed to actively protecting client, employee and third-party personal data, with more than 90% having established, or in the process of establishing, privacy management frameworks.”