Australian CFO optimism has prevailed again in the first half of 2021, having already bounced back earlier this year from the severe COVID-induced shocks of 2020.
According to the latest edition of Deloitte’s biannual CFO Sentiment survey, confidence is up nine percentage points, to 84%, compared to six months ago, but the nation’s finance leaders clearly still have one eye very firmly on the country’s latest COVID challenges.
Key report points (the survey was conducted during the July Sydney and Melbourne lockdowns) include:
- 84% of CFOs are feeling optimistic about the financial prospects of their company
- 66% think now is a good time to be talking on increased balance sheet risk
- 72% report the Australian economy as having a positive impact on their optimism levels
- Net optimism compared to six months ago has fallen slightly, at positive 43% – down from positive 62%, but still close to the highest levels in the survey’s 12-year history
- 77% rate the current COVID environment as driving above normal, high or very high levels of uncertainty
- 47% think Australian businesses are optimally geared. 41% think they are under-geared, and 68% are expecting interest rates to remain at their record low levels 12 months from now
- 78% list securing and retaining key talent as a top three risk – an issue well outside the top risks six months ago
- 72% see ESG, including climate change, as an important consideration across different parts of their business, and when it comes to investor engagement.
Deloitte partner, and CFO Program leader, Stephen Gustafson, said: “These findings are particularly encouraging, with strong business confidence such an important driver of Australia’s COVID recovery. That our survey was conducted in July, in the midst of Delta-induced lockdowns, is testament to CFOs’ resilience and positivity.
“Not so long ago, the global economic downturn of 2020 caused by COVID hit Australia, and CFO optimism, hard. But when we surveyed CFOs early this year, and we were looking at a strong V-shaped recovery, we were pleased to be able to report that they had their mojo back.
“Now in the second half of 2021, and with COVID posing more challenges than most of us hoped for, the strong economic momentum from earlier this year is hanging on. It may take a shutdown-induced hit, but it’s the remarkable ability of the Australian economy to bounce back six months ago that appears to be driving CFO confidence.
“They still remain optimistic despite reasons to perhaps feel otherwise. Experience from operating in a pandemic-stricken world in 2020, and the knowledge that Australia can recover from COVID impacts, has translated into greater confidence in the face of our latest challenges.
“They have acclimatised to tumultuous times, and with more confidence comes a greater appetite for risk. 41% of CFOs think they are under-geared, and 66% agree that now is a good time to be taking greater risk onto their balance sheets, up from 53% six months ago.”
In addition to thinking on the prevailing business environment, the report looks at a number other issues on CFO radars, including new ways of working and environmental, social and corporate governance (ESG).
“The future of work has changed dramatically since COVID disrupted where, when and how businesses work,” Gustafson said. “84% of CFOs said their business had changed ways of working as a result of COVID.
“Nearly 40% have already launched new or refreshed policies on ways of working, with another 15% working towards this. Effectively managing hybrid work is a concern to 41% of CFOs, and they have also identified a range of risks in transitioning to new ways of work. 69% think erosion of culture is a top risk, followed by risks to employee mental health caused by isolation working from home, and reduced productivity.”
ESG increasingly on the (risk and opportunity) radar
“There is a clear sentiment among CFOs that ESG and climate action present both long-term risks and opportunities, and that the issues are important considerations when it comes to Investor engagement and achieving strategic business objectives,” Gustafson said.
“Just under 90% believe ESG to be a long-term financial risk, and 90% that it presents a long-term value creation opportunity. Both the risks and rewards will impact what action they might take and, importantly, when they might take it, and decision-making is most influenced by directors and broader market sentiment.”
And looking ahead…
“Looking ahead, the reality is that all things COVID remain key risks for Australia and our business and investment environment,” Gustafson said.
“But the country and its business leaders learnt many lessons over the last 18 months, and CFOs are using these to help them face the future with greater confidence.
“More than two-thirds are expecting interest rates to remain at their record low levels 12 months from now, in line with RBA guidance, although a third are also expecting rates to be higher this time next year. Expectations are more split on the value of the Australian dollar, but the majority still expect it to remain about the same as its current value by mid-2022.
“Overall, the outlook is peppered with challenges, but our CFOs are comfortable navigating in this environment, positive about the future, and still focused on pursuing opportunities and growth.”