Cautious optimism reigns supreme for CFOs

Chief financial officers (CFOs) are growing increasingly cautious but more than half still remain optimistic for their businesses' prospects, according to a recent survey from Deloitte.

Deloitte's biannual CFO Sentiment survey found 54 per cent of respondents remained optimistics about the future, down from 68 per cent for the previous six months.

Most of the change comes from a sharp rise in CFOs holding a neutral view, up 15 percentage points to 40 per cent in the latest survey.

Meanwhile, only 8 per cent of CFOs were pesimistic about their companies' financial prospects. 

Deloitte notes many of the survey responses were received before the worst of the bushfire season and the emergence of the coronavirus Covid-19, which it expects will exacerbate levels of uncertainty. 

The survey found overall sentiment is more optimistic than negative, with net optimism at 46 per cent.

"In comparison to when we last surveyed CFOs in mid-2019, CFOs optimism has fallen, with a distinct uptick in CFOs identifying as neutral regarding the financial prospects for their business," says Deloitte partner and CFO program leader Steve Gustafson.

"This has coincided with 58% of CFOs expecting profits to decrease or remain neutral and 58 per cent of CFOs bracing for an increase in risk/opportunity over the next 12 months.

"The climb in neutrality may indicate that Australia's CFOs are adopting a cautious approach as the complexity of recent global events unfolds and their full impact is yet to be completely realised. Although it is pleasing to note that the numbers that are pessimistic remain low."

Extreme optimism far outweights extreme pessimism

None of the respondents were highly pessimistic, compared to 6 per cent who were highly optimistic.

"But sentiment about the economy is still constrained, and business performance expectations are stalling as a result," says Gustafson.

"Concerns about economic conditions in Europe and the Asia-Pacific, including a China slowdown, remain a drag on sentiment, despite a resolution on Brexit.

"On the other hand, this is the first time since late 2018 that US economic performance, driven by improved USA-China trade relations, has been a source of optimism, rather than pessimism.

CFOs generally were less impressed with record low interest rates, after previous rate cuts failed to deliver the hoped-for stimulus.

"Overall, economic gloom and uncertainty have dampened business performance expectations," he says.

"If revenue and profit growth expectations stall, this does not bode well for business performance this year.

"But CFOs have reported being more willing to take on risk, bucking the usual inverse relationship between risk appetite and uncertainty."

Survey respondents also identified a lack of workforce skills, including analytics capabilities, as standing in the way of future-ready finance function digital transformation.

"CFOs still see the need for digital transformation to enable greater agility and competitive edge, although barriers include costs, integration issues with other digital platforms and workforces not having the needed skills," says Gustafson.

"Nearly 80% said the greatest skill shortage they faced was in people with advanced business analytics capabilities, followed by financial planning and analysis and compliance."

Covid-19 impacts

Gustafson highlights the challenges Covid-19 will bring to the global economy, including Australia.

"Australia is in the slipstream of these risks with iron ore prices falling substantially on reduced activity in China, and with travel bans impacting our international education and tourism sectors," he says.

"If the travel ban blocking any foreign nationals arriving from China or transiting through China remains in place for an extended period of time, the negative impacts on Australia's tourism and international education sectors will be substantial.

"Deloitte Access Economics estimates the economic costs could add up to $5.5 billion in the first half of 2020, noting this is not huge for a $2 trillion economy. But as we have seen with the share market drop in the past week, it's the potential dent to confidence that we should be most concerned about.

"Beyond the terrible human tragedy, the current bushfire season has taken a toll on both consumer and business confidence, especially in directly affected regions, and key sectors such as tourism. Although there is positive role for the business community to play in supporting rebuilding and developing greater community resilience in areas hard hit by bushfires."

Business News Australia