Confidence of Australian CFOs on the rise despite COVID lockdowns in eastern states

Australia’s finance leaders have growing confidence in the future of their businesses, but the latest COVID lockdowns continue to drive uncertainty. A new Deloitte report indicates that 84% of chief financial officers (CFOs) are feeling optimistic about the financial prospects of their company as Australia’s economy recovers from the COVID-induced shocks brought on in 2020. The biannual CFO sentiment survey, which was conducted in July amid the Sydney and Melbourne lockdowns, shows around two-thirds of CFOs who participated also think now is a good time to take on increased balance sheet risk. While confidence is on the rise, recent lockdowns in Australia’s eastern states led 77% of respondents to categorise the current COVID environment as driving above normal, high or very high levels of uncertainty. So, what were some of the key findings from the latest CFO report, and what other issues are at the forefront of our financial leaders’ minds? CFOs “got their mojo back” Deloitte partner and CFO program leader Stephen Gustafson said the survey’s findings were particularly encouraging given strong business confidence would help drive 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.” Economy’s resilience driving confidence boost Ultimately, Deloitte’s survey indicates broader economic resilience is buoying optimism among CFOs, with 72% reporting the national financial situation positively impacted their confidence. Breaking it down by sector, life sciences and healthcare businesses felt the most optimistic, with 50% of respondents saying they felt “highly optimistic” about their company’s financial prospects moving forward. Overall, just 1% of the CFOs surveyed felt the financial outlook was pessimistic. Gustafon noted: “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.” Lockdowns triggering volatility Indeed, with lockdowns impacting much of Australia’s eastern states this month, CFOs are recognising increased uncertainty in the market. But CFO program leader Stephen Gustafon said the challenge for businesses is not new. “Looking ahead, the reality is that all things COVID remain key risks for Australia and our business and investment environment. “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.” The way we work is changing Outside of the financial outlook, the Deloitte survey also considers how the traditional workplace has changed thanks to the pandemic’s impacts. In fact, around 84% of CFOs said their business had altered the way it worked as a result of COVID-19. The Deloitte partner said: “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.” Interestingly, what CFOs consider as a risk to their business is also changing. Securing and retaining key talent — a perceived risk that was well outside the top contender's list six months ago — is now considered a hazard of the highest concern for Australian financial officers, with 78% of those surveyed ranking it in their top three. ESG is on CFOs’ radar On top of transforming work conditions, Australia’s financial officers are also considering how environmental, social and governance (ESG) reporting and climate action relate to their businesses. In fact, 72% of respondents, see EDG, including climate change, as an important consideration — especially when it comes to investor engagement. Gustafson said: “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. “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.”