Australian CFOs are under no illusions when it comes to the challenges facing corporate impacts wrought by the COVID-19 pandemic.
Optimism is down, uncertainty is high, and revenues are under pressure. But many remain positive, and resilient, and looking to take hold of opportunities that will help them not only survive the virus, but also thrive on the other side of it.
According to the latest edition of Deloitte’s biannual CFO Sentiment survey, and covering the first half of 2020:
- Net optimism compared to 6 months ago has fallen significantly to negative 30%
- Net uncertainty about economic conditions has reached a record high of 92% (up from 75%)
- 53% still remain optimistic about the future
- 76% expect to see some level of revenue decrease in the second half of 2020
- 57% still expect revenues to be lower than their pre-pandemic expectations in 2021
- 43% see M&A as an opportunity to help their COVID recovery
- Navigating uncertainty, accelerated transformation, cutting costs out of operating margins and cyber risk are among the top issues CFOs need to confront – now and into the future.
Deloitte partner, and CFO Program leader, Stephen Gustafson, said: “When we surveyed Australian CFOs earlier this year, and covering the second half of 2019, we identified what looked like a positive turning point for business sentiment.
“CFOs appeared to be more comfortable with prevailing uncertainty and external risks, and sentiment on outlook and risk appetite was in positive territory.
“Not surprisingly, things have changed more than a little since. A COVID-induced global economic downturn, the largest since the Great Depression, has hit hard, net optimism has fallen drastically, and uncertainty is at an all-time high.
“Three out of four CFOs expect their companies’ revenues to fall, relative to pre-COVID-19 forecasts, in the second half of 2020, and more than half are expecting more revenue falls in 2021.
“Reality may have bitten, and so much uncertainty is clearly taking a toll, yet while many see business conditions as worse than six months ago, they’re also not pulling down the shutters.
“Encouragingly for Australia, CFOs appear to be up for the recovery fight. The challenges are clearly numerous and far-reaching, but more than half are optimistic, or even ‘highly optimistic’, about the future.
“And M&A, supply chain reform, long-term flexible working provisions, reductions in physical workplace footprints and increased use of new technologies and AI are all on the opportunity table.”
Liquidity, and M&A to grow and diversify
Amidst a recession, and with low confidence and other economic anchors expected to persist, 27% of CFOs expect their firm’s liquidity will deteriorate in 2020-21, and one in three expect their firm to have higher levels of funded debt.
“However, on a more positive note, they remain optimistic regarding their ability to obtain funding, perhaps reflecting ultra-low interest rates and resilient financial markets,” Gustafson said.
“Almost a third expect funding to become easier to obtain in FY21, while 86% expect their ability to access funding will at least remain stable.
“Many are also using M&A as part of their COVID-19 recovery strategy, and pursuing growth and diversification are deal-making priorities for 2020-21.
“43% said M&A was an opportunity, and 39% expect an increase in activity, with FY21 priority pursuits being acquisitions, opportunistic deals, and partnerships/alliances.”
Offshore supply chain challenges
Over the last six months, businesses have faced production delays as COVID-19 revealed global supply chain vulnerabilities, and CFOs are increasingly looking to improve supply chain resilience, efficiency and transparency.
“While Australia has achieved relative success in containing the virus compared to many other countries – current challenges aside – many businesses still remain exposed.
“43% of CFOs listed issues with offshore suppliers as the biggest challenge facing their supply chain and procurement management. In response, 42% hope to reduce supply chain vulnerabilities and related risks over the next 12 to 18 months, while 41% hope to improve supply chain resilience and efficiency, reducing business disruption arising from overseas suppliers.”
Opening minds to flexible working
COVID-19 has also challenged the thinking of many when it comes to flexible ways of working – and 70% of CFOs have changed their mind during the crisis about physical proximity being important to getting finance function work done.
“All those surveyed are keen to return to the office, at least in some capacity, but over 40% expect their employees will be given more freedom of choice about how much of their work they do from home beyond COVID,” Gustafson said.
“More than 50% also expect to either decrease their office footprint or repurpose workplace spaces.”
Coming out the other side
CFOs see navigating uncertainty, accelerated transformation and cutting costs out of operating margins as the main issues they need to deal with to make it through the crisis.
Of 24 key issues put to them in the survey, every one was deemed ‘most important’ by at least some respondents. Issues considered to be of greatest importance over the next one to two years are:
- Navigating uncertainty (58%)
- Accelerated transformation (57%)
- Cutting costs out of operating margins (53%)
- Cyber risk (49%)
- Culture and engagement (45%)
“But it hasn’t all been about just coping, or dealing with current issues,” Gustafson said. “CFOs are also keeping an eye on the post-COVID future, with more than one in every three using a time horizon of two to five years in their current scenario planning to inform their strategic decision making.”
