Australian CFOs anxious about risks and the coronacrisis

Chief Financial Officers (CFO) in Australia are cautious about their plans for 2020, according to a report by Deloitte, and with the impact of the coronavirus still unclear, many are rapidly becoming more anxious about the prospects of a possible downturn.

CFOs were already tentative before the spread of the virus and the resultant economic disruption, owing to a climate of uncertainty across the globe. Poor economic conditions across Europe and the Asia-Pacific (APAC) were the primary causes, exacerbated by trade wars and Brexit negotiations.

The Deloitte report found that the outlook was not bad by any means, with just under 55% of the CFOs indicating their optimism about growth prospects in the near future. What is worrying is the comparison with the figures six months previously at the start of 2019, when nearly 70% of all CFOs were optimistic.

Cautious is the word to describe sentiment in Australia’s business environment, exemplified by the fact that 40% of all CFOs indicated that they were neutral about financial prospects in the future, which is also substantially higher than previous reports. A degree of pessimism also appears to have crept in, particularly with respect to individual business conditions.

For instance, nearly 60% of all CFOs in Australia expect their profits to either remain the same or fall over the course of 2020, and an identical number anticipates an increase in risks being faced this year. Net pessimism over the next six months stands at 8%, which tips the overall balance towards the negative.

The risk landscape

When it comes to risks, regulatory changes appear to be foremost in the minds of CFOs. Australia has felt its share of regulatory presence last year, with the Royal Commission mounting its pressure on the banking sector, while the auditing and advisory sector has also had to take measures to ensure better compliance.

Realigning operations to comply with new regulations comes at a cost, topping up the existing range of costs being faced by businesses as they look to digitalise and attract talent that can manage this digitalisation process. At present, such talent appears to be scarce in Australia, as technology has advanced much faster than the skill profile among the workforces.

“When asked which areas CFOs are finding shortages of talent in, 79% agreed it is in people with advanced business analytics capabilities. Financial planning and analysis and compliance capabilities are also lacking, but not to as great an extent. Skills shortages will at least partially be addressed through workforce reskilling, with 85% of CFOs expecting that more than 20% of their staff will need reskilling in the next one to three years,” stated the Deloitte report.

In light of all these considerations, Australian CFOs are skeptical of their ability to devise comprehensive growth strategies. In its slipstream, internal risks are also causing concern, with 65% of CFOs agreeing that an inability to execute strategies will be the top internal risk they face this year.

The coronacrisis

Notably, the survey for the report was completed a few weeks ago, with the impact of the bushfires included, but the more recent impact of Covid-19 on the economy and companies – which has grown at an exponential rate since – excluded.

Stephen Gustafson, a partner at Deloitte, said: “As the complexity of recent global events unfolds and their full impact is yet to be completely realized, Australia’s CFOs are adopting a cautious approach.” David Rumbens, a Partner at Deloitte Access Economics, added: “This period if full of challenges, where the business community will need to be at the forefront to help Australia navigate.”

According to a recent report from fellow Big Four accounting and advisory firm KPMG, Australia’s economy could take a $17 billion hit over the course of this year as a result of the Covid-19 crisis. This is sure to dampen the outlook further for CFOs in Australia.