Cashflow biggest concern for CEOs as confidence declines

20 April 2020

Chief executive officer (CEO) sentiment at mid-sized organisations has significantly dropped since the COVID-19 pandemic started and their main concern is cashflow, according to a survey.

The Executive Connection CEO Confidence Index found CEOs shared Australians’ broader expectations of a significant drop in economic conditions with the index falling 60% to 42 (from 106), compared to an average 118 over the past three years.

The Executive Connection economic adviser, Warren Hogan, said social distancing restrictions had put a brake on economic activity and CEO confidence had taken a hit, with the greatest impact felt in investment intentions and sales.

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“SME [small and medium sized enterprise] leaders’ confidence in the current economic environment has fallen sharply from a reading of 85 in the first quarter of 2020 to an index reading of five,” he said.

CEOs’ most prominent concern was cashflow as a result of drop in revenues, a rise in non-payment by clients and counterparties, and the commitment to keep employees on the payroll before the JobKeeper payments started to flow in mid-May.

Over 43% of CEOs reported an increase in support from their banks but the general consensus was that the current conditions were manageable for three to six months.

“A significant challenge is the behaviour of large corporations, where a generalised culture of cost cutting is emerging. These effects are becoming apparent for SMEs but will have a bigger impact when the current flow of work is completed over the months ahead,” Hogan said.

“There is concern that further effects will be felt once the Federal Government support packages come to an end in September, with most CEOs favouring a tapering of government support programs such as the JobKeeper rather than a sudden stop as is currently legislated.”

However, CEOs’ economic outlook for the year ahead was more optimistic than views on current conditions, with an index reading of 35 points, the survey found.

“Some CEOs can see the recovery with 14% expecting an improvement in the economy over the year ahead,” Hogan said.

“The results of the latest CEO Confidence Index suggest that Australia fell into a recession in the middle of March, but that the Government’s swift and significant policy response has been well-received by Australian mid-sized businesses.”

The index found a quarter of CEOs described the impact on sales as severe, while 12% said sales prospects were unchanged.

Most firms had also put investment activities on hold over the past month, and half of all businesses expected to pull back on capital expenditure in the year ahead.




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