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      As New Zealand CEOs face into challenging times, the insights from KPMG’s 2023 CEO Outlook Survey tell they are flexing their priorities to meet shifting market conditions.

      Kiwi CEOs have signalled growth prospects to be much less favourable than 2022 with inflation proofing capital and input and input costs named by 27% of CEOs as the top operational priority required to achieve their growth objectives over the next three years.

      Looking at the results from the survey, we’ve highlighted three areas of both concern and opportunity for the C-suite as we face into 2024. Now is the time for businesses to focus on mitigating the risks of supply chain pressures - the number one threat to growth. CEOs must realise the value of a solid ESG strategy, and they should consider the role of mergers and acquisitions in inorganic growth.

      While talent doesn’t feature as a risk to growth, it is clear that when digging into the areas of concern that Kiwi businesses need the right people to respond to the opportunities and risks we’re expecting to cause the biggest impact.

      Jason Doherty - National Managing Partner Strategy & Investments
      Jason Doherty

      Chief Executive

      KPMG in New Zealand

      There are indications from New Zealand CEOs that their organisations are less mature and less advanced in developing an ESG strategy than their global counterparts.

      A significant majority of 70% are unsure about their capability and capacity to meet new reporting requirements, much higher than their global peers at 18%. Additionally, 57% of New Zealand CEOs do not believe it is possible to address ESG priorities simultaneously, compared to 23% globally. This may reflect a perceived lack of capacity or uncertainty about how to effectively integrate responses to multiple ESG priorities.

      A significant 43% of local CEOs view a lack of governance and controls to operationalise climate responses as the greatest barrier to climate goals. This viewpoint is common during the initial stages of an ESG journey. In contrast, global peers highlighted barriers such as complexity in supply chains and a lack of expertise to implement solutions, both of which are indicative of the operational challenges themselves and suggest overall, global organisations are further along their ESG journey.

      More concerning is the scepticism among New Zealand CEOs regarding the business case for an ESG strategy and associated investment. While 37% of New Zealand CEOs agree that ESG has been fully embedded into their business to create value, this significantly lags the 69% of global CEOs who share the same sentiment. A majority of 60% believe that the payback on ESG investments will take five or more years, compared to only 22% of global CEOs.

      When considering which aspects of their organisation will benefit most from an ESG strategy, only 3% believe that financial performance will benefit most, and none believe that total shareholder return will be the biggest beneficiary. Only 7% strongly agree that achieving gender equality in the C-suite will help meet growth ambitions, compared to 26% globally. With such little expected financial impact resulting from an ESG strategy, it appears that ESG is seen primarily as a talent play and a branding strategy by local CEOs.

      Taken together, this apparent lack of maturity and uncertainty surrounding the business case for ESG investments may hinder progress. The former is likely influencing the latter. To address this, New Zealand CEOs must take personal ownership of ESG issues and challenge business as usual thinking.  Collaborating with industry peers and supply chain partners can bring additional strategic insights when identifying risks and opportunities, as well as sharing the cost of investment. By taking these steps, ESG will progress from being a response to stakeholder expectations to being core to strategy and a fundamental component of business success.

      KPMG

      Are unsure about their capability and capacity to meet new reporting requirements

      Believe that financial performance will be the biggest beneficiary of an ESG strategy

      Source: KPMG 2023 CEO Outlook

      New Zealand CEOs appear to put less value on an ESG strategy than their global counterparts, and are less well progressed in their ESG journeys. The expected financial return is low with ESG seen primarily as a talent play and a branding strategy by local CEOs. ESG needs to progress from being a response to stakeholder expectations to being core to strategy and a fundamental component of business success.
      Simon Wilkins

      Partner, Consulting KPMG in New Zealand

      Acquisition-led growth has ranked the number one priority for New Zealand CEOs, with 30% placing this top of the list of what’s needed to achieve growth ambitions over the next three years. And with 84% of Kiwi CEOs stating they are likely to undertake acquisitions in the near future, we are witnessing a marked improvement in M&A sentiment as we head towards 2024.

      We are seeing renewed confidence in the medium-term economic outlook versus some more negative earlier scenarios, with 96% of New Zealand CEOs telling us that they are confident about the growth prospects of their company. This is paired with an expectation that interest rates are now at or near their peak, and the anticipation of some policy certainty from the new government.  We are also starting to see a re-emergence of private equity, which has developed increasingly specific mandates over the last 10-15 years and therefore will remain competitive from an operating expertise and cost of funding perspective.

      However, industries predominantly exposed to discretionary demand remain challenging. This includes from the perspective of vendors providing reliable forecasts, and the ability of acquirers to secure debt financing, with 37% of CEOs indicating the availability of financing is the most crucial precondition to prioritising inorganic growth over organic growth. This was followed by stable market conditions at 23% and addressing the competitive landscape at 17%. 

      Over the course of 2023, KPMG has seen little discernible pattern in the transactions we have advised on both in terms of catalysts or counterparties. We have advised several large private businesses on their sale to strategic corporate acquirers, a co-operative increasing its scale in a priority growth market, a large corporate seeking a partner for a non-core activity, and a large international corporate on a significant partnership deal. And we have also seen an increase in private businesses seeking to raise equity either to fund growth or reduce funding pressure.

      Looking ahead, we expect synergistic trade parties to remain a significant factor in M&A processes after an extended period of having been “crowded out” by private equity. 

      As always, preparation is a critical step in the M&A process with a detailed scoping of likely buyer appetite and valuation thresholds a key early focus.

      Looking ahead, we expect synergistic trade parties to remain a significant factor in M&A processes after an extended period of having been ‘crowded out’ by private equity.
      Mark Pearce

      Partner, M&A KPMG in New Zealand

      Partner, M&A KPMG in New Zealand

      84%: will likely undertake acquisitions that will have a moderate to significant impact on their transformational growth in the next three years

      Supply chain concerns have soared sharply among New Zealand CEOs compared to their global counterparts. A remarkable 27% of New Zealand CEOs view the supply chain as the greatest threat to growth, a notable increase from the 7% recorded in 2022. The recent pandemic shed light on the critical role of supply chains, but despite a “new normal,” challenges persist. Geopolitical instability, rising costs, and new regulations contribute to these challenges and draw our attention to opportunities for improvement.

      Disruptions in global trade networks affect the stability and predictability of our supply chains more acutely, as our geographical isolation exacerbates our reliance on imports. When shipping networks experience disruptions or congestion, New Zealand's freight shipping routes are highly impacted, resulting in increased costs, longer lead times, and greater variability.

      While inflation and rising interest rates are frustrations across the board, supply chains are uniquely challenged with increased costs in labour, capital, transportation, warehousing, and compliance. All these, coupled with volatile and overall declining demand, are creating margin pressure.

      Infrastructure constraints in New Zealand's ports limit our responsiveness to supply chain disruptions, and our size limits our leverage in vying for global shipping lanes or negotiating with large suppliers. Further, many New Zealand companies lack visibility of the end-to-end supply chains beyond tier one Suppliers, and the risks they pose.

      Regulatory pressures are mounting, particularly regarding transparency around modern slavery, environmental footprints, and disclosing payment terms. Impending legislation in the EU concerning sustainability will also have implications for future market access.

      Effective and efficient supply chains rely on properly utilising technology. However, 93% of Kiwi CEOs see disruptive technology as a hindrance to their organisation's prosperity. As supply chain concerns pose a major risk to growth, and disruptive technology is seen as a barrier to prosperity, it is crucial for CEOs to recognise and leverage technologies like predictive analytics and automation as solutions to supply chain risks, rather than as risks themselves. Predictive analytics can provide early insight into current and future challenges, while increased automation can enhance reliability at low cost. However, these advancements do not supplant the need for thoughtful strategy, planning, procurement, and logistics. This approach should consider balancing cost with operational resilience, risk management, and compliance.

      KPMG

      view supply chains as the biggest threat to growth – the highest-ranking threat in 2023

      view disruptive technologies will negatively impact their organisation’s prosperity in the next three years

      Source: KPMG 2023 CEO Outlook

      Covid-19 showed us the critical role of Supply Chains as engines of economic growth. The perfect storm of high demand, long lead times, and increased costs of goods and logistics are largely behind us, but the effects are still being felt. CEOs, especially in New Zealand need to respond to the hangover of high inventory and costs of capital, low demand, and inflation to create efficient and resilient supply chains. This calls for proven strategies in areas like pricing, planning and procurement, along with innovative approaches using technology to automate non-value-added process and generate insights.

      Boyd Piebenga

      About the KPMG 2023 CEO Outlook

      The 9th edition of the KPMG CEO Outlook provides unique insight into the mindset, strategies and planning tactics of CEOs. 1,325 CEOs were surveyed globally between 15 August and 15 September 2023, including 30 CEOs in Aotearoa New Zealand.