Business sentiment of European CFOs bounces back – Deloitte report

Business sentiment among CFOs in Europe has bounced back after hitting a record low in spring, according to Deloitte’s latest European CFO Survey.

The bi-annual survey, which benchmarks the sentiment of 1,578 CFOs based in 18 European countries, was conducted throughout September 2020 as Covid-19 cases continued to surge across the continent.

Half (50%) of CFOs surveyed across Europe report that they feel more optimistic than three months ago about the financial prospects for their company – five times as many as in March (10%). 54% expect revenues to increase over the next 12 months, compared to 30% who expect revenues to drop. This is almost the precise opposite of what was recorded in March, when only 26% expected revenues to increase and 60% expected a drop.

44% of respondents expect that their companies will recover to pre-crisis levels of revenue generation in a year’s time at the earliest, with 17% anticipating 2022 as the most likely time for a full recovery.

Sectoral divergence

It is in sectors, rather than in countries, that a clear divide in sentiment emerges. 64% of European finance leaders in the transport and logistics sector and 55% of those in industrial products and services look at the future more confidently than three months ago – mirroring a swift recovery in global trade and industrial production. By contrast, only 26% of CFOs in tourism & travel feel more optimistic about the future than three months ago.

CFOs in the automotive sector are most likely to expect a recovery between now and June 2021 at 42%, followed by 41% in the consumer goods sector; 40% in life sciences; 37% in construction; 36% in financial services; 36% in industrial products & services; 35% in technology, media & telecommunication; 34% in energy & utilities; 33% in transport & logistics; 30% in retail; and just 16% in tourism & travel.

CFOs in the retail sector are most likely to report that their companies’ levels of revenue generation are already at or above pre-crisis levels, with 34% of CFOs in the sector reporting this, followed by 29% in financial services; 27% in life sciences; 26% in consumer goods; and 25% in the construction, energy & utilities and technology, media & telecommunication sectors, respectively.

Commenting on the results, Daniel Gaffney, Partner, Deloitte Ireland said: “Following the initial reopening of businesses and the easing of the extraordinary measures put in place during the spring to counter the spread of Covid-19, economic activity in Europe picked up rapidly over the summer – this reflects what we are seeing in Ireland. Despite this, different parts of the economy are experiencing markedly different recoveries: while some sectors are rebounding quickly, others remain stuck on a downward trajectory and face a long and uncertain road ahead. One thing is certain: CFOs will need to embrace change, reassess their goals, and invest for the future.

“While CFOs across Europe are generally optimistic, the fact remains that Brexit will have a unique impact on Ireland and remains a significant risk factor for companies across all sectors here. Irish businesses must not lose sight of this as they continue to recover from the initial shock of the pandemic and prepare for the year ahead.”

Investment priorities

Compared to the March survey, the share of European CFOs anticipating a decline in their workforce dropped from 39% to 36% for countries within the Euro area, and from 59% to 48% for countries outside of it.

Investment intentions remain subdued across Europe. Despite improving compared to the spring, the net balance of expectations remains below what it was in Autumn 2019. 38% of CFOs plan to reduce capital expenditures over the next twelve months (compared to 40% in Autumn 2019) while 26% expect to increase them.

European CFOs anticipate that the biggest decrease in investment will be seen in the area of land, business buildings and physical infrastructure: a total of 44% are planning to stop or decrease investment in this area. This is followed by machinery & equipment at 31%; creative works, design & brand building at 26%; training of employees at 19%; research & development (including the acquisition of intellectual property) at 18%; software, data, IT networks & website activities at 13%; and organisation & business process improvements at 7%.

Gaffney continued: “While certain sectors are still focussed on cost reduction, it is encouraging to see a level of business confidence around spending restored – what we are seeing is that businesses are less focussed on large, transformational projects, but are spending in short, sharp bursts on areas such as automation and digital analytics to address their customer needs, add additional scale and provide a better talent experience.

“This spending has been largely driven by the sudden necessity faced by companies to improve efficiencies, due to new ways of working and servicing customers. At the onset of the pandemic, organisations invested heavily in introducing new technologies to deal with all of these changes – now there is a focus on looking at how they can better leverage these technologies to improve their overall offerings.

“Just 19% expect that they will have to stop or decrease investment in the training of their employees, with nearly a quarter – 23% – planning to increase investment in this area. Investing in workforces where circumstances allow will be crucial to companies’ resilience as they navigate through this uncertain period.”

Article Published: 11/11/2020