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European CFOs report significantly improved levels of optimism – Deloitte report

The latest Deloitte European CFO survey reveals significantly improved levels of optimism across the region. The bi-annual survey, which benchmarks the sentiment of 1,559 CFOs based in 19 countries, was conducted in March 2021 and a select group of organisations from Ireland participated.

In all the countries surveyed, the majority of CFOs feel more optimistic about their company's financial prospects, with some CFOs expecting profits to increase by September 2021. Key focus areas are to increase investment, increase workforce and focus on sustainability.

Looking at survey responses and themes arising in client conversations in relation to the Irish economy and outlook, the majority of Irish CFOs said Brexit has resulted in no additional impact beyond what was previously forecasted. This indicates that predictions made were accurate or that the impact may be masked by the wider economic impact of COVID-19.

Commenting on the results of the survey and feedback from clients, Daniel Gaffney, Partner, Deloitte Ireland said: “It is clear that the majority of Irish CFOs intend to increase employee numbers over the next 12 months. On a European level, one-third of CFOs surveyed mention shortages of skilled labour as one of their top three concerns which is also reflected in the Irish responses.”

While cost reductions remain a focus, investment intentions have surged. Almost half of European CFOs surveyed are planning to increase their capital expenditures (CAPEX) over the next 12 months, with only 14 per cent planning a reduction. This may represent an opportunity to increase spending on technology capability and infrastructure, which is increasingly important as businesses continue on their digital transformation journeys. COVID-19 brought with it new demands related to workers' and customers' safety as well as a need to increase digital interaction. All of this requires investment in new equipment, automation and digital technologies.

“We continue to see a positive focus on environmental and sustainability factors. With many economies focusing on carbon neutrality, there is growing pressure on companies to focus on sustainability, which means more investment in analytics, efficient equipment and environmentally friendly buildings, to name a few. The combination of the two trends, digital and environmental, means future investment in these areas is likely to be higher than in recent years.

Much of the ability of businesses to emerge from the crisis in a stronger position depends on their capacity to invest wisely - in people as well as in technology. Most important is the ability to look to the future and formulate a bold longer-term strategic vision. In this regard CFOs will play a more important role, providing the information and tools that can enable companies to make sound decisions. COVID-19, while obstructing business, has accelerated change.  CFOs in Ireland and across Europe are looking to be the driving force in successfully navigating this change,” concluded Gaffney.

The increase in optimism is more pronounced in countries outside the euro area and is led above all by the upbeat mood of CFOs in the UK, where a net 77% of respondents feel more optimistic than three months ago – the highest level across all countries. Europe’s CFOs have high hopes when looking at the next 12 months. 77% of CFOs expect revenues of their own companies to increase – 25% more than in September. Only 11% expect them to fall.

European CFOs’ views on when their revenues will return to pre-pandemic levels also point to overall improvement. More than 40% of CFOs across Europe report that they are already at or above pre-crisis levels – almost twice as many as last autumn, when this figure was only 23%.

There are, however, large differences between countries, with, not surprisingly, a smaller share of CFOs reporting that they are already at or above their pre-pandemic level in economies that took a harder hit. For example, while almost two-thirds of CFOs in Denmark and Russia say that their revenues are already at pre-crisis levels, less than 30% do in Spain, Greece and the UK.

As in the previous edition of the survey, European CFOs remain concerned about a possible weakening in demand and about the overall state of the economy. Yet their investment intentions have surged, with almost half the CFOs planning to increase their capital expenditures over the next 12 months, and only 14% planning a reduction.

The survey does reflect European CFOs’ expectations that inflation will rise. Inflation expectations have risen in a majority of countries compared to the autumn. But they remain below the levels in spring 2019. Among countries in the euro area, the expected inflation rate a year from now averages 1.37%.

The full report can be viewed here: European CFO survey