While CFO sentiment rebounds, a clear divide is emerging

04 November 2020 Consultancy.eu

While sentiment among Chief Financial Officers has improved over the past months and an increase in revenue is expected, investment intentions remain subdued and cost reduction is still high on the agenda, according to a Deloitte survey among 1,500 CFOs across Europe. 

Nine months into the COVID-19 pandemic, Europe’s economy has experienced the deepest contraction in output since World War II. In line with this, the business sentiment of Europe’s CFOs reached a record low in the summer since Deloitte started conducting its twice a year CFO survey back in 2015.

However, over the past quarter, recovery has been apparent. Now, half the CFOs – five times as many as in March – said they feel more optimistic than three months ago about the financial prospects for their company. Sentiment improved in all countries surveyed, but in Italy and Spain CFOs who feel less optimistic still outnumber those who are optimistic, and the net balance remains negative. 

Business confidence rebounds after reaching a historical low

It is, however, in sectors, rather than in countries, that a clear divide emerges. For example, 64% of CFOs in the transport and logistics sector and 55% of those in industrial products and services view the future more confidently now than they did three months ago – which mirrors a swift recovery in global trade and industrial production. 

At the other end of the spectrum the picture is entirely different. In tourism and travel only 26% of CFOs feel more optimistic, and almost half of them are less optimistic than they were three months ago. An increase in the number of new Covid-19 cases in many European countries and the reintroduction of stricter containment measures have dispelled hopes of a late-season revival in tourism, dealing a further blow to one of the sectors most negatively affected by the pandemic. 

Asked about when they expect recovery to pre-crisis levels, it is not surprising that CFOs in tourism and travel are most negative, with 84% expecting to return to the pre-crisis level in the second half of 2021 at the earliest. In transport and logistics, too, a majority (54%) of CFOs expect to be back to the pre-crisis level only by the end of next year or later.

Some sectors are coming back to pre-crisis levels at a more rapid pace

At the other end of the spectrum, about half the CFOs in the life sciences industry say they are already at pre-crisis levels or expect to recover fully by the end of 2020. In addition, a relative majority of CFOs in retail (46%) expect full recovery by the end of the year. 

Caution remains however, as can be seen in investment appetite. 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 (CAPEX) over the next twelve months while 26% expect to increase them.

Despite the generalised lack of appetite for investment, about 60% of CFOs do plan to invest more in business process improvements such as automation, and 47% intend to increase their investment in software, data and IT networks. Investments in tangible assets (i.e. physical infrastructure, as well as machinery and equipment) fall well behind. 

Investments on intangibles are on the rise

Not surprisingly, digitisation is named as one of the top three strategic priorities in almost half the countries – whereas only one year ago that was the case in just one fifth of them. With many activities (from shopping and meetings to education and healthcare) suddenly moving online, the pandemic has accelerated in many respects the rise of the digital economy. Even in an uncertain economic environment, businesses in Europe are making efforts to complete their digital transformation.

Commenting on the report’s findings, Richard Muschamp, CFO Programme Lead Partner for Deloitte in Europe, said: “CFOs will need to embrace change, reassess their goals, and invest for the future.”

In related news, Deloitte's latest Middle East CFO study found that while sentiment is rebounding, most CFOs in the region are still in cost cutting and mitigation mode.


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