Over a third (36%) of Europe’s CFOs feel more pessimistic about their companies’ financial prospects than they did three months ago, according to Deloitte European CFO Survey. This percentage has doubled since the first survey in spring 2015, when the figure stood at 18%.
Fewer than one in five CFOs (18%) consider now to be a good time to take on risk, the lowest percentage on record. This overtakes last edition’s record low of 20%. It is most noticeable in countries inside the euro area where just 16% are keen to take on risk at present. Industries more heavily reliant on global trade – including those in the automotive, industrial and transport sectors – show the least risk appetite.
The fall in risk appetite correlates with the continual increase in perceived financial and economic uncertainty. Almost seven out of ten CFOs (69%) now rate the current level of uncertainty as high or very high.
Expectations for margins and revenues are at their lowest levels since the survey began. For the first time, the number of CFOs expecting a decline in their company’s margins in the next 12 months (38%) outnumber those expecting an increase (30%).
However, expectations for revenues remain positive on average, with more CFOs expecting an increase in revenues (49%) than a decrease (27%). In the automotive sector, the proportions are inverted, with more than 60% expecting a decrease in revenues. Only six months ago, this share was 34%.
In total, 27% of Europe’s CFOs forecast an increase in capital spending in the next 12 months, down from 36% in the spring. In the euro area, 30% plan to increase spending, compared to 22% in non-euro countries. The greatest spending intentions came from Belgium, where 68% intend to increase spending. Meanwhile, in the UK, 78% intend to decrease spending – the highest in Europe.
Hiring intentions have declined, with 32% of respondents planning to decrease headcount against 27% planning an increase. Hiring intentions in countries within the euro area are slightly more optimistic, with CFOs planning an increase in the headcount outnumbering those planning a reduction (30% versus 24%).
Ian Stewart, UK Chief Economist at Deloitte, said “Trade disputes, elevated uncertainty and a global slowdown have knocked the confidence of European CFOs. While European equities have soared, risk appetite in the real economy among CFOs has dropped to a four-year low. Faced with an uncertain outlook, CFOs are shelving investment plans and doubling down on cutting costs.”
Around half of CFOs (51%) say that clients and customers are applying pressure for companies to take action on climate change*. In addition, almost half (47%) feel this pressure from their own employees and 70% say they feel pressure from three or more stakeholders.
In response to this, 70% of companies said they are increasing or planning to become more energy efficient, for example in their buildings. However, more than half (51%) have not yet adopted any carbon emission targets and only 27% plan to assess the risk of climate change to their business.
Richard Houston, Senior Partner and Chief Executive of Deloitte North and South Europe, said “The survey findings show only a handful of companies are integrating climate change risk into business planning in a significant way. Efforts are certainly increasing, but more needs to be done across industries on an international scale – this should also help businesses connect with a new generation of consumers, employees and investors alike.”
Tim Vine, Head of European Finance & Risk Solutions Dun & Bradstreet said “Given the current environment, a growing lack of confidence among UK CFOs is not surprising. Continued uncertainty around Brexit, the snap election and other economic factors such as the US-China trade wars are likely to be weighing on the minds of finance leaders, given their responsibilities for risk management. Forecasts in Dun & Bradstreet’s latest Quarterly Industry Report suggest that, while the UK has narrowly avoided falling into a recession in Q3, real GDP growth is likely to expand by only 1.3% in 2020. These would be the lowest growth figures since the financial crisis in 2008 and it’s a challenging time for CFOs who are under increasing pressures to identify opportunities for growth in addition to managing financial risk.”
“Our Q3 data for the UK shows that there were over 4,000 corporate liquidations reported during the quarter with the number rising across several sectors including services, retail and manufacturing. However, more positively, our analysis shows an improvement in payment performance for the third consecutive quarter based on the sample of data analysed – 44.7% of payments were made on time in Q3, compared to 37.2% at the beginning of 2019.”