The Economy

Despite Gloom, Europe’s CFOs See Revenue Growth Coming

The Duke/&splt;em>CFO&splt;/em> Magazine Global Business Outlook Survey finds expectations of better financial performance in the next 12 months am...
Andrew SawersSeptember 25, 2012

Is it any surprise? CFOs across Europe have lower hopes for the economy and their companies’ prospects than they did three months ago. The latest Duke/CFO Magazine Global Business Outlook Survey shows that fully 46% of CFOs are less optimistic about their nations’ economies and only 20% are more optimistic. The balance, just over a third of respondents, have not changed their view. (Full details of the quarterly survey, conducted by Duke’s Fuqua School of Business and CFO, working with Tilburg University in the Netherlands, can be found here.)

Pessimism also outweighed optimism among CFOs concerning the financial prospects of their businesses, though not by quite such extremes. Among the 166 European finance executives responding to the survey, 37% were less optimistic compared with last quarter, but 28% were of a cheerier disposition. Again, about a third had not changed their stance since last quarter.

The external drivers for the gloom were the lack of consumer demand (identified by almost half the respondents as a “top three” concern), global financial instability, and price pressure from competitors. Other factors were the state of national budget deficits, credit markets, and, damningly, government policies.

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Internal, company-specific concerns included the ability to maintain margins – more than three-quarters of finance executives (76%) cited it as a “top three” issue. Working capital management and the ability to forecast results were worries for many. And about one third (34%) said that it was difficult to maintain morale and productivity among employees in this environment. A slightly smaller proportion (28%) noted that it was difficult to attract and retain qualified employees, suggesting that high and rising unemployment in Europe hasn’t eradicated the skills shortage.

Looking ahead, though, CFOs expect improved financial results over the coming 12 months. On average, respondents are looking for a 7.3% increase in revenue and a 6.4% increase in earnings, out of which a 6.7% increase in dividends is expected to be paid. Cash balances are forecast to rise by about 6%. Wages and salary growth, however, will be almost flat (0.8%), while capital spending will pancake (0.2%). The number of domestic, full-time employees at respondents’ companies is projected to fall by 2.7%, while offshore outsourced employee counts are expected to rise by 6.1%.

One survey question asked by how much borrowing costs would have to decrease to positively affect investment projects over the next year: for 60% of respondents, interest rates weren’t an issue affecting investment. Just under two-thirds (63%) said they do plan to borrow to fund at least part of their investment plans the next 12 months, at an average cost of borrowing of around 6.8%

As to the euro zone crisis, fully 44% of CFOs do not think it is likely that Greece will exit the eurozone. The rest judge that there is a 48% probability that it will. (Polling took place before the European Central Bank’s recent Outright Monetary Transactions (OMT) scheme was announced.)

Finance executives had a different take on Spain. The vast majority (91%) do not believe that Spain will leave the euro zone. Still, a fracturing of the eurozone is on the minds of CFOs. Seventy percent of all survey respondents said that there would be a negative or very negative effect on their company if the euro zone were to unravel.

Andrew Sawers is editor of CFO European Briefing, a CFO online publication.