CFO Survey Europe Report Q4 2014

CFO Survey Europe
Q1 2015

Optimism Level Own Company at All-time High

Broad Skepticism About ECB’s Bond-buying
Program

Structural Reforms & Investment Programs
Believed to Have Positive Impact on European
Economy
Photograph:" Is central bank stimulus actually good for you?" by Day Donaldson, used under CC BY / Desaturated from original.
First Quarter 2015
As part of the quarterly CFO Global Business Outlook survey,
TIAS conducts CFO Survey Europe in collaboration with Duke’s Fuqua
School of Business, ACCA and CFO Publishing.
Netherlands-based TIAS School for Business and Society is the
business school of Tilburg University and Eindhoven University of
Technology. At TIAS we believe that business and society are
interdependent and that today’s insights are not tomorrow’s
solutions. Our mission is to have a positive and lasting impact on
organizations, business and society by developing critical and
inquisitive managers who are able to demonstrate responsible
leadership and exceptional decision-making abilities. For more
information, visit www.tias.edu.
North Carolina, US-based Duke’s Fuqua School of Business was
founded in 1970. Fuqua’s mission is to educate business leaders
worldwide and to promote the advancement of business management
through research. For more information, visit www.fuqua.duke.edu.
UK-based ACCA (the Association of Chartered Certified Accountants)
is the global body for professional accountants. It aims to offer
business-relevant, first-choice qualifications to people of application,
ability and ambition around the world who seek a rewarding career
in accountancy, finance and management. ACCA supports its 162,000
members providing services through a network of 91 offices and
centers. For more information, visit www.accaglobal.com.
UK-based CFO Publishing LLC, a portfolio company of Seguin
Partners, is a business-to-business media brand focused on the
information needs of senior finance executives. The business consists
of CFO magazine, CFO.com, CFO Research, and CFO Conferences.
CFO has long-standing relationships with more than a half-million
financial executives. For more information, visit www.cfo.com.
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Contents
Introduction
4
CFO optimism & sentiment
5
Intermezzo: CFO Interview
10
Finance & capital
11
Employment
14
Key results CFO Survey –
Europe, US, Latin America, Africa and Asia
15
CFO Survey Europe team
16
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Introduction
Q1 of 2015 exhibits a strong uptick in European sentiment regarding
Level of optimism on
financial performance
own company at all-time
high
European CFOs
skeptical about ECB’s
bond-buying program
…but more confidence
in reforms and
investment
the economic outlook and the financial prospects at company level.
Nearly half of the financial directors anticipate a more favorable period
ahead of them. The average level of optimism with respect to the
economy has increased to 58 on a scale of 100, up from 53 last quarter.
The optimism as regards to the own company has increased to 66 on a
scale of 100, a level not witnessed before in our survey. Despite the
many challenges that still exist in the Eurozone, the economy seems to
be on the right path of recovery, albeit modest.
Over 40% of the European CFOs do not believe that the European
Central Bank’s (ECB) plan to buy up government bonds will have the
desired effect on the real economy. 11% even thinks that the program
will be counterproductive, doing more harm than good. Many believe
that only the financial markets will benefit from such program. Others
claim that either the scale of the program is still too small or that the
design of the program is flawed. Hence, 80% of the CFOs have more
confidence in programs aimed at structural reforms and 70% believe in
plans that focus on large-scale investments.
The effects of recent changes in interest rates, oil prices and currency
values have had an impact on European businesses. In some cases, this
has compelled companies to adjust their capital spending plans and
hiring plans accordingly.
Figure 1. Optimism index for CFOs in Asia, Europe, US, Latin America and China
100%
75%
50%
25%
0%
-25%
-50%
-75%
-100%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Asia
Europe
United States
Latin America
China
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CFO optimism & sentiment
The first quarter of 2015 starts off promising with almost half of the
Improved sentiment may
signal economic
recovery in the making
European CFOs more optimistic about the economy for the next twelve
months. Compared to a period of steady decline in the number of
optimists and a significant hike in pessimists during 2014, the improved
sentiment may indicate that the economy is well on its way to further
recovery.
In Q1 2015 the share of European CFOs with a positive outlook on the
economy has improved to 48%, up from 32% during the previous
quarter. During that same time period, the share of pessimists among
European CFOs has decreased from 28% to 18% (figure 2).
Figure 2. European CFO sentiment regarding economy of own country
Less optimistic
18%
No change
34%
More optimistic
…but European
optimism continues to
trail that of the US and
Asia…
Coupled with the increase in number of optimists we also observe that
the average level of optimism (measured on a scale of 0 to 100) has
improved significantly from 53.5 during the previous quarter to 58 in
this first quarter of 2015. Despite the progress in the level of optimism,
Europe’s still trails that of other major regions such as the US, China
and Asia (figure 3).


…with US optimism back
at pre-crisis level
48%

CFOs on the African continent are the least positive about the
economic prospects. The index has decreased from 53 to 48 on a
scale of 100, while the number of optimists has reached an all-time
low of 10% (down from 22%), and the number of pessimists a record
high of 70% (up from 61%).
The deterioration in economic sentiment among Latin American CFOs
has resulted in an all-time low. During Q1, the level of optimism has
reached 49 on a scale of 100 with only 18% of the CFOs more
optimistic and more than two thirds more pessimistic.
For the 6th consecutive quarter, the level of optimism has increased
in the US and has reached 65 on a scale of 100, a (pre-crisis) level
not observed since the first half of 2007. 47% of the CFOs claim to
be more optimistic about the economy and just over 16% have a
pessimistic view on the economic prospects.
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

The strong optimism among Asian CFOs is sustained throughout the
first quarter of 2015; the index maintains its previous level of 66 on
a scale of 100. Despite the sustained level of optimism, the actual
number of optimists in the Asian region has decreased significantly
from 63% in the previous quarter to 54% during this first quarter.
Financial executives in China maintain their optimism level at 66 on
a scale of 100, up from 61 during Q4 2014. The share of optimists
among Chinese CFOs has decreased to 14%, down from 20% during
Q4 2014.
Figure 3. Optimism level about own country’s economy
Africa
Latin America
US
Europe
China
Asia
0
10
20
30
40
50
60
70
80
index
Last quarter
Global shifts in
macroeconomic factors
have had a significant
impact on European
businesses…
This quarter
Recent developments in interest rates, oil prices and currency values
have had substantial impact on European businesses. 62% of the
companies that experienced an effect (directly or indirectly) from recent
interest rate policy, say that the effects have been positive.
Table 1. Effects of major economic factors on European businesses
Changes in…
Oil prices
Interest rates
…either directly or
indirectly…
Currency values
The change has had…
a direct effect
31%
17%
49%
an indirect effect
19%
39%
12%
both a direct and indirect effect
8%
8%
13%
43%
36%
26%
positive to very positive
62%
59%
37%
negative to very negative
28%
29%
54%
no effect
The effect has been…
…but not necessarily in
a negative way
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Another 59% of those companies that have been affected by the recent
developments in oil prices, claim the effects to be positive. More than
half of the businesses that have experienced an impact from
developments in currency values, say that the impact has been negative
(table 1).
Driven by the effects of these macroeconomic factors (i.e. oil prices,
interest rates and currency values), some European businesses have
adjusted their plans for capital spending and hiring (figure 4 and 5).
Figure 4. How are capital spending plans of your company affected by…
DOWN
Dollar appreciation
Consequently, European
CFOs have adjusted
their capital spending
plans…
Oil prices
UP
14%
10%
12%
Interest rates
3%
8%
14%
For example, 14% of the European CFOs indicate that the recent
strengthening of the Dollar has forced them to cut back on capital
spending. Another 12% say that developments in oil prices have led
them to reduce capital spending. However, recent developments in
interest rates have prompted around 14% of the European companies
to beef up investments.
Figure 5. How are hiring plans of your company affected by…
DOWN
Dollar appreciation
UP
10%
7%
…and hiring plans
Oil prices
14%
Interest rates
4%
3%
6%
10% of the European CFOs say that the recent dollar-appreciation has
had a negative impact on their hiring plans, while another 14% say that
recent oil price fluctuations have had an adverse effect on hiring.
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European CFOs have indicated that economic uncertainty, regulatory
requirements, weak demand, government policy, and currency risk
remain the biggest factors of concern (table 2).
Table 2. Top concerns on the agenda of European CFOs
Top 10 major concerns affecting the corporate agenda
1.
Economic Uncertainty
2.
Regulatory requirements
3.
Weak demand for your product/services
4.
Government policy
5.
Currency risk
6.
Attracting and retaining qualified employees
7.
Geopolitical/Health Crises
8.
Employee productivity
9.
Access to capital
10.
Employee morale
During the first quarter of 2015, the ECB launched its program to
purchase government bonds from banks in order to stimulate the
economy and counter inflation in the Eurozone. At an estimated cost of
as much as EUR 1.14 trillion in total, the program has also caused
controversy throughout Europe.
Only few CFOs are
confident about success
of ECB’s program…
When asked about its effectiveness, a mere 23% of the European CFOs
believes that the ECB program will indeed succeed in staving off the risk
of deflation in the Eurozone (table 3). However, Almost 40% of the
financial directors are of the opinion that the ECB program will ultimately
only benefit the financial markets without contributing to the real
economy.
Table 3. In your opinion, will the ECB’s trillion-euro bond purchase program succeed in
boosting inflation?
Response
Many believe that the
program will have no
real impact on own
company
% of CFO’s

Yes
23%

No, QE may benefit financial markets (e.g., bank liquidity or stock markets) but
will not increase access to funds to the real economy (e.g., bank lending, equity
issuances) enough to increase inflation
38%

No, QE will not have enough direct effect on the demand side (e.g., direct effect
on business and consumer spending) to increase inflation
20%

No, the scale of the QE program is too small
10%

No, the design of the program is flawed
7%
When asked about the potential benefit to their own businesses, more
than 60% of the financial directors CFOs responded that they do not
expect to see any meaningful and measurable effect coming from the
ECB program. 30% of the CFOs do expect the ECB program to have a
direct and positive impact on their company.
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Structural reforms and
large investment
programs are believed to
have more chance in
boosting the European
economy
European CFOs have much more confidence in structural reforms (over
80%) or in investment programs, such as the European Fund for
Strategic Investments (EFSI), as suggested by Jean-Claude Juncker
(figure 6). The latter should be able to attract 315 billion euro of external
investments for large projects. More than 70% of the CFOs surveyed
think that this plan will have a positive impact on the European economy.
Figure 6. Considering the current state of the European economy, how effective do you think
the following programs will/would be?
60%
52%
50%
45%
40%
37%
30%
19%
20%
10%
0%
counterproductive
neutral
productive
Structural reforms (e.g., labor marketreform, public sector reform, tax reform, etc.)
Investment programs (e.g., Juncker's EU strategic investment plan)
Recently announced ECB bond buying program
Quantitative easing
Austerity
Optimism level about
own company has
reached all-time high
Compared to economic sentiment, European CFOs are much more
confident about the (financial) prospects of their own company.
Although just under half of the financial directors have a more optimistic
outlook (figure 7), the average level of optimism has increased to 66 on
a scale of 100 during Q1 (up from 62 in the previous quarter). This is
the highest level observed since the start of this survey.
Figure 7. European CFO sentiment regarding financial prospects of own company
Less optimistic
20%
No change
31%
More optimistic
49%
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Intermezzo: CFO Interview
Mr. Karl Durocher
(MSc, MBA)
COMPANY: MERCEDES-BENZ
Karl Durocher is CFO of Mercedes-Benz Hungary. This company is a
subsidiary of Daimler, responsible for the wholesale and import of Daimler
vehicles and aftersales parts. Mercedes-Benz Hungary employs 70 people in
total, with 7 persons working in the Finance department. Karl Durocher has
been its CFO since 2014.
HUNGARY
ROLE: MANAGING DIRECTOR
& CHIEF FINANCIAL OFFICER
Key Facts:
PRIVATE COMPANY
GREECE
INDUSTRY: AUTOMOTIVE
EMPLOYEES: 70
Has the CFO role changed in the time you've been in the position?
“I’ve been a CFO at various Daimler subsidiaries for over 5 years now. My role
has been more or less the same. But the challenges are different of course. I started
in this position during the height of the crisis but the economic climate is getting
better since. That’s something which is changing. But there are also new
developments in the car market, like Tesla or Uber. Such developments imply that
our company also has to look for new opportunities, like developing new financial
services.”
What do you think is the most challenging in being a CFO?
“With new business ideas you have to balance between risks and safety. New sales
ideas may have risks in terms of new tax regimes or expanding inventory for
example. Of course you can make an analysis, but that doesn’t necessarily mean
it’s going to work. In cases like these it is difficult to make the right decision.
Sometimes you have to say no, and sometimes you have to go for it. It helps to have
a little bit of experience; not only to feel if something is going to work or not but
also by communicating that an idea cannot go through.”
Since becoming CFO, what achievements are you most proud of to date?
“One of the companies I have worked for previously had a liquidity gap of over 34
million euros. When I started to work there, the company was very close to
bankruptcy. It took us up to three years to turn it around. One of the biggest
problems was the customer payment morale. So we took drastic measures at the
collection side.”
What are the priorities for your company next year?
“We are planning to grow from a low level, 20 percent of turnover. We only do
business in Hungary, because we are part of a global network of Daimler.
We think we can grow to take better advantage of our existing customers by
improving our communication. We are starting with a project for a new customer
relationship management system in 4 to 6 months. This will support us in our
efforts for smarter marketing.
What do you think of the ECB’s plan to buy up government bonds?
“I don’t think this is a good idea. I believe more in local measures to change the
market structurally. This is just postponing the real problem.”
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Finance & capital
During the next twelve months, European financial directors expect to
Growth in business
spending for the next
twelve month is likely to
stay on track…
increase business spending. Approximately two thirds of the CFOs say
they will beef up capital investments and spending on technology. More
than half of the CFOs indicate that they expect to increase spending on
R&D and marketing & advertising. Except for the latter category, the
average growth rates in spending remain robust and slightly higher
compared to one year ago (figure 8). This underscores the improved
sentiment among CFOs and may signal moderate but sustained recovery.
Figure 8. CFOs' expected growth in business spending for next 12 months
6,2%
5,1%
4,3%
0,5%
Capital investments
Technology
1 yr ago




…but will hardly have
any effect on product
prices
Research &
Development
previous quarter
Marketing &
Advertising
Q1 2015
The expected growth in capital spending on investments for the next
twelve months has climbed to 6.2%, up from 4.2% during the
previous quarter.
Tech spending is expected to grow at an average rate of 5.1%, down
from 6.4% in Q4 2014 but still at a rate comparable to that of one
year ago.
R&D expenditures are expected to grow at 4.3% on average, up from
1.5% during the last quarter.
Spending on marketing and advertising is projected at 0.5%, down
from 2.6% during Q4 2014.
Almost half of the financial executives expect an increase in the price of
their products during the next twelve months. On average, however, the
increase is less than 0.5%, emphasizing once more that concerns about
deflation in the Eurozone are well grounded. More than 80% of the
companies are expected to see their revenues increase over the next
twelve months, and another 68% expect to realize growth in earnings.
The expected average growth rates remain moderate however, both at
4.2% (figure 9).
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Figure 9. Anticipated balance sheet and P&L developments (public firms)
5,4%
4,2%
4,2%
2,5%
1,5%
Dividends*
Share Repurchases*
Cash on balance
sheet*
previous quarter
During the next twelve
months we expect
modest acquisition
activity by European
companies
Europe nevertheless
remains favorite region
for acquisition targets
Revenues
Earnings growth*
Q1 2015
Anticipated acquisition activity during the next twelve months remains
modest in Europe, with just one third of the CFOs saying they will acquire
one or more companies or part(s) thereof. 40% of those companies that
are indeed looking for acquisitions say that more than half of their
acquisition targets will constitute foreign companies.
According to European CFOs, the most attractive regions to look at for
acquisitions remain Europe and the US. The attractiveness of Europe as
a location for takeover targets is also shared by many other CFOs from
other parts of the world.
Figure 10. Share of CFO’s who expect to acquire (entire or part of) another company or
companies during the next 12 months
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Table 4. Manufacturing capacity utilization and Return on assets (ROA)
Asia
China
Capacity utilization for manufacturing companies
Capacity utilized H2 2014
89,5%
84%
Planned capacity utilization for
H1 2015
93,2%
84%
Latin
America
US
Europe
90%
77%
86%
93%
79%
86%
Return-on-Assets(ROA)
8,3%
13,5%
8,4%
9,2%
9,2%
10,2%
14,0%
10,0%
11,4%
11,4%
Approximate ROA in 2014
Expected ROA in 2015
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Employment
The bleak outlook on employment is likely to linger on during the
next twelve months. With slightly negative (expected) growth rates for
both fulltime and part-time contracts and a negligible growth in
outsourcing, employment remains a major source of concern (figure 11).
Figure 11. European CFOs expected growth for next 12 months in employee mix
Growth in employment is
expected to remain
absent in the next twelve
months
0,9%
-0,4%
Employment – full-time
1 yr ago
-1,4%
Employment – temporary
6 months ago
Outsourced Employment
previous quarter
Q1 2015
Along with the disquieting growth rates in employment, companies have
not only expressed concerns about attracting and retaining qualified
employees but they also worry about employee morale. In an attempt to
counterbalance both concerns, companies may therefore seek to increase
productivity and raise wages and salaries (figure 12).
Figure 12. Relative to the previous twelve months, do you expect a positive (increase) or negative
(decrease) change in the next twelve months for…?
Domestic temporary employees
39%
Domestic full-time employees
…but companies expect
to see increases in
wages & salaries…
…and the realization of
productivity gains
Outsourced employees
39%
51%
23%
18%
32%
32%
59%
Wages & Salaries
9%
79%
Productivity (output per hr)
11%
73%
Health care costs
21%
49%
Positive
49%
No change
10%
6%
3%
Negative
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Key results CFO Survey – Europe, US, Latin America, Africa and Asia
Key Indicator
Europe
US
Latin America
Africa
Asia
47.8%
46.5%
18.5%
10.6%
53.6%
Economic sentiment
About economy of own country
More optimistic
Less optimistic
18.4%
16.5%
67.7%
70.2%
26.1%
No change
33.8%
36.9%
13.8%
19.1%
20.3%
57.9
64.7
49.4
48
66.5
More optimistic
48.9%
48.4%
35.4%
41.7%
51.4%
Less optimistic
20.0%
21.3%
36.9%
27.1%
24.3%
31.1%
30.3%
27.7%
31.3%
24.3%
65.6
67.5
63.0
68.3
64.2
6.2%
5.2%
-1.5%
5%
13.5%
Technology spending
5.1%
3.8%
4.6%
15.4%
6.7%
R&D spending
4.3%
3.6%
-0.0%
5.9%
4.1%
Advertising and marketing spending
0.5%
3.2%
1.6%
9.0%
10.5%
Employment – full-time
-0.4%
2.4%
-0.3%
8.7%
1.9%
Employment – temporary
-1.4%
-0.3%
2.3%
-7.5%
0.1%
Outsourced Employment
0.9%
3.2%
-1.5%
0.1%
3.6%
Wages and Salaries
1.8%
2.7%
5.1%
9.4%
7.6%
Health Care Costs
1.2%
0.8%
6.3%
9.5%
6.0%
Productivity
3.1%
2.3%
1.5%
4.6%
1.7%
Inflation (own-firm products)
0.4%
0.8%
1.1%
3.9%
-4.4%
Revenue growth
4.2%
4.2%
4.2%
7.3%
6.3%
Earnings growth*
4.2%
8.2%
6.2%
15%
5%
Dividends*
5.4%
10.3%
3.4%
0%
-3.2%
Own country optimism level
About own company
No change
Own company optimism level
Business spending
Capital spending
Employment
Balance Sheet & P&L
1.5%
1.9%
2.3%
0%
0.4%
2.5%
32.6% plan to
acquire;
Foreign targets
in 54.9% of
acquisitions;
21.7% plan to sell
part or all of firm
-3.3%
26.5% plan to
acquire;
Foreign targets
in 17.6% of
acquisitions;
-3.6%
13.3% plan to
acquire;
Foreign targets in
27.1% of
acquisitions;
13.5% plan to sell
part or all of firm
-4.7%
31.8% plan to
acquire;
Foreign targets in
18.6% of
acquisitions;
15.8% plan to sell
part or all of firm
2.0%
28.8% plan to
acquire;
Foreign targets
in 26.9% of
acquisitions;
14.6% plan to sell
part or all of firm
Share Repurchases*
Cash on balance sheet*
Mergers and Acquisitions
Percentages indicate this quarter’s expected growth rates for the next twelve months
* Indicates public firms only
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S O C I E T Y
First Quarter 2015
The figures quoted above are taken from the Global CFO Survey for
About CFO Survey
the first quarter of 2015. The survey concluded March 5, 2015. Every
quarter, CFOs in Europe, the US, Latin America, Asia (and China), and
Africa are questioned about their economic expectations. Current
records go back 76 quarters. The CFO Survey is conducted jointly by
TIAS School for Business and Society (Tilburg, Netherlands), Duke
University (Durham, North Carolina), ACCA Global and CFO Magazine.
Note for the press
Previous editions of the CFO Survey can be found at FinanceLab under
the CFO Survey tab. For further information, please contact Mrs. Rian
van Heur, TIAS School for Business and Society, tel.+31-(0)-134668637
or e-mail m.j.vanheur@tias.edu
CFO Survey Europe team
Kees Koedijk
Professor Financial Management
Dean & Director TIAS School for Business & Society
Christian Staupe
Policy Advisor Dean’s Office
Coordinator CFO Survey Europe
Rian van Heur (contactperson)
Corporate Marketing & External Relations
m.j.vanheur@tias.edu
+31-(0)-13 466 8637
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