optimism among european cfos remains intact at end of …...school of business, acca and cfo...

Optimism among European CFOs remains

intact at end of year

Mixed reactions to the refugee crisis

Despite aging of assets, productivity growth

is accelerating

CFO Survey Europe

Q4 2015

Photograph:" Syrian Refugees" by Freedom House, used under CC BY / Desaturated from original.

Fourth Quarter 2015

2 | P a g e C F O S u r v e y E u r o p e R e p o r t T I A S S C H O O L F O R B U S I N E S S & S O C I E T Y

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.

http://www.tias.edu/

http://www.fuqua.duke.edu/

http://www.accaglobal.com/

http://www.cfo.com/

Fourth Quarter 2015


Introduction 4

CFO optimism & sentiment 5

Finance & capital 9

Employment 13

Key results CFO Survey –

Europe, US, Latin America, Africa and Asia 15

CFO Survey Europe team 16

Contents

Fourth Quarter 2015


Introduction

Economic sentiment in Europe remains intact…

…while the number of optimists continues to

outpace that in the rest of major regions

CFOs remain divided over the challenges

posed by the current refugee crisis…

…but all agree that European leaders have

underestimated the severity

The optimism among CFOs during the last quarter of 2015 remained

steady in Europe at 58 on a scale of 100. CFO optimism in the U.S. also

continued its robust pace during Q4 and is among the strongest in the

world. On a scale from 0 to 100, financial executives rate the outlook at

60. Economic optimism in Latin America on the other hand remains

lowest in the world at 46 on a 100 point scale.

The number of optimists in Europe continues to outpace that in the rest

of the world (figure 1). Capital spending is expected to increase and

fulltime employment should also experience a rise over the next twelve

months.

European CFOs have mixed reactions to the refugee crisis. On net, the

CFOs believe the refugees entering Europe will have a positive impact

on the economy. Nearly 60% say that accepting migrants could

potentially help solve the looming demographic problems their nations

(and Europe as a whole) face.

European financial directors also recognize the costs and challenges

presented by the influx of refugees. An overwhelming majority of 81%

say that they think European leaders have mismanaged the crisis. More

than half believes that refugees will increase competition for jobs and

drive down wages. Notwithstanding the complexity of the immense

crisis, nearly 40% of the CFOs indicate that their own firms would be

willing to hire refugees to help with the crisis. 30% say that their firms

would not.

Figure 1. Optimism index for CFOs in Asia, Europe, US, Latin America and China (percentage of optimists -/- percentage of pessimists)

-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

Fourth Quarter 2015


CFO optimism & sentiment

CFOs sentiment continues the trend of the

previous quarter

Optimism across the other major regions

remains fragile and sees piecemeal improvements

Optimism in the fourth quarter of 2015 has kept in line with that of

the previous quarter. 42% of the European CFOs are more optimistic

about the economy for the next twelve months, whereas 25% of the

financial directors remain pessimistic on the economic outlook.

The average level of optimism reached 58.4 on a scale of 100, up from

57.9 during Q3.

Figure 2. European CFO sentiment regarding economy of own country

European economic sentiment continues to trail that of the US but

remains at the higher end compared to other major regions across the

globe (see figure 3).

The number of optimists among African financial directors remains

low by all accounts, with only 13.3% of the CFOs having a more

positive outlook in Q4 for the next twelve months. The number of

pessimists on the other hand, has reached an alarming 76.7%. The

average optimism level during Q4 inched to 49.3 on a scale of 100.

After the dramatic drop in economic confidence in Q3, the number

of optimists among Latin American CFOs has increased marginally to

10.4%. With 66.8% being more pessimistic, and an average level of

optimism at 46.3 on a scale of 100, economic sentiment in Latin

America is lowest compared to that of other global economic regions.

The optimism level in the US has maintained the level of the previous

quarter, with 26.1% of the CFOs more optimistic and 40.9% less

positive about the economic outlook. The average optimism level in

the US stands at 60.3 on a scale of 100, and continues to be higher

than the levels found in the rest of the world.

42%

33%

25%

More optimistic

No change

Less optimistic

Fourth Quarter 2015


European optimism is catching up with US

optimism and remains one of the more robust

around the globe.

Macroeconomic concerns see little change

compared to the previous quarter

The number of optimists among Asian CFOs has inched upwards to

36.6% while the number of pessimists has decreased to 47.6%. The

average level of optimism has dropped for the third consecutive

quarter to 53.9 (down from 55.6) on a scale of 100

With only 14.3% of the financial executives in China having a

positive economic outlook for the next twelve months, and 76.2% of

the financial executives being more pessimistic, optimism in China

has remained at the lower end since the previous quarter. The

average level of optimism during Q4 stands at 47.7 on a scale of 100

(down from 55.1).

Figure 3. Optimism level about own country’s economy

The top concerns on the agenda of European CFOs include lingering

economic uncertainty and the continued weak demand for products and

services (table 1).

Table 1. Top 10 concerns on the agenda of European CFOs

This quarter Previous quarter

1 Economic uncertainty Economic uncertainty

2 Weak demand for products & services Currency risk

3 Attracting/retaining qualified employees Weak demand for products & services

4 Currency risk Attracting/retaining qualified employees

5 Government policies Government policies

6 Employee productivity Regulatory requirements

7 Access to capital Employee productivity

8 Regulatory requirements Access to capital

9 Data security Employee morale

10 Employee morale Geopolitical / health crises

-10 10 30 50 70

Asia

China

Europe

US

Latin America

Africa

Last quarter This quarter

Fourth Quarter 2015


Optimism among

European CFOs about their own company

continues its upward path

The current refugee crisis

is believed to be disruptive to the social

cohesion of today’s Europe…

…and is considered an even bigger challenge

than the financial crisis

But overall, on net,

European CFOs believe that it also opens up new

opportunities

Notwithstanding the rather gloomy sentiment with respect to the macro

economy, average sentiment regarding the financial prospects of the

own company remains robust. With 55% of the CFOs being more

optimistic, and an average optimism level of 65.2 on a scale of 100 (up

from 63.5), European financial executives remain confident about the

prospects of their own company (figure 4).

Figure 4. European CFO sentiment regarding financial prospects of own company in next twelve months

62% percent of the European CFOs believes that the current refugee

crisis in Europe poses a greater challenge than the economic crisis

(figure 5).

Figure 5. Please indicate if you agree or disagree with the following statements. The current migrant/refugee crisis…

Almost 80% believes that the current situation also has a disruptive

effect on the social cohesion within Europe, whereas more than half also

think that the refugee crisis will (eventually) create tensions in the labor

55%

21%

24%

More optimistic

No change

Less optimistic

35%

43%

34%

34%

29%

11%

10%

56%

45%

55%

55%

62%

79%

85%

AgreeDisagreeshould primarily be managed and coordinated at EU-level (rather than at the national level)

is disruptive to the social cohesion of Europe

is a bigger challenge for Europe than the economic crisis was

Increases labor market tensions (e.g. downward pressure on wages due to increased competition for jobs, crowding out of native workers);

will have a positive economic impact (e.g.,create new demand for goods and services)

will have a negative economic impact (e.g. from increased public spending, welfare spending, etc.)

Will help solve the future demographic challenges of Europe (e.g. aging population, shrinking labor force, increased cost of care) through influx of young migrants/refugees

Fourth Quarter 2015


Thus far, the majority of

CFOs feels that European leaders have inadequately

managed the crisis

Although most CFOs believe that financial

funds should be increased to mitigate the

refugee crisis…

Some companies are also willing to help alleviate

the crisis by hiring refugees

market, possibly triggered by heightened labor competition, labor

displacement, and downward pressure on wages.

Around 43% of the financial directors do not expect the refugee crisis to

have (or hardly any) a negative impact on the economy, for example,

through increased government spending, benefits, and social costs. The

crisis should be coordinated at the EU level rather than at the national

level, say 85%. This could also explain why over 80% of the CFOs are

currently of the opinion that European leaders are not adequately

managing the refugee crisis (figure 6).

Figure 6. Please indicate if you agree or disagree with the following statement: “European leaders are managing the migrant/refugee crisis in an effective way”

43% of the respondents say that European countries should accept more

refugees, while nearly 70% say that European countries should also

contribute more financially (figure 7). More than a third of the European

CFOs say that their companies would also be prepared to hire refugees

in an attempt to help alleviate the current crisis.

Figure 7. Please indicate if you agree or disagree with the following statements:

39%

29%

22%

18%

33%

9%

43%

38%

69%

Disagree Neither agree nor disagreeAgree

The EU and its countries should donate more financially to combat the refugee crisis

In an attempt to help mitigate the crisis, my company is willing to hire refugees/migrants, if the regulatory environment allows us to do so

European leaders should allow more refugees/migrants into their countries

Fourth Quarter 2015


Finance & capital

Business spending is expected to increase

across the board

Public firms expect to curb dividend payouts

and share repurchases…

…while they expect marginal growth in

earnings and diminishing cash

reserves

During the next twelve months business spending (with the exception

of R&D expenditures) is expected to grow at a slower rate, compared to

what was anticipated during Q3 (figure 9). 70% of the financial directors

expects to increase capital investment spending at an average rate of

3.7%, while almost 80% expects to increase spending on technology (at

an average rate of 4.2%).

More than 60% of the European companies is expected to increase

spending on R&D, and on marketing and advertising, at average rates

of 5.4% and 2.6% respectively.

Figure 8. CFOs' expected growth in business spending for next 12 months

During the next twelve months, the CFOs at public firms expect

performance in earnings growth to level off at a rate of 0.7%, a level

not witnessed since the end of 2012 (figure 9).

Figure 9. Anticipated balance sheet and P&L developments (public firms)

3,7%4,2%

5,4%

2,6%

Capitalinvestments

Technology Research &Development

Marketing &Advertising

1 yr ago previous quarter Q4 2015

0,0% 0,0%

-3,4%

5,1%

0,7%

Dividends ShareRepurchases

Cash on balancesheet

Revenues Earnings growth

previous quarter Q4 2015

Fourth Quarter 2015


More than a third of the

CFOs feel that increased payouts would constrain

corporate investment…

…within an already challenging business environment

Growth rates for dividends and share repurchases are expected to

remain flat during the next twelve months, while cash reserves are even

expected to decrease (-3.4%). Figure 10. For firms in your industry, do you believe increased payouts (dividends, share repurchases) are constraining corporate investment?

More than a third of the European CFOs considers increased payouts via,

for example dividends and share repurchases, as a constraint to

corporate investment (figure 10).

Other factors that have had a negative impact on capital investments

during 2015, include the price of fuel and the slowdown in China. For

2016, slowdown in China continues to be the largest potential constraint

to growth in capital investments. Next to that, currency valuation is

regarded to be of substantial impact on capital spending plans (table 2).

Table 2. How have the following factors affected your capital spending?

2015 2016

UP DOWN UP DOWN

New or anticipated regulatory requirements 37.0% 14.1 37.3% 12.0%

Interest rates 15.7% 9.0% 15.1% 10.5%

Dividends/share repurchases 8.8% 4.4% 11.1% 9.5%

Currency valuation 14.4% 14.4% 10.8% 14.5%

Price of fuel 12.8% 19.8% 19.0% 10.1%

Economic/political changes in Latin America 3.8% 12.5% 8.0% 12.0%

Slowdown in China 3.7% 21.0% 6.7% 18.7%

6%

6%

6%

10%

9%

29%

23%

20%

25%

9%

0% 20% 40%

Europe

US

Latin America

Asia

China

Yes, a lot Yes, a little

Fourth Quarter 2015


4 out of 10 firms have witnessed an increased rate of aging of their productive assets… \ …which in some cases has had an impact on the ability to improve growth in productivity

If companies are indeed unable to invest, this could have a severe

impact on their assets, and the aging thereof in particular. 40% of the

companies in Europe already indicate that their assets are aging at a

moderate or faster rate, compared to five years ago (figure 11).

Figure 11. Considering the normal aging of your assets and your rate of investment in new assets, has the age of your fixed assets changed relative to five years ago?

Albeit at the lower end when compared to other major regions, one third

of the CFOs at European companies say that aging of fixed assets has

reduced overall productivity at their firms (figure 12). Figure 12. Is the aging of your fixed assets a drag on your productivity growth?

On the other hand, almost half of the financial directors say that the

nature of business is changing in such a way that less capital

investments are required (figure 13). Only 4% say that more capital

investment are required as a result of changing business dynamics and

environment.

40%

54%51% 49%

35%

20%

27% 26% 27%

41%

0%

20%

40%

60%

Europe US Latin America Asia China

Decrease Increase

64%

61%

46%

65%

60%

36%

40%

54%

36%

40%

0% 20% 40% 60% 80% 100%

Europe

US

Latin America

Asia

China

No Yes

Fourth Quarter 2015


As business is changing, CFOs expect that less capital investments will be required in the future

Figure 13. Going forward, is the nature of your business changing in a way that affects your firm's required amount of capital investment?

4%13% 15% 14% 15%

46%49%

55%50%

45%

0%

20%

40%

60%

Europe US Latin America Asia China

Less capital required More capital required

Fourth Quarter 2015


Employment

Growth in employment is expected for the next

twelve months…

…albeit at modest growth rates

Most European companies expect to expand their employee base

by hiring temporary (in 62% of the cases), fulltime employees (in 68%

of the cases), while also increase their outsourcing (figure 14).

Figure 14. Relative to the previous twelve months, do you expect a positive (increase) or negative (decrease) change in the next twelve months for…?

The average growth in full time employment is expected to be 3.6%

during the next twelve months, while growth in temporary employment

contracts is forecasted at 2.0% (figure 15). Outsourced employment is

anticipated to grow at an average rate of 4.8%. Figure 15. European CFOs expected growth for next 12 months in employee mix

Although the projected growth in employment remains mediocre for the

next twelve months, a large share of companies also expect to see their

rate of productivity growth to accelerate. In Europe, more than half of

the CFOs underscores that such acceleration is taking place within their

company (figure 16).

50%

68%

62%

Outsourced employees

Domestic full-time employees

Domestic temporary employees

IncreaseDecrease

6%

17%

3%

3,6%

2,0%

4,8%

Employment – full-time Employment – temporary Outsourced Employment

1 yr ago 6 months ago previous quarter Q4 2015

Fourth Quarter 2015


Many of the European firms have seen their

productivity growth accelerating…

…which in large part, is attributable to use of

automation and implementation of process changes

Figure 16. Is your firm's rate of productivity growth changing?

Factors that have contributed to this acceleration in productivity growth,

include some of the usual suspects such as automation and technology,

and implementation of process change. More than half of the companies

also acknowledge the positive impact that the introduction of a new

business model has on productivity growth rates (table 3). Table 3. How have the following factors affected the productivity growth rate at European companies?

Positive

No impact Negative

Automation and technology use 79% 21% 0%

Process change 77% 22% 1%

New business model 53% 41% 6%

Unit labor costs 27% 52% 21%

Economic conditions 34% 30% 36%

Currency valuation 11% 64% 25%

Regulation 15% 42% 43%

Business disruption from external events (e.g., bad weather, political turmoil, supply chain interruptions)

8% 46% 46%

0% 20% 40% 60% 80% 100%

Europe

US

Latin America

Asia

China

Slowing No change Accelerating

Fourth Quarter 2015


Key results CFO Survey – Europe, US, Latin America, Africa and Asia

Key Indicator Europe US Latin America Africa Asia

Economic sentiment

About economy of own country

More optimistic 41.4% 26.1% 10.4% 13.3% 36.6%

Less optimistic 25.3% 40.9% 66.8% 76.7% 47.6%

No change 33.3% 33.0% 22.8% 10.0% 15.9%

Own country optimism level 58.4 60.3 46.3 49.3 53.9

About own company

More optimistic 54.5% 41.0% 29.0% 43.3% 34.1%

Less optimistic 24.2% 30.4% 37.9% 38.3% 35.4%

No change 21.2% 28.6% 33.1% 18.3% 30.5%

Own company optimism level 65.2 65.9 61.6 63.5 56.9

Business spending

Capital spending 3.7% 2.6% 2.4% 5% 4%

Technology spending 4.2% 6.0% 6.5% 7.3% 5.4%

R&D spending 5.4% 3.3% 2.6% 1.0% 3.3%

Advertising and marketing spending 2.6% 3.7% -1.7% 0% 4.2%

Employment

Employment – full-time 3.6% 2.4% -1.3% 3.2% 1.0%

Employment – temporary 2.0% 0.8% -1.4% -4.2% 3.4%

Outsourced Employment 4.8% 2.3% 0.6% -3.2% 3.8%

Wages and Salaries 3.3% 2.9% 3.5% 7.1% 7.2%

Health Care Costs 1.5% 7.1% 4.5% 6.3% 2.0%

Balance Sheet & P&L

Productivity 4.8% 2.6% 3.3% 1.9% 2.2%

Inflation (own-firm products) 0.5% 0.8% 2.9% 5.3% 0.4%

Revenue growth 5.1% 4.2% 2.2% 7.3% 6.0%

Earnings growth* 0.7% 3.0% -0.0% 9.8% 8.5%

Dividends* 0.0% 5.4% 1.5% 6.6% 1.5%

Share Repurchases* 0.0% 0.0% 0.0% 3.1% 0%

Cash on balance sheet* -3.4% 6.3% 1.3% -7.3% -0.7%

Mergers and Acquisitions Not asked. Not asked. Not asked. Not asked. Not asked.

Percentages indicate this quarter’s expected growth rates for the next twelve months * Indicates public firms only

Fourth Quarter 2015


About CFO Survey

Note for the press

The figures quoted above are taken from the Global CFO Survey for

the fourth quarter of 2015. The survey concluded December 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 79 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.

Previous editions of the CFO Survey can be found at FinanceLab under

the CFO Survey tab. For further information, please contact Mrs. Judith

Slikker, TIAS School for Business and Society, tel.+31-(0)-134668622

or e-mail [email protected]

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

Judith Slikker (contactperson) Brand manager

Corporate Marketing & External Relations

[email protected]

+31-(0)-13 466 8622

https://www.tias.edu/dossiers/detail/cfo-survey

optimism among european cfos remains intact at end of …...school of business, acca and cfo...

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