European CFO Survey with Portugal Insights Eyes on Demand Spring 2019 Contents 01
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European CFO Survey with Portugal insights Eyes on demand Spring 2019 Contents 01 02 01 02 03 03 The economic landscape Uncertainty clouds A darkening outlook Page 06 the mood Page 13 04 Page 09 05 04 05 Building up resilience About the European Page 21 CFO Survey Page 26 02 European CFO Survey | Eyes on demand | Foreword Foreword 01 As part of our broader commitment to supporting business leaders across the globe in their strategic decision-making, we are pleased to present the ninth edition of the Deloitte European CFO Survey. 02 Twice a year, the survey gives a voice to over 1,000 CFOs from across It is with great pleasure that we announce the results of the 9th edition of 03 Europe, providing an overview of their hiring and investment intentions, European CFO survey with Portugal insights, including the biggest Portuguese views on critical business risks, current strategic priorities and which companies CFOs’ perspective about economic, financial and strategical issues. factors they consider vital for success. Due to its wide geographical 04 reach, the consistently high number of participants and the privileged This edition reveals an optimism slowdown regarding Portugal’s economic viewpoint of CFOs, it provides a reliable indicator of business sentiment perspectives with more CFOs feeling that there is a downturn for the country’s in Europe across a range of different markets. economy waiting in the following year. The fact that more CFOs are not willing to take more risk into their balance sheet and intend to follow cost control strategies 05 As the external environment becomes more uncertain economic as a priority shows that appetite for risk remains low, compared to previous concerns predominate among European businesses. In addition, deep semesters. structural changes are taking place – and they can be expected to speed up rather than slow down during a period of economic difficulty. Following our last survey’s questions, the shortage of skilled professionals points The typical cost-reduction approach on which many companies rely as risk as well as cyber risk, increasing regulations and matters around geopolitics. during an economic downturn may not be sufficient to cope with these Despite high concerns around economic outlook, CFOs revealed considerable challenges. optimism on the unlikelihood of a recession not only in Portugal, but also in the Euro area and the US. Following last survey predictions, Portuguese CFOs plan In this edition we therefore report on the steps European companies on taking future actions, highlighting strategic acquisitions, the use of advanced are taking to become more resilient. We hope you will find that the views technologies and the strength the current customer basis. set out in the report are informative and bring an interesting dynamic to your discussions, triggering further debate. To discuss any specific We believe that the results contained in this report represent not only the voice aspects of this report, please contact one of our Deloitte leaders, whose of the financial leaders of companies in Portugal but also in other European email addresses are given at the end of this document. countries and will be a useful source of information for our clients and readers. Christopher Nuerk Jorge Marrão Managing Partner, Clients & Industries Partner, CFO Programme Portugal leader 03 European CFO Survey | Eyes on demand | Key findings Portugal Key findings Portugal 01 Economic outlook overview Upcoming risks 02 This semester’s survey reveals a significant In this semester, respondents have once 45% a decrease in positivity (from 70% to 45%) 74% again shared their views on factors most of CFOs in Portugal feel surrounding the Portuguese economic outlook of the surveyed likely to pose a significant risk to their for the next 12 months and an increase in CFOs believe this businesses, and a clear risk arises with that the country’s pessimistic responses (from 9% to 24%) where 82% of CFOs believing economic outlook/ 03 economic outlook CFOs feel the there is a downturn for the is currently not growth are likely to pose a significant risk is positive country’s economy waiting in the following year. a good time to to their companies in the next year. These figures are especially relevant when be taking Other top risks, with likelihood of noticing that you have to go back to the end of greater risks into around ~50%, can be seen on matters 04 2016 to find a worse outlook. The general belief around geopolitics, shortage of skilled that the world’s economy faces a looming cool their balance sheets professionals, cyber risk and increasing down may account for this drop. regulations. 74% 05 of respondents are not expecting a recession to occur in the next 18 months Are you ready? In this semester’s special question, the inquired CFOs 85% revealed considerable of CFOs in Portugal name cost optimism on the unlikelihood of a reduction as a priority for their recession not only in business in the next year Portugal, but also in the Euro area and the Strategic priorities US. As is noticed every semester, once again Nonetheless, CFOs have there will be a focus on lean operations, already set in motion some i.e. promoting cost control and cost mitigating actions towards a reduction activities. Growth initiatives potential slowdown, highlighting the establishment of new such as introducing new products/ credit facilities, diversifying financing sources and focusing on services and organic growth are next in high margin customers or shifting focus to different regions. respondent preferences. It should be CFOs in Portugal also plan on taking further measures in noted however, that the gap between the future, with top mentions for strategic acquisitions, defensive and growth strategies has increased use of advanced technologies and narrowed, even as the pessimistic strengthening the current customer basis. feeling deepens. 04 European CFO Survey | Eyes on demand | Executive summary Executive summary 01 Building resilience will be the main focus for the CFOs, as they face the ‘new mediocre’ in terms of growth. 02 The flow of worrying economic and political news optimism, risk perception, and performance Despite the gloom, the majority of CFOs across 03 that characterised the second half of 2018 has outlook for their companies. Europe do not see an imminent economic dwindled since the beginning of 2019. The US recession, neither in their own national economy In fact, something that emerges clearly in this and China reached a truce on trade and seem nor in the euro area or in the US. What CFOs in 04 to be closer to an agreement. The US Federal edition of the survey is that sentiment has Europe seem to be seeing is, rather, a return to a Reserve and European Central Bank have deteriorated much more within the euro area “new mediocre” – as the IMF’s managing director substantially revised their stance on monetary than outside it. Across all the metrics considered Christine Lagarde once defined a scenario of policy: they are now unlikely to tighten monetary in this report, the deterioration in the results disappointingly low growth.1 05 policy further for some time, and the ECB may within the eurozone was markedly bigger. become more expansionary again. The Chinese And yet the proportion of CFOs with positive Whatever may come, European businesses growth engine seems to be reviving. The Brexit expectations about the next 12 months is still are conscious they need to be ready and are negotiations became even more complicated but higher within the euro area than outside. Now favouring offensive strategies. The majority no major new political disputes emerged in the the difference between the two blocs is small. of CFOs report that they have taken or are first quarter of 2019. planning to take steps to increase the resilience Specific aspects of the economies within the of their companies to a growth slowdown. They Yet, according to the results of the latest euro area might explain the new gloomier mood. are seeking to enlarge or better define their European CFO Survey, businesses in For example, these countries might be more customer base and increase the use of advanced Europe remain wary. Expectations about directly exposed to global macroeconomic technology in order to improve efficiency. the development of key business metrics threats. But the results might also indicate that A small minority of companies is building up a deteriorated further from six months ago. unresolved problems peculiar to the eurozone pool of external workers to tap into as a way Companies are less willing to invest and add to are a cause for concern for its businesses. In to increase their resilience. Companies who their workforce. A decline in demand and weak this respect, it is interesting to note that the succeed in creating and managing an ecosystem overall economic outlook are now the main proportion of CFOs considering of alternative workers may have a competitive concerns for CFOs in Europe. a new Euro crisis as particularly likely to happen advantage in the next downturn. increased substantially compared with one The sentiment across CFOs in Portugal follows year ago. this trend, with clear downturns in overall 05 European CFO Survey | Eyes on demand | The economic landscape The economic landscape 01 02 03 04 05 06 European CFO Survey | Eyes on demand | The economic landscape Macroeconomic update 01 Political unrest and economic slowdown have taken their toll on confidence, but growth forecasts remain positive. 02 After an upbeat beginning 2018 turned sour The German economy was affected particularly As political uncertainty mounted, the Italian 03 towards its end. A series of pivotal economic and almost slipped into recession in the last economy ended the year in recession. and political events took place at increasing quarter of 2018.