A new report from Euler Hermes examines how much the Covid-19 crisis shifted European financial leaders’ confidence and priorities for 2020. Carried out before and during the Covid-19 crisis in the UK, France, Germany, and Italy, the survey found financial leaders being cautiously optimistic coming into the year but the pandemic brought about increased levels of stress and exacerbated worries around late payments. Moving forward, despite a shift in business priorities technology remains a key focus for CFOs, but this must be conditional on protecting the business from risk.
The Covid-19 crisis has changed financial decision-makers’ expectations for the coming year
Before the crisis, financial leaders were predicting better financial performance despite the threat of high political risk, the rise of protectionism and climate change. The two most cited reasons for optimism were growing sales and profits, driven by an improving European economic situation and the adoption of new technologies. Since the outbreak, the optimism of financial leaders has dropped significantly, and the percentage of those who said they felt “confident” about the coming year has dropped from 50% to 36%, while the percentage of those who feel stressed increased from 19% to 32%. Moreover, existing worries around late payments were being exacerbated and new concerns around sales and profitability also appeared.
Preserving working capital is now the top priority for investment during the crisis
Prior to the pandemic, digital technology was the highest priority for investment. Since then, the way financial leaders view their priorities has changed and investment in new technologies is now overshadowed by working capital. Previously, they saw leverage as a way to invest in technology, new products and new machines, but this has now switched to a focus on preserving working capital. The proportion prioritizing this increased from 17% to 30%, meaning it has become the top priority compared to other potential investment areas
Despite a potential temporary delay of investments in new assets in the short term, technology maintains a significant weight amongst finance leaders’ priorities, with 21% of surveyed people advocating for investing in digital technologies in May, compared to 22% before the outbreak. Participants continued to rank the need to understand technology highly as a key skill of a CFO (49%) after financial planning (67%), strategic decision-making (56%), and business plan development (53%).
Payment delays are finance leaders most pressing concern
Even prior to the Covid-19 outbreak, risks around payment delays and client insolvencies were prevalent – affecting respectively 47% and 32% of businesses over the previous year. Since the crisis, things have escalated further – with 65% saying payment delays had affected them in the past two months when asked in May. On top of this, prior to the outbreak only 44% of businesses said they felt ‘fully prepared’ to deal with payment incidents and only 40% said the same for ‘client insolvencies’. Since the crisis, these figures dropped to 31% and 35% respectively, while global insolvencies are expected to increase by at least 35% at the horizon of end-2021
Businesses that are well prepared to manage risks will emerge strongly
The interviews conducted show that CFOs predict the current crisis may cause a polarisation of the business landscape. Businesses that are tech-savvy, who can adapt the quickest and who have robust risk-mitigation strategies in place, will survive.
“Like many of the respondents to this report, I was positive that we would achieve our growth ambitions in 2020. Now we are in a different world. I strongly believe that every crisis represents a key turning point for finance leaders. Having some margin to maneuver during a crisis is crucial and requires a much more forward- looking view. For this, new technologies are fundamental so that the focus is on the content and not wasted on spreadsheets”, said Loeiz Limon-Duparcmeur, Group Chief Financial Officer and Member of the Board of Management, Euler Hermes.
This report explores the world through the lens of the financial leader – both before and during the Covid-19 outbreak affecting Europe. The findings are based on three phases of research, each conducted a month apart, speaking to over 1,000 finance leaders in total.