A recent report from Euler Hermes has examined 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.
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, their sense of optimism dropped significantly; with the percentage saying they felt ‘confident’ about the coming year falling from 50% to 36% and those reporting feelings of stress nearly doubled from 19% to 32% and the number saying they felt ‘scared’ nearly tripled from 9% to 23%.
Preserving working capital is now the top investment priority
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. The proportion of finance leaders seeing short-term debt, day-to-day operating expenses and management of large inventories as their main preoccupation increased from 17% to 30%. Preserving working capital is now their top priority.
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 poised to emerge strongly
Ultimately, 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," commented Loeiz Limon-Duparcmeur, group chief financial officer and member of the Board of Management at Euler Hermes. "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 manoeuvre 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.”
This Euler Hermes survey is based on three phases of research. Phase one was an online survey, conducted in February 2020 of 847 financial decision-makers in the UK, France, Germany, and Italy, sourced via an online panel. Phase two saw a series of telephone interviews with senior financial decision-makers across the same four markets. Phase three involved a re-fielding of the phase one quantitative survey to measure in what ways and to what extent the opinions of financial decision-makers had been impacted by Covid-19. A total of 222 respondents were surveyed.
Global Top 100 companies bounce back from March 2020 lows
As the Euler Hermes survey highlights some of the lessons learned by finance leaders, new analysis from PwC has shown that global equity markets have seen a strong bounce back from the low points seen in March 2020, but volatility remains elevated. This is according to a new quarterly update to the Global Top 100 companies by market capitalisation rankings, released by PwC.
The report notes that, most immediately, a disappointing reporting season for H1 2020 earnings could cause a re-evaluation of recession risks and associated stock valuations. Having decreased by 15% (US$3,905bn) from December 2019 to March 2020, the market capitalisation of the Global Top 100 as at June 2020 was only 1% (US$335bn) behind December 2019. By comparison, as at 30 June 2020 the MSCI World Index (representing large and mid-cap equity performance across 23 developed markets) was 7% behind December 2019, having recovered most of the ground lost in the first quarter of 2020.
"With the significant volatility in financial markets, the world’s largest companies provide relative security for investors," said Ross Hunter, IPO Centre leader at PwC. "The concentration of Technology and Consumer Services companies is a key driver of the Global Top 100 outperforming the wider market index. This is a challenging environment for all companies, but there are clear distinctions in the relative performance of different regions and sectors. I hope this quarterly review will provide interesting insights into how the markets are viewing the world’s largest businesses as they adapt to this uncertain landscape."
Global Top 100 companies from the US and China and its regions recovered first quarter losses in March to June 2020 - Europe and the rest of the world did not recover the lost ground.
Technology companies contributed to a 21% market capitalisation increase for US companies from March to June 2020.
The performance in China and its regions since December 2019 benefitted from a combination of being further advanced in recovering from the effects of COVID-19 and a strong Technology and e-commerce (Consumer Services) component.
Some 87 of the Global Top 100 companies as at June 2020 saw an increase in market capitalisation from March to June 2020, compared with just 10 from January to March 2020.
10 companies included in the Global Top 100 as at March 2020 have dropped out and did not qualify for the June 2020 list.
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