Outlook 2013: Headcount reductions ahead to remain competitive

Deloitte Belgium publishes results of its Belgian CFO Survey for Q4 of 2012

Brussels, 20 December 2012 – Today, Deloitte announces the results of its quarterly Belgian CFO Survey, conducted between 27 November and 14 December 2012. The survey results indicate that 2013 will again become a difficult year. Recovery will be slow and is unlikely to happen before 2014. Continuing economic and financial uncertainty negatively impacts investments plans. CFOs are worried about their competitive position and therefore remain focused on cost reduction. Headcount reduction will take place at more than half of surveyed organisations. But there is some light at the end of the tunnel: the overall pessimistic mood gradually improves, and risk appetite has rallied up. A retrospect of 2012 also shows that many organisations have learned to navigate in difficult times, have adapted their strategies and tuned cost structures to the new reality.

Results for 2012 are disappointing, but there is some light at the end of the tunnel

Notwithstanding the extremely pessimistic mood of Belgian CFOs one year ago at the time when many of them prepared their 2012 company budgets, 43% of the surveyed organisations have not achieved their financial budget for 2012. On the positive side, many organisations managed to do better in the second half of this year after a very bad second quarter, when close to 60% of CFOs reported they were running behind budget.

Over 60% of CFOs do not expect the Belgian economy to recover until 2014. They expect growth to be flat in 2013 at best. CFOs are more optimistic about demand for their own products and services as they are about the growth of the Belgian economy as a whole. Thierry Van Schoubroeck, Partner at Deloitte Belgium and responsible for this quarterly survey: "One year ago many CFOs indicated that 2012 seemed a lost year before it had even started and that the recession might be long. We now see that their opinion about 2013 is not all that different."

Business strategies for 2013 will not change significantly from 2012: businesses continue to look for growth, but with prudence. Risk appetite has seen the first noteworthy increase in 18 months this quarter, while cost reduction and cashflow management remain high priorities. The focus of CFOs remains on organic growth, however, expectations for merger and acquisition activity – while still moderate – continue to slowly rise.

Fears for deep recession weaken… but the economic downturn continues

CFO sentiment remains pessimistic, but has continued its slow recovery from the extreme lows witnessed one year ago. At the verge of 2013, CFOs indicate that today's economic situation and its impact on their organisations closely resembles their uncertainty levels of last year – more than 80% of the participating CFOs rate the general level of economic and financial uncertainty high or above normal. Van Schoubroeck: "CFOs are particularly concerned about the timing and pace of the economic recovery and their organisation's competitive position in the market. The impact of regulation and of Belgian financial and economic policy-making on Belgian businesses completes the top three concerns."

CFOs are slightly more positive at European level. EU President Herman Van Rompuy reported (once again) on 14 December that the worst of the Eurocrisis is behind us. CFOs tend to agree with his virtue: only 10% of respondents seriously consider the possibility of one or more Eurozone members leaving the currency union, down from 42% in the second quarter. As a consequence, organisations are hardly developing any plans to deal with this scenario.

Labour cost threatens employment

The pessimistic attitude is reflected in the CFO opinion about the evolution of headcount in their organisations during the next two years. The results give significant reason for concern for the Belgian labour market. 54% of the CFOs expect the headcount in their organisation to be lower by the end of 2014 than it is today. Policy measures with a direct impact on the reduction of the cost of labour are at the top of the priority list for CFOs. Decreasing the social contribution of employers, skipping one index adjustment and reforming the automatic wage indexation system are reported to potentially have the most positive impact on organisations. Van Schoubroeck: "The gloomy expectations on headcount evolution suggest that there is a lot to be done in this area. The role of the government is important here as organisations can only do so much themselves."

External financing remains attractive

With interest rates at a historic low, corporate debt and bank borrowing are attractive means of financing. Long-term interest rates are expected to remain low, while CFOs anticipate pricing terms and lending terms to become tougher going forward. Although the availability of bank loans has slightly increased, bank borrowing remains hard to get for the average CFO.

CFOs report their 2012 investment plans have been negatively impacted by the high level of general financial and economic uncertainty, Belgian's financial and economic policy making and the depressed growth projections. Little improvement is expected in these areas for the next 12 months, and an increase in investments is therefore likely to remain modest as well. Access to funding however, has not been a major inhibitor to investments.

Preparing for 2014

At the end of 2012, many of the main survey indicators are similar to last year's report: uncertainty remains high, financial results are disappointing and the economic recovery will be weak and slow: 2013 will be another difficult year.

But there is light at the end of the tunnel. Many organisations have learned to navigate in difficult times and have adapted their strategies and tuned cost structures to the new reality. The overall mood remains pessimistic, but has nonetheless gradually improved over the last three quarters. Risk appetite has seen its biggest increase in three years and access to financing is still available – though not for all. Van Schoubroeck concludes: "Tomorrow's winners are preparing today. CFO's projected headcount reductions in their pursuit to remain competitive need to be viewed in this context. The impact of the federal government's financial and economic policies, in particular on the cost of labour, remains an important point of attention."