Central Europe CFO Survey 2018 · BG HR RS SI HU SK CZ UA CZ Czech Republic HU Hungary HR Croatia BG Bulgaria LT Lithuania UA Ukraine PL Poland SK Slovakia RO Romania RS Serbia SI

Balancing optimism with risk aversionCentral Europe CFO Survey2018 | 9th edition

Balancing optimism with risk aversion | Central Europe CFO Survey 2018

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We would like to thank all participating CFOs for their efforts in completing our survey. We hope the report makes an interesting read, clearly highlighting the challenges facing CFOs, and providing an important benchmark to understand how your organization rates among peers.

Foreword 5

Key findings 6

Methodology 8

CFO Confidence Index is up 11

Economic outlook 13

Business environment outlook 25

Company growth outlook 43

Automation 55

Contacts 66

Contents


3

4

Brochure / report title goes here | Section title goes here

5


ForewordThe broad picture arising from this year’s survey of CFOs across Central Europe is a complicated one. On the one hand, the majority of CFOs anticipate favourable macroeconomic conditions in 2018. On the other, some economies (such as the Czech Republic and Poland) have already achieved their historically low rates of unemployment. They are therefore reliant on inbound workers to keep their economies growing.

The CFO Confidence Index reaches a three-year high in this edition of the survey, but economic and financial uncertainty still appears to be a significant factor in how participating CFOs perceive the economy. Next time, it would be interesting to ask what would need to happen for them to view the external uncertainty facing their countries and companies as ‘low’. Maybe policy makers could then deliver the measures needed to make this happen, allowing companies to make more long-term, innovative investments.

This year, our special questions focused on interest rates. It came as no surprise that CFOs expect rates to remain stable or to rise: rates are already very low, and it would be unusual for central banks to reduce them in a positive environment for inflation and GDP growth. Whether or not rates go up, CFOs are not anticipating much change in company strategies.

Chapter "Economic outlook" deals with the macro-economic perspective, covering CFOs’ expectations for change across a series of main indicators (GDP, unemployment, inflation and interest rates). CFOs are more confident than last year that the next twelve months will bring GDP growth, with mean predictions ranging from 1.8% in the Ukraine to 2.9% in Slovakia. This optimism seems to be supported by GDP forecasts of independent economists, whose

expectations are for GDP growth of at least these levels. For example, CEEMEA Business Group thinks the Slovak economy will grow by 3.6% in 2018.

In the Chapter "Business environment outlook" we cover CFOs’ perspectives on the business climate in which they operate. Similarly to last year, a majority of CFOs are not willing to take more risk onto the balance sheet as they fear external uncertainty at both a country and a company level. The largest proportion of respondents think that the most pressing challenges they face in 2018 will include attracting highly skilled employees and managing an overall increase in costs.

Chapter "Company growth outlook" is all about company perspectives. These are broadly unchanged since last year, which is shown by the fact that the Company Perspective Confidence Index is positive and only slightly higher than in our last survey. We see this as an indication that CFOs are confident their companies’ financial prospects for the next twelve months are good, with a high likelihood of revenues increasing.

In the final Chapter "Automation" we consider the prospects for robotic process automation (RPA). CFOs realise that implementing more and more process automation – not only in the finance department but across the whole organisation – is inevitable in this age of company digitalisation. However, many CFOs have difficulty in estimating the possible savings to be gained from RPA.

To sum up, CFOs across Central Europe are looking forward to 2018 with optimism. At the same time, they are well aware of the possible obstacles and will restrict the risks they take.

Gavin FlookCFO Programme LeaderDeloitte Central Europe

6


Key findings

Economic outlook

85%of CFOs think inflationwill increase in 2018

CFOs are predicting average GDP growth of 2.4%in their countries (0.5 percentage pointsmore than in 2017)

55%expect interest ratesto rise during the year

Business environment outlook

A significant majority – 69% of respondents– do not think 2018 will be a good time

for companies to take on more risk

44% believe the impact of interest rateson their business is too small to influence

company strategy

Company growth outlook

91% of CFOs expectworkforce costs

to increase in 2018

Only a small fractionof CFOs, 13%, expects CAPEX*

to fall in 2018

Nearly half (46%) of CFOsexpect their workforce

to expand in 2018, slightlymore than in the 2017 survey

44%69%

*capital expenditures

7


Economic outlook

85%of CFOs think inflationwill increase in 2018

CFOs are predicting average GDP growth of 2.4%in their countries (0.5 percentage pointsmore than in 2017)

55%expect interest ratesto rise during the year

Business environment outlook

A significant majority – 69% of respondents– do not think 2018 will be a good time

for companies to take on more risk

44% believe the impact of interest rateson their business is too small to influence

company strategy

Company growth outlook

91% of CFOs expectworkforce costs

to increase in 2018

Only a small fractionof CFOs, 13%, expects CAPEX*

to fall in 2018

Nearly half (46%) of CFOsexpect their workforce

to expand in 2018, slightlymore than in the 2017 survey

44%69%

*capital expenditures

8


LT

PL

RO

BG

RSHR

SI

HU

SK

CZ

UA

CZ Czech Republic

HU Hungary

HR Croatia

BG Bulgaria

LT Lithuania UA Ukraine

PL Poland

SK Slovakia

RO Romania

RS Serbia

SI Slovenia

LV

LV Latvia

The findings discussed in this report represent the opinions of

600 CFOs

MethodologyAbout the data

The findings presented and discussed in this report represent the opinions of nearly six hundred CFOs based in twelve Central European countries: Bulgaria, Croatia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Serbia, Slovakia, Slovenia and the Ukraine.

The survey was conducted between September and November 2017.

When ‘Eurozone’ is used in the charts and infographics in this report, it refers to the Central European countries in the survey that have adopted the European currency. ‘Non-Eurozone’ refers to the other CE countries covered by the survey. When we use ‘EU’, this refers to those surveyed Central European countries that are full members of the European Union.

Some of the charts in the report show results as an index value (net balance). We calculate this by subtracting the percentage of respondents giving a negative response from the percentage giving a positive response. We deem responses that are neither positive nor negative to be neutral. Due to rounding, responses to the questions covered in this report may not aggregate to 100.

Some findings include a comparison with those presented in the previous edition of this survey, based on a sample of the eleven countries that appear in both editions. Please note that due to the limited number of answers from Slovakia and the Public Sector in the current survey, data concerning those two elements needs to be interpreted cautiously.

The Deloitte Central Europe CFO Confidence Index consists of three sub-indices that reflect CFOs’ optimism (or lack of it) about three key issues:

• Economic processes (the Economy Confidence Index): this is based on questions about economic growth, unemployment and the Consumer Price Index (CPI);

• The business environment (the Business Environment Confidence Index): this is based on questions concerning uncertainty, risk, operational expenses, the attractiveness of different sources of funding and opinions about the M&A market;

• Prospects for the development of the CFOs’ companies (the Company Perspective Index): this is based on questions concerning the company's future, its financial position (revenue, debt-servicing capabilities, capital expenditure and margins), its predicted level of gearing and employee numbers.

The sub-indices are a mean of the net balance index for selected questions. The main index is a mean of the sub-indices and assumes values between - 100 and 100: - 100 means that a given CFO provided only pessimistic answers, while 100 means only optimistic answers were given.

based in

12 Central European countries:

Bulgaria (BG), Croatia (HR),the Czech Republic (CZ), Hungary (HU), Latvia (LV), Lithuania (LT), Poland (PL), Romania (RO), Serbia (RS), Slovakia (SK), Slovenia (SI) and the Ukraine (UA).

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LT

PL

RO

BG

RSHR

SI

HU

SK

CZ

UA

CZ Czech Republic

HU Hungary

HR Croatia

BG Bulgaria

LT Lithuania UA Ukraine

PL Poland

SK Slovakia

RO Romania

RS Serbia

SI Slovenia

LV

LV Latvia

10


11


CFO Confidence Index is up

2017

EconomyConfidence

Index

BusinessEnvironmentConfidence

Index

CompanyPerspectiveConfidence

Index

CFOConfidence

Index

-2

1113

29

2018

0%scale (-100; +100)where -100 means all answersare negative and +100all answers are positive

EconomyConfidence

Index

BusinessEnvironmentConfidence

Index

CompanyPerspectiveConfidence

Index

CFOConfidence

Index

-22

60

2332

Overall, the participating CFOs display more confidence than in previous editions of the survey. The CFO Confidence Index has risen by 10 pp, from 13% last time to 23%. This rise is mainly driven by increased optimism among finance function leaders regarding future macro-economic conditions.

There is a significant increase in the Economy Confidence Index, rising by 49 pp to 60%. This may reflect the robust

performance of the European economy in 2017, leading to a highly optimistic outlook for 2018.

At the same time, the value of the Business Environment Confidence Index has shown a steep decline (from -2 to -22%). This may be linked to the fact that CFOs are predicting almost all cost categories to increase in 2018. Cost-related issues have a high impact on the value of this index.

At 32%, the value of the Company Perspective Confidence Index is little changed from that in last year’s report (29%). This may reflect the fact that CFOs expect their companies to develop steadily in the year ahead, with a positive economic performance balancing out any cost pressures.

CFO Confidence Index by sub-indices


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13


Economic outlook

GDP growth during 2017 was better than participating CFOs anticipated in the last report: five of the twelve countries in our sample achieved 3.5% growth or higher in the third quarter, with Romania leading the way. Such strong GDP growth rates may have influenced CFOs’ predictions this time – when it comes to growth rates in 2018, there has been a significant rise in optimism.

The average prediction for GDP growth for each of the countries in our sample is positive, equalling 1.8% or above. The average prediction for all countries is 2.4%, a rise of 0.5 pp since the previous survey.

In addition, it is likely that rapid growth has contributed to the fact that the majority of CFOs expect interest rates to increase or remain the same in 2018; CFOs from Eurozone countries are more likely to expect interest-rate stability than their non-Eurozone counterparts.

For the second successive time, the proportion of CFOs expecting a fall in unemployment has risen, this time reaching 47%. Only in the Czech Republic did we see a negative net balance of answers, meaning that when it comes to the employment outlook for 2018 more Czech CFOs are pessimistic than optimistic.

An overwhelming net balance of 85% of CFOs also believes that consumer prices will increase in 2018. This belief is particularly strong in the Czech Republic and Lithuania, with more than 90% of respondents expecting a positive inflation rate in 2018.


14

CFOs are again more optimistic on GDP growthThe proportion of CFOs expecting high or very high GDP growth in the next year has nearly doubled since the last survey (from 21% to 41%). Similarly, the mean of CFOs’ predictions for GDP growth has risen from 1.9% to 2.4%. (The scale in question was from -5% to 5%.) The optimistic predictions for GDP are understandable: following the financial crisis and slow down, accelerating economic performance is currently giving a boost to all sectors.

CFOs in Slovenia and Bulgaria expressed the highest optimism about GDP growth in 2018, 55% and 54% of respondents respectively expecting growth of at least 2.6%. The most conservative CFOs are those from the Ukraine, where less than one in five respondents expect such a fast growth rate and the net balance of answers stands at -27%.

This is mainly due to the difficult political situation and war in the eastern part of the country, which continue to prevent the economy from performing normally.

2016 2017 EU BG HR CZ HU LT PL RO SK SI UARSEurozoneCE 2018 LV

Low (0.6% - 1.5%) Medium (1.6% - 2.5%) Very low (≤0.5%) Very high (≥3.5%) High (2.6% - 3.5%) Net balance

-35%-16%

20% 24% 32% 39%

-13%

26% 33% 31% 25% 34%

7%

-3%

50%

33%

-27%

Net

ba

lanc

e

10% 13%8% 8% 9% 6%

15%4% 7% 7%

17%6%

15%9% 8% 7%

40%24%

14% 12% 9%9%

15%

10%11% 10%

4%

14%

19%

15% 14%

33%

35%

41%

36% 34%32%

30%

53%

46%30% 36%

33%27%

26%55%

50%

22%

47%

14%

13%

30% 32%38%

33%

18%

31%44%

29%

42%

40% 19%

18%

30%47%

13%

1%

8% 11% 13% 13%21%

9% 7%

19%

4%

14%22%

3%

20%

8%

What is your expectation for your country’s economic GDP growth for the year 2018?


15

Similarly to last year, CFOs most often underestimated the GDP growth potential among CE countries. In none of the twelve countries surveyed was the GDP growth rate less than 2% during the third quarter of 2017. Romania stands out with an excellent GDP growth rate of 8.8%. Such strong current GDP growth rates may be the reason behind the second successive increase in CFO optimism about the pace of growth during the next year.

Predictions of GDP growth in 2017 versus real GDP growth in Q3 20171,2

Country

Expected 2017 GDP

GDP Growth Q3. 2017

Very low (≤0.5%)

Low (0.6%-1.5%)

Medium (1.6%-2.5%)

High (2.6%-3.5%)

Very high (>3.5%)

Bulgaria 3.90% 19% 23% 36% 13% 10%

Croatia 3.30% 15% 26% 54% 3% 3%

Czech Republic 5% 15% 24% 55% 5% 3%

Hungary 3.90% 21% 35% 45% 0% 0%

Lithuania 3.10% 21% 14% 50% 7% 7%

Poland 4.90% 10% 12% 36% 30% 12%

Romania 8.80% 11% 19% 23% 17% 30%

Serbia 2.10% 18% 24% 40% 16% 2%

Slovakia 3.40% 29% 42% 29% 0% 0%

Slovenia 4.50% 10% 35% 47% 6% 2%

Ukraine 2.10% 10% 34% 33% 15% 9%

1 Data obtained from: https://pl.tradingeconomics.com/country-list/gdp-annual-growth-rate?continent=europe

2 Latvia didn’t participate in the previous edition of the survey.

Positive expectations for factors like GDP, unemployment, inflation and interest rates abound across most markets. In particular, GDP growth is regarded positively, with predictions ranging from 1.8% in the Ukraine to 2.9% in Slovakia.


16

The GDP growth predictions for 2018 are broadly consistent across industries. Public Sector CFOs are particularly optimistic (57% of them expect GDP growth of at least 2.6%). The most negative views are held in the Life Sciences industry, where 36% of CFOs anticipate growth to be no higher than 1.5% during 2018.

13%3% 4% 11% 11% 10%

14% 10%18%

15%

15% 13%5%

36% 15% 15%4%

41%30%

39%34% 39%

29%

31% 37%

29%

50%

32% 35%30%

32% 27%

29%

30%

13%

30%57%

28%

9% 7%13% 17% 18%

7% 9% 8%

Business& Professional

Services

Energy,Utilities,Mining

FinancialServices

Manufacturing Other Public Sector Technology,Media,

Telecommunications

ConsumerBusiness

Construction& Real Estate

LifeSciences

23%13%

24%32% 29%

0%

17% 13%

43%

22%

Net

ba

lanc

e

Low (0.6% - 1.5%) Medium (1.6% - 2.5%) Very low (≤0.5%) Very high (≥3.5%) High (2.6% - 3.5%) Net balance

What is your expectation for your country’s economic GDP growth for the year 2018?

Very strong GDP growth rates may have influenced CFOs’ predictions this time – when it comes to growth rates in 2018, there has been a significant rise in optimism.


17

CFOs are positive about unemploymentThere is a consensus among CFOs that unemployment rates in Central Europe countries will fall during 2018. The Czech Republic was the only country to deliver a negative net balance of answers. Interestingly, the sentiment is quite the opposite in neighbouring Slovakia, where 100% of respondents expect unemployment to fall.

The net balance of answers is nearly twice as optimistic as in 2016, rising from 18% to 34%. The fall in the unemployment rate is a factor in CFOs’ optimism about overall market conditions.


No change Increase Decrease Net balance

18% 27% 34% 34%

76% 67%

30%

-8%

54%

76%

58%34%

13%27%

100% 81%

40%

Net

ba

lanc

e

41% 45% 47% 46%

76% 73%

45%

13%

54%

76%

58%49%

33%

55%

81%

57%

36%38%

40% 42%

24%21%

40%

66%

46%

24%

42%

36%

48%

18%

19%

27%

23%18%

13% 12%6%

15%21%

15%20%

27%17%

100%

How do you expect unemployment levels in your country to change over the next twelve months?


18

CFOs from the Consumer Business, Manufacturing and Construction & Real Estate sectors are the most optimistic about prospective unemployment levels, with half or more respondents expecting unemployment to fall in 2018.

The most pessimistic CFOs represent the Technology, Media, Telecommunications (TMT) and Business & Professional Services sectors, where more than 25%

of respondents expect unemployment to increase. This may be due to significant changes in the sales channels affecting the sector and therefore the business models these companies operate.

45% 50%57%

43% 45%36%

50%40% 43% 42%

27%

41%38%

49%38%

50%

40%

44% 43%

32%

27%

9%5% 9%

18% 14% 10%15% 14%

26%


Services


FinancialServices


Telecommunications

ConsumerBusiness


LifeSciences


18%

41% 53%34%

27% 21%

40%25% 29%

16%

Net

ba

lanc

e

How do you expect levels of unemployment to change in your country over the next twelve months?

The proportion of CFOs expecting a fall in unemployment has risen, this time reaching 47%. The Czech Republic was the only country to deliver a negative net balance of answers. Interestingly, the sentiment is quite the opposite in neighbouring Slovakia, where 100% of respondents expect unemployment to fall.


19

Most CFOs expect inflation to riseCFOs’ conviction that the next year will bring consumer price increases has risen since the previous survey (by 12 pp to 85%). This belief is most common in the Czech Republic and Lithuania, where more than 90% of respondents anticipate an inflation rate of higher than zero in 2018.

The overall net balance for all surveyed countries is 81%, significantly higher than in the last survey. After several years of very low inflation, or even deflation in some countries, price rises are anticipated whenever there is significant boost to GDP.


2017 2018 EU BG HR CZ HU LT PL RO SK SI UARSEurozoneCE LV

67%81% 85% 87%

76% 70%

95%85% 90% 88% 83% 86%

33%

90%81%

60%

Net

ba

lanc

e

6% 4% 3% 1% 3% 5% 1% 2% 4% 5% 5%15%

20%

22%

10% 9% 12%18%

20%

4% 11%10% 4%

8% 5%

36%

10%

73%

85% 88% 88%79% 75%

95%87% 90% 92% 87% 91%

48%

90%81% 80%

19%

How do you expect CPI (Consumer Price Index) levels to change in your country over the next twelve months?


20

CFOs from all industries expect to see a rise in the Consumer Price Index (CPI) in 2018. Those from the Public Sector are the most conservative in this respect, with only 57% selecting this response. By way of contrast, more than 90% of respondents from three industries (Business and Professional Services, Life Sciences and Construction & Real Estate) expect consumer prices to rise.

2% 3% 9% 6% 5%

29%

5%4%

14%15%

9%

7%8% 10%

14%

18%

95% 93%83% 85% 82%

93%86% 86%

57%

82%


Services


FinancialServices


Telecommunications

ConsumerBusiness


LifeSciences


95% 91%

79%85%

73%

93%80% 81%

29%

82%

Net

ba

lanc

e

How do you expect CPI (Consumer Price Index) levels to change in your country over the next twelve months?

CFOs across Central Europe are looking forward to 2018 with optimism. At the same time, they are well aware of the possible obstacles and will restrict the risks they take.


21

CFOs expect interest rates to rise or stay the sameCFO opinions on the future direction of interest rate are mixed, with notable differences between countries. The two most common answers are that rates will remain unchanged or increase. It is important to note that countries in the Eurozone have their interest rates set by the ECB (European Central Bank).

This may explain why in those countries 51% of CFOs do not expect interest rates to change, compared to just 39% in the sample as a whole.

2018 EU BG HR CZ HU LT PL RO SK SI UARSEurozone LV

They will stay the same They will go up They will go down

6% 4% 2%15%

23%

6% 2% 4%

27%

39%38%

51%

64%55%

6%

63%

52%

71%

58%

7%

61%

40% 39%

55% 59%47%

21% 23%

94%

31%

45%

25%

42%

93%

12%

60% 61%

40%

33%

27%

CE

What do you expect to happen to interest rates in your country over the next twelve months?


22

CFOs from the Business & Professional Services sector are most positive that interest rates will rise in 2018 – 82% of them selected this answer. While a majority of CFOs from other industries share this view, a significant proportion of respondents expect interest rates to remain unchanged.

No more than 15% of respondents from any sector expect interest rates to fall during the next twelve months. This is understandable at a time when interest rates in most countries are at their lowest level for several years or even decades.

9% 11% 9% 2%13% 14%

3% 3%14%

4%

9%

43%41%

36%

39%43%

42%37%

57%

36%

82%

46% 49%

62%

48%43%

54%61%

29%

60%


Services


FinancialServices


Telecommunications

ConsumerBusiness


LifeSciences

They will stay the same They will go up They will go down

What do you expect to happen to interest rates in your country over the next twelve months?

It came as no surprise that CFOs expect rates to remain stable or to rise: rates are already very low, and it would be unusual for central banks to reduce them in a positive environment for inflation and GDP growth.


23

24

Brochure / report title goes here | Section title goes here

25


Business environment outlookCFOs expect costs in the majority of categories to increase during 2018, making it challenging for them to keep costs down to reasonable levels. Nearly all respondents believe that the costs of hiring skilled professionals will increase in the year to come.

Many CFOs still perceive country-level economic uncertainty as high, which may explain why a majority are reluctant to take more risk onto their balance sheets. Given such circumstances, it is understandable that CFOs find the idea of internal financing attractive.

This year, we asked about the possible impact of interest rate rises on company strategies. CFOs generally believe that interest rates have only a limited role to play in the operation of their companies. They mostly therefore have no plans to adjust strategy in the event of a rise.


26

2018 will bring higher costs for companiesCFOs expect most costs to increase in 2018. The main exceptions are tax-related costs and provisions for bad debt, which are predicted to remain stable. A stand-out observation is that 91% of respondents think workforce costs will be higher in 2018 than now. In addition, more than three-quarters of CFOs expect overall production/delivery and transportation costs to increase next year.

It is worth emphasising that those categories that depend on manpower are the ones mostly felt to be at risk of cost increases in the year ahead. This is due to the very low unemployment rate across the region, which is forecast to decrease further and so increase the pressure to reward employees more highly.

10% 7% 2%14%

5% 7% 4% 3% 2% 1%

35%46%

7%

55%

27%

75%88%

34%

21% 24%

55%47%

91%

31%

68%

18%9%

63%

77% 76%

Costof debt

Provisionfor bad debts

Real estatecosts

VAT Costof business-related

services

Overallproduction/

deliverycosts

Transportationcosts

Costof workforce

Costof equity

Corporatetax


-46% -40%

-88%

-18%

-63%

-11% -5%

-60%-74% -75%

Net

ba

lanc

e

In your view, how are costs for companies in your country likely to change over the next twelve months?


27

Regardless of industry, CFOs expect increases across most cost categories in 2018. CFOs from two industries stand out in anticipating higher costs: the Business and Professional Services industry, in the area of workforce costs; and the Life Sciences industry, relating to overall production costs.

CFOs in the Business and Professional Services industry predicted increases in six of the ten cost categories they examined. In Manufacturing, cost rises relating to workforce, transportation and overall production were mentioned most frequently – by at least four out of five CFOs.

CFOs in most industries anticipate stability when it comes to tax (VAT and CIT). However, there is a light inclination towards pessimism (represented by a low and negative net balance of answers in most industries). Interestingly, Financial Services CFOs are the most optimistic in this respect; theirs is the only industry in which more respondents expect tax cuts than anticipate tax increases.

In your view, how are costs for companies in your country likely to change over the next twelve months?

Business & Professional

Services

Construction & Real Estate

Consumer Business

Energy, Utilities, Mining

Financial Services

Life Sciences

Manufacturing OtherPublic Sector

Technology, Media,

Telecommunications

Cost of debt

No change 9% 37% 32% 32% 38% 36% 39% 36% 29% 32%

Net balance -73% -37% -40% -55% -30% -50% -49% -47% -43% -44%

Cost of equity

No change 27% 59% 46% 51% 46% 64% 46% 41% 29% 48%

Net balance -73% -28% -43% -36% -36% -36% -42% -41% -71% -32%

Cost of workforce

No change 0% 4% 6% 6% 16% 7% 4% 6% 29% 12%

Net balance -100% -87% -92% -81% -77% -79% -95% -87% -71% -88%

Provision for bad debts

No change 50% 57% 55% 60% 34% 57% 62% 60% 0% 52%

Net balance -32% -22% -17% -23% -9% -29% -12% -13% -14% -36%

Real estate costs

No change 36% 20% 29% 32% 27% 7% 30% 24% 14% 28%

Net balance -55% -67% -64% -60% -66% -64% -62% -64% -57% -60%

Corporate tax

No change 91% 70% 75% 79% 73% 71% 75% 73% 86% 76%

Net balance -9% -22% -21% -4% 2% -14% -10% -10% -14% -12%

VATNo change 91% 80% 91% 87% 95% 93% 85% 87% 86% 90%

Net balance -9% -11% -5% -9% 2% -7% -7% -2% 14% -6%

Cost of business-related services

No change 27% 35% 33% 26% 32% 7% 37% 35% 57% 42%

Net balance -73% -61% -60% -57% -64% -93% -59% -62% -43% -42%

Overall production/delivery costs

No change 14% 17% 24% 23% 38% 0% 15% 19% 29% 30%

Net balance -86% -74% -71% -68% -55% -100% -83% -79% -43% -66%

Transportation costs

No change 23% 17% 23% 36% 43% 21% 17% 13% 71% 32%

Net balance -77% -83% -75% -64% -54% -79% -81% -85% -29% -64%


28

CFOs expect at least the same level of M&A activity in 2018The vast majority of CFOs, regardless of country, think the level of M&A transactions in 2018 will be similar to or higher than that of 2017. Overall, CFOs’ expectations regarding M&A in 2018 are nearly the same as their predictions were for 2016.

There are some notable differences from country to country. The most optimistic CFOs are from Slovakia, where 70% of respondents expect M&A transaction levels to increase. The net balance is lowest in Poland, the Czech Republic and Romania, not exceeding 40% in any of these countries.

How do you expect M&A levels to change in your country over the next twelve months?



47%54%

46% 45%54% 58% 55%

39%52% 52% 50%

36% 38%48%

70%56%

47%

Net

ba

lanc

e

5% 4% 6% 6% 3% 3% 5% 5% 4% 4% 8% 10% 3% 6% 7%

43%37%

43% 43%40% 36% 35%

50%

41% 48% 42%

48% 41%45%

33%40%

52%59%

51% 51%57% 61% 60%

45%56% 52% 54%

44% 49% 52%

70%61%

53%

30%


29

The most optimistic opinions on the level of M&A transactions in 2018 are held by CFOs from the Financial Services industry, with 68% expecting an increase in activity. CFOs in the Life Science and Construction & Real Estate industries express the most conservative views, with more than 10% expecting M&A levels to fall in 2018.

Over the next twelve months, how do you expect M&A levels to change in your country?


9% 13%2% 6% 2%

14%4% 7% 8%

41%39%

46%43%

30%

43%

51%38%

43%

44%

50% 48% 52% 51%

68%

43% 45%56% 57%

48%


Services


FinancialServices


Telecommunications

ConsumerBusiness


LifeSciences

41% 35%49% 45%

66%

29%41%

49% 57%40%

Net

ba

lanc

e

On the one hand, the majority of CFOs anticipate favourable macro-economic conditions in 2018. On the other, some economies have already achieved their historically low rates of unemployment. They are therefore reliant on inbound workers to keep their economies growing.


30

CFOs expect normal or higher country-level uncertainty CFOs’ expectations for future levels of external financial uncertainty differ substantially between countries, but there is a negative net balance in nearly all countries. Most CFOs see the uncertainty level as normal or high, but expectations of low uncertainty were most common among those from the Czech Republic, Hungary and Lithuania (ranging from 17% to 25%).

The most negative views are held by CFOs from the Ukraine and Romania. In the Ukraine’s case, this is probably linked to poor political stability and the country’s conflict with Russia.

How would you rate the overall level of external financial and economic uncertainty in your country?

2018 EU BG HR CZ HU LT PL RO SK SI UARSEurozoneCE LV

Normal level of uncertainty High level of uncertainty Low level of uncertainty Net balance

-26% -24% -22%

-6%

-65%

22%

-6%

-43%

-4%

-33%

-74%

-21%-10% -14%

-73%

Net

ba

lanc

e

11% 12%7%

12%5%

25%17% 17%

12%2% 6% 10% 8%

51% 52% 63%

70%

25%

71%

61%

57%

63%

44%

21%

67%70% 69%

38% 36%29%

18%

70%

4%

22%

43%

21%

44%

77%

27%20% 22%

77%

20%

3%


31

CFOs’ views on external financial uncertainty in 2018 are quite similar across all industries, with most expecting normal or high levels of uncertainty.

CFOs from the Life Sciences industry appear to be the most relaxed, with 21% expecting low external uncertainty.

This contrasts with the Public Sector, where 57% of respondents anticipate high levels of external financial and economic uncertainty in their countries.

How would you rate the overall level of external financial and economic uncertainty in your country?

14%9%

16%11% 9%

21%12% 9% 10%

50%

46%

47%47%

59%43%

56%

48%

43%

54%

36%46%

37%43%

32% 36% 32%43%

57%

36%


Services


FinancialServices


Telecommunications

ConsumerBusiness


LifeSciences


-23%-37%

-21%-32%

-23%-14%

-20%

-35%-57%

-26%

Net

ba

lanc

e

Despite the groundswell of confidence in most of the countries, economic and financial uncertainty still appears to be a significant factor in how participating CFOs see the immediate future.


32

In most countries, CFOs have no plans to change their strategies in the event of interest rate rises. The two reasons given were the low impact of interest rates on their business and their belief that the rates will remain the same. Among the strategies for change that CFOs did mention, the one chosen most often was debt reduction; this appears to be a conservative move.

Serbia, where CFOs also often mentioned other strategies, is something of an exception to this rule.

If interest rates were to rise in the next twelve months, which one of the following strategies do you think would be most appropriate for your business?

Interest rate increases will not impact strategies

Adapt production

plans to cope with changes

in demand

Increase debt

OtherReduce

debt

Reduce leverage

ratio

Refinance debt

Revaluate investment

plans

Shift marketing approach (e.g. less

emphasis on pricing and more on other apsects)

Strategy remains unchanged – a rise in interest rate will

have little impact on my business

Strategy remains

unchanged – we do not believe interest rates

will rise

2018 4% 1% 2% 12% 5% 7% 8% 3% 44% 13%

EU 4% 1% 2% 12% 5% 7% 8% 3% 46% 12%

Eurozone 4% 0% 4% 13% 4% 5% 4% 4% 46% 16%

BG 6% 3% 0% 9% 6% 6% 12% 3% 27% 27%

HR 0% 0% 3% 20% 8% 15% 13% 0% 30% 13%

CZ 5% 2% 1% 8% 6% 5% 4% 0% 66% 3%

HU 2% 0% 2% 2% 2% 4% 7% 2% 52% 28%

LV 7% 0% 5% 7% 2% 12% 10% 0% 52% 5%

LT 4% 0% 0% 17% 0% 4% 4% 13% 42% 17%

PL 2% 1% 5% 15% 2% 2% 8% 3% 45% 15%

RO 8% 1% 1% 15% 8% 13% 17% 6% 30% 0%

SR 12% 3% 0% 9% 9% 15% 12% 0% 18% 21%

SK 0% 0% 0% 10% 10% 0% 0% 0% 50% 30%

SI 3% 0% 6% 17% 8% 0% 0% 3% 39% 25%

UA 0% 0% 0% 23% 0% 3% 3% 3% 50% 17%


33

CFOs in almost all sectors do not think that a rise in interest rates would have a significant impact on their businesses, meaning they would not change strategy. This approach is most common in the Life Sciences industry, where 64% express such a view.

In the Business & Professional Services industry, however, 23% of CFOs would choose to re-evaluate their investment plans. This is notably more than in other industries.

Attitudes in the Public Sector are mixed – the options of reducing debt, refinancing debt and keeping the current strategy were each chosen by 29% of CFOs.

If interest rates were to rise in the next twelve months, which one of the following strategies do you think would be most appropriate for your business?

Adapt production

plans to cope with changes

in demand

Increase debt

OtherReduce

debt

Reduce leverage

ratio

Refinance debt

Revaluate investment

plans

Shift marketing approach (e.g. less

emphasis on pricing and more on other apsects)

Strategy remains unchanged –

a rise in interest rate will have

little impact on my business

Strategy remains

unchanged – we do not

believe interest rates

will rise

Business & Professional Services

5% 0% 0% 5% 5% 5% 23% 14% 36% 9%


2% 0% 0% 17% 7% 7% 11% 4% 33% 20%

Consumer Business 0% 0% 1% 17% 7% 6% 5% 0% 51% 14%


0% 2% 6% 11% 9% 4% 6% 0% 51% 11%

Financial Services 11% 2% 5% 9% 0% 5% 14% 5% 32% 16%

Life Sciences 7% 0% 0% 0% 0% 7% 0% 7% 64% 14%

Manufacturing 6% 1% 2% 13% 5% 7% 7% 1% 44% 13%

Other 6% 1% 2% 9% 6% 10% 8% 4% 44% 12%

Public Sector 0% 0% 0% 29% 0% 29% 0% 0% 29% 14%

Technology, Media, Telecommunications

4% 2% 0% 12% 4% 6% 10% 2% 54% 6%

Whether or not rates go up, CFOs are not anticipating much change in company strategies.


34

CFOs will not take more risk in 2018The majority of CFOs do not think 2018 will be a good time for companies to take on more risk; this was the view of 69% of respondents (up by 4 pp from last year).

Lithuania is the only country surveyed where the majority of CFOs believe the conditions will be favourable for taking riskier financial decisions in 2018. This may be linked to Lithuanian CFOs’ optimism

regarding macro-economic conditions over the next year – for example, none of them expects unemployment to rise.

CFOs in Romania and Slovenia are the most risk-averse, with over 80% thinking that 2018 will not be a good time to take more risk.

Is this a good time to be taking greater risk onto your company’s balance sheets?

2016 2017 BG HR CZ HU LT PL RO SK SI UARS2018CE LV

No Net balance Yes

-42%

-29%-38% -39% -40%

-27% -22%

-43%

8%

-33%

-70%

-39%

-20%

-67%

-33%

Net

ba

lanc

e

29%36% 31% 30% 30%

36% 39%29%

54%

34%

15%

30%40%

17%

71%65% 69% 70% 70%

64% 61%71%

46%

66%

85%

70%60%

83%

67%

33%


35

There is a broad consensus across all industries that conditions in 2018 will not be favourable for taking more risk in financial decisions.

The most positive respondents were those representing the Financial Services, Life Sciences and Technology, Media and Telecommunications industries, with positive-response levels ranging between 36% and 38%.

The most risk-averse industry is Business and Professional Services, in which over 80% of CFOs gave a negative answer.

Is this a good time to be taking greater risk onto your company’s balance sheets?

18%

33% 29%21%

38% 36% 34%27% 29%

36%

82%

67% 71%79%

63% 64% 66%73% 71%

64%


Services


FinancialServices


Telecommunications

ConsumerBusiness


LifeSciences

No Yes Net balance

-64%

-35%-43%

-57%

-25% -29% -31%

-46% -43%-28%

Net

ba

lanc

e

Similarly to last year, a majority of CFOs are not willing to take more risk onto the balance sheet as they fear external uncertainty at both a country and a company level.


36

A majority of CFOs expect business-level uncertainty to be normalA majority (57%) of all surveyed CFOs expect their companies to face a normal level of uncertainty in 2018 – 9 pp more than in the 2017 survey. However, the net balance of answers is negative for most countries.

Polish CFOs have the most optimistic attitudes, with 27% of respondents expecting low uncertainty during 2018.

Romanian CFOs are most pessimistic, with two out of three anticipating that uncertainty will be high.

How would you rate the overall level of external financial and economic uncertainty facing your business?



-35% -34%-19% -19% -21% -15%

-45%

4%

-11% -19% -21%

7%

-63%

-21% -10%-28% -23%

Net

ba

lanc

e

7% 9% 12% 12%5%

15%3%

17%9% 7% 8%

27%

5%12% 13%

52% 48%

57% 57% 68%55%

50%

69%

70%67% 63%

53%

28%

55%72% 50%

42% 43%

31% 31% 27% 30%

48%

14%20%

26% 29%20%

67%

33%

20%28%

37%

70%

10%


37

The pattern detected for cross-country analysis holds for cross-industrial view, as in nearly all industries the majority of CFOs expect normal level of uncertainty for their businesses, with as much 66% of such answers in the Manufacturing sector.

CFOs from Financial Services and Public Sector organisations are the most negative about the economic uncertainty relating to their businesses, with at least 50% expecting high levels of economic and financial uncertainty.

How would you rate the overall level of external financial and economic uncertainty facing your business?

18%9%

16%11% 5%

29%

11% 12%18%

59%

59%55%

55%

45%

43%

66%57%

43%

48%

23%33% 29%

34%

50%

29%23%

32%

57%

34%


Services


FinancialServices


Telecommunications

ConsumerBusiness


LifeSciences

-5%

-24%

-13%

-23%

-45%

0%

-13%-20%

-57%

-16%

Net

ba

lanc

e


There is still a general risk-aversion, which has now dominated the CFO survey results ever since the global financial crisis that is now close to a decade ago. Without some preparedness to take greater risk, companies are not going to achieve their full growth potential.


38

A shortage of qualified workers appears to be the greatest concern of CFOs over the next twelve months, closely followed by cost increases. These factors are perceived as significant risks by 53% and 48% of respondents respectively. The shortage of skilled professionals may be linked to the rapidly increasing volumes of collected data (Big Data), which require programming skills for efficient analysis.

Three other factors (market pressure to reduce pricing, unstable law and exchange rate risk) were each indicated by at least 20% of respondents.

The least risk-laden issues according to our respondents are capital shortage, interest rate, disruptive technologies and ‘other’ risks.

CFOs are concerned about a shortage of skilled workers

Which of the following factors are likely to pose a significant risk to your business over the next twelve months?

Shortage of qualified workers

Increasing costs of running a business

(rising cost of materials, workforce, services)

Market pressure to reduce the price of goods/services

Unstable economic and tax law

Exchange rate risk

Increasing regulation

Growing competition

Reduction in demand (domestic)

Reduction in demand (foreign)

Geopolitical risks

Insolvency and payment bottlenecks in the economy

Interest rate risk

Disruptive technologies

Shortage of capital

Other

53%

48%

34%

24%

20%

17%

15%

14%

14%

11%

7%

5%

5%

4%

2%


39

A cross-industry comparison shows high similarities between CFOs’ perceptions of the main challenges over the year to come: concerns about qualified workers and overall costs come first, followed by market pressure to cut prices.

Exchange rate risk is also high on the agenda of many CFOs, with the proportion of those selecting it ranging from just 11% of respondents in Financial Services to 36% in Life Sciences.

For some industries, including Business & Professional Services, Financial Services and Construction & Real Estate, unstable law relating to business will also be a serious issue. CFOs from Financial Services and Public Sector organisations are worried about increasing regulation, a factor chosen by more than 40% of respondents from those industries.

Geopolitical risk was selected relatively frequently (by 30% and 29% respectively) by CFOs from the Energy, Utilities and Mining industry and the Public

Sector. In the Energy, Utilities and Mining sector, this is probably linked to the lack of political stability in resource-rich Middle Eastern countries such as Syria. The impact of changing political attitudes to resources management in China are also influencing European markets, and this can be observed in the responses in our survey.

This cross-industrial viewpoint also reveals that capital shortage and disruptive technologies are among the least significant risks.

Financial Services

34%Unstable economic and tax law

46% Increasing regulations

Consumer Business

55% Shortage of qualified workforce

32% Market pressure for price decrease of offered goods/services

53% Increasing costs of running a business (rising cost of materials, workforce, services)




33% Unstable economic and tax law

Business & ProfessionalServices








Manufacturing





Life Sciences




Public Sector

43% Increasing regulations







Which of the following factors are likely to pose a significant risk to your business over the next twelve months?


40

CFOs prefer internal and bank financingCFOs currently see internal financing and bank borrowing as the most attractive sources of funding for their companies, selected by 52% and 49% respectively.

EU funds appear to be least attractive to CFOs, with 27% of respondents rating these negatively. One possible explanation for this is that EU funding often imposes limitations on the way companies operate, making them less flexible.

Corporate debt and equity are moderately attractive as sources of funding, with over half of CFOs assessing them as ‘neither attractive nor unattractive’.

How do you currently rate the attractiveness of different sources of funding for your company?

20% 21% 20%12%

27%

31%

52% 51%

36%

38%

49%

27% 29%

52%

35%

Bank borrowing Equity Internal financing EU fundsCorporate debt

Neither attractive nor unattractive Attractive Unattractive Net balance

29%

6% 9%

40%

8%

Net

ba

lanc

e


41

Bank borrowing appears to be most attractive source of funding for CFOs from the Energy, Utilities and Mining industry (with a net balance of 51%). It is least attractive for those from Business & Professional Services companies (-14%). Corporate debt financing shows a similar pattern.

CFOs in most industries like internal financing as a source of capital. In the Technology, Media and Telecommunications sector, this achieves a net balance as high as 58%.

By contrast, this funding source is least attractive to the CFOs of Construction & Real Estate companies, where the net balance was a modest 15%.

EU funding is rated most highly by CFOs from the Public Sector and the Energy, Utilities and Mining industry, with net balances respectively of 29% and 28%. In contrast, CFOs from Consumer Businesses find it less attractive, showing a net balance of -13%.

The attractiveness of equity financing is moderate: net balances range between 0% in four industries and 20% in Financial Services. Corporate debt is the least attractive source of funding among all those listed. It has the lowest net balance among Business and Professional Services CFOs (-18%) and those from the Public Sector (-14%). CFOs from the Energy, Utilities, Mining industry value it most highly, with a net balance of 21%. This is to be expected, as this is the sector that most commonly uses this kind of funding.

How do you currently rate the attractiveness of different sources of funding for your company?

Financial Services

Consumer Business

Life Sciences

Technology, Media,

Telecommunications


ManufacturingConstruction & Real Estate

Business & Professional

Services

Public Sector

Other

Bank borrowing

Net balance 21% 31% 14% 24% 51% 32% 39% -14% 43% 28%

Neither attractive nor

unattractive54% 30% 29% 32% 19% 28% 26% 41% 57% 28%

Corporate debt

Net balance -4% 10% 0% 4% 21% 7% 11% -18% -14% 6%


unattractive54% 51% 57% 60% 49% 54% 50% 45% 86% 48%

Equity

Net balance 20% 11% 0% 8% 9% 13% 0% 0% 0% 1%


unattractive41% 52% 43% 52% 53% 55% 57% 45% 71% 49%

Internal financing

Net balance 29% 47% 50% 58% 30% 50% 15% 50% 29% 31%


unattractive50% 32% 7% 22% 40% 34% 41% 41% 43% 40%

EU funds

Net balance 2% -13% 21% 12% 28% 15% -7% 5% 29% 13%


unattractive52% 41% 36% 36% 30% 32% 46% 23% 14% 42%


42

43


Company growth outlookCFOs expect their companies to achieve higher revenues in 2018, and have set increasing revenues high among their priorities for the year. However, it is worth noting that there are only small differences in how they rate various priorities – we listed ten possible priorities, and on a 1-10 scale the difference between the most and the least important of these was just 0.7.

The level of optimism about company prospects is lower than last year. It remains satisfactory, however, with the most positive answers coming from Bulgaria, where 79% of CFOs expect a better outlook for their companies than they did six months ago. Maybe CFOs feel that the economy cannot perform at such a high level for much longer and that a cyclical slowdown is approaching.


44

Slightly less positive, but financial prospects for companies remain goodWhen it comes to their companies’ financial prospects, CFOs are slightly more pessimistic compared with six months ago than they were in the previous survey. The net balance of answers fell by 6 pp, from 33% to 27%.

There are considerable differences between countries. While 79% of CFOs in Bulgaria expect things to get better

for their companies, in neighbouring Romania 40% of CFOs are less optimistic about the future than they were six months ago. It is also worth noting that in Croatia and Slovenia, just 5% and 6% of CFOs respectively are negative about their companies' financial prospects.

Compared with six months ago, how do you feel about the financial prospects for your company?

16%

40%

43%

2016 2017 EU BG HR CZ HU LT PL RO SK SI UARSEurozoneCE LV

Broadly unchanged More optimistic Less optimistic Net balance

37%33%

27%

37%

76%48%

30%19%

29% 33%26%

-10%

42%30%

50%

17%

Net

ba

lanc

e

14%

36%

51%

16%

35%

49%

16%

41%

43%

10%

44%

46%

3%

18%

79%

5%

43%

53%

12%

46%

42%

13%

56%

31%

12%

48%

40%

13%

42%

46%

17%

40%

43%

40%

31%

29%

15%

27%

58%

10%

50%

40%

20%

43%

37%

2018

56%

39%

6%

27%


45

Similarly, CFOs from different industries have differing assessments of their companies’ financial prospects. The most optimistic are respondents from the Consumer Business and Construction & Real Estate industries, where more than a half are more positive than they were six months ago about their companies’ financial prospects.

The outlook is most pessimistic in the Life Sciences industry, where 36% of answers were negative.

Compared with six months ago, how do you feel about the financial prospects for your company?

18%13%

36%

16% 15% 15% 11%

23%14%

43%

34%

36%

38%47%

42%

37%

32%57%

39%

53%

29%

46%38%

44%52%

45%

29%

FinancialServices

Technology,Media,

Telecommunications




Services

PublicSector

LifeSciences

ConsumerBusiness

Manufacturing

Broadly unchanged More optimistic Less optimistic Net balance

21%

40%

-7%

30% 23% 29%41%

23%14%

Net

ba

lanc

e

CFOs are confident their companies’ financial prospects for the next twelve months are good, with a high likelihood of revenues increasing.


46

CFOs anticipate higher revenuesFor the second consecutive year, CFOs’ optimism about revenues has risen. The 63% net balance of answers is up by 12 pp over their expectations for 2016. The majority of CFOs in all industries expect revenues to rise.

The most optimistic are Consumer Business CFOs, with 91% expecting increases in revenue. This again proves consumer spending is often the factor that does most to boost economic performance.

The most pessimistic are Financial Services CFOs. Even here, however, only 21% of respondents anticipate lower revenue figures for their companies in 2018.

In your view, how are revenues for your company likely to change over the next twelve months?

2016 2017 Construction& Real Estate

ConsumerBusiness


LifeSciences

Manufacturing Public Sector Technology,Media,

Telecommunications

OtherBusiness& Professional

Services

CE 2018 FinancialServices

15% 14% 10% 9% 9% 5%15%

21%

8% 11% 14% 10%

19%16%

17%27% 33%

5%

32%9%

29%18% 14%

14%18%

66% 71% 73%64%

59%

91%

53%

70% 71% 74% 75% 71% 72%


51% 57% 63%55% 50%

86%

38%48%

71% 66% 64% 57% 62%

Net

ba

lanc

e


47

Operating margins may go up in 2018CFOs from different industries have mixed views about how their operating margins will change in the next twelve months. Optimistic attitudes are more common than pessimistic, as the net balance of answers is negative only in two industries: Financial Services and Energy, Utilities and Mining.

In Financial Services, margins are related to the level of interest rates – while

these are low, margins stay low as well. In the Energy, Utilities and Mining sector, many other external conditions influence margins: even the most optimistic economic forecasts across the region may not be sufficient to increase margins.

The most diversified views are those of CFOs from the Public Sector – 57% expect higher margins in 2018, while 43% anticipate lower margins.

In the Consumer Business and the Technology, Media and Telecommunications industries, more than half of CFOs expect operating margins to increase.

Nearly 40% of CFOs in the Financial Services and Energy, Utilities, Mining industries have negative expectations for their companies’ operating margins in 2018.

In your view, how are revenues for your company likely to change over the next twelve months?


ConsumerBusiness


LifeSciences


Telecommunications


Services



22%13% 19%

5%15%

43%

-4% -4%

21%13%

23%14%

42%

Net

ba

lanc

e

18%25% 23% 23%

13% 13%

38% 39%

14%26%

21%

43%

10%

41%37%

36%

50%59%

32%

28% 25%

50%35%

35%

38%

40% 38% 42%

27% 28%

55%

34% 36% 36% 39%44%

57%52%


48

CAPEX is set to be at least the same as last yearThe proportion of CFOs expecting their companies to increase their capital expenditure in the next year has decreased by 5 pp, from 49% to 44%. Again, only a small fraction of respondents (13%) expects CAPEX to fall in 2018.

Attitudes are most optimistic among CFOs from the Financial Services, Consumer Business and Energy, Utilities, Mining

industries, where between 50% and 55% expect capital expenditure to rise.

The most negative views are expressed by CFOs from Business & Professional Services companies, where 27% of respondents expect their companies’ CAPEX to decrease in the next year.

In your view, how are capital expenditures (CAPEX) for your company likely to change over the next twelve months?


ConsumerBusiness


LifeSciences


Telecommunications


Services



27%36% 32%

-9%

15%

41% 45%38%

14%

32% 27%

57%

36%

Net

ba

lanc

e

14% 13% 13%

27%20%

9% 11% 13% 14% 13% 12% 10%

46%39% 43%

55%

46%

40% 34%38%

57%

42%50%

43%

44%

41%49% 44%

18%

35%

51%55%

50%

29%

45%38%

57%46%


49

An increase in employment levels is more likely than last yearNearly half (46%) of CFOs expect their workforce to expand in 2018, slightly more than in the 2017 survey. Only 14% of respondents have negative expectations. This reflects the overall positive opinion that is shared across the market, stimulating a growth perspective that includes new hiring.

CFOs from the Life Sciences industry are the most optimistic about hiring new people, with 64% expecting employee numbers in their companies to rise in 2018.

The most pessimistic approach is that of the Public Sector CFOs, of whom 43% think their organisations may reduce workforce numbers over the next year.

In your view, how is the number of employees in your company likely to change over the next twelve months?


ConsumerBusiness


LifeSciences


Telecommunications


Services



17% 22%32% 36%

4%

37%

13%25%

57%42%

32%

14%

44%

Net

ba

lanc

e

20% 20%14% 18% 17%

11%19% 18%

7% 7%15%

43%

16%

43%39%

40% 27%

61%

40%

49%

39%

29%

44%38%

24%

37% 42% 46%55%

22%

48%

32%43%

64%

49% 47%57% 60%


50

The ability to service debt will not decreaseCFOs’ views on their companies’ ability to service debt over the next three years remain stable, with over 90% expecting at least the same level of ability as now.

CFOs from the Public Sector are the most optimistic, with 57% of them expecting their organisations to improve their debt-servicing abilities.

Although CFOs from the Construction & Real Estate industry are the most pessimistic, only 17% of them anticipate a decrease in their companies’ ability to pay their debts.

Over the next three years, you expect your ability to service your debt to:


ConsumerBusiness


LifeSciences


Telecommunications


Services



38% 37% 34%

-9% -13%

-47%

-19%

-36%

-21%

-38% -36%-57%

-42%

Net

ba

lanc

e

5% 6% 7%14% 17%

5% 11% 2% 7% 9% 6% 2%

53% 52% 51%

64% 52%

44%

60%

61%

64%

44% 53%

43%

54%

43% 43% 42%

23%30%

52%

30%38%

29%

47%41%

57%

44%


51

Gearing levels remain stableThe next twelve months will probably not bring significant changes to companies’ gearing levels: 48% of CFOs expect no change in this area of their companies’ activities. This attitude is most widespread among Life Sciences CFOs, 86% of who anticipate the same gearing level in 2018.

Just 40% of CFOs from the Energy, Utilities and Mining industry plan not to change their gearing level in 2018, while more than a third are aiming to increase gearing.

What is your aim for your level of gearing over the next twelve months?


ConsumerBusiness


LifeSciences


Telecommunications


Services


No change Raise Reduce Net balance

-3%

10% 11%

0%

-17%-8% -9%

-20%

0%

-9% -12% -14% -20%

Net

ba

lanc

e

24% 22% 21% 18% 20% 24% 26%14%

7%

23% 23%14% 12%

55%

47% 48%64%

43%44% 40%

52%

86%46% 42% 57%

56%

21%31% 32%

18%

37%32% 34% 34%

7%

31% 35%29% 32%


52

CFOs want to boost revenues in 2018There are fractional differences in the levels of importance that CFOs attribute to particular strategies. The answers CFOs gave us about their most important strategies in 2018 suggest that increasing revenues will be priority for businesses in 2018, either through organic growth or acquisition. In a 1-10 scale, the average rating for those priorities is 5.9 and 5.6 respectively.

However, increasing CAPEX and improving liquidity are essentially the same as with increasing revenues by winning new business.

Restructuring is at the bottom of CFOs’ priority lists for 2018, with a score of 5.2.Somewhat surprisingly, there is little correlation between the average score of various strategies’ importance and the share of CFOs who consider a given issue a top priority (giving it a ‘10’ rating).

Revenue increase and restructuring are most often viewed as top priorities by CFOs, rated ‘10’ by 25% and 21% of respondents, respectively.

Cost reduction– including both direct and indirect costs – is least often a top priority for CFOs, rated ‘10’ by no more than 5% of the survey participants.

It is most visible in the case of restructuring, which mean importance is the lowest and equals 5.2 out of 10. On the other hand, as much as 21% of the surveyed CFOs rated restructuring as a top priority – score ‘10’. It indicates an asymmetric distribution of answers. In the case of restructuring 22% of CFOs rated it as low priority (score ‘1’).

Please state to what degree the following strategies are likely to be a priority for your business over the next twelve months.

Increasingcapital

expenditure(CAPEX)

0%

50%

25%

6%

5.6

Improvedcash flow

and liquidity

0%

50%

25%

8%

5.6

Revenueincrease:

new markets,acquisitions

0%

50%

25%

11%

5.6

Costreduction- indirect

costs

0%

50%

25%

2%

5.5

Introducingnew products

/services

0%

50%

25%

5%

5.5

Researchand

developmentactivities

0%

50%

25%

10%

5.5

Newinvestments

0%

50%

25%

6%

5.5

Cost reduction- direct costs

0%

50%

25%

3%

5.4

Restructuring

0%

50%

25%21%

5.2

Average score

Revenue increase: current

markets, organic growth

0%

50%

25%25%

5.9

Top priority


53

When we compare views between industries, there are slightly larger disparities than in the overall results between CFOs’ assessments of how important their priorities are. Increasing revenue through current markets and organic growth is seen as a high priority by CFOs from the Public Sector and Consumer Business industry, with ratings respectively of 7.3 and 6.7.

CFOs from the Life Sciences industry rate the importance of increasing revenue through entering new markets or taking over other companies at 6.1, the highest score of any industry.

For the CFOs of Financial Services companies, R&D and restructuring activities are high priorities.

The desire to increase capital expenditure is highest among CFOs from the Energy, Utilities and Mining sector, with an average score of 6.7.

Please state to what degree the following strategies are likely to be a priority for your business over the next twelve months.

Revenue increase: current

markets, organic growth

Revenue increase:

new markets,

acquisitions

Cost reduction

- direct costs

Cost reduction - indirect

costs

Increasing capital

expenditure (CAPEX)

Improved cash flow

and liquidity

Introducing new

products/services

New investments

Research and development

activitiesRestructuring


6,3 5,5 5,1 5,8 5,7 5,5 6,1 5,4 5,6 5,0


5,0 5,3 5,5 5,3 5,4 5,6 5,0 5,7 5,4 5,6

Consumer Business 6,7 5,6 5,6 5,4 5,0 6,0 5,8 5,1 4,7 5,0


5,6 5,8 5,3 5,1 6,7 5,2 5,1 5,8 5,8 5,2

Financial Services 5,2 4,9 5,0 5,5 5,9 5,6 5,1 6,0 6,1 6,3

Life Sciences 5,6 6,1 5,4 6,0 6,4 6,9 4,6 5,9 4,6 4,0

Manufacturing 6,3 5,9 5,7 5,7 5,5 5,6 5,6 5,4 5,4 4,8

Other 5,3 5,5 5,2 5,3 5,7 5,6 5,5 5,5 5,9 5,7

Public Sector 7,3 4,7 4,0 5,0 4,6 5,0 6,4 5,0 6,0 4,9


6,0 5,2 5,5 6,1 5,8 5,0 6,2 5,5 5,7 4,9


54

55


AutomationThe past few years have brought impressive advancements in the field of automation and digitalisation. For example, data collection is much cheaper than before and companies are therefore more-data driven. On the other hand, even automatically collected data is not of much value until it is processed. This is why many CFOs hope to take advantage of automated and customised management reporting.

Few CFOs are confident in saying that their companies are advanced in the field of robotic process automation (RPA). We predict that this will change dynamically in the years to come, as the benefits of newly implemented systems become more evident. For now, a significant proportion of CFOs are still uncertain about the cost efficiencies that could be generated by the automation and digitalisation of their companies.

56


Key findings

Automation

57% of CFOs expect their companiesto face ‘normal’ levels of uncertainty

in 2018

33% are unsure about the size of automationgains, whether already achieved or yet

to come

Only 7% think their companies areadvanced in robotic process automation

(RPA)

62% 57%

33% 7%


57

CFOs set automating document processing as a priority for digitalisationCFOs place the automation of tedious tasks related to document entry and processing as the top technical priority in digitalising the finance function – 68% of respondents selected this option. Their second automation priority relates to management reporting and individualisation (60%) followed by control systems (46%).

Expanding the network organisation and strengthening business partnerships through better analytics are perceived as the lowest priorities, each being selected by 11% of respondents.

What technical priorities are you setting within the framework of your digitalisation strategy for the finance function?

Automating document entry and

processing

Establishing a ‘finance factory’

to manage automated processes

Establishing real-time

scenario-planning, forecasting

and analytics capabilities

Automating and individualising management

reporting

Automating the control

system

Expanding the network organisation

through increased deployment of digital

collaboration tools

Using improved analytics

to strengthen business partner

capabilities

Implementing end-to-end process

management to monitor and

improve process performance

2018 68% 18% 32% 60% 46% 11% 16% 33%


64% 27% 27% 55% 50% 5% 18% 18%


61% 22% 30% 46% 37% 20% 11% 30%

Consumer Business 70% 14% 28% 62% 56% 14% 21% 32%


70% 32% 38% 60% 38% 15% 17% 32%

Financial Services 64% 14% 27% 64% 48% 13% 11% 50%

Life Sciences 71% 14% 36% 50% 36% 7% 29% 43%

Manufacturing 65% 20% 36% 60% 43% 8% 15% 34%

Other 75% 14% 27% 63% 44% 11% 17% 24%

Public Sector 57% 29% 57% 71% 71% 14% 14% 43%


72% 14% 30% 68% 50% 12% 20% 38%


58

Few CFOs think their companies are advanced in robotic process automationCFOs most frequently tell us their companies have not thought about RPA (23%), but only slightly fewer are looking for automation potential (20%). Only 7% of CFOs say their companies are advanced in RPA, with CFOs from Technology, Media, Telecommunications (12%) and Manufacturing (11%) leading the way.

How advanced is your company it its work on robotic process automation?

We do not know what

the RPA process is

We have not thought about

it so far

We know what the RPA process is but we do not

know what we can use it for

We do not expect to automate our processes over

the next 2 years

We intend to begin working on

robotic process automation

We are looking for the automation

potential

We have started the implementation

process

We are advanced in robotic process

automation

2018 4% 23% 6% 15% 11% 20% 13% 7%


5% 32% 0% 14% 9% 18% 18% 5%


2% 24% 11% 33% 4% 13% 9% 4%

Consumer Business

3% 22% 10% 9% 15% 20% 11% 9%


4% 34% 0% 6% 19% 32% 2% 2%

Financial Services

7% 21% 11% 7% 7% 21% 20% 5%

Life Sciences 0% 29% 0% 36% 7% 29% 0% 0%

Manufacturing 3% 17% 2% 21% 11% 21% 15% 11%

Other 6% 27% 7% 11% 11% 15% 19% 5%

Public Sector 14% 43% 0% 0% 0% 29% 14% 0%


4% 20% 8% 18% 12% 18% 8% 12%


59

Automation will bring most benefits to company operationsCFOs from across all industries expect to derive most benefits from RPA in the area of operations (with answers ranging from 50% among Life Sciences CFOs to 80% in Financial Services).

A significant proportion of CFOs think RPA will bring the greatest benefit to their companies’ finance function. Over 30%

of CFOs from the Business & Professional Services, Life Sciences and Technology, Media and Telecommunications industries share this view.

CFOs across most industries do not expect RPA to deliver significant benefits in Human Resources and ‘other’ functions.

In what areas do you expect to derive most benefits from robotic process automation?

2018 Construction& Real Estate

ConsumerBusiness


LifeSciences


Telecommunications


Services

CE FinancialServices

HR Operations Finance Other

23%32%

26%17% 21%

13%

36%

21%31%

14%

34%

10% 7%

9%

15%

4%

14%

12%

10%

29%

8%

62% 64% 59% 67%

60%

80%

50%

66% 51%57% 56%

5% 5% 9% 7% 4% 4% 2% 9% 2%


60

Many CFOs are unsure about the gains to be had from robotic process automationWhen it comes to the cost efficiencies expected or achieved so far through the use of RPA, there are significant differences between the views held by CFOs. While many respondents (32%) are unsure about the savings to be had, around a third of CFOs think cost

efficiencies resulting from RPA will amount to only 10% or less. A similar proportion expects cost cuts ranging between 10% and 40%.

What cost efficiencies do you expect/have you achieved as a result of robotic automation in automated processes?


ConsumerBusiness


LifeSciences


Telecommunications


Services


Medium (between 10 and 40%) High (more than 40%) Low (up to 10%) Unsure

34% 32% 35%43%

34%

21% 21%32% 36%

29%36%

32%45%

17%

29%

32%46%

21%

32%31%

29%

36%

2%

5%

2%

4% 2%

7%

1%2%

14%

32%

18%

46%

29% 30% 30%

50%

34% 32% 29% 28%


61

CFOs play an active role in their companies’ digitalisation strategiesOnly a small fraction (14%) of CFOs think company digitalisation strategies are not an important aspect of their roles. The largest proportion (41%) play an active role in their companies’ digitalisation strategy, mainly focused on their own functional area (41% of respondents).

To what extent are you, as the CFO, integrated into your company’s digitalisation strategy?


ConsumerBusiness


LifeSciences

Manufacturing Public SectorOtherBusiness& Professional

Services


Challenger within management meetings

Driver and proactive designer within whole company

Active for own functional area

Not an important topic as part of my position

41% 37% 41%32%

46%

21%

42% 39%

57%50%

23% 26%

30%

19%

36%

43%

21% 24%0%

20%

23% 24%

26%

34%

16%

14%21%

29% 43%24%

14% 13%2%

15%2%

21%15%

8% 0% 6%


62

Is change needed in finance to respond to digitalisation?There is a strong consensus among CFOs that there is a pressing need to change the way things are done in the finance function to meet the challenges set by digitalisation (62% of CFOs hold this view). Around a third of CFOs describe this need for change as normal and only 6% as low.

While answers are largely consistent across industries, Financial Services CFOs are the most positive that changes are necessary (73% giving ‘high’ answers) and those from the Public Sector and the Construction & Real Estate industry are the least convinced (13% and 14% respectively providing ‘low’ answers).

How do you rate the need for change in the finance function due to the increasing digitalisation of your company?


ConsumerBusiness


LifeSciences


Telecommunications


Services


Normal High Low

6%13%

1% 4% 4% 7% 6% 8%14%

6%

33% 41%

33%

34% 28%23%

36% 38%28%

29%34%

62% 59%54%

64% 68%73%

57% 56%64%

57% 60%


63

CFOs feel relatively well prepared for the digitalisation of their companiesThe majority of CFOs feel their function is quite well prepared for the challenges of digitalisation affecting their companies. Across all the industries we surveyed, less than 20% of respondents think their readiness is ‘low’.

To what extent is the finance function prepared for the increasing digitalisation of your company?


ConsumerBusiness


LifeSciences


Telecommunications


Services


Medium High Low

12%18%

13% 10%17%

7% 7%14% 14% 14%

6%

42%36%

61%

41%36%

41%50%

42% 41%

44%

45% 45%

26%

48% 47%52%

43% 44% 44%

86%

50%


64

Key areas for digitalisation From the perspective of the finance function, the need for digitalisation appears to be most important in the control of business processes – this was identified by 52% of CFOs. Nearly as important are Big Data applications development (48%) and the digitalisation of the finance function (46%).

The two remaining areas – the evaluation and management of business models and the development of company-wide approach to digitalisation – were selected less often.

While there is some variation between industries, the trends covered above are easy to see.

What areas do you see as key for digitalisation from the point of view of the finance function?

Technology, Media, Telecommunication

Public Sector

Other

Manufacturing

Life Sciences

Financial Services


Consumer Business



2018

Development of new analytics applications based on Big Data (data-based operating models)

Controlling digital business processes

Evaluation and management of new digital business models

Development and implementation of digitalization strategy within the company

Digitalization of finance function, e.g. mobile applications, cloud solutions, robotics

28% 56% 22%48%52%

43% 57% 29%57%57%

19% 40% 40%43%53%

22% 50% 30%40%52%

21% 36% 14%29%50%

45% 54% 30%45%52%

19% 49% 38%51%53%

22% 49% 39%48%51%

24% 33% 33%59%48%

18% 59% 18%50%50%

24% 48% 33%46%52%


65

The three key enablers for digitalising the finance function According to our respondents, the three key capabilities needed to prepare the finance function for digitalisation are:

• The integration of transactional and reporting systems (selected by 57%).

• Improving employees' understanding of digital business models (56%).

• Gaining process automation knowledge (54%).

CFOs see other capabilities, such as improving employees’ statistical and project-management skills, as being less important.

Some differences between industries are apparent. For example, CFOs’ knowledge of process automation is selected as an important capability by 71% of respondents from Life Sciences, significantly more than in other industries.

What capabilities should the finance function develop so that it can meet the demands of digitalisation?


Public Sector

Other

Manufacturing

Life Sciences

Financial Services


Consumer Business



2018

Analytical and statistical skills of employees

Process automation knowledge

Employees’ understanding of digital business models

Project management skills

Integration of transactional and reporting systems (IT perspective)

50% 44% 32%68%54%

86% 29% 43%57%

54% 48% 25%51%50%

54% 42% 28%55%51%

43% 50% 43%29%71%

63% 59% 27%66%63%

68% 40% 36%57%51%

59% 36% 29%57%53%

52% 37% 39%54%54%

36% 59% 32%68%64%

56% 44% 30%57%54%

43%

20%

57%

24%

23%

29%

21%

21%

25%

28%

9%

23%

Influential and communication skills

66


Gavin FlookPartner, CFO Programme LeaderClients & Industries LeaderCentral [email protected]

Izabela KrasuskaCoordinator, Clients & MarketsCFO ProgrammeCentral [email protected]

Katarzyna SwatSenior Manager, Clients & MarketsCFO ProgrammeCentral [email protected]

Bulgaria

Dessislava KirkovaManager, Clients & Markets [email protected]

Croatia

Marina TonžetićPartner, Audit & [email protected]

Višnja MatkovićManager, Clients & [email protected]

Czech Republic

Martin Tesař Partner in Charge, Audit & [email protected]

Petr BrichDirector, Clients & [email protected]

Hungary

Roland FöldváriDirector, Financial [email protected]

Gabriella JeneiManager, Clients & [email protected]

Latvia

Roberts StuģisPartner, Audit & Assurance [email protected]

Polina NazarovaHead of Business [email protected]

Lithuania

Simonas RimašauskasDirector, Audit & Assurance [email protected]

Justina DaukšaitėSenior Coordinator, Clients & [email protected]

Poland

Krzysztof PniewskiPartner, Audit & Assurance [email protected]

Dominika Piotrowska-SkwarłoSenior Manager, Clients & [email protected]

Romania

Farrukh [email protected]

Andra CalinDirector, Clients & [email protected]

Serbia

Nada SudjicPartner in Charge, Risk [email protected]

Aleksandra GregovićManager, Clients & [email protected]

Slovakia

Peter LongauerPartner in Charge, Audit & [email protected]

Henrieta KissovaManager, Clients and [email protected]

Slovenia

Žiga HudournikAssociate, Financial [email protected]

Meta MežnarManager, Clients & [email protected]

Ukraine

Vladimir VakhtPartner, [email protected]

Nazar FarmahaDirector, Finance Transformation Leader, [email protected]

Anastasia ChernenkoPR Senior Specialist, Central & Support [email protected]

Local contacts

Regional contacts

67


Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL” ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to clients. Please see www.deloitte.com/about to learn more about our global network of member firms. Deloitte Central Europe is a regional organization of entities organized under the umbrella of Deloitte Central Europe Holdings Limited, the member firm in Central Europe of Deloitte Touche Tohmatsu Limited. Services are provided by the subsidiaries and affiliates of Deloitte Central Europe Holdings Limited, which are separate and independent legal entities. The subsidiaries and affiliates of Deloitte Central Europe Holdings Limited are among the region’s leading professional services firms, providing services through nearly 6,000 people in 41 offices in 18 countries. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional advisor. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. Deloitte provides audit, consulting, legal, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and high-quality service to address clients' most complex business challenges. To learn more about how Deloitte's approximately 244,000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn, or Twitter. © 2018. For information, contact Deloitte Central Europe.

Documents

Central Europe CFO Survey 2018 · BG HR RS SI HU SK CZ UA CZ Czech Republic HU Hungary HR Croatia BG Bulgaria LT Lithuania UA Ukraine PL Poland SK Slovakia RO Romania RS Serbia SI