Deloitte, as every year, recently presented the results of its survey (Deloitte CFO Survey) in the form of a report. The document focused on the analysis of data – opinions and expectations, collected from over 620 financial directors from listed and commercial companies from 15 Central European countries – to provide insight into the most important topics and trends currently affecting business. The Deloitte CFO Survey took place between October and December 2022.
What topics were discussed at the Deloitte CFO Survey?
Deloitte’s research provided an overview of CFOs’ financial prospects and their views on the factors that were most likely to have the greatest impact on company performance in 2023. Issues such as inflationary pressure, strategic priorities and financing issues were discussed. The report provides insight into current business issues as well as the collective thinking of financial leaders from various countries in the Central European region.
The greatest threats to CFOs in 2023
It cannot be denied that the Russian invasion of Ukraine in February 2022 had the greatest impact on the business situation of Central European enterprises – this event radically changed the economic environment. Before the war, most CFOs were making plans for the expansion and business transformation of their organizations (the bold decisions resulted from the belief that the main effects of the COVID-19 pandemic were already in retreat). After the invasion, the mood in business turned 180 degrees.
CFOs began to fear unbridled external forces – high inflation, low economic growth, supply chain disruptions and restrictive monetary policy. All these factors resulted from the unstable geopolitical situation, as well as the shortage and rising costs of raw materials, goods, energy and transport.
CFOs began to regularly report record levels of risk (the confidence index dropped to 15% and the economic confidence index dropped to -6%). Inflation remains at the highest level since the 1990s. Unemployment may increase. More than 40% of CFOs are pessimistic about their companies’ financial prospects for the next six months (25% more than a year ago).
Report methodology
More than 620 CFOs from 15 Central European countries participated in the Deloitte CFO Survey: Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Czech Republic, Estonia, Latvia, Lithuania, Poland, Hungary, Kosovo, Romania, Serbia, Slovakia, Slovenia. Both countries that belonged to the „euro zone” and those that had their own currency were discussed.
The Deloitte Central Europe CFO Trust Index consists of three partial indicators reflecting the attitude of CFOs to various issues. Talking about:
- The Economy Confidence Index, concerning economic processes. It is based on questions about economic growth, unemployment, and the consumer price index (CPI).
- The Business Environment Confidence Index, which asks questions about risk, operating costs, attractiveness of various sources of financing, and opinion on the mergers and acquisitions market.
- The Company Perspective Index, based on questions about the future of a given organization and its financial situation (revenues, margins, capital expenditure, debt service), and the expected level of financial leverage.
Let’s look briefly at each of the indexes mentioned.
The Economy Confidence Index – summary
CFOs are pessimistic about potential GDP growth. Most likely, the average GDP level in 2023 will be 0.33% – for comparison, in the previous year it reached 2.3%.
In some Central European countries, a negative net balance can be found (i.e. the difference between the percentage of respondents expecting a high and a low level of GDP). We are talking about Estonia, Slovakia, Lithuania, Poland, the Czech Republic and Latvia. When it comes to industries, CFOs here had different perspectives on the likely GDP growth in 2023. The worst results were recorded in sectors related to technology and media (-73%) and finance (-86%). For comparison: in the earlier report, almost all industries (except life sciences) projected positive net balances.
What else? In 2023, financial directors expect unemployment to increase – the most in Poland, Hungary and the Czech Republic – especially in the humanities and social sciences sector. Moreover, as many as 70% of surveyed CFOs expect inflation to increase in the form of a high consumer price index (CPI). Financial directors from construction companies feel the safest.
The Business Environment Confidence Index – the level of uncertainty among CFOs
Volatile market conditions, spikes in energy prices, high inflation, financial and economic uncertainty are the highest since 2015 – this is the result of a disrupted supply chain. As the conflict between Ukraine and Russia drags on, it gets worse. The overall level of uncertainty among CFOs is very high – his net balance is as much as -55%. CFOs from Estonia, Kosovo, Serbia, Slovakia and Slovenia are particularly pessimistic; from the industrial processing, finance, energy and mining sectors.
The prospects are not encouraging. All surveyed CFOs from Central Europe expect a significant increase in costs (negative net balance of all types of costs). Moreover, they guess that they will not miss a raise in 2023. As in previous years, CFOs perceive VAT and corporate income tax as the most stable cost categories in 2023 (unchanged).
The majority of respondents (as many as 83%) believe that the current times are not a good time to take on more risk on their balance sheets. The most reluctant are CFOs from Estonia, Poland, Slovenia and Slovakia. According to Central European financial directors, currently the most attractive sources of financing are bank loans and internal financing. Most of them expect that the level of mergers and acquisitions will increase significantly in 2023.
The Company Perspective Index – what were the companies’ business prospects like?
The financial prospects of Central European companies in 2023 do not look good – high inflation, lower economic growth and restrictive monetary policy are visible. The net balance for this category dropped sharply from 15% to -17%. Serious problems caused by the war in Ukraine have clouded the prospects for economic recovery after the pandemic. CFOs from Estonia are the most pessimistic.
Surprisingly, as many as 58% of surveyed financial directors from Central Europe still believe that revenues in their companies will ultimately increase. One of the greatest threats for enterprises in 2023 is the shortage of qualified staff – this applies to all sectors.
Respondents assume that their companies will take control of their debts and begin to develop after about 3 years. More than half of CFOs expect no change in their debt servicing capabilities. Interestingly, despite the difficult geopolitical and economic situation, many financial directors still plan to continue expansionary strategies (including digitization, organic growth, development on existing markets) – only at a limited level. Only 9% of CFOs intend to focus on cost reduction.
As for the level of financial leverage of companies, it is unlikely that 2023 will bring significant changes in this matter. Half of the surveyed CFOs do not expect any changes in this area.
Summary
As you can see, the financial situation of organizations from Central Europe is quite difficult and unsatisfactory. Despite this, most CFOs have relatively optimistic visions and believe that the bad times will eventually pass.