Optimistic expectations in challenging times …...Republic, Estonia, Hungary, Kosovo, Latvia,...

Optimistic expectations in challenging timesCentral Europe CFO Survey 2015

2015 results | 6th editionHungary

© 2015 Deloitte Central Europe2

Optimism around economic growth has further increased among the financial leaders of Hungarian companies, although they are more pessimistic about the financial outlook of their companies than their counterparts in other countries in the region.


It is my pleasure to present the results of the sixth edition of the Deloitte Central Europe CFO Survey to be conducted in Hungary. The survey is carried out among the Chief Financial Officers (CFOs) of large companies in 14 countries across Central Europe (Albania, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Poland, Romania, Serbia, Slovakia and Slovenia). As well as comparing previous results, this survey helps us map the differences between countries in the CE region.

Today’s uncertain and unpredictable business environment makes it even more difficult than usual to make forecasts. Perhaps the expectations of CFOs of large companies could serve as a leading indicator in this respect. This view is apparently justified by the fact that the results of the survey from one year ago - when Hungarian CFOs were optimistic about prospects for 2014 - have come true.

This year’s survey reveals that this positive sentiment has further increased, although it should also be noted that CFOs are more pessimistic in Hungary about the financial outlook of their companies than their peers in other countries in the region. Beyond the general economic climate, the survey also highlights expectations regarding funding, the priorities of financial departments, the greatest challenges ahead and other related issues.

Here I would like to thank all those who participated in the survey for the time and effort spent in contributing to the preparation of this exciting piece of thought leadership. I hope you find it a useful and insightful read.

Introduction

Introduction

1 About the sixth Deloitte CE CFO Survey

2 Key findings

3 Growth

4 Risks, priorities and challenges

5 Financing

6 Talent

Contents

Gábor MolnárPartner, Advisory & AuditCFO Programme LeaderHungary

About the sixth Deloitte CE CFO Survey



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This report compares the expectations of CFOs from 14 Central European economies (Albania AL, Bulgaria BG, Croatia HR, the Czech Republic CZ, Estonia EE, Hungary HU, Kosovo RKS, Latvia LV, Lithuania LT, Poland PL, Romania RO, Serbia RS, Slovakia SK and Slovenia SI). It is based on the answers of 560 CFOs from a broad range of industries who responded to our survey in October and November 2014. The survey captures shifts in CFOs’ opinions on factors including risk, GDP growth and financing priorities. It has become a benchmark for agile decision-making that takes into account the financial attitudes of major corporations across Central Europe.


Key Findings


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Key findings

Optimism around economic growth has further increased among the financial leaders of Hungarian companies.

Despite this generally positive sentiment, Hungarian CFOs are more pessimistic about the financial outlook of their companies (compared to six months ago) than their counterparts in other countries in the region.

Growth in mergers and acquisitions is expected to continue.

CFOs feel that companies have better access to funding sources and that loans are a more attractive financing option than in previous years.


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Key findings

The ever-changing legal and tax environment is still the greatest challenge to Hungarian enterprises.

Nearly three quarters (73%) of respondents believe that this is not the time to increase their risk appetite.

78% of participating CFOs expect no shortage of specialist finance staff in 2015.

Growth



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Growth

Similarly to previous years, half of participating Hungarian CFOs have not identified any change in the financial prospects of their companies. Even though the rest of the respondents are more optimistic than six months ago, the results show that the sentiment is more negative in Hungary than in other countries of the region. Generally, CFOs in all the other 13 Central European countries saw better financial prospects for their companies than six months earlier.

Graph 1Compared with 6 months ago, how do you feel about the financial prospects for your company?

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Hungarian CFOs were much more positive about the growth of GDP than about the financial prospects of their own companies. While 18 months ago only 2% of them predicted GDP growth for the coming year, this proportion had jumped to 28% by the end of 2013 and reached 70% by the end of 2014. In a regional comparison, this result is outstanding: of the 14 countries involved in the survey, only Slovakia saw similarly optimistic responses regarding GDP growth.

Graph 2CFOs expectations for the Hungarian GDP growth for the year 2015

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GDP growth is the key factor when we look at expected changes in unemployment. Accordingly, CFOs are also positive about anticipated unemployment rates in Hungary. The number of respondents expecting a decrease for the coming 12 months has significantly increased since the last survey. Despite this favourable tendency, the responses are still mixed: 28% still expect some growth while 33% think there will be no change.

Graph 3Over the next 12 months how do you expect levels of unemployment to change in your country?

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In line with actual changes in market conditions, after their pessimistic sentiments regarding the level of mergers and acquisitions in early 2013 CFOs’ expectations greatly improved at the end of the year. These positive forecasts remained in place at the end of 2014, with no remarkable change. More than half (51%) of respondents predict growth, 38% expect no change and 11% expect some decrease over the next 12 months.

Graph 4Over the next 12 months how do you expect levels of M&A to change in your country?

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The Deloitte perspective

Hungary’s economy accelerated in 2014 but may lose some of its momentum in 2015-2016. Hungary’s economic recovery over the past year has been fuelled largely by public spending and accelerating investment in the build-up to the election.

Unemployment declined more than in any other surveyed country in 2014, but public work schemes were a major factor. Private sector investments were partially supported by the Funding for Growth Scheme (FGS).

The contribution of government programmes to growth should reduce during the next year, when growth should come to depend more on private consumption, which is to be greatly facilitated by the exchange of retail forex loans into HUF and the repayment of former unfair gain. This tendency has been rising gradually, supported by the improvement of the labour market and growing disposable income.

Risks, priorities and challenges



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Risks, priorities and challenges

The survey reveals that, similar to the regional average, around three quarters (73%) of Hungarian companies feel that this is not the best time to increase balance-sheet risk. As in previous years, some three quarters (72%) of CFOs feel that the external threat of financial and economic uncertainty is higher than normal.

Graph 9How would you rate the general level of external financial and economic uncertainty facing your business?

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Unlike the results from the end of 2013 - when almost half of the respondents saw increasing revenues from new markets as their key business goal - this time companies say they will focus primarily on local markets over the next 12 months. In addition to increasing revenue, 28% of companies emphasised cost cutting and 20% cited increasing their liquidity. Only 8% mentioned new investments as a main business goal for the next business year, which is 18% lower than in late 2013. Even though the restructuring of business processes is still a primary strategic objective for most companies, it is becoming less of a priority. While 52% of the companies found this area extremely important last year, this proportion has fallen to 30%.

The constantly changing legal environment and taxation issues remain the most serious challenges for Hungarian companies. The number of finance executives prioritising the re-optimisation of financial and business processes and related IT developments is growing. This is a major challenge in this uncertain and unpredictable business environment. The development of risk management is gaining in importance too – the greatest challenge lies with the management of risks arising from the volatility of exchange rates, as this also entails financial, accounting and taxation issues.

Graph 10To what extent is business remodelling or restructuring likely to be a priority for your business over the next 12 months?

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In a recent Deloitte Dbrief titled “Risk-adjusted Forecasting and Planning: Balancing the Risk-Return Equation,” participants were asked what they viewed as the most difficult step in risk framing. Almost half of the 2,600 respondents cited identifying the full set of value and risk drivers; 25% chose facilitating an honest, constructive conversation with relevant stakeholders; 16.6% thought using framing results to guide modelling and data collection would prove most difficult; and 8.6% were worried about assembling a broad, relevant set of stakeholders.

Admittedly, each could be a barrier to implementing risk-adjusted modelling. Yet, armed with an improved understanding of uncertainty, many companies can react faster to unexpected events. They can also develop more consistent assumptions both within and across business units, which may foster stronger communication internally and externally. And CFOs, as custodians of the forecasting process, can gain confidence in the delivery of the plan.

Furthermore, the practical application of risk-adjusted approaches within the businesses can help integrate strategic planning with risk and finance, driving more value at business-unit level and preparing the company to be more nimble. Given the level, speed and global impact of risks currently facing many companies, such an integrated approach should be considered not only a necessity, but also a competitive advantage.

Financing



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Financing

Half of the respondents say that the debt service abilities of their companies will not change over the next three years. However, the other half expects improvement, meaning a slight change compared to previous results. In the short term, there are also positive expectations regarding the indebtedness ratio. Even though this is not a significant change, it is clear that the trend towards reduction is continuing in 2015. Only 11% of executives anticipate an increase, 56% predict no change and 33% think that the indebtedness ratio will fall.

Graph 5What is your aim for your level of gearing over the next 12 months?

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Although opinions differ regarding the financing costs of Hungarian companies, CFOs believe that they now have easier access to loans. However, the number of those who feel that access is difficult is still significantly higher than those who feel it is easy.

Graph 6How would you rate the overall availability of new credit for companies nowadays?

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Respondents view bank borrowing in a more positive light than in recent years, which is mostly the result of permanently low interest rates. Although the sample contains medium and large companies, some were involved in the Funding for Growth Scheme (stage II of which ended in December 2014), which greatly contributed to growth in borrowing. Although bank borrowing has become more attractive to companies, the growth of company lending could be negatively impacted by losses suffered as a result of FX debt relief.

Graph 7Currently bank borrowing as a source of funding is:

0%

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NormalAbove normal

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Toplevel

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Graduatelevel

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Decreasesomewhat

Remainthe same

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NoYes

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Attractive

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NoYes

2012 H2

2013 H1

2013 H2

2014 H24

7

16

40

6764

68

49

29 29

1611


1

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3

4

5

6

Positive economic expectations are reflected in views regarding the use of increased capital as a means of funding. After two years, the number of CFOs who see increasing capital as a viable option has grown. Despite this positive change, more than half of the respondents are still neutral and 29% do not see it as an attractive option.

Graph 8Currently equity raising, as a source of funding is:

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NoYes

2012 H2

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2013 H2

2014 H24

79

16

5863

45

54

38

31

46

29

Talent



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6

78% of participating CFOs believe that there will be no personnel shortages in the finance area in the 12 months to come. Although this proportion was somewhat higher 18 months ago, this level of expectation is outstanding among countries in the region. If we must specify where shortages might lie, then the critical areas are at the middle and senior executive levels. It is an important change from former years that the shortage greatly increased on a junior level in the CFOs’ opinion. Today, recruiting people at the start of their career is a challenge for only 5% of companies.

Graph 11Whether or not CFOs expect talent shortages in the finance area over the next year

AL

100.0%

%0.0

BG

77.8%

%22.2

HR

71.2%

%28.8

CZ

77.6%

%22.4

EE

70.0%

%30.0

HU

78.3%

%21.7

RKS

86.7%

%13.3

LV

58.1%

%41.9

LT

48.4%

%51.6

PL

73.9%

%26.1

RO

73.1%

%26.9

RS

49.0%

%51.0

SK

47.8%

%52.2

SI

71.0%

%29.0

Yes

No


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6


The finance function has changed dramatically in a short time, but public perceptions may not yet have caught up with those changes. As a result, many potential recruits may be making career choices based on outdated views of the opportunities afforded by a finance career.

CFOs and other leaders should consider pursuing a targeted, organised brand-building strategy designed to get the word out about the shift to strategy in finance.


For more information on the Deloitte CFO Survey please contact:

CFO Programme Leader

Gábor MolnárPartnerAdvisory & [email protected]+36 1 428 6450

Clients & Markets

Marcell NagySenior CoordinatorMarketing and Business [email protected]+36 1 428 6737

About the survey

The 6th CE CFO survey took place in October & November 2014. A total of 550 CFOs across 14 countries completed our survey. The Deloitte CFO Survey is the only survey that seeks to establish the views of CFOs in relation to the financial markets, economic outlook and business trends on a quarterly basis.

Deloitte CE CFO survey is a “pulse survey” that provides CFOs with information regarding their peers’ thinking across a variety of topics. It is not, nor is it intended to be, scientific in its number of respondents, selection of respondents, or response rate —especially within individual industries.

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.

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 for a more detailed description of DTTL and its member firms.

Deloitte provides audit, tax, consulting, financial advisory and legal services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s more than 200,000 professionals are committed to becoming the standard of excellence.

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 more than 3,900 people in 34 offices in 17 countries.

© 2015 Deloitte Central Europe

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