Results of a survey conducted among Polish financial directors (CFOs) during a congress series: CFO of the Year

1. Results of a survey conducted among Polish financial directors (CFOs) during
a congress series: CFO of the Year
October 2016
Economy Shifts to a Lower Gear

2. Dear Reader,
Once again, Grant Thornton had the honour
to participate in the congress series: CFO of the
Year. The opportunity to participate in the series
of meetings of CFOs from all over Poland is an
extremely valuable experience for us because CFOs,
due to their function, are usually responsible for
making key decisions in their companies, which
indirectly affect the whole economy.
In order to ensure effective care of the financial
condition of the company, CFOs need to have
a very good understanding of the current economic
situation, both in terms of their own business and
economy as a whole. Therefore, for the third time,
together with Euler Hermes, we decided to ask the
participants of the CFO of the Year congress series,
which were held in Poznan, Rzeszow, Katowice
and Sopot, about their opinion on the economic
perspectives for their companies and the entire
economy in the next twelve months.
A record number of CFOs (more than 160)
participated in the survey, which provided us with
excellent material for analysis. And what conclusions
can be drawn from the analysis? First of all, a decrease
in optimism among CFOs, resulting, among others,
from a slowdown in demand and rising payroll costs.
However, the number of optimists continues to be
higher than the number of pessimists – thus, there
is no reason to panic.
Enjoy reading!
Tomasz Wróblewski
Managing Partner
Grant Thornton
A few words from the authors
Grant Thornton

3. A few words from the authors
Euler Hermes
Dear Reader,
For the third time, financial directors attending
a congress series: CFO of the Year, replied to the
invitation of Grant Thornton and Euler Hermes and
expressed their views on the economic outlooks for
business in Poland.
Despite differences in the geographic location
(different regions of the country) and the
diametrically different industries and sectors of
operations of the surveyed CFOs, the results gave rise
to an interesting, coherent and logical picture. What
is more: this picture indicates changes that we may
expect in the future.
The CFO environment is well prepared for the
current developments and challenges on the market.
It has an extraordinary ability to identify risks early
in the process, which provides CFOs with more time
for adequate response. A perfect example of such
ability is the manner in which the level of investment
has been adjusted to the uncertain market situation
and the whole business environment.
On the other hand, the survey demonstrates that
Polish CFOs do not operate conservatively – and
similarly to previous years, when they supported
development of investment in businesses, they now
focus on investment in employees.
This has been confirmed by recent statistics
which show that the decreased level of investment
is accompanied by the increased utilisation
of production capacities of Polish companies.
Employment growth is a logical and safe alternative
to investments in fixed assets. This also indicates a
growing role of CFOs in, and their responsibility for
the key competitive advantage – i.e. human capital.
Have a closer look at the results of the survey. They
are extremely interesting, and the conclusions will
certainly help you in making everyday financial
decisions in your companies.
Waldemar Wojtkowiak
Member of the Management Board, CFO
Euler Hermes

4. Key Conclusions
32 % of survey participants are optimistic about the economic outlooks for the next 12 months. This is a drop by 23 p.p. compared with
last year’s survey. In addition, the percentage of CFOs who are pessimistic about the economic future has grown from 5 to 19 percent.
40 % of respondents – i.e. 21 p.p. less than in 2015 – believe that demand for products and services of their companies will grow.
41 % of CFOs – i.e. 15 p.p. more than last year – expect an increase in the average salaries of their employees.
CFOs are much less likely to invest than last year.
The percentage of companies planning to purchase fixed assets has dropped from 70 to 59 percent.
Dwindling optimism of CFOs
Revenues of companies to slow down
Labour costs on the increase
Weakening investment climate

5. The number of optimists among CFOs is decreasing
Figure 1. How do you assess the prospects for your company for the next 12 months? (in %)
10
20
30
40
50
60
39
44
55
32
5
19
41
2015
2016
neutrally
optim
istically
pessim
istically
Idonotknow
From over 160 participants of our survey, 32 % are optimistic about
the economic outlooks for the next 12 months. This is a definite drop compared
with last year’s survey, when the percentage of CFOs with an optimistic approach
to the future was 55 %. On the other hand, the respondents with a rather bleak
outlook for the future has increased dramatically – i.e. to 19 %, compared with
last year’s result of merely 5 %.
The drop in economic optimism among CFOs is disturbing and may indicate
that the economic slowdown is on the rise. However, there is still no reason to
sound the alarm and prophesy recession or another financial crisis. This is due to
the fact that every third respondent believes that the next 12 months will be good
for the Polish economy, and only one in five has opposite views. These results
could simply mean that CFOs are expecting a slightly slower rate of economic
growth in Poland, which coincides with the majority of market forecasts
(including those by the National Bank of Poland, the European Commission
and the International Monetary Fund).

6. The weakening optimism among CFOs may also be seen in the forecasts of
demand for products and services of their companies. Currently, 40 percent of
respondents believe that such demand will increase over the next 12 months, and
only a year ago, this figure stood at 61 %. Moreover, the number of respondents
who expect that the demand for products and services of their companies will
continue at the current level increased by as many as 19 p.p. (from 29 to 48 %).
The positive thing is certainly the fact that only 8 percent of CFOs (compared to
7 percent last year) expect a reduction in demand.
Expecting a decline in demand for their products, CFOs are forced to respond
with price reductions. As many as half of the survey participants declare that
they have recently experienced increased pressure to reduce prices of products
and services of their companies, while only 7 percent of respondents say that
the pressure has decreased. Finally, 36 percent of respondents did not feel any
pressure to reduce their prices.
Growth in demand to slow down
Figure 2. What developments in the demand for your products and services do you expect
in the next 12 months (in %)
Figure 3. How do you assess the current price levels in your industry, and the pressure to
reduce them? (in %)
10
20
30
40
50
60
70
61
40
29
48
7 8 2 4
2015
2016
itwillgrow
itwillnotchange
itwilldrop
Idonotknow
10
20
30
40
50
50
36
7 6
ithasincreased
itcontinues
atthe
sam
e
level
ithasdecreased
itisquite
the
opposite:
in
m
yindustry,
pricesare
growing

7. Only every third respondent expects greater profitability of his/her company
in the next 12 months. This is approx. 11 p.p. less than in the previous survey.
In addition, there has been a significant decline in the difference between the
percentage of CFOs expecting an increase in sales profitability and the percentage
of CFOs expecting it to decrease. In 2015, the difference was less than 28 p.p.,
and now it has declined to merely 8.4 p.p. Approximately 40 % of respondents
do not foresee any changes to profitability.
Not surprisingly, by analogy to last year, there has been a decrease in the
percentage of CFOs who expect growing revenues from the domestic market
and exports. The percentage of these CFOs continues to be greater than the
percentage of CFOs expecting a decline in such revenues, yet the disparity has
decreased. In this year’s edition of the survey, 48 % of respondents expect their
company to generate more revenue in the domestic market, and 52 % expect
an improvement in their export revenues. As compared with the previous year
and the 2014 survey, this is a decrease by 13 and 2 p.p. and 19 and 13 p.p.
respectively.
Unsatisfactory profitability
Figure 4. Do you think that over the next 12 months profitability will (in %) Figures 5. and 6. What developments in the domestic market and export revenues do you
expect in the next 12 months (in %)
domestic market exports
40
34
26
continue at
the same level
grow
decrease
48
they
will growthey will drop
35
17
they will
continue at
the same level
52
38
10they will drop
they will
continue
at the same level
they will grow

8. Another possible factor contributing to deteriorated sentiments of CFOs is the
situation on the labour market in Poland. 41 % of survey participants, i.e. 15
p.p. more than last year, expect that over the next 12 months salaries in their
companies will grow faster than the rate of inflation. CFOs realise that in order to
keep the most qualified employees, i.e. those generating the greatest added value
for the company, they will have to offer them better financial conditions. Thus,
CFOs expect that in addition to decreasing revenues, labour costs will rise as well.
As a result, they believe that profitability of their businesses in the nearest future
will be under double pressure – both in terms of revenues and costs.
It is worth noting that there has been a decline in the percentage of CFOs who
expect salaries to grow at a pace similar to the rate of inflation. This option has
been chosen by 30 % of respondents - 18 p.p. less than last year. However, it
is hardly surprising given the deflation which has become more pronounced in
Poland since the last survey. This means that if salaries were to grow at the rate of
inflation, in practice, their nominal value would have to decrease, which is rarely
practiced in Polish companies. 28 % of CFOs say that salaries will remain at the
current level.
Payroll costs on the rise
Figure 7. In the next 12 months, do you expect that average employee salaries will (in %)
10
20
30
40
50
26
41
48
30
26
28
0 1
2015
2016
grow
fasterthan
therateofinflation
grow
atthesam
epace
astherateofinflation
notbeincreased
atall
bereduced

9. Fewer CFOs plan investments
Figure 8. In the next 12 months, do you intend to increase expenditure on (in %):
10
20
30
40
50
60
70
80
2015
2016
74
61
70
59
48 48
13
23
13
5
new
m
arket
entries
new
m
achinery
and
equipm
ent
research
and
developm
ent
acquisition
of
com
paniesin
Poland
acquisition
ofother
com
paniesabroad
The slightly worse sentiment among CFOs is also shown in the analysis of their
investment plans for the next 12 months. Although the majority of surveyed
CFOs intend to increase their capital expenditures, especially those related
to entering new markets or purchasing new machinery and equipment, the
percentage of such CFOs has dropped by 13 p.p. (from 74 to 61 %) and 11 p.p.
(from 70 to 59 %) respectively.
The same number of respondents as last year – 48 percent – have plans to increase
their spending on research and development. This could mean that CFOs are
becoming increasingly aware of the importance of innovation in the process of
building competitiveness of a company, and therefore, intend to devote a larger
portion of their budgets to R&D.
28 % of respondents declare their willingness to increase spending on the
acquisition of other businesses. This number has increased by 2 p.p. as compared
to last year, however, the structure of such acquisitions is slightly different. Last
year, the same number of respondents, i.e. 13 %, planned acquisition of both
Polish and foreign companies. In this year’s edition of the report – 23 % of CFOs
have declared their plans to acquire domestic companies, but only 5 % have
stated their interest in the acquisition of foreign businesses. Thus, the results went
back to the 2014 status.

10. Surprisingly, despite the decreasing demand for
products and services, and a lower percentage of
financial directors declaring an increase in capital
expenditure, the demand for new employees
continues at a high level. The percentage of CFOs
planning to increase employment is slightly growing
– currently, as many as 41 percent of CFOs plan to
increase the number of employees in their companies
in the next twelve months – i.e. 4 p.p. more than last
year. What is more, for the first time in the three-
year history of our report, the number of companies
planning to attract new workers is greater than
the number of companies intending to maintain
their employment at the current level. Only a year
ago, the intention to maintain a stable number of
employees was declared by every second respondent,
but this year, the number has increased to 37 percent.
Moreover, only 13 % of respondents – i.e. the same
number as in 2015 – have plans to reduce their
employment figures.
Greater demand for employees
Figure 9. In the next 12 months, does your company plan to (in %):
10
20
30
40
50
37
41
49
37
13 13
9
1
2015
2016
increase
em
ploym
ent
keep
em
ploym
ent
atthesam
elevel
reduce
em
ploym
ent
Idonotknow

11. In comparison with previous years, CFOs have demonstrated less optimism.
Several factors have contributed to the deterioration in the sentiments of CFOs.
The participants of our survey expect that in the next 12 months, the growth in
the demand for their products and services will slow down, which is reflected
in their profitability and revenue forecasts, also showing less optimism than last
year. As a result of such slightly weaker economic outlooks, there is a smaller
percentage of CFOs whose companies have plans for new market entries or more
spending on new machinery and equipment. The situation on the labour market
is also conducive to such economic outlooks. CFOs expect an increase in the
payroll costs, which puts profitability of their companies under pressure, both in
terms of revenues and costs.
Despite such deteriorated sentiment among CFOs, there is still no reason to
sound the alarm. Among CFOs, there are still more optimists than pessimists,
which could simply mean that the respondents expect a slightly slower rate of
economic growth in Poland. This is further corroborated by forecasts of such
institutions as the National Bank of Poland and the International Monetary
Fund.
Summary

12. Contact
Survey information
This report has been prepared on
the basis of more than 160 surveys
distributed and collected during
four editions of the CFO of the Year
congress, which were held in Poznan,
Sopot, Katowice and Rzeszow in May
2016.
The congress series is a unique event
of this type in Poland, integrating the
environments of CFOs and board
members responsible for financial
matters in their organisations.
These meetings are always devoted
to the most current issues faced by
managers of Polish companies.
For more congress information go to:
http://dyrektorfinansowyroku.pl/
Jacek Kowalczyk
Marketing and PR Director
Grant Thornton
T +48 22 205 4841
M +48 505 024 168
E jacek.kowalczyk@pl.gt.com
The nature of information contained in this document is only general and illustrative. It does not create any commercial or tax, legal, accounting
or any other professional advisory relationship. Prior to any action, please contact your professional advisor for advice tailored to your individual
needs.
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shall not be liable for consequences of any action resulting from the use of such information.
Grzegorz Błachnio
Research & Communication
Euler Hermes
T +48 22 385 49 19
M +48 601 056 830
E grzegorz.blachnio@eulerhermes.com