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2018 CFO Survey9th edition Czech Republic
2018 CFO Survey Czech RepublicWe would like to thank all 110 participating CFOs from the CzechRepublic for their efforts in completing our survey. We believethat the report will provide you with useful insights that you willbe able to apply in your day-to-day operations, clearly highlightingthe challenges that you and other CFOs are facing, and providingan important benchmark to understand how your organisationrates among peers.2
2018 CFO Survey Czech RepublicContentsForeword5Key factors in 20186Methodology10Economic outlook13Business environment outlook19Company growth outlook29Automation37Contacts503
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2018 CFO Survey Czech RepublicForewordThe CFO Survey in the Czech Republic ispart of an extensive Central Europeansurvey, which has been conducted forthe ninth year. Every year, we ask CFOshow macroeconomic indicators and othercurrent issues and trends affect theirfinance functions and organisations assuch.Martin TesařPartnerCFO Program Leader“CFOs in the Czech Republicand across Central Europelook to 2018 with optimism.However, they are also wellaware of the possible challengesas well as the fact that theeconomy is unable to performat such a high level for a longperiod of time and that, mostprobably, its cyclical slowdownis coming. Therefore, they willtry to mitigate the risks that theywill undertake in the period tocome.”This year’s survey focused on topicsincluding risk, GDP growth, financingpriorities and the most recent challengesfaced by businesses, such as the digitaltransformation of the finance function andthe greater involvement of robotic processautomation.As in last year’s survey, this year’s resultsshow prevailing optimism among CFOs.The good and stable performance ofthe Czech economy and the overalloptimistic expectations are also reflectedin the development in revenues, whichmost CFOs expect to grow. However,this goes hand in hand with the factthat growing costs will prevent thisassumption from having the desiredeffect on operating margins. The Czecheconomy has been doing well in the longterm, with Czech CFOs able to see thefavourable macroeconomic conditions,yet they are also concerned about the lowunemployment rate and the shortage ofskilled workers on the market. As a result,95% of CFOs cited growing workforce costsas a risk factor.Key findings: 95% of CFOs expect inflation to increasein 2018; Only a fraction of CFOs (14%) thinktheir companies are facing high levelsof external financial and economicuncertainty, while in Central Europe thefigure is twice as high (31%); Most CFOs do not expect substantialchanges in the unemployment ratein 2018 and neither do they expecta decrease in costs – on the contrary,they expect them to grow; Nearly half (46%) of CFOs expect theirworkforce to expand in 2018, and 95%of respondents anticipate staff costs torise; Only 6% of CFOs believe that theircompanies are ready for robotic processautomation (RPA), although 65% of CFOssay their companies have already beenaddressing RPA; and The benefits of digitalisation for thefinance function as cited by CFOsprimarily include digitalisation ofdocuments (69%) and automation ofrepetitive management reporting (54%).5
2018 CFO Survey Czech Republic6 Key factors to affectcompanies in 2018 asseen by CFOs1. Interest RatesCFOs in most Central European countriesincluding the Czech Republic do not intendto change their strategies if interest ratesincrease as they only have a minor impact ontheir business. This is despite the fact that94% of CFOs in the Czech Republic expectinterest rates to grow in 2018.2. CostsMore than half of respondents estimate thatan increase in overall production costs, orthe costs of material, labour and services, willbe one of the key risk factors for companies.Almost all respondents, including CFOs fromCE countries, expect the costs of recruitingqualified specialists and other staff coststo grow this year. With unemploymentat a record low and with the shortage ofemployees in key economic sectors they areproved right.3. Risk AppetiteThe economy as a whole is doing well, andCFOs are well aware of it. Nevertheless, overhalf of them think it is not a good time to takeon more risk.4. Robotics and automationThe survey results show that roboticprocess automation (RPA) continues to bea relatively new field for CFOs whose impactson companies are hard to anticipate. Only6% of CFOs believe that their companies6are advanced in RPA. This is despite thefact that 65% of respondents say that theircompanies have already been addressingRPA. They do not dare estimate the impactsof robotic automation on their companies;however, more than half of them (60%)expect savings of around 20%.5. DigitalisationAs regards digitalisation, CFOs admit thatthey are generally not company-wide driversof this new trend, yet their voices can beheard. In Central European terms, theytend to show more restraint as regardstheir involvement in addressing strategicissues. The benefits of digitalisation for thefinance function as cited by CFOs primarilyinclude digitalisation of documents (69%)and automation of repetitive managementreporting (54%) which takes up a lot of theirtime every month.6. Big dataAccording to CFOs, the utilisation of bigdata is one of the three key trends affectingtheir businesses. However, the resultsconfirm that it is still a rather new topic as45% of CFOs say they do not make use ofthe data. However, a positive shift has beenrecorded in this regard as two years ago thepercentage of CFOs not using big data was73%.
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2018 CFO Survey Czech RepublicKey findingsEconomic outlook95%of CFOs think inflationwill increase in 2018CFOs are predicting average GDP growth of(0.7 pp more than in 2017)87%of CFOs believe that unemploymentcan not go any lower82.5%
2018 CFO Survey Czech RepublicBusiness environment outlook69%64%44%66%A majority (64%) of respondents donot think 2018 will be a good time forcompanies to take on more risk66% believe the impact of interest rateson their business is too small to influencecompany strategyCompany growth outlook95% of CFOs expectworkforce costs toincrease in 2018More than two thirdsof CFOs (68%) expectrevenues to rise in 2018Nearly half (46%) of CFOsexpect their workforceto expand in 20189
2018 CFO Survey Czech RepublicMethodologyThe findings discussed inthis report represent theopinions of110The findings presented and discussedin this report represent the opinionsof CFOs from the Czech Republic and11 other Central European countries:Bulgaria, Croatia, Hungary, Latvia, Lithuania,Poland, Romania, Serbia, Slovakia, Sloveniaand Ukraine. The survey was conductedbetween September and November 2017and focused on development estimates forthe following 12 months.Some of the charts in the report showresults as an index value (net balance). Wecalculate this by subtracting the percentageof respondents giving a negative responsefrom the percentage giving a positiveresponse. We deem responses thatare neither positive nor negative to beneutral. Due to rounding, responses to thequestions covered in this report may notaggregate to 100.When ‘Eurozone (CE)’ is used in the chartsand infographics in this report, it refersto the Central European countries in thesurvey that have adopted the Europeancurrency. ‘Non-Eurozone’ refers to theother CE countries covered by the survey.When we use ‘EU (CE)’, this refers to thosesurveyed Central European countries thatare full members of the European Union.Some findings include a comparisonwith those presented in the previousedition of this survey, based on a sampleof the eleven countries that appear in botheditions.10CFOsbased in the Czech RepublicThe survey of CFOs’ opinionswas conducted as part ofa regional survey representingthe opinion of almost 600 CFOsbased in Central Europeancountries.
2018 CFO Survey Czech ech niaLTLithuaniaUAUkraineLTPLUACZSKHUROSIHRRSBG11
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2018 CFO Survey Czech RepublicEconomic outlookThe Czech economy has found itself in analmost ideal position: economic growth hassignificantly picked up speed while retaining lowinflation levels, a surplus on the current accountof the balance of payments, falling public debtand a stable financial sector. The externaleconomic environment also contributes tothe stability and development of the Czecheconomy.In this context, Czech managers’ rising optimismand expectations of growing revenues in thecoming year are logical. The favourable outlookopens up a path to investments in expandingproduction capacities and to research anddevelopment investments.Further development is proving to be hinderedby a shortage of workforce. Furthermore,CFOs expressed concerns about a fall infuture demand, pressure from competitionon a decrease in their production prices andgrowing operating costs. The latter is relatedto the situation on the labour market, whichcontributes to accelerated growth in salaries.Concerns about the development of theCzech crown’s exchange rate also need to bementioned as they were cited by a considerableportion of CFOs. The expected increase ininterest rates will also contribute to the growthin costs.Compared to last year’s results, higher interestrates reduce the attractiveness of bank loanor corporate bond financing. Equity financingremains to be of peripheral interest. Internalfinancing continues to be the most popularoption. However, optimism is accompaniedby caution, which is manifested in the fallingappetite to take on greater business risks.This year should be marked by continuingprosperity and additional improvement in mostcompanies’ performance. Nevertheless, a risein costs may create pressure on a decreasein margins. The favourable situation givescompanies room for strategic decisionsand long-term investments. The currenttechnological advancements encourage this.A substantial portion of CFOs state that they areconsidering or have already started investingin robotics and automation of productionprocesses, document processing and otheractivities. Today, these investments may bringa competitive advantage. Tomorrow, they maybecome a necessity.13
2018 CFO Survey Czech RepublicCFOs are again more optimisticon GDP growthWhile the greatest proportion of CFOsexpect GDP growth of 1.6–2.5% in 2018,the number of predictions for GDP growthof 2.6–3.5% has increased from 7% to31%. Last year, no one expected economicgrowth to exceed 3.5%. This year, it isexpected by 9% of CFOs.“Following last year’s rapid economic growth, optimism is growingamong CFOs. The reasons behind this? The Eurozone’s economicsituation has improved and the global geopolitical situation is notcreating risks that would affect economic development.”David MarekChief Economist, DeloitteWhat is your expectation for your country’s economic GDP growth for the year Netbalance26%1%Very low ( 0.5%)15%Low (0.6%–1.5%)Medium (1.6%–2.5%)High (2.6%–3.5%)-16%16%Very high ( 3.5%)Net balance
2018 CFO Survey Czech RepublicCFOs are aware that theunemployment rate hasreached its limitsThe considerable decline in unemploymentin recent years has not left much room forit to keep falling. The remaining portionof unemployment is mostly of a frictionalnature. As a matter of fact, the labourmarket is suffering from quite the opposite:a shortage of labour. In line with this,two thirds of CFOs do not expect theunemployment rate to change substantiallyover the next twelve months.How do you expect unemployment levels in your country to change over the next twelve %9%-8%No changeCEIncrease2017201827%34%NetbalanceCZNet balance15
2018 CFO Survey Czech RepublicMost CFOs expectinflation to riseInflation has gone back to normal. Withprices of goods and services rising ata moderate pace, inflation is solidlyanchored in the Czech economy, which isalso perceived by a vast majority of CFOs,who expect this trend to continue.How do you expect CPI (Consumer Price Index) levels to change in your country over the next twelve months?73%86%85%95%22%13%CZ2%2017Decrease16CE94%No %1%2018Net balance4%201881%
2018 CFO Survey Czech RepublicCFOs consider a furtherincrease in interest ratesto be almost certainThe Czech National Bank has beenincreasing interest rates since last yearand, given the economic situation, it is likelythat it will continue doing so in 2018. Anoverwhelming majority of CFOs (94%) are ofthe same opinion, expecting interest ratesto rise in the next twelve months.What do you expect to happen to interest rates in your country over the next twelve months?47%55%59%94%39%20186%6%CZCEThey will go downThey will stay the same51%38%4%EU (CE)2%Eurozone (CE)They will go up17
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2018 CFO Survey Czech RepublicBusinessenvironmentoutlook19
2018 CFO Survey Czech Republic2018 will bring highercosts for companiesAn overwhelming majority (95%) of CFOscited staff-related costs to be the most likelyto increase. Production costs (86%) andcosts of services (66%) are also consideredto be of key importance. A substantial shiftfrom the year before has been recorded incosts of debt, where a rise is expected in linewith the general trend.Pressure on salary growth and employeenumbers will continue, which is relatedto the issue of automation (replacingworkforce), or a reduction in the amount ofinvestments, which most companies intendto stabilise.In your view, how are costs for companies in your country likely to change over the next twelve months?Costof debtCostof equityCost ofworkforceProvisionfor bad debtsReal estatecostsCorporate tax11%26%10%Cost ofOverallbusinessproduction Transportationcostsrelated services delivery 8%Netbalance5%6%20171%2018No 19%201789%41%49%3%2%201873%86%67%16%10-10%Net 8%221%-75%-78%
2018 CFO Survey Czech RepublicM&A activity to slow downEconomic growth and higher corporaterevenues are often related to heightenedM&A activity. However, expectations aremuch more cautious in this respect. Lastyear, 64% of CFOs expected a greatervolume of transactions, while for thenext twelve months it is only 45% ofrespondents. Half of participating CFOsexpect roughly the same number ofmergers and acquisitions as last year.How do you expect M&A levels to change in your country over the next twelve eDecrease43%31%48%51%59%64%No changeIncreaseNet balance21
2018 CFO Survey Czech RepublicCFOs view the stability ofthe business environment inpositive lightThe combination of the Czech economy’svery good macroeconomic and financialstability and the mitigation of global riskshas led to a decrease in uncertainty asperceived by Czech CFOs. The proportionof respondents perceiving low uncertaintyincreased from last year’s 11% to 25%.In contrast, the portion of responses forhigh uncertainty significantly droppedfrom 28% to a mere 4%, which representsa substantial difference on the CE average.How would you rate the overall level of external financial and economic uncertainty in the Czech Republic (your country)?4%28%38%36%29%71%61%63%51%52%11%12%7%CEEU (CE)Eurozone balance22%-17%Low level of uncertainty22Normal level of uncertaintyHigh level of uncertaintyNet balance
2018 CFO Survey Czech RepublicInterest rate increases willnot impact strategiesSo far, the shift in interest rates has beenrelatively modest, with the indicatorsof companies’ gearing levels and debtservicing abilities on the mend in recentyears. Therefore, even if interest ratesincreased as expected, most companiesare not planning on adjusting theirfinancing strategies. This response wasgiven by two thirds of CFOs.Compared to how Czech CFOs responded,their CE counterparts were not so sureabout interest rate increases or theirimpacts on companies, if any, and weremore inclined to consider taking varioussteps.If interest rates were to rise in the next twelve months, which one of the followingstrategies do you think would be most appropriate for your business?2%3% 1%2%8%1%12%13%5%Reduce leverage ratioRevaluate investment plans4%CE5%66%Increase debtRefinance debt7%6%CZReduce debt5%Adapt production plans to copewith changes in demand8%Shift marketing approach (e.g. less emphasison pricing and more on other aspects)4%44%3%Strategy unchanged - interest ratewill have little impactStrategy unchanged - do notbelieve rates will riseOther23
2018 CFO Survey Czech RepublicCFOs will not takemore risk in 2018With companies’ outlooks being the sameor optimistic, CFOs are aware that theeconomy as a whole is running well andcompanies’ plans are set accordingly.However, firms are not willing to take ontoo much risk (in the past three years, thenumber of CFOs selecting “Yes” droppedfrom 46% to 36%) and are more inclined torely on the decisions made in the past years.Is this a good time to be taking greater risk onto your company’s balance 10%71%29%CE2016-27%24NoNet ance54%-38%38%
2018 CFO Survey Czech RepublicCFOs view financial andeconomic uncertainty asnormalThe country’s stability is viewed by CFOsslightly better than how it is viewed at thelevel of individual firms.Compared to their CE counterparts,optimism abounds among Czech companies,with only 14% of them considering financialand economic uncertainty to be highcompared to 31% of CE respondents.How would you rate the overall level of external financial and economic uncertainty facing your ceCZ201611%20175%Low level of uncertainty17%2018CE4%Netbalance20%-17%Normal level of %19%High level of uncertaintyNet balance25
2018 CFO Survey Czech RepublicKey risks: growing costs anda shortage of suitable workers“Growing costs and a shortage of qualified employees are twofactors that are of the greatest concern for Czech CFOs, whichcan be generally interpreted as concern about the timeliness ofproduction and supplies.”A rise in costs and a shortage of qualifiedworkers seem to resonate more inthe Czech Republic than in the rest ofthe region. In contrast, risks relatedto regulation, a drop in demand and,most importantly, the stability of theenvironment, do not cause as muchconcern with Czech CFOs as elsewhere inthe CE region.Jiří SauerDirector, DeloitteWhich of the following factors are likely to pose a significant risk to your business over the next twelve months?Increasing costs of running a business46 %11%(rising cost of materials, workforce, services)Shortage of qualified workers26%Market pressure to reduce the price of goods/ServicesReduction in demand (foreign)7%0%Increasing regulation31%14%4%12% 16%Reduction in demand (domestic)5%Geopolitical risks0%Insolvency and payment bottlenecks in the economy0%Disruptive technologies265%8%7%4% 5%4% 5%Other2%3%Shortage of capital3%3% 4%Interest rate risk1%3%201611%4%Unstable economic and tax law201724%12%4%Growing competition201860%32%Exchange rate risk21%20%62 %37% 40%36%61%
2018 CFO Survey Czech RepublicCFOs prefer internal financing,viewing EU funds as unattractiveAs regards the sources of funding, CFOs’views on bank funding are not unifiedand those on equity-funding are neutral.A major proportion of CFOs agree on theattractiveness of internal financing.This year, a high degree of uncertainty andeven aversion towards EU funds is visible inthe Czech Republic, which runs contrary tothe CE average.“This is not only a consequence of the limits on supported types ofprojects and eligible applicants that meet the requirements for EUgrants. A significant local factor is the uncertainty about the dates onwhich calls for grants are announced and the conditions of supportedgrant projects, the lengthy approval process and the high degreeof uncertainty about being deprived of the grant by supervisoryauthorities.”Luděk HanáčekPartner, DeloitteHow do you currently rate the attractiveness of different sources of funding for your company?Bank borrowingCorporate debt39%41%39%30%Equity37%32%31%Internal financingEU 1620175%14%201836%10%9%2%Neither attractive nor -2%-7%29%9%436%20162017201814%-18%Net balance27
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2018 CFO Survey Czech RepublicCompany growthoutlook29
2018 CFO Survey Czech RepublicFinancial prospects forcompanies remain goodAs in the previous period, CFOs believe thattheir companies will continue to performwell. Overall, the number of “less optimistic”CFOs has decreased. In aggregate, 88%of CFOs consider the prospects of theircompanies to be stable or optimistic.Compared with six months ago, how do you feel about the financial prospects for your alance19%3016%37%52%Less optimistic14%Broadly unchangedMore optimisticNet balance33%27%
2018 CFO Survey Czech RepublicCFOs anticipate higher revenuesThe good economic performance andoptimistic expectations are reflected inthe development in revenues, which 68%of CFOs expect to increase. However,the assumption will not have the desiredeffect on the operating margin, namely asa consequence of growing operating costs.“One of management’s key tasks will be to reflect the expectedgrowth in revenues in the company’s profitability. If they fail toaccomplish this, the expected rise in the prices of most inputsmay lead to structural changes in the entire economy.”Jiří SauerDirector, DeloitteIn your view, how are the following key indicators for your company likely to change over the next twelve months?RevenuesOperating 7201813%19%-26%DecreaseNo changeIncreaseNet balance31
2018 CFO Survey Czech RepublicCAPEX will not grow at thesame pace as the numberof employeesMore than half of CFOs expect that capitalexpenditure will remain the same in 2018,or that it will increase (34% of respondents).As for workforce, 47% of CFOs expect it toincrease and 41% expect it to stagnate. Inboth cases, the expectations are virtuallyidentical to those for 2017. However, theexpectations of an increase in the numberof employees collide with the possibilitiesof the economy as such, with only 13% ofrespondents saying that the unemploymentrate can still record a further decline.“If you combine the two answers, you will find that CFOs are moreinclined to increase the performance of their businesses throughhuman resources rather than investment in machinery.”Ladislav ŠauerPartner, DeloitteIn your view, how are the following key indicators for your company likely to change over the next twelve months?Capital expenditure (CAPEX)34%43%34%Number of %18%2016201716%Decrease3225%No change55%46%11%2018CE201627%23%IncreaseNet 4%201832%29%34%17%22%
2018 CFO Survey Czech RepublicThe ability to service debt remainsgood, with companies moreinclined to decrease gearing levelsIn the long term, most CFOs do not expectthe debt-servicing ability to be a problemand expect it to remain unchangedor increase. Only 6% of CFOs expecttheir debt-servicing ability to drop. Theoptimistic outlook is closely related to theexpectations of a stable performanceboth in respect of their businesses and theeconomy as a whole.“CFOs wish to retain the gearing levels, or decrease them, whichmakes sense given the split approach to financing. In terms ofattractiveness, internal funds were the preferred choice amongthe different sources of funding.”Jiří SauerDirector, DeloitteOver the next three years, you expect your ability toWhat is your aim for your level of gearing over the nextservice your debt to:twelve 01838%37%34%Netbalance38%6%DecreaseCZ2016-16%No changeIncreaseNet balanceDecrease33%2017-8%No change27%2018CE-11%Increase-3%3%Net balance33
2018 CFO Survey Czech RepublicRestructuring asCFOs’ top priorityIn 2018, CFO’s key strategies will includerestructuring and increasing revenues onexisting markets, with 52% of respondentsmarking the two strategies as the toppriority.Considering other priorities, the resultsfor all CFOs show that, going forward,investments in research and developmentand increasing CAPEX will be of importance.Please state to what degree the following strategies are likely to be a priority for your business over the next twelve 22%13%9%4%0%Researchand ing ImprovedIncreasingcash flowincrease:capitaland liquidityexpenditure new markets,acquisitions(CAPEX)Average markets,organic growth3%0%0%IntroducingCostnew products reduction/services- direct costsTop priorityCE pitalexpenditure(CAPEX)Revenueincrease:new markets,acquisitionsRestructuringImprovedcash flowand liquidityRevenueincrease: current markets,organicgrowthNewinvestmentsCostreduction- duction direct %6%2%5%3%340%Costreduction- indirectcosts
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Balancing optimism with risk aversion Central Europe CFO Survey 201836
2018 CFO Survey Czech RepublicAutomation37
2018 CFO Survey Czech RepublicKey findingsAutomation54%58%54% of CFOs believe that the greatestbeneficiaries of process automationwill be their company operations58% of CFOs believe there isa pressing need for change in financedue to increasing digitalisation3869%6%Automation of document entry andprocessing is a priority for 69% of CFOsin digitalising the finance functionOnly 6% think their companiesare advanced in robotic processautomation (RPA)
2018 CFO Survey Czech RepublicOnly a small portion ofbusinesses are advanced inrobotic process automationA total of 65% of participating CFOs havealready started addressing robotic processautomation (RPA), yet they are at differentstages. Either they are still looking for thepotential of automation or planing to start/started the implementation phase or theyhave already finished it. Compared to theCE average, Czech firms come off as slightlymore advanced in terms of RPA.“CFOs are aware that the more and more extensiveimplementation of process automation – not only in the financefunction, but across the entire organisation – is inevitable at thepresent time of company digitalisation. However, it is hard formany of them to estimate what savings RPA could bring.”Jan HejtmánekSenior manager, DeloitteHow advanced is your company in its work on robotic process automation?1%6%7%13%4%We do not know what the RPA process is15%13%23%6%We know what the RPA process is but wedo not know what we can use it forWe do not expect to automate our processesover the next 2 yearsCECZWe have not thought about it so far15%7%20%23%We intend to begin working on roboticprocess automationWe are looking for the automation potentialWe have started the implementation process21%11%15%We are advanced in robotic process automation39
2018 CFO Survey Czech RepublicRPA: company operations as thegreatest beneficiary, yet a third ofCFOs are unsure about the benefitsCFOs consider company operations tobe the greatest beneficiaries of roboticprocess automation, which is where thehighest number of workers is traditionallyemployed in the Czech Republic. They ranktheir own function second. Comparedto the CE average, there is a clear trendtowards greater administrative savings.The survey results show that CFOs stillfind the topic to be relatively new, of whichthe impacts on the company are difficultto anticipate. This may be due to thecomposition of participating companiesor the absence of specific experience.Therefore, a third of CFOs answered thatthey did not dare anticipate the effects ofgreater efficiency and effectiveness, with26% of CFOs expecting medium savings(between 10-40%) and almost 40% expectsavings of less than 10%.In what areas do you expect to derive most benefitsWhat cost efficiencies do you expect/have you achieved as a resultfrom robotic process automation?of robotic automation in automated nance402018HR34%23%CEOperations2018OtherCZ2018Low (up to 10%)CE2018Medium (between 10 and 40%)High (more than 40%)Unsure
2018 CFO Survey Czech RepublicCFOs play an active role intheir compan
2018 CFO Survey Czech Republic Foreword The CFO Survey in the Czech Republic is part of an extensive Central European survey, which has been conducted for the ninth year. Every year, we ask CFOs how macroeconomic indicators and other current issues and trends affect their finance functions and organisations as such. This year's survey .
