Author: Marek Pielach

Journalist at Obserwator Finansowy

Rising labor costs are the top concern of financial directors

CFOs in Poland are concerned about increasing operating costs, the shortage of qualified employees and the unstable business legislation.
Rising labor costs are the top concern of financial directors

(Geralt, CC)

„The company’s financial directors or chief financial officers (CFO) guard the implementation of the budget planned for the next year. They look at the budget and see what is happening: the operating costs are growing, the suppliers demand increased remuneration, there are problems with recruiting employees and more money is needed to lure them away from the market. When a company wants to maintain profitability despite the rising costs, the CFO must start talking with the management about the possible options: whether to raise prices or introduce new products and services. Additionally, you can always look for cost reductions, but many companies have already taken such actions since last year,” said Piotr Świętochowski from Deloitte, one of the authors of the report “CFO Survey. The forecasts of financial directors”.

In this edition Deloitte surveyed over 1,600 directors from 20 European countries. In Poland, the surveys were conducted between February and April 2018.

The survey indicates that the sense of economic uncertainty among CFOs in Poland has increased slightly (to 46 per cent from 44 per cent half a year ago). However, this still means a big drop in relation to the survey conducted a year ago, when as many as 71 per cent of CFOs indicated a high or very high level of economic uncertainty. In Europe as a whole, the indicated level of uncertainty remains unchanged (52 per cent on average).

The sectors of the economy with the highest sense of uncertainty include the automotive industry, tourism, production of consumer goods, as well as transport and logistics. Economic uncertainty is the least felt in the sectors of professional services and in industry.

It is also interesting to look at the strategies that companies adopt in the current economic situation. The CFOs most frequently indicated plans to increase revenues on the existing markets, followed by a reduction of indirect and direct costs and the introduction of new products and services. Research and development activities, as well as restructuring activities were indicated the least frequently.

Deloitte experts point out that the only driver of innovation for Polish companies is the lack of employees. Initially, they were replaced by immigrants wherever possible, and now more and more companies are deciding to rely on machine and technological processes. That is why in a bank or online store Poles are increasingly frequently corresponding with computer bots, without even knowing it.

“The strategies of Polish CFOs seem to be relatively prudential. The development of a company through organic growth and cost reductions does not portend revolutionary changes, which may be surprising. The economic situation is so good that it is more likely that bold and visionary projects turn out to be successful,” states Deloitte in its comments.

Of course, these strategies should be linked with the perceived risk factors. And so, the increase in operating costs is indicated by nearly 55 per cent of respondents (an increase by 7 percentage points from the previous survey), the lack of qualified employees is indicated by over 53 per cent, and the unstable economic and tax legislation is indicated by nearly 29 per cent of respondents. Interestingly enough, the possibility of a decrease in foreign demand or a recession were indicated by fewer than 20 per cent of the respondents, and price pressure was indicated by fewer than 19 per cent of directors (a drop by 12 percentage points compared to the survey conducted half a year ago).

One optimistic factor, however, is that Polish companies are constantly improving their revenues and profit margins. Some 74 per cent of enterprises plan to increase their revenues in 2018, and 36 per cent also want to increase their margins. Meanwhile, 48 per cent of companies also plan to increase their investment expenditures (compared with 49 per cent half a year ago and 53 per cent one year ago).

At the same time, such data may indicate that Poland is at the peak of the economic recovery. This is best seen in the conservative GDP forecasts provided by the CFOs, which is lower than the official forecast included in the state budget. The CFOs indicate that this year the Polish economy will only grow by about 3 per cent, and as many as 62 per cent of them are afraid that the rate of GDP growth will not exceed 3.5 per cent. The inflation expectations are also growing. Some 63 per cent of respondents expect inflation above 2 per cent in 2018.

The sentiments of financial directors are a pretty good leading indicator for GDP. The financial directors predicted GDP growth at about 1.5 per cent in 2013, and at around 3 per cent in the years 2013-2016, and these forecasts turned out to be accurate.

The report can be found here.

(Geralt, CC)

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