COFACE SA (COFA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. We welcome you to our today's webinar on CEE Top 500. My name is Verena Schwarz. I'm the Regional Communications Manager, and I will guide you through this webinar today. Before I hand over to the main speakers of this webinar, I want to focus on some organizational topics. First, you have the possibility to raise questions during the webinar. When you open the side bar menu on the right-hand side, you will find the menu questions. Here, you can type in your questions during the webinar. And at the end, we will have a Q&A session, and we will be happy to answer all your questions. Secondly, you find a menu called Handout and in this Handout menu, you find 2 files. First, the PDF of today's webinar. And secondly, the study of the CEE Top 500. You can download them during the webinar. The webinar will also be recorded. So -- and tomorrow, you will receive a link to this recording, and you can forward it to your colleagues who are not able to attend this webinar. Now I'm very pleased to welcome Jaroslaw Jaworski, our Regional CEO to this webinar. I'm really happy that he has time to give you some introduction words and introduce you the agenda and the host of today's webinar. Hello, Jarek.

Hello. Thank you, Verena. Good morning, ladies and gentlemen. Welcome to our webinar. Very happy having you with us. And really excited, me and my team to present our new additions of Coface CEE Top 500 ranking, composed with the biggest companies located in our regions. The biggest in terms of turnover and the biggest in our region and the biggest based on the turnover from 2022 which as probably you remember, was very challenging and started with a significant event, which was the war in Ukraine. But afterwards, after the war and afterwards, with all the consequences related to this, maybe to mention few of elements like the energy crisis, inflations, increase -- significant increase. And about companies who made the biggest progress during last year, developed the most, who manage the best of the situation and the sectors where it was possible. And also maybe a little bit more interesting as well for you about our assessment -- economic assessment and which is additionally maybe more important and interesting for you about our outlook. Grzegorz Sielewicz, our Chief Economist will give you insight, and I hope that it would as usual it will give you an interesting overview of how we see the future, which is really important. But before Grzegorz, I would like to introduce Matei Mihailescu, our new Regional Business Information Director. Matei to cover the positions very recently, just 1 month ago. So starting from the beginning of October. But Matei, as we discussed a few minutes before our webinar is well known, I guess, for participants. Our biggest clients are [indiscernible] manage relationship with our biggest credit insurance clients on the regional level. So knowing all elements about Coface, I believe is smoothly taking the role of the regional business information director. So I would like to ask Matei to give us some insights, some explanation regarding what type of methodology we use to create the ranking? What type of expertise will be needed to provide the ranking. But at the end, maybe I would like also to thank to all my colleagues being responsible for the creation of this ranking because I know how much work is behind this. So thank you, guys. Thank you for providing this unique ranking in our region. So once again, thank you, ladies and gentlemen, being with us. So I wish you all the best during the next 1 hour, and I'm giving the floor to you, Matei.

Thank you, Jarek. Hello, everybody. Guiding you to the methodology by which we have created the Top CEE 500. We took in consideration the first element, the turnover, very tough times. Some of the companies were able to even accelerate, some on contrary, but what we took as main condition was the turnover realized in turnover evolution in the last fiscal year. I'm happy to share that we are reaching now a round figure 15 edition of the Top 50 CEE. This is why we started even to put some new information inside and we are preparing something even bigger for the next year publication. The countries that we are covering, they are all the countries in our region. Bulgaria, Croatia, Czech, Baltic countries, Hungary, Poland, Romania, Serbia, Slovakia and Slovenia. We have included companies -- commercial companies, we have not included financial institutions, while there might be some companies which we will not integrate in our study because they did not publish financials by the moment in which we started to build the database. You will see inside the study main indicators, focusing on the beginning on the top line, but then also at the end of the net profits together with the workforce, which is helping those companies to reach their goals. And you will also see some dynamics between the last year published and the year before. You will also see that we are making use of our iCON database, which is the database in which we include all the companies and we have reached 43 million companies with all their history from the past until now. And we will give you a small assessment also on the risk part of these top 500 companies together with the top line and with the profitability on which Grzegorz will definitely share much more. So this is it, Grzegorz, over to you now. Thank you very much.

Thank you, Matei. Good morning, ladies and gentlemen. Well, so indeed, as it was mentioned by Jarek and by Matei and also by Verena, we did this CEE Top 500 ranking basing on latest available data for last year. And let me start indeed with that, what is the outcome of the ranking. But before that, before you will see -- we'll hear what are the final results of our ranking, let me also remind you what was the economic environment that time last year because as you perfectly know, 2022 was really a challenging year when we still have this pandemic recovery with high prices of various commodities, which even were enhanced further by -- when Russia has started the full-scale invasion of Ukraine, and that was not only in terms of commodities, but also other components used in the production process, as we know from this stage inflation [indiscernible] also elevated by this fact. Having said that, as you can see, 2022 was the year when our regional countries in Central and Eastern Europe, they recorded slower growth. It was weaker growth. It was a slowdown. However, as you can see on the other hand, we were really concerned and I think lots of us were concerned, not only at Coface, but lots of other institutions, researchers, but also individuals were concerned regarding that what will happen with the economy. All in all, as you can see, in terms of full year figures, just Estonia delivered negative growth rates. Other delivered lower growth rates than in 2021, but also as a reminder, 2021 was an exceptional year. It was the year when economies recovered -- were recovering from the pandemic deterioration, that time when we had recessions in lots of countries. And that was quite relatively easy to record high growth rates in 2021 than 2022, and was not so easy, especially with the war in Ukraine. So in the country that is neighboring with lots of countries in Central and Eastern Europe and also trade links with not only Ukraine, but also Russia, that's why there were huge concerns. And so as you can see, growth rates were lower, but still they remained on, in my view, at least at a relatively solid levels, concluding also all those challenges. And that's really very basic economic outlook for 2022 leads us to the outcome of the ranking. And with the outcome of the ranking, we -- again, as Matei said, we covered those really a big number of countries from Central and Eastern Europe. And when we look at the final results -- the final result, I mean, in terms of the countries that are in the ranking, it has not changed at least in terms of the country that leads the ranking. Again, Poland is the country that -- the biggest number of companies comes from this country. I think that it's not really surprising because as it is, as you know, and as it is confirmed on this map, Poland is the biggest country in the region. So that's why, as you can see, there are 166 companies coming from Poland, but nevertheless, compared to a previous year, to the previous edition of our CEE Top 500 ranking, there were 13 companies more from Poland. Then when you look at other countries, of course, the second biggest country is Romania, but Romania, unfortunately was not the country that was able to have the second rank. The second rank comes from the -- for the Czech Republic. So right now, we are rather moving from the size of the country to the size of the economy. And here, we had 77 companies from the Czech Republic, which is 15 less than a year ago. This is the biggest drop among all countries. But despite that fact, the Czech Republic was able to keep its second rank. Then we had finally Romania, we had Hungary, then we had Bulgaria and Bulgaria also upgraded in the ranking -- the country ranking. Of course, here, we didn't only focus on the number of companies. We also used to our credit score. In terms of the average, the average credit score is 6.4 for all companies ranked in CEE Top 500 and the particular credit score assessments you can see that on this chart. Then moving forward to sectors because, of course, we took a look not only at splits, the country split, but also sectorial split. I think here comes one of the most important conclusions of our recent ranking and also that refers really well, what happened with the economy, with the economic situation last year. Again, we have -- I said again because it seems that it's for several last years that this very big sector of minerals, chemicals, petroleum, plastics and pharma. And this one is the leader in our region in Central Eastern Europe in terms of a number of companies, 88 companies last year. Of course, here, especially for the minerals for the petrochemical sector, it's usually that those sectors deliver really high turnover due to the specifics of their business operations. So again, as I said, it's keeping the first rank. But then we have changes. The backbone of the region of Central Eastern Europe is that we have indeed, those petrochemical companies, minerals, petroleum, plastics, pharma, indeed, this very wide growth. But also, as you perfectly know, last year, several last year's brought an increase of various automotive and transport companies, especially with automotive companies, we experienced lots of foreign direct investments, lots of factories are placed in our region. And so we usually -- automotive and transport were ranked second and then nonspecialized trade. So as we have not only countries like Poland and Romania, which are the biggest countries with the largest number of inhabitants, but also in other countries, we have lots of chains, lots of retail, sellers, those big chains that are present in countries, usually those are 3 factors. But this time, as you can see, there are 82 companies coming from utilities and public services. And as I said, it refers well in the economic situation, a situation that was experienced last year. It was not only that minerals benefited from higher prices of energy commodities and that it resulted in increased turnover, but also utilities and public services. This is the sector that -- thanks to the economic environment, was able to generate higher turnover. And thanks to that also, improved in the ranking, improved quite substantially, as you can see to the second rank. And I think that chart explains a lot how it was because here on the Y axis, you have the increase of -- you have the change of turnover. On X-axis, you have the change in employment. And just so far focusing on the turnover level, as you can see, utilities and public services, this was the sector that recorded the highest increase of turnover actually by -- mainly by 64%. The second was minerals, this wide sector of minerals chemicals, petroleum, plastics and pharma. The increase here was by 61%. But even other sectors were not recording such an impressive increase of turnover. As you can see, all of them increased a positive growth of turnover, even for the construction sector, the weakest one in the turnover growth here. It was the increase by 8% and so I would say not so bad in terms of the challenging 2022 year. So here, you can see different sectors and also more to say, it was not only that costs were increasing so much that it increased turnover companies, especially those large companies that we focus today, they were able also to generate higher profits. Not all sectors were able to increase their profits, but a bulk of them were able to do it, especially that was minerals where net profits increased by more than 100%. But also, we had the trade sector that -- which profits increased by more than -- sorry, close to 70%. And those ones that recorded negative growth of net profit, there were metals and there were mechanics and precisions, wood and furniture or textiles, those ones were not able to intense at least those large companies, the average of them, they were not able to generate higher profits. As I said, automotive and transport remains the important one -- the important sector. However, due to not so much demand concerns, but supply issues that in 2022 were really evident, elevated by the war in Ukraine because here, the automotive sector, even still today, although it improved, it suffers from some shortages, like, for example, semiconductor shortages in 2022. It was really a big problem. So for the automotive sector, it was more the supply constraints that affected the sector. So as you can see, it recorded higher turnover, but at the same time, it was not in the top of that rather, it was one of the sectors with the weakest growth. And at the same time, it also decreased its workforce, but not as much as textiles. It seems that the textile sector seems the pandemic deterioration, is not able to come back to really the same -- [indiscernible] the same activity it has experienced in previous years, I mean, before the pandemic. And I was already talking about our credit costs, but I think there's no better expert than Matei to tell you about it.

I will take over from the textile sector that you mentioned because our -- unfortunately textile sector is also the one which is met in most of the Central East and Eastern Europe as the worst in terms of insolvencies. Maybe there are some connections. I see the word sector in terms of change in employment, even in the top 500 companies. What you see here is the spread of scores of the top 500 companies. The average, as you heard already, it's 6.4 which is somewhere between fair and good, reliable standing. I would like to focus on the winners. So we have 7 companies with the score of 10 coming from several sectors of petroleum, chemicals, pharma, electricity, mainly from utilities part, and there is also one which is coming from leisure, entertainment, let's say. And looking on the geographical spread, the 4 countries, Czech Republic, Poland, Romania and Slovenia are the countries where these 7 companies belong. On the downside, we have 10 companies which are rated by us, which are scored by us between 2 and 3, which is intrinsically not very bad information because some of those companies could be part of bigger groups, and there is, of course, a group decision how to reflect financials of such companies. But of course, we are monitoring the situation, and we are preparing already for the next year information on the last 15 years how and who out of the top 500 companies disappear because there are, unfortunately, companies which even if reaching the threshold of being in the top 500, over years, the performance was uncertain and some of them disappeared or went bankrupt. All in all, 4 and 5 is also something that we need to monitor, even if there is a slight difference between 4 and 5. 50% of the companies are standing between 6 and 7. So nothing that I would comment deeper in this category. Feel free to discuss with our colleagues when you have local meetings, which of the company stands better and which not we are able to provide this information.

Thank you, Matei. Well, so basically, we could finish our webinar, we'll be just focusing on the ranking. Of course, we didn't tell you lots of details because we -- I think our webinar will take really long, it will take at least the full day. So we encourage you to look at details of the CEE Top 500 ranking. But right now, I believe that we would miss an important part if we do not focus on not only latest developments but also as Jarek said when he introduced you to our webinar, to look what we can expect, how we see the economy, not only in terms of those large companies, but basically, what is the view of our team on the economic situation. As I showed you previously the chart on GDP growth in 2021 and 2022 in countries in Central Eastern Europe, you can see the same chart on the left-hand side, but with our forecast. So for this year, for 2023 and for 2024. And here, what we have, well, we can say that this economic resilience that was in 2022 and that was last year that I mentioned that, okay, we had a slowdown of growth compared to exceptional year of 2021, it was not -- or rather, it's not so much kept this year. As you can see, in 2023, we have relatively low growth rates for Central and Eastern Europe. Okay, you can see that those bars looks relatively good. But at the same time, you see that, okay, at most 2% or like for Croatia, 2.8% forecast for this year. It's too low for Central and Eastern Europe. The potential of economics in the region here is bigger. It's depending on the country, we could say that something like the average could be 4%, 5%. And that those countries are able to grow. We can say that we will have economies in recession this year, especially in Hungary. Of course, we have already technical recession. So at least 2 quarters of negative growth rate in some countries, not only in Central, Eastern Europe, but also in Western Europe. But you see that this is really weak growth rate, even if we accept, this Hungary other countries like, for example, Czech Republic, Estonia, but even the large country, Poland and the large economy is somehow on the verge of the recession. We still do not know what will be the next 2 months till the end of this year, we still do not have GDP growth levels for a number of countries for the second half of the year. So indeed, it seems that this economic resilience that was in the region last year is not so much in 2023. Why is that? Well, first of all, you can see on the right-hand side chart that the external situation is not beneficial for countries in our region. Not only those large companies that we are talking today about our active exporters, also smaller companies, they -- or even if they are not direct exporters, they are often involved in various supplying chains, global supply chains, Western Europe supply chains. And wherever we have subdued global trade, global trade dynamics, then companies suffer and the result also economy suffer. And unfortunately, we have the situation right now. You can see that we expect that for the German economy, so the economy is -- that is the most important for the Central and Eastern Europe in terms of the external trade. We expect that it will be in the recession this year in terms of the full year figure 2023. In terms of other economies, Western European, so again, very important trading destinations for Central and Eastern Europe. It's also the growth rates are expected to be positive with the exception, as you can see the U.K. economy. However, not very high. Also the economic activity there is not that -- countries in our regional exporters could perhaps think about moving from Germany to other Western European countries and [indiscernible]. Of course, on the other hand, it won't be so easy because there are so many trade links with Germany, and this depends not only in terms of the domestic demand there in Germany, but also in terms of supplying them to German exports, which Germany, as you perfectly know, this is a very active exporter on various market. But this challenging economic situation is not only in the crucial destination for Central and Eastern Europe, so Western Europe, but also in other destinations. You can see that the U.S. economy is also -- especially it's going through slow down next year in 2024. Even the big Chinese economy, that was the hope that it will be a driver for the global economic activity. We've just recently downgraded our GDP growth forecast for this year. Previously, we expected 5% growth. Right now, we expect 4.5% and then 4% next year. It's too low for the Chinese economy because again, the potential of the Chinese economy is bigger. Also the target set by the Chinese government, the long-term target is 5%. So okay, the Chinese economy is not growing by something like 10% or more as the beginning of this century by -- during many years. But even it is not able to reach that target of 5% growth, indeed, there are some structural issues. And while China is not main export destination for us, again, it will depend on that what's happening there via trade links via Germany via other Western European countries. So all in all, this Western European -- sorry, not Western European, but general external situation is not beneficial for countries in our region. And this is the one result and I think still very important risk for the economic activity this year and for next months, also the first half of 2024. I already told you that we have this technical recessions in a number of countries in Europe. You can see some reason they found on the left-hand side, that is with the second quarter of 2023 with data in navy color, with those bars in navy color. We started to see in the last days that some countries started to publish GDP growth data for Q3, but not so many of them in our region. We have the Czech Republic, which again delivered negative growth rate outside our region, Germany. So again, the very important economy for us. It again delivered negative growth by 0.3% in the third quarter of 2023. We'll have more and more data coming in next days, but it seems that indeed this is also the third quarter of this year, whether while it was expected that finally, it will be an improvement. Still, it was the challenging period of time. And you can see that for the high-frequency indicators for Central and Eastern Europe on the right-hand side. Retail sales and industrial production, you can see that both of them -- dynamics of both of them are in the negative territory. And actually, they are not picking -- they are not going up. Of course, we are waiting in the next 2 weeks, there will be the next data released. We hope, and this is our actual scenario that the bottom was reached that right now slowly, gradually. So we've not really very fast recovery. But our view is that we reached the bottom and the improvement -- but again, slow and gradual improvement should be in next month. And why is that? Well, we see, of course, that this inflation process is progressing here in the region. By the way, we also added here some charts, some data on Austria because we are really happy that also lots of -- we have today, lots of attendees from Austria. That's why I wanted to give you a comparison with Austria here for those who are interested in that. But what we can say in terms of the disinflation process. Finally, we do not have inflation so high like it was a year ago or especially in the Q1 2023, that's for our region. The beginning of this year was the period when we had the peak of inflation, not only in Hungary, as you can see, well, the inflation was above 20% but also in other countries, inflation was much higher. It was double digit, mostly double-digit one. Right now, we have finally inflation going down. But as a reminder, this is disinflation. This is not deflation. Prices are not going down. Just acceleration of price increases is not as high as it was at the beginning of this year. Still, we can say that -- or rather, on the other hand, we can say that it is also driven somehow by the statistical base effect when we compare it to higher levels that were a year ago. Furthermore, we do not have the contribution -- huge contribution coming from energy commodities that, as you remember, especially when the war in Ukraine started, we had a huge increase of energy prices. First, that was oil -- crude oil prices, then it was natural gas, but not only energy commodities, agricultural commodities, other -- they were affecting inflation. That's why we put on the right-hand side chart, not only headline inflation, but core inflation. The core inflation with those green bar. As a reminder, the core inflation is the one that excludes energy prices and unprocessed food. Those 2 components are not included because they are quoted on global markets. So local economies, central banks, they do not have impact, any impact on that, what is -- what are those potentials. This is like kind of imported inflation. And indeed, it was imported inflation at the -- in 2022, at the beginning of 2023, not so much this year. But as you can see those green bars with core inflation right now in most of those countries, they exceed headline inflation. So whereas the contribution for energy prices in terms of year-over-year growth is negative. High core inflation confirms that we have increased prices that are spread to other parts of the economy. It's not only that some part of the economy that some sectors suffer from high inflation, it's also other parts. So concluding, it's good that inflation is not so high, but again, it's -- this is not deflation. It's not the -- factor that would really make people right now willing to spend money to increase their spending. Having said that, we believe that the consumer, the household consumption is rather the first one to recover to improve compared to the supply side of industrial production with all those challenges on the external side. While we have strong labor market in Central and Eastern Europe, this is the support. And once we reach some level of inflation that, okay, it's higher than inflation targets, but consumers feel more comfortable with that, they are more willing to spend money. But at the same time, I will repeat myself once again, this is going to be slow and gradual improvement, not really a strong recovery in next week, in next month. And of course, talking about inflation, we have to talk about the monetary policy. On one hand, as you can see on the left-hand side chart, we have those big central banks like the ECB, the European Central Bank, but also the U.S. Fed. Those ones are the one that were increasing interest rates a lot in several steps. That was the first -- the U.S. Fed that started, the ECB followed after some time. But as you see, and as I'm sure you perfectly know, there were lots of interest rate hikes. What is right now? It seems that the latest meetings brought to stop further interest rate hikes. But nevertheless, those banks in their communication, they prepared us, therefore, that those rates will be higher for longer. Of course, they do not exclude if inflation is too sticky, if it is [indiscernible] that remains that they could again increase interest rates. But our view is that it -- we reached that level of interest rate hikes. And in 2024, slowly, not at the beginning of the year, all of that depends on the inflation figures and the economic activity, but rather the former, so inflation figures, and they should, in the course of 2024 and start decreasing interest rates. What is happening in Central and Eastern Europe. Of course, we have some countries that are in the Eurozone. So they are subject to the ECB policy. But we have, of course, some countries that are outside the Eurozone here, on the right-hand side chart, you have countries like Czech, Hungary, Poland and Romania. And actually, the easing process, the monetary easing already started in Central and Eastern Europe. That was the first, Polish Central Bank that already in total, with 2 moves decreased interest rates by 100 basis points. And then this was the Hungary and Central Bank that followed that. This month, the Czech Central Bank, although it was by some expected to decrease interest rates, it didn't do it. However, I think the scenario still remains the same that the Czech Central Bank could be the next one, if not at the December meeting then at the beginning of next year. It could start decreasing interest rates. It seems as you perhaps noticed in this chart, this previous slide, inflation in the Czech Republic is lower. Also the core inflation is not as high in other countries. And also the path to inflation target seems to be closer than, for example, for Poland and Hungary. So it seems that we could expect. In this group, probably Romania with still unknown impact of the new fiscal package will be the country that will be the last one to start this monetary easing process. But all of that depends on mix developments, mixed data, what will give the economy. So this is the scenario just for the time being. And as one of the final points looking forward, we put here some indicators, some survey indicators to try to gather to look if indeed, we are reaching this point -- the bottom point of the deterioration. And in case of PMI indicators, if you do not know PMI indicators, those who are -- this is a survey that is done among lots of companies in lots of countries. Unfortunately, in our region, not so much, you can see for the Czech Republic and Poland here. But companies are asked various questions regarding the output level regarding new orders, employment and so on and so on. They published, I mean, S&P Global publishes them aggregate figure. And when it is above 50, it is considered a recovery, where it is below 50, it is considered a slowdown. So unfortunately, whatever, this is the Central and Eastern Europe or Western Europe, it is a slowdown, a relatively deep slowdown. As you can see for Germany, the deterioration of the PMI indicator for the manufacturing and the site was not as deep as in the first wave of the pandemic, but even deeper than in the next waves of pandemic or even deeper than it was when the war in Ukraine started. Since 2 months, it started to improve. And as I said, we hope, we believe that indeed this bottom level was reached right now, it's a slow and gradual improvement. But as you can see, still, the room to 50 level is -- this is a long way to this 50 level and not only by Germany, but also by other countries. What is concerned for companies in our region and also in Europe in general, you might remember that previously, and I guess you also know that, that could be also an issue for your companies that labor shortages in our region became a very important obstacle for companies for their business activity. It remains very important. And right now, we do not have supply chain disruptions that limited -- that also increased inflation and cost for companies last year. This -- especially in last months, we've seen that it has improved. Companies do not suffer from that so much. But as you can see on the chart on the right-hand side, right now, insufficient demand is the factor of limiting production. This by a number of companies in various countries is reported as the one that is really limiting their business production. It's not only -- if they feel that, but they already materialized with lower business activity. In some countries, hopefully, that started not to be so big. [indiscernible] for companies, you can see those examples like, for example, Lithuania or, for example, Poland, where this line is not going up anymore. So again, hopefully, there are some light at the end of the tunnel that this improvement is coming. But again, slow and gradual improvement. And the recovery is rather scheduled for the second half of 2024, not so much earlier. And here also, I wanted to present to you our latest data we gathered for business insolvencies. What we have in Central and Eastern Europe, we had that already not only last month, but also previous periods showed that we are coming back to the normality after those value support measures and also moratorium on insolvencies that we had in 2020, partly 2021, we had a decrease of business insolvencies, but then they were coming back to pre-pandemic levels in a number of countries. We have already -- we are higher and are still accelerating. In Poland, as you can see, the acceleration is really huge, but we have a unique situation in Poland as they were introduced a dedicated out of court proceedings that are very fast to be executed, and that triggered the total number of this technical factor. And although they were dedicated to be temporary due to its -- or rather thanks to its high popularity, they were introduced on the permanent basis to the Polish legal system. If you are more interested in that, because I don't want to consume much of time of our webinar, if you are interested in that, just please ask questions during the Q&A session. In terms of Western Europe or in general, advanced economies because we have also the U.S. here, this process of coming back to the pre-pandemic levels is right now. It seems that Central and Eastern Europe was faster with that with coming back to pre-pandemic levels. Right now, we can see that, for example, as you can see, Germany is coming back to 2019 levels of business insolvencies, also other countries. The U.K., the United Kingdom was faster with that already in the past months. We've seen that insolvencies accelerated. And here also, our view is the same like for the Central and Eastern Europe, those challenges, although -- okay finally, in 2024, especially the second half should be the period of a larger improvement, hopefully, of the recovery. But with all those challenges with the pressure on margins because in 2022 last year, it was easier to increase margins with the increasing cost of various commodities components and so on. Right now, we have pressure on margins. We have lots of challenges for companies. So as a result, also business insolvencies will be going down. If you look at our publications at our flagship products of the economic research team at Coface, you might know, our country and sector risk assessments. We publish that on a regular basis each quarter when we review assessment of more than 160 countries. Of course, it does not mean that we change those assessments each quarter, but we only change when there are reasons for that. And our risk assessments start from A1 very low, to E extreme risk. This is not the same like ratings by the rating agencies because they focus on the sovereign risk, we focus on the corporate risk. So also, we take into consideration some similar factors like the rating agencies. So for example, economic indicators, financial indicators, political situation in some countries. But we also add to that our views from our underwriters on the payment behavior and so on, also the business climate in particular countries. So it focuses on the corporate risk, but also with the impact, which is very important from economies. What we've recently did within our latest revision, in terms of, I think, there were just 2 upgrades, which I guess is not very important for you because that was for Belize and Mongolia to C level. But for Europe, we had the downgrade of 2 countries, Finland and Sweden which I believe, especially for Baltic countries could be an important information and that we downgraded those 2 countries to A3. Previously, especially in 2022, we had lots of downgrades of European countries, as you can see from this magnifying glass on the left-hand side, we have green or yellow in Europe and indeed with those challenges that I mentioned for both the macroeconomics, but also microeconomic companies, it seems that rather right now, it's not time to do any upgrades. But of course, we closely monitor that. And if we are able to -- if we we're able to upgrade that, we will be more than happy, but unfortunately, and this is not the case right now. And as I said, we have also sector risk assessments. Here, you see for different regions. We have also, for particular countries and again, in 2022, we had lots of downgrades because lots of sectors suffered, but not only in 2022, those since the pandemic period, we had lots of fluctuations, sometimes up, sometimes down. What we have right now that in Central and Eastern Europe, we still have lots of sectors that are in very high risk, namely recently downgraded wood sector but also transport, textile, clothing, but also the construction sector. Lots of other countries in high risk. What we did recently, we upgraded agrifood sector because we've seen that in last month's where those agricultural commodities started not only to increase, but that they were stabilized in some and also parts of that they were going down. However, some agrifood companies, lots of them, we're still able to generate relatively good profits, good margins, and that affected positively the financial. Again, if you are more interested, I will be not talking about each region, each assessment. I recommend you to look our Barometer publication that is available on our website. But if you have any questions, of course, I will be more than happy to answer them during the Q&A session. So well, that leads us to finish this presentation part. And luckily, I was not too long. I hope I was not too long for you, not to get you bored. And then luckily, we have right now the Q&A session. As a reminder, as Verena said, on the right-hand side -- in the right-hand side panel, you have this questions window that you can type your questions. You can also give your comments if you would like to provide your views. And we'll be more than happy to take this opportunity and answer your questions. So let's open the floor for the Q&A session.

Thank you, Grzegorz for sharing these insights with us. I see so far no questions. Maybe I remind also on the next slide that you would be able to download the handouts. So the presentation we shared with you and this study itself, the CEE Top 500 study will be -- yes, it will be possible to download them in the menu handout. And yes, in the section questions, you can type in your question. So whenever you have a specific question about your country, about your industry, it would be the best time to have the question now. Maybe we'll wait for another 1 to 2 minutes that the people are able to write in their questions. But obviously, everything was very clear. Thank you for this.

Okay. I see that the question for our expectations for Croatia for the next year came. Well, so in terms of our view on the Croatian economy, as you noticed our GDP growth forecast is 2.8% decent next year. And perhaps you've already noticed that we -- that Croatian GDP growth was really going up in 2021, thanks to the recovery of the tourism sector. Of course, it remains very important there. And we still believe, although we have lots of doubts, lots of doubts regarding the household consumption, its willingness to spend money. Actually, when we looked at some electronics figures, I mean, electronic sales and so on, it seems that households are not so willing to spend money on durable goods. But at the same time, for the [ train sector ], we expect that it still could be really with lots of benefits. And that's I think it's a very important message for Croatia that again, it will benefit from that. On the other hand, it seems that the Croatian economy is not suffering very much from high inflation at least, of course, it's higher than it was in the past. It's higher than -- it's good for the economy. But in 2023, it was some lower than in other countries in Central and Eastern Europe. So also it leads us to a relatively stable growth rate of this 2.8% during this and next year.

We have another question. Can you explain why Finland and Sweden were downgraded? And I just want to say we have a lot of questions. So maybe you keep it a bit shorter.

Yes. So thank you for those questions. Thank you that we opened -- that you opened the floor for questions, that you're asking so many. Yes, so yes, very good question because I was really fast with that. We downgraded those 2 countries mostly due to -- not so much to domestic demand, which, of course, suffered also from the [indiscernible], also inflation with the higher cost of financing and so on. But more to that to the external trade because we started to see that those figures for external trade, they deteriorated strongly. And in both countries, Finland and Sweden, the economic activity dropped due to that. And that already started to affect not only macroeconomics, but microeconomics. We started to see that insolvencies due to this fact started to increase. And our economist covering this region was really -- that was his fast suggestion to downgrade those 2 countries. Especially, as I said, we expect that next month is not the one -- okay, there are first light at the end of tunnel, but it's not -- that is the change of the situation also for those countries. So it seems that only Norway remains in terms of those Nordic countries with and the largest assessment, but it is also due to this energy side that for Norway is very different than for other countries that -- well, lots of countries, not only in Europe but also in other countries would like to be in terms of the energy dependency would be at the same situation like Norway.

We have a question on the study. How it has happened that Estonia has increased the number of companies up to 15? Do you know that by heart? Otherwise...

By heart, not. I would have to look at it, but there were the increase of turnover, we would have to look at it. Perhaps let's move to another question. And there's no any -- I see there are lots of questions, but perhaps there are some questions that Matei could also take over, then I would look into the publication set that I would give.

A comment on the Estonian. So only by looking on these companies that we have this year in the study versus their own performance last year, even when they were out of the study, the turnover of these companies grew from EUR 8.5 billion to EUR 13.4 billion. One of the companies, for example, is [ Bolt ]. I can understand the huge development of all these mobility topics. I see also energy companies inside and so on. So definitely, we can have a deeper discussion with the local colleagues once you check in the study and you have additional information.

Yes. I think that Matei, as you said, especially like this case of both companies, this is the newcomer to our ranking that improved a lot with the higher turnover. Estonia still is the country because I think it started many years back that it has companies not only active in the IT sector, software, but also all those that are dedicated to new technologies, and they are able to increase their turn over, their profits. And I think we have a confirmation with that, not only that it concerns some start-ups, some small companies, but they became so large that is reflected in the ranking.

I have seen questions around insolvencies and there is a question about Czech and Slovakia. Czech Republic and Slovakia, about your general expectation for next year for Czech Republic and for Slovakia as a whole economy. But maybe until you prepare yourself for that, I will take a bit of the answer for the insolvency part because there is this subject -- it is touched too. So the insolvencies in Czech Republic and Slovakia are among the lowest in our region. And the variation is somewhere between 0.15% to 0.2% of the total number of companies in these economies. Last year, it was 0.25% in Czechia which is still decreasing a bit or almost stable versus the year before. Nevertheless, it depends how we would like to look on the insolvencies because if you have to deal with a mass number of clients, then yes, you should look on purely on the statistics, okay? You want to get a different consideration, for example, number of insolvencies per 1,000 of active companies. There are countries in which just looking on the top insolvencies when you put it under radar comparison to 1,000 companies active, there is a dramatic shift. Yes. Recently in Czech Republic after many years, there was one insolvency in retail, which we see on Grzegorz's slide that the consumer sentiment is going low and retail has an issue overall in Central Europe, but there are countries in which retail is still very good, like, for example, Romania, and in Czech Republic there is a retailer, which went almost gone in the last half a year, which is something new for Czech economy after Bohemia Energy which is [indiscernible] Energy the year before. So there is a deeper needs to look on the insolvencies and we are prepared to have such kind of discussion.

Yes. So perhaps I will refer to this indeed economic situation in Czech Republic and our forecast in Slovakia. I think here in this group, I think that the Czech economy is the one that is in -- I would say, in the worst position than Slovakia, if I could compare those 2. So as you noticed, just 0.1% growth. This is our forecast for the Czech economy this year. And I think the concerns that are right now were also referred by the latest decision of the Central Bank. So not to change the interest rate, not to start the [indiscernible] although it was somehow expected because, okay, we have inflation that is going down, that the inflation target is going to -- not so long ago, for example, for Poland, Hungary, the inflation target is quite especially for Poland, is quite far away from us. But at the same time, the Czech economy compared to the pre-pandemic level, pre-pandemic size of the economy is the one that is the weakest. Actually, it is below of the nominal GDP level compared to the last quarter of 2019. And here, we see, of course, this huge dependency on the industrial side on the external situation, on the situation in the German economy and also in the automotive sector. And that right now, as I said, is still with supply side issues. But perhaps surprisingly the resilience of the automotive sector in terms of demand was very good in last months, but -- and even years in quarters, but perhaps it would not be sustainable as previously. Of course, I do not mean because I use this comparison with Slovakia. Slovakia is even much stronger dependent on the automotive sector. So this is also the [indiscernible]. But as I said, I think 2024 will be a difficult year. And as I said, the Central Bank, Czech Central Bank made a good reference with not decreasing interest rates because they are afraid if lower interest rates will not bring back the inflation pressure. And another wave, another round of inflation pressure here, and that would be dangerous. And I think that is also the conclusion that comes not only for the Czech Republic, but also for other countries in our region. We could see after some time if, for example, Poland continues decreasing interest rates, if it goes too far with that with still inflation that, okay, the recent figure for inflation for October for Poland is 6.5%, lower but still above inflation target. So if we have inflation pressure coming from the increased household consumption, especially as I said, because the labor market is strong, then I think it would be really dangerous mix, especially that it's -- there will not be another probably supportive measures that could be helpful here in that respect. Okay. Let's take a look at other questions.

Until you look, maybe a comment on -- I see a question about Finland and Sweden downgrades. Those 2 economies are both of them affected by private consumption and by investments, public investments. And both of these elements, they are linked to -- or affected by the high interest rates while in Sweden, there is a third element, which is linked to real estate. Swedish economy and banks are significantly exposed to both commercial and private construction or real estate and the pricing for that are again falling due to the reason which we mentioned. So all in all, those 2 are having 1 notch lower. Of course, A3 is still good, but there is decrease versus the previous period. For example, in Central Europe, there are only 2 or 3 countries, which are having A3. This is why when you look on the map, you see dark green, light green, then you reach to Poland and Slovenia, and then you go to A4 or B be in Romania if my memory is correct.

So it's already 11. But if you don't mind, and you want to stay in the line we could answer a few other questions. Grzegorz, if you can take some of those questions you see there.

Yes, I see a lot of interesting questions. Picking perhaps maybe not randomly, but just to those persons that have not -- that we didn't put replies before. I see a very interesting question. In the light of global economic development, all signs of recessions, do we expect that Central Bank starts with easing? And if so, don't you think that you find this pro-inflationary. How do you see inflation development, taking into account that we have inflation-driven installability in energy cost, not by consumer demand, at least this has started decreasing, including the consumer savings. So partly I answered that question when I was talking about the Czech Central Bank and so on, and it applies to also to the concern or dilemma, really hard task for central bankers. And it's not only for our region, it's also for those big central banks and for other regions. Right now, the question is that to sacrifice inflation or to sacrifice growth because the monetary policy changes, they work with a delay. So if the Central Bank decreases interest rates today, the effect of that is after 9 months or 12 months. That depends, but according textbooks of economics, according to various surveys, it works after such a relatively long period. So okay, if we hope, if our estimation is that in 1 year at the end of 2024, we'll have this period that this is the recovery. So perhaps to support this recovery, lower interest rates are needed. But at the same time, if that is done too fast or rather the scale of decreases is too fast, then we have this pro inflationary. And I think most of central banks, they are still afraid of inflation. We have that coming, especially from the U.S. Fed, but also from the ECB. That first, they would like to see that the fight with inflation is done, that they succeeded with that. That's why they do not want to have increased economic activity, but then higher inflation. In our region, especially with the Polish Central Bank and Hungarian Central Bank, it seems that the attitude is somehow different. Well, we will see what will be the result. But perhaps indeed those moves that, for example, we had in Poland, the cut of 75 basis points first time and then 25 basis points, perhaps it would be really in those small increments so like just 2x by 25 basis points. It seems that this path was -- could be too aggressive and we could have negative factors coming on that. And then if I may, also, another question is on how do you evaluate the Energy sector where the market for households is regulated. Could we expect a big increase in prices after 2026 where households are going to enter the free market. Yes, for the time being, I think so that indeed in this perspective, longer perspective, that it will be. We will see how this regulation, how it will be reversed if that will be done in steps. But I think the question that was asked here also is it could be a good conclusion for that what we see right now in terms of the economics. And this is one factor that I think I didn't mention during my presentation, that we have the fiscal policy. The fiscal policy in a number of countries was very supportive in last year's that was -- and due to the pandemic deterioration, due to these so-called energy crisis and so on. Right now, the budget deficits are high. They are high, and it seems that we are coming back to the excessive deficit procedure by the European Commission. It was already announced that European Commission will be more restrictive with that. I think that in 2024, lots of countries, also including our region, will have deficits above 3%. So above this [indiscernible] criteria, above that, what is the upper level. And perhaps this restrictive approach of the European Commission will not be like from the beginning of the year. But nevertheless, this is the trend that we see right now, the deficit should be lower. So we should not expect so much fiscal support. And I think it will bring also some negative results for the economy that reversing process of that what we had in past year could come with some better economic consequences. Of course, don't get me wrong. I do not mean that the fiscal support should be for next and next years. Expanding fiscal deficit increasing, also general government debt. But I think that after those years, we have a big change in terms of the fiscal policy and that, as I said, have an adverse effects on the economic activity. Okay. If we still have time for questions, let's take a look which one we could take.

We still have so many people in the call. That's why I would say we answer another 2 questions, and then we finish the call, okay?

Yes, I see that there is also a question about Hungary and the National Bank has started to decrease the rates not too early. I think I already answered that. But in terms of Hungary, let me also add that I think this is -- the situation of the Hungarian economy is really specific. It needs to be somehow focused compared to other Central Eastern European countries because we have this technical recession in terms of quarter-over-quarter growth rate for Hungary, not for just last 2 quarters, but 4 quarters it deteriorated really a lot. On one hand, this is again the automotive sector that suffered significantly from those supply side issues, but also other parts, including also domestic consumption. And here, I think that our forecast for this year is -- sorry, for next year for Hungarian economy is 3%, so it seems it will be good. But let's keep in mind that it will be strongly driven by a low statistical base effect by this low comparison base because in last quarter, as I said, last 4 quarters of technical recession of negative growth. So I would expect that coming back to the really rebounding, let's say, economic activity is quite far away this real one. I mean, not just interpreted with the statistical base effect, but the real one and that also confirms our view on the inflation side because we have these caps on various prices, which in previous were subject to meet the increase of prices of various goods, few food prices in Hungary, but actually, the effect was just opposite with other prices increasing a lot. We still have Hungary with very high inflation rates levels. And even for next year, we expect 5.6%. So again, okay, this is this time high statistical base effect, but with 5.6%, it's really high. So I think those are like the biggest challenges for the Hungarian economy.

Okay. Thank you so much, Grzegorz and Matei. I think we will finish the call now. The remaining questions, we will have a look at it and try to answer all of them afterwards. So we thank you for your participation, and we hope that it was very interesting for you and helpful for you and your business. And we hope to see you soon in one of our next webinars. Thank you, Grzegorz and thank you, Matei, again, for your nice presentation. Thank you.

Thank you to all of you that you attended our webinar today, and thank you for lots of questions. They were very interesting. So we encourage you to join our webinars in the future.

Thank you very much. Have a good day. Goodbye.