KYIV, 6 NOVEMBER 2008 – The Ernst & Young’s survey Impact of the Economic Crisis on Ukrainian Companies shows that almost 80% of the polled companies confirmed that their business is feeling the impact of the downturn.

Overall, 143 major Ukrainian and foreign companies working in Ukraine participated in the survey run by Ernst & Young jointly with the European Business Association and Ukrainian Union for Industrialists and Entrepreneurs (USPP) from 22 to 31 October 2008.

Three top sectors that are most impacted by the crisis now: financial services (according to 74% of the respondents); real estate and construction (72%); metals and mining (70%). In 2009, the same sectors will suffer from economic crisis consequences; however, reat estate and construction will be hit the most (70%).

One of the most evident impacts of the crisis is a decrease in consumer spending 56% of the respondents indicated that. Respondents named problems with cash collections (53%) and the lack of credit funds available for the company (46%) among the main problems that companies are now facing. Devaluation of the national currency is relevant to 46% of the respondents. 40% of the respondents are concerned with inflation.

The surveyed companies have identified various internal measures they are undertaking (or will undertake) to mitigate the negative effects of the crisis in their companies: cutting costs or implementing tighter cost controls – 76%; more carefully managed financial concerns and working capital requirements – 54%; downsizing (personnel redundancy) – 28%; reorganization – 27%.

Alexei Kredisov, Managing Partner of Ernst & Young, said: “Projecting into 2009, respondents were more optimistic when speaking about their company’s development than when forecasting country’s economy performance.” 34% of the respondents believe that their 2009 profits will grow on the same level as in 2008, while another 34% anticipate that next year’s profits will be moderately lower than in the current year. Meanwhile, 86% of the respondents expect Ukraine’s economy to decline in the next 12 months: 53% of the respondents believe that the economy will decline moderately in 2009 while 33% anticipate significant decline.

Anatoliy Kinakh, President of the Ukrainian Union of Industrialists and Entrepreneurs, said: “Managers of Ukrainian companies were very precise in diagnosing the Ukrainian crisis. Survey participants remark that the confluence of negative factors in the banking/financial sector and in the production sphere may aggravate the situation and lead to adverse consequences in the social sphere, in particular on labor market, which would be difficult to overcome. Obviously, treatment follows diagnosis. I believe that public unions of industrialists and entrepreneurs, as well as leading think tanks, should monitor the effectiveness and consistency of anti-crisis measures and suggest methods and solutions to navigate through the crisis.”

It is interesting that 63% of the respondents rely equally upon media, professional advisors, and financial institutions for information during the downturn.

Special focus – HR agenda

65% of the companies have already changed their recruitment plans for the next six months. The majority of companies do not plan major layoffs (e.g. no layoffs are planned at the level of top management, 10% of participants plan to downsize their middle management, 15% of participants anticipate redundancies of professional personnel and 25% of companies planned to decrease the headcount of their manual workers). Those companies considering lay-offs plan to downsize in average 18% of their manual workers, 12% of professional/clerical staff, and 9% from middle management.

Olga Gorbanovskaya, Leader of Human Capital group at Ernst & Young, commented: “Among the participants 27% of companies have already changed their salary arrangements; however, slightly less than a half of our participants plan to keep their planned salary growth intact. More than 1/3 of all the participants plan to postpone further salary growth, up to 14% of companies plan to decrease the planned salary growth by 13-14% on average (figures vary depending on the category of personnel) and only 6% of the participants plan to cut the current salaries down by 19-20% across-the-board.”

About 23% of the participants are planning certain changes to their HR policies and procedures connected with the downturn: about a half of them intend to change the salary denomination currency; two-thirds of them will change the list of benefits provided to employees. 30% of responding companies plan to change their training and development program with 43% of them planning to decrease overall training budgets.

About the survey

The Ernst & Young questionnaire survey was conducted among companies working in Ukraine from 22 to 31 October 2008. Overall, 143 companies participated in the survey; 18% were domestic enterprises and the other 82% were foreign companies working in Ukraine (multinational, European and regional). 43% of participants represent big businesses (more than 1,000 employees) and 41% small businesses (up to 200 employees); medium businesses (200-1,000 employees) accounted for 16%. Companies that took part in the survey work in the FMCG sector (20%), financial services (13%), chemicals and pharma (13%), and other areas.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.

In Ukraine Ernst & Young established its practice in 1991. Ernst & Young Ukraine now employs more than 570 professionals providing a full range of services to a number of multinational corporations and Ukrainian enterprises. For more information, please visit ey.com/ukraine.

Natalia Partach 
Ernst & Young PR Specialist 
(044) 490 3000 
Natalia.Partach@ua.ey.com