BCG Transform Index:
Eastern Europe
Financial study on sector performance
APRIL, 2023

Disclaimer
The basis for this study is a data set extracted from Capital IQ for companies listed on European stock
exchanges with a minimum revenue of €500 million
Companies from the financial industry and Ukraine/Russia are excluded

The analysis covers data from 2018 through the last twelve months (LTM)
LTM refers to available data from Q4-2021 to Q3-2022
The ranking is based on a comparison with other industries within the same region
Please note that the statements made relate specifically to this data set1Copyright © 2023 by Boston Consulting Group. All rights reserved.

Our data set includes 1,373 European companies, of which 74 are from Eastern Europe, that meet theseselection criteria

Sector performance and resilience in the face of past andprevailing crises

Take-aways
Operational view

Most impacted
sectors

Rankingcompared withEuropean average
BCG
recommendation
Source: BCG Analysis

The Metals & Mining sector scores highly across all dimensions, capitalizing on the surging demand after thepandemic (strong economic growth) and price increase from constrained supply in recent past•Although the Energy sector exhibits mediocre financial stability, it shows robust profitability and solvency,with producers benefitting from supply constraint and rising prices•

The Health Care sector performs above average in solvency and financial stability, but only mediocre in
profitability with EBITDA margins levelling off after the demand-driven rise during the Covid pandemic•

The Industrials sector grapples with issues regarding solvency, underscored by a skyrocketing number ofcompanies with negative free cashflow in LTM most likely due to high inflation•

The Consumer sector demonstrates robust solvency, but scores poorly in profitability and financial stability,
impacted by strong competition and potential reduction in consumer spend in times of high inflation•

The Automotive sector struggles primarily in profitability with significantly lower margins compared withthe 2018 baseline due to rising input prices and car sales slowly declining•

The Eastern European Health Care sector has been more resilient compared with the European average,
capitalizing on digitalization and the increased demand for health care services since the pandemic•

The smaller Automotive sector in Eastern Europe has been more severely hit by increasing input prices, supply
chain disruptions, and declining car sales—most likely also due to the high proportion of supplier companies

In the context of persistent crises, companies cannot continue to remain in a reactive firefighting mode, butrather must focus on proactively seizing opportunities supported by an adaptable cost structure (that fitsearnings), a strong financial position, and an adjusted go-to-market strategy. In a nutshell: Resilience is key tobeing successful

Following the aftermath of thepandemic, revenues and EBITDA havesurpassed pre-Covid levels, and are
currently experiencing a growth
momentum. This trend is in contrast
with recent developments in other
European countries where profit
growth is already waning in the faceof the current headwinds

Solvency
The proportion of Eastern European
companies with negative free cash
flow in the LTM is 50%, which ismarkedly above the European averageof 27% and reflects a challenging
macroeconomic environment with highinflation and soaring interests

Financial stability
Net debt is continually decreasing
since 2019 and is of high quality, with
79% of it being investment grade. Thisis a strikingly strong performancecompared with Europe's 45%
investment-grade debt
2Copyright © 2023 by Boston Consulting Group. All rights reserved.

Most resilientsectors•Sectors providing fundamental input for industrial production proved to be themost resilient industries

123
4
5Metals & Mining
Metals & Mining

Other1
Chemicals

EnergyEnergyHealth Care
Automotive

Chemicals
Other

Profitability

Solvency

Financialstability

88824

99N/A

18

674174661672615

Industry position in the European ranking
1. The sector Other consists of only 1 company in Eastern Europe and is thus not representative. The number of companies within each industry can be found in the appendix
Note: A ranking was assigned to each industry based on its performance in three dimensions. The detailed ranking methodology can be found in the appendix
Source: Capital IQ, BCG analysis

SUM

3

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Points given for industry performance in three dimensions

Automotive is the most severely affected industry, with performance in Eastern
Europe notably worse than in the European ranking

678910TMT
Industrials

Industrials
Health Care

Consumer
Consumer

Automotive
TMT

Leisure & Tourism
Leisure & Tourism

Profitability

Solvency

Financialstability

23813514103519144

9N/A

N/A

N/A

N/A

SUM

Industry position in the European ranking
Note: A ranking was assigned to each industry based on its performance in three dimensions. The detailed ranking methodology can be found in the appendix; A total score of 9 points isexhibited by both Consumer and Automotive. However, since Consumer performs notably better in profitability, it is ranked higher; Source: Capital IQ, BCG analysis

4Copyright © 2023 by Boston Consulting Group. All rights reserved.

Points given for industry performance in three dimensions

Operational view | Both revenues and EBITDA margin have mostly surpassed
pre-pandemic levels, and are currently experiencing a growth momentum
EBITDA margin in Eastern Europe in %, 2018–LTM

35.6%
6.3%
157
5515

121

16

713

2018

712
15%

67145
45173

14111
84

714

2019

71117148142020

19152021

818
11016

LTM

5%
8%
14%

14%

17%

15%18%

13%
8%

13%
9%

15%

18%

15%

13%

19%

20%
7%

22%

21%

21%

8%

9%

9%

2018

2019

2020

2021

Automotive

Chemicals

Health Care

Leisure and Tourism

TMT

Consumer

EnergyIndustrials

Metals & Mining, Const. Mat.

Other

Note: LTM = LTM Q3-2022; No data for Leisure and Tourism available
Source: Capital IQ, BCG Analysis

6%

8%
13%

9%
10%

175%

10.1%

5.6%

2.3%

20

187

100

94
65510
10-12.9%
166

266

9%

9%

8%

2%

15%
18%

17%

15%

15%

10%

10%

25%
18%
18%

LTM

5Copyright © 2023 by Boston Consulting Group. All rights reserved.

Revenue in Eastern Europe in bn EUR, 2018–LTM

Solvency | 50% of Eastern European companies have negative FCF in LTM,
which is significantly higher than the European average of 27%
Distribution of companies with negative/positive FCF in 2021 and LTM
74

370%

67%

30%

33%

2021

10

550%

21

6

1262%
100%

50%

83%

100%
38%

0%

850%

N/A
50%

17%

0%

875%
25%

1

100%
0%

0%
50%

LTM

50%

3

10

33%

40%

67%

60%

5

2160%

52%

40%

48%

61242%

83%

8

N/A

38%
63%

58%
17%

863%

10%
100%

38%Total

Europeanbenchmark fornegative FCF in LTM
Positive FCF

27%

AutomotiveConsumer

Chemicals

EnergyHealth Care

Industrials

Leisure andTourism

48%

28%

28%

31%

21%

29%

16%

Metals &Mining,Const. Mat.
32%

TMT

Other

22%

16%

Negative FCF

Note: The number of companies within each sector is lower than 5 in Automotive, Leisure and Tourism, and Other
Source: Capital IQ, BCG Analysis

6Copyright © 2023 by Boston Consulting Group. All rights reserved.

74

Financial stability | Eastern Europe is in a favorable situation due to steadilydecreasing net debt since 2019 and high proportion of investment grade debt
Net debt by rating1 in BE & NL in % and bn EUR, 2018–LTM

Net debt in BE & NL in bn EUR, 2018–LTM

113102650002

1600

1

277%

3

2877%
82%

97%

8

1230

20
118
14034

28

25
1

140-20.7%1118235

29

2

124

-11.1%

1

1

55LTM

021%

18%

2% 1%

2%

5%

13%
5%

2018

2019

2020

2021

2018

2019

2020

2021

Automotive

Chemicals

Health Care

Leisure and Tourism

TMT

Consumer

EnergyIndustrials

Metals & Mining, Const. Mat.

OtherInvestment Grade

Mid-Grade

79%

4%
17%
LTM
Sub-Performing

1. The ratings are based on the Net Debt/EBITDA leverage measure. Debt with a Net Debt/EBITDA ratio below 3.5 is considered investment grade, while debt with a ratio between 3.5 and
4.5 is classified as mid-grade. If the ratio exceeds 4.5, it is considered sub-performing debt. If EBITDA is negative, net debt is automatically classified as sub-performing.
7
Source: Capital IQ, BCG Analysis

Copyright © 2023 by Boston Consulting Group. All rights reserved.

31.8%

8Copyright © 2023 by Boston Consulting Group. All rights reserved.

Appendix

BackupProfitability

Solvency

Financial stability

Total ranking

The profitability ranking isbased on EBITDA growth
between 2019 and LTM, with
the industry having the lowest
EBITDA growth being assigned
the fewest points (1) and theindustry with strongest EBITDA
growth the most points (10)The solvency ranking is basedon the growth sector's overall
cash account LTM, thepercentage of companies withgrowth in cash LTM, and theinterest coverage ratio, withthe worst overall performanceassigned the fewest points (1point) and the strongest themost points (10)The financial stability
ranking is based on the LTM
equity ratio and net debt rank,which is determined by
the proportion of mid-grade
and sub-performing debt, withthe worst overall performanceassigned the fewest points andthe strongest the most points

Once the points for eachdimension have beendetermined, a total ranking
score is calculated by summing
the points of each dimension.
The highest sum of points
indicates the best
performance, the lowest thepoorest performance

9Copyright © 2023 by Boston Consulting Group. All rights reserved.

Ranking methodology

Backup

Number of Eastern European companies within each industry in the underlying
database
74• Companies listed
on European stock
exchange with atleast €500M
revenues

21
103

12

Automotive Consumer Chemicals

Source: Capital IQ, BCG Analysis

86

58
10

EnergyHealthCare

Industrials

Leisureand
Tourism

Metals& Mining,
Const. Mat.

TMT

• Financial industry
and companies
from Ukraine andRussia excluded

Other

10

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Σ17Selection criteria:

Backup

The data set consists of European companies that meet the selection criteria
for this study
1,373
244

105
78

28

39

43

35
27 12 3238
16

5632
1255

51 45
21158138
Total

Count ofcompanies
that meetselectioncriteria

6895

Source: Capital IQ, BCG

11Copyright © 2023 by Boston Consulting Group. All rights reserved.

159 164

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