Capital Confidence Barometer for CFOs

CFOs close the gaps with non-CFOs and embrace their expanding role as trusted business partners

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  • Introduction

    EY - Rick Fezell

    Rick Fezell
    Americas Vice Chair - Accounts

    EY - Julie Linn Teigland

    Julie Linn Teigland
    EY EMEIA Accounts Leader

    EY - Patrick Winter

    Patrick Winter
    EY APAC Deputy Area Managing Partner

    Every six months, we survey senior executives from companies around the world. For this fifth edition of the CFO Capital Confidence Barometer, we surveyed approximately 1,600 business leaders across 19 industry sectors and 53 countries. This report represents the views of the 446 CFOs among that group. It shows that CFOs are increasingly optimistic about the global economy, and that their appetite for acquisitions, innovation and value creation activities is on the rise.

  • CFOs shift focus from cost management to value creation

    In previous editions of this survey, CFOs have been far more conservative than their non-CFO counterparts. Historically, they have been more focused on maintaining a robust balance sheet and taking a wait-and-see attitude toward investment.

    Not so in this survey. Overall, the data indicates that the gap between CFOs and non-CFOs may be closing, suggesting that CFOs are assuming a more strategic role within the organization. This is consistent with our findings in Partnering for performance, Part 5: the CFO and CEO, which indicates that 76% of CFOs report greater involvement in corporate strategy in the last three years, driven by a focus on growth.

    We are seeing that CFOs may be taking their foot off the brake a little bit as they shift their focus to include strategic planning in addition to their traditional finance role. They are looking beyond profit and loss, and balance sheets in favor of more forward-looking indicators for decision-making.

    And their outlook in this regard is mostly positive — 33% of CFOs see the global economy strongly improving (versus 22% of CFOs six months ago). That’s not to say they don’t see the challenges emerging from the slowdown in China, sub-par growth in the Eurozone and challenges in Japan. They do, which is why many CFOs are looking outside of their local markets for growth. However, it seems they are more optimistic than some analysts and economists have been recently.

    What is your perspective on the state of the global economy today?
    EY - What is your perspective on the state of the global economy today?

    CFOs also recognize that in a low-growth environment, and with their organizations already running as lean as possible, they can’t afford to stand still. They need the agility to address disruption to their current business model so that they can compete with challengers from within and outside their industry.

    Low growth challenges the core of the business. As a result, although the core business remains the primary focus for nearly a third of CFO respondents (versus 23% of non-CFOs), more than two-thirds are concentrating on innovation — increasing R&D, exploiting technology to develop new products, and expanding into new geographies.

    What is the primary focus of your company’s organic growth over the next 12 months?
    EY - What is the primary focus of your company's organic growth over the next 12 months?

    In another departure from their traditional stance, CFOs are also feeling more bullish about M&A, with 60% (versus 50% six months ago) indicating that their organization is actively pursuing deals in the next 12 months, driven largely by strong improvements in deal fundamentals.

    Do you expect to actively pursue acquisitions in the next 12 months?
    EY - Do you expect to actively pursue acquisitions in the next 12 months?
  • Global challenges create regional differences among CFOs

    Although CFOs are closing the gaps with non-CFOs globally, there are some regional differences. In North America and Western Europe, for example, CFOs seem to be more cautious in terms of organic growth, specifically as it relates to R&D and innovation, than both their non-CFO counterparts and other CFOs in Latin America and Asia-Pacific. This may be less a reflection of North American CFOs’ reluctance to invest in R&D and more about taking advantage of exceedingly low interest rates to pay down debt.

    At the same time, Asia-Pacific companies — particularly in Australia and Singapore — are feeling growth pressures as inbound companies enter the Asia-Pacific region. Asia-Pacific CFOs are afraid that if their company isn’t innovating, developing new products or getting ahead in the market on some other level, they will fall behind their competitors.

    What is the primary focus of your company’s organic growth over the next 12 months?
    EY - What is the primary focus of your company's organic growth over the next 12 months?

    On the flip side, CFOs in North America, Latin America, and to a lesser extent, Western Europe, are more bullish than Asia-Pacific CFOs about deal-making — 40% of North American CFOs expect to complete three or more deals in the next 12 months versus 32% in Western Europe and only 9% in Asia-Pacific. This, in large part, can be attributed to the appreciation of the US dollar against many currencies.

    Instability of currency creates instability in earnings forecasts, which makes it more difficult for organizations, particularly in the Asia-Pacific region, to commit to future acquisitions. Currency fluctuations in the region are also creating sovereign risk issues when it comes to doing business in the ASEAN countries.

    How many acquisitions do you expect to complete in the next 12 months?
    EY - How many acquisitions do you expect to complete in the next 12 months?
  • As trusted business partners, CFOs need also to remember their role as financial risk manager

    As CFOs look forward, they appreciate how the move toward integrity in financial statements, internal controls and investor confidence, driven mainly by CFOs over the last 10 years, has enabled them to broaden their scope of responsibilities beyond compliance and reporting.

    With mature models in place, more robust controls, more rigorous testing and significantly strengthened finance organization, CFOs are assuming their place as trusted business partners to their CEOs and boards. It is a role that becomes increasingly important as innovation, strategy, digital, cyber and analytics, take center stage on the boardroom agenda — and one that they relish.

    However, as CFOs increasingly work side by side with CEOs to set strategy, they need to remain aware of the importance of their traditional role at the boardroom table, analyzing the numbers and assessing the risk. Being able to balance the dual roles of trusted business partners and financial risk manager will enable CFOs to excel in a fast-changing world.

  • A note from Pip McCrostie on the Global Capital Confidence Barometer

    Photo of Pip McCrostie, EY Global Vice Chair, Transaction Advisory Services

    Pip McCrostie,
    Global Vice Chair, Transaction Advisory Services

    A note from Pip McCrostie

    Innovation, complexity and disruption define the new M&A market

    The 13th edition of our Global Capital Confidence Barometer finds companies pursuing deals at a rate not seen this decade. As 2015 global M&A value approaches record highs, executives’ long-term growth considerations outweigh short-term concerns about market volatility.

    With deal intentions at a six-year peak, executives’ economic optimism is steadfast, and companies are pursuing bolder, more innovative growth strategies.

    In 2015 we have seen continued volatility in commodities and currencies, intense swings in equity markets and decelerating growth in several key emerging economies. Despite these challenges, companies remain confident about dealmaking in the current macroeconomic environment.

    Almost half of companies are now looking at acquisitions beyond their traditional industry boundaries, fueled by innovative disruption and changing customer preferences. Cross-border as well as cross-sector deals will also be a big part of the M&A story. The majority of potential acquirers are looking beyond their own national borders – with intentions around deals in the eurozone strengthening.

    With all signs in the deal market pointing upward, some analysts raise the prospect of a market overheating. However, executives are proceeding judiciously as they look to M&A for growth. They are conducting more thorough due diligence, including new levels of cyber risk scrutiny. And they are prepared to walk away from transactions that do not meet their strategic goals.

    In short, M&A is back as an essential mechanism for generating long-term value. With global macroeconomic growth tempered and their industries perpetually challenged, executives are searching for more than organic growth. In government and global leadership circles, “sustainability” has long been a buzzword for big-picture thinking about the interdependence of nations and resources to support development worldwide. In their way, executives are pursuing their own form of corporate sustainability, reimagining their businesses to both safeguard the last decade’s cost-reduction rigor and build the next decade’s platform for growth.