CFOs are turning positive and prioritize business expansion in 2017 China CFO Survey 2017 Q1

Transcription

1 CFOs are turning positive and prioritize business expansion in 2017 China CFO Survey 2017 Q1

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3 Contents Foreword 1 Our survey 2 Macroeconomics and industrial environment 3 Strategy and operation 7 Expectations 12 CFOs role and mandates 16 Conclusion 21 Meet the team 22 Contact details for Deloitte's China Practice 23

4 Foreword It is our pleasure to present the findings of our 2017 Q1 China CFO Survey, designed exclusively for CFOs to have an opportunity to have their say on the latest hot topics in the market and share the challenges they faced in their role. While there are encouraging signs of global economic recovery, 2017 is continuously filled with uncertainties, such as Brexit negotiation, changes in the international policy environment, unconventional monetary policy, debt overhang in emerging economies and volatile financial flows. Each of these challenges are keeping CFOs busy as they confront their changing roles. In addition to financial reporting responsibilities, CFOs are now taking up a much bigger role that covers different aspect of a company s business, including strategy planning, business transformation, talent development, stakeholder management, and even digital technology adoption. Deloitte's CFO Program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help CFOs stay ahead of these challenges and demands. The Program encompasses a wide range of initiatives with the purpose of helping CFOs manage the complexities of their roles, tackle their company's most compelling challenges, and adapt to strategic shifts in the market. One of the key initiatives is the CFO Survey, which seeks to collect CFOs' opinions on business environment, company priorities and expectations, financial priorities, and personal priorities. Due to CFO's differing responses and views to prevailing economic conditions, we again have conducted a separate CFO survey in the China market place to gain an understanding of the real challenges faced by CFOs in China and to provide our recommendations and offer a broader perspective on how the Chinese economy and its challenges fits into the global economic view. This survey, which we hope you find insightful, is only one of the China CFO Program's key initiatives. We will keep you posted about our other initiatives that are coming up in the near future. If you have any feedback about the survey or our Program, please do not hesitate to contact us. William Chou National Managing Partner China CFO Program Deloitte China 1

5 Our survey We are glad to share the results of China CFO Survey 2017 Q1 conducted by Deloitte China CFO Program, between January and March There are 132 respondents participated in this survey, among which 66% from MNCs, 24% come from POEs, and 10% come from SOEs. The industries and firm sizes targeted by this survey are widely dispersed as shown in below figures. Figure 1. Distribution of participating enterprises by industry Manufacturing 30% Others 16% 15% Consumer business Public sectors 1% 11% Financial services Life sciences & healthcare 9% 11% Technology, media & telecommunicaitons 7% Energy & resources Source: Deloitte China CFO Survey 2017 Q1, Deloitte Research Figure 2. Total revenue of participating enterprises in the past financial year (Unit: RMB) above 10b 23% 5b - 10b 18% 1b - 5b 26% 500m - 1b 14% below 500m 19% 0% 5% 10% 15% 20% 25% 30% Source: Deloitte China CFO Survey 2017 Q1, Deloitte Research 2

6 Macroeconomics and industrial environment CFOs are turning positive towards the macroeconomics environment even though occurring policy and economics concerns 3

7 While findings from our previous survey China CFO Survey 2016 Q3 showed a rather concerned outlook (38%), in this quarter the overall sentiments has largely improved with only 25% being less optimistic for going forward. Further brightening of the outlook is even more evident as 26% have a more optimistic outlook (only 8% in the previous survey). Figure 3. Perspective towards economic sentiment changed over the last 6 months 26% 49% More optimistic No change 25% Less optimictic Source: Deloitte China CFO Survey 2017 Q1, Deloitte Research 4

8 Looking at the macroeconomic factors in China, the top 2 concerns of potential impacts arising from government (adverse) measures and larger economic turmoil remain from our study in 2016 Q3, the new risk on the top of mind is now the impact of geopolitical issues (11% up from 5%). This result of combined elements including the US election results, further clarity of Brexit impacts, uncertainty of some European elections in 2017 and certainly the increased tensions geographically close to China (North Korea). Currency fluctuations is also a key concern these days, with increased volatility (up and down) of RMB going forward, largely due to external factors (US etc). Finally interesting to note that China CFOs are watching much closer the impact of commodity prices and consider this a much higher risk as before (up from 1%). Figure 4. Potential high-impact risks CFOs worry most Detrimental government policy/regulation Furthur economic turmoil/recession Geopolitical issues 11% 20% 28% Currency fluctuation 10% Worsening capital availability/ cost Trade protecionism Rising commodity prices Investment/execution missteps 8% 7% 6% 6% Inflation 4% 0% 5% 10% 15% 20% 25% 30% Source: Deloitte China CFO Survey 2017 Q1, Deloitte Research 5

9 The upcoming opportunities in the next 3 years as seen by the CFO s focuses clearly on China changing economic model towards a consumer based economy. Also the continued urbanization and upcoming use of new technologies (artificial intelligence) is top of mind and are likely to influence the allocation of resources of the companies operating in China. Figure 5. Potential opportunities impact business growth most in the coming 3 years Consumption upgrading 33% Urbanization Artificial intelligence 17% 25% The Belt and Road initiative Sharing economy 10% 10% Aging population 5% 0% 5% 10% 15% 20% 25% 30% 30% Source: Deloitte China CFO Survey 2017 Q1, Deloitte Research 6

10 Strategy and Operation Market expansion and revenue growth are becoming the top interests under the challenges of talent, industry regulation and competition. 7

11 The main challenges similar to our 2016 Q3 survey recognize that China continues to have regulatory challenges as well as market competition being the key issues managed to be successful. The talent agenda has risen compared to previous survey becoming the first key topic to CFOs and their organizations. The regulatory issue is to be understood in connection with a domestic market access as well as sector specific regulations that is hindering companies from a faster market expansion. Combined with a contraction in available and suitable talent pool, is likely to make more difficult to companies to achieve revenue growth in the short term. Figure 6. Industry challenges score Talent 10 Industry regulation / legislation 9 Competition 8 Market growth and structure 7 Pricing trends 5 Changing cost structures 4 Overcapacity 2 Input prices Mergers and acquisitions 1 1 Source: Deloitte China CFO Survey 2017 Q1, Deloitte Research 8

12 While the growth ambitions remain strong and top of mind, resetting focus to core business and ensuring efficient resource spending are also now key topics to the CFOs in China. Such shift combining growth and efficient resource allocations (cost reductions / effectiveness) is more than likely to dominate the CFO's focus in the coming periods, with an overall market, although bigger, but slowing down. Figure 7. Business focus in the coming year Market expansion Revenue growth Focus on core business Cost control 13% 14% 16% 17% Introduce new products and services Increase productivity 11% 11% 8% Financing 6% Introduce strategic partners 4% 0% 5% 10% 15% 20% Source: Deloitte China CFO Survey 2017 Q1, Deloitte Research 9

13 Although far away from market expansion and revenue growth, financing is always a necessary part in business development. By large CFOs are focused on ensuring that cash flow is sustained and monitored appropriately. Interestingly only 10% state that they use bank acceptance notes schemes and similar tools to foster operational cash flow, while 15% note that their customers are offering such payment schemes more often. Also, with China financial markets eventually maturing and enabling financing solutions outside the classical bank lending, only 13% indicate that to be looking at domestic fund raising solutions. Figure 8. CFOs' description for 2017 financing and cash flow expectation 27% We have excess cash in China and plan to use this for investments and innovation 20% We have excess cash in China and plan to distribute more dividends We are receiving increased volume of customer payments through bank drafts / acceptance notes We are reviewing the use of Chinese capital markets to raise debt (Bonds) 13% 15% 15% 10% 0% 5% 10% 15% 20% 25% 30% Source: China CFO Survey 2017 Q1, Deloitte Research 10

14 Business are facing multiple risks in the coming year as shown in Figure 9. Government regulations, increasing operation cost and currency fluctuation are the factors that CFOs concern most in the three highest levels. Besides, foreign competition and interest rate also matter. Figure 9. Top three business risks in the coming year 0% 10% 20% 30% 40% 50% 1st Chioce 2nd Chioce 3rd Chioce Source: China CFO Survey 2017 Q1, Deloitte Research 11

15 Expectations Management and leadership In order to get a deeper understanding of the expectations regarding manag ement and leadership, this survey asked questions about the CFO's attitude towards potential risks, board issues and investors relationship. 12

16 Strategy and leadership Higher returns vs above-normal risks The risk levels companies will face in pursuing higher returns vary for different respondents. Regarding the risks they have to deal with when pursuing higher returns, more than 40% CFOs believe the risks can be managed because they believe they won't take above-normal risks. While more than 30% CFO's believe abovenormal risks are inevitable in pursuing higher returns. Figure 10. Higher returns vs above-normal risks 35% 30% 32% 25% 31% 20% 25% 15% 10% 5% 0% 2% 10% Strongly agree Agree Neutral Disagree Strongly disagree Source: China CFO Survey 2017 Q1, Deloitte Research Growth and margins Figure 11. Products and customers Products/services expansion and innovation About 60% CFOs agreed that they will expand the range of their products or services. Also more than 50% CFOs chose to develop new offerings than to evolve current ones. As a result, the expansion and innovation of their products/services will be the future focus and companies will invest more into products/services development and innovation. 50% 45% 40% 35% 30% 25% 20% 15% 33% 48% 10% 5% 0% 0% 7% 12% Strongly disagree Disagree Neutral Agree Strongly agree Source: China CFO Survey 2017 Q1, Deloitte Research 13

17 Figure 12. Investment on intangible assets vs hard assets 40% 35% 30% 34% 25% 29% 26% 20% 15% 10% 5% 0% 4% Strongly disagree Disagree Neutral Agree Source: China CFO Survey 2017 Q1, Deloitte Research 7% Strongly agree Market expansion According to the survey, companies are more interested in new customers. More than 60% CFOs believe they will focus more on new customers than to existing ones. Investment and costs In order to achieve their expansion and innovation target, 36% CFOs believed that investing in intangible assets is more important while 30% CFOs value tangible assets more. The industry difference, strategy difference, operating status are all the reasons that lead to this big difference. Figure 13. Prices raising for offerings 50% 45% 40% 44% 35% 30% 25% 20% 15% 20% 10% 26% Prices and costs Slightly more CFOs (31%) are willing to raise the prices for most of their offerings considering their growth and profitability while still about 25% CFOs may try to lower the price to achieve their strategy. In responding to the question about cost management, about 35% CFOs are more willing to cut direct costs while around 26% CFOs want to focus more on overhead costs. 5% 0% 5% Strongly disagree Disagree Neutral Agree 5% Strongly agree Source: China CFO Survey 2017 Q1, Deloitte Research 14

18 Talent Figure 14. Hiring more people Hire more staff vs let staff go The need for talents is vital to achieve the growth target. 53% CFOs agreed or strongly agreed that they will hire more people than they let go to keep the stability of their human resources and help promote the business development. 50% 45% 40% 35% 30% 25% 20% 15% 20% 23% 45% Highly-skilled staff vs lower skilled staff Furthermore, the CFOs are keen to hire more highly-skilled staff to help improve their staff structure. 71% agreed or strongly agreed that they will hire more highly skilled staff rather than lower-skilled staff. 10% 5% 0% 4% Strongly disagree Disagree Neutral Source: China CFO Survey 2017 Q1, Deloitte Research Agree 8% Strongly agree Figure 15. Hiring more highly-skilled staff 60% 55% 50% 45% 54% 40% 35% 30% 25% 20% 15% 10% 22% 17% 5% 0% 0% 7% Strongly disagree Disagree Neutral Agree Strongly agree Source: China CFO Survey 2017 Q1, Deloitte Research 15

19 CFOs role and mandates Titles of the respondents varies in their organizations. Among them, around 70% have a title of Chief Financial Officer or Finance Director and they are highly responsible for companies finance related functions. Figure 16. Titles of the respondents Finance Director 25% Others 7% Chief Financial Officer (CFO) 45% 11% Vice President 4% Financial Controller 8% Finance Manager Source: China CFO Survey 2017 Q1, Deloitte Research 16

20 Being at the heart of their companies, the responsibilities of the respondents differed in some aspects. Over 50% respondents are responsible for accounting/reporting, tax, treasury, FP&A, corporate finance, and risk/ compliance. Among them, accounting/ reporting takes up to 86% of the respondents, Tax takes 82% and Treasury 77%. Figure 17. Functions respondents have responsibility for Accounting / Reporting Tax Treasury FP&A Corporate Finance Risk / Compliance Strategic Planning Corporate Development Internal Audit IT / Systems (general / corporate) Investor / Public Relations Regulatory / Policy Legal Procurement / Sourcing Human Resources Real Estate Marketing / Sales / Pricing Customer service / Support Others 28% 27% 26% 23% 17% 14% 10% 8% 5% 2% 52% 48% 43% 38% 86% 82% 77% 71% 69% 0% 20% 40% 60% 80% 100% Source: China CFO Survey 2017 Q1, Deloitte Research 17

21 From CEO s perspective, the role played by CFOs can be reflected by their responsibilities. Since accounting/reporting is the most recognised responsibility of CFOs, 87% of the CEOs believe they should be fact providers, then cost czar, challenger, and capital manager prior to other roles, such as tracker, risk hawk etc. Figure 18. Roles of CFO from CEO's perspectives Fact provider 86% Cost czar Challenger Capital manager Tracker Risk hawk Investment manager 77% 75% 74% 72% 71% 67% Mobilizer Stakeholder manager Organic growth catalyst Marco liaison Project leader 58% 55% 51% 49% 48% Inorganic growth catalyst 34% Others 2% 0% 20% 40% 60% 80% 100% Source: China CFO Survey 2017 Q1, Deloitte Research 18

22 CFOs balance their time on being a catalyst, strategist, steward and operator. Being a good cost czar, CFOs spend 22%, on average, of their time to be a catalyst, driving timely execution of changes in the finance function and the company, such as enterprise cost reduction and other process improvements. They also locate their time evenly to be an operator, steward, and strategist in order to operate an efficient and effective finance. Figure 19. Time allocation of CFOs Catalyst 22% Strategist 18% Steward 25% Operator 35% Catalyze behaviors across the organization to execute strategic and financial objectives while at the same time creating a risk intelligent culture Provide financial leadership in determining strategic business direction, M&A, financing, capital market and longer-term strategies vital to the future performance of the company Protect and preserve the critical assets of the organization and accurately report on the financial position and operations to internal and external stakeholders Balance capabilities, talent, costs and service levels to fulfill the finance organization s core responsibilities efficiently Source: China CFO Survey 2017 Q1, Deloitte Research 19

23 As a good fact provider, CFOs believe the top challenge for finance department is providing metrics, information and tools need for a sound business decision, which has the highest score of 16. They also believe the finance department has difficulty in influencing business strategy (10), followed by forecasting and reporting business results (8) and processes efficiency (7). Figure 20. Challenges for finance department (average score) Providing metrics, information and tools needed for sound business decisions Forecasting and reporting business results 8 Ensuring initiatives achieve desired business outcomes Aligning budgets and capital expenditure decisions with priorities / strategies Supporting a major transaction (e.g.merger, acquisition, divestiture) Ensuring funding, liquidity and acceptable costs of capital Addressing changes in accounting standards and/or tax laws Currency movement Supporting a major infrastructure or business initiative Source: China CFO Survey 2017 Q1, Deloitte Research 20

24 Conclusion Even though facing policy regulations and geopolitical concerns, CFOs are becoming optimistic towards the economy and believed that consumption upgrading will be the most important driving factors for the business growth. Respondents in this survey emphasized that expanding market and increasing revenue will essentially come through product range expansion, product promotion further accelerated with highly-skilled staff hiring. Also, finance department led by CFOs realized that they should increase their ability to provide metric, information and tools needed for sound business decisions and to influence business strategy. As a result, new technologies, new processes and new systems are the immediate concerns of the CFOs and their teams. In conclusion, the roles that CFOs play can be characterized as Catalyst, Strategist, Steward and Operator in the development of business. We, Deloitte China CFO Program, are experts to take the CFOs through the career journey to set a path for their goals and objectives through the transformation process ~ The Lab. 21

25 Meet the team Editor Contact Jens Ewert MNC Sector Leader China CFO Program Deloitte China Tel: William Chou National Managing Partner China CFO Program Deloitte China Tel: Emily Leung National Program Senior Manager China CFO Program Deloitte China Tel: Peng Li Jennifer Xu Jens Ewert SOE Sector Leader China CFO Program Deloitte China Tel: POE Sector Leader China CFO Program Deloitte China Tel: MNC Sector Leader China CFO Program Deloitte China Tel: Deloitte Research Team Sitao Xu Chief Economist and Partner Deloitte Research Deloitte China Tel: Lydia Chen Director Deloitte Research Deloitte China Tel: Acknowledgement We would like to thank all participatng CFOs for their support in completing the Survey. About Deloitte China's CFO Program China CFO Program brings together a multidisciplinary team of Deloitte leaders and experience professionals to help CFOs stay ahead in the face of growing challenges and demands. The Program harnesses our organization's board capabilities to deliver forward thinking and fresh insights for every stage of a CFO's career helping CFOs manage the complexities of their roles, tackle their company's most compelling challenges, and adapt to strategic shifts in the market. For more information about Deloitte China's CFO Program, visit our website at: en/chinacfoprogram.html 22

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