56 % Annual CFO Survey Report 2015

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1 Key corporate decision-makers continue to view U.S. economic growth with optimism; many investing in their businesses with confidence Five years ago, top business decision-makers had little hope for short-term growth in the U.S. economy, sentiments reflected in TD Bank s inaugural study of financial executives confidence in the economy, their current concerns and their future growth outlook. Those concerns in 2010 led to cost-cutting and a generally cautious approach in mid-size to large companies growth and hiring strategies. Fast-forward to 2015, and much has changed. In TD Bank s latest survey of business decision-makers, respondents are optimistic about the economy s prospects for the coming year. And while they still have concerns, they have more to do with managing growth and risk as well as data security and other challenges of the modern era. Growth is definitely back on the agenda for the East Coast s larger companies; something business executives say won t be hampered by interest rates, the national economy or other outside influences. Indeed, TD Bank s 2015 CFO Survey of 300 financial executives from small (revenues of $50 million or less), mid-size (revenues of $250 million) and large corporations (revenues of $500+ million) reveals that a majority (56 percent) remain optimistic about the U.S. economy and plan to invest in their companies for continued growth. This brief paper explores their economic outlook, expected company growth and their challenges, and we hope it will provide a good picture for what today s CFOs and other financial decisionmakers are thinking as they plan for Optimistic Outlook Abounds Out of 300 CFO s surveyed, 56 % Remain Optimistic about the U.S. Economy Financial decision makers positive sentiment about national economic growth for 2016, and the outlook for their companies expected performance, is similar to what they expressed last year when looking ahead to Sentiment did differ by region, however, with optimism slightly higher in northern New England and Philadelphia as compared with the New York metro area. The southern region ranked even higher in optimism, particularly in Florida, where a majority of respondents were more optimistic about their companies performance and the national economy going into Respondents attitudes about the outlook for 2016 were similar across the following categories: Size of company (sales/volume) Job role Industry Even so, there were a few nuances. Decision-makers in the healthcare industry reported being less optimistic about their companies prospects for 2016, while those working in the retail and automotive industries are a bit more optimistic than their counterparts in other industries. This may be due to the exceptional strength in discretionary consumer spending, buoyed by an improving labor market, recovering household wealth, and still low interest rates, noted Michael Dolega, senior economist with TD Economics, the independent research arm of TD Bank. Auto sales have recently risen above 18 million units annualized, the highest level in more than a decade. Spending on healthcare is also rising, but the industry remains mired in uncertainty given the changing regulatory environment. Still, the long-term outlook for healthcare remains positive given underling demographic fundamentals.

2 The results are striking in contrast to the results of a similar survey of financial executives TD conducted in At that time, while many organizations expected to increase sales, only 4 in 10 expected a full economic recovery within the next year. Another 4 in 10 expected a recovery in the next one to two years, while 20 percent believed it would take more than two years. Executives in 2010 indicated some cautious optimism about their own companies prospects, but were much less optimistic about the nation s economic growth. In 2015, by contrast, most CFOs believe more robust growth is on the horizon, and the majority of them are aggressively preparing for it. Today s Focus: Growth and Reinvestment During the economic downturn, a dollar earned was a dollar saved. Five years ago, TD Bank s survey showed that corporate leaders were hedging against a lull in the economy by reducing business expenses, freezing wages and hiring, paying down debt and increasing liquidity on their cash reserves. This year s survey shows with abundant clarity that companies are focused on reinvesting for growth. A full 61 percent of respondents expect to increase capital expenditures within the next year as compared with 50 percent who said the same in Even more encouraging, 14 percent of financial decision-makers said they would increase capital spending by 15 percent or more in Regional Differences 78.5% of Florida financial executives are optimistic about their company s outlook for Boston executives are least hopeful; just 59% expressed optimism going into New England CFOs find resource planning to be their top stressor (35%), while just 19% of executives in New York City are concerned about this. New York (30%), Florida (43%), and North and South Carolina (31%) named liability for risk as their greatest concern. Executives in Florida (33%), D.C. (30%) and New England (26%) expect to make capital expenditure increases of 10% or higher next year. Investment will be focused on new and existing facilities, technology, data security and hiring. The outlook for workforce spending appeared slightly higher in southern states. This trend was reflected in a recent report by TD Economics, the independent research arm of TD Bank, which noted that North Carolina, South Carolina, Florida and Georgia had some of the highest employment gains in the past several months, followed by Massachusetts in the North. 1 Companies in Philadelphia (79%), Boston (79%) and New York (78%) report a Federal Reserve interest rate increase will have no impact on their plans to borrow. D.C. companies say they are much less likely to borrow (15%) if interest rates change. Interestingly, small to mid-sized companies plan to increase their capital spending at almost twice the rate of firms in the $500 million-and-above range. Smaller firms also indicated that they plan to spend more on hiring. Mark Zandi, chief economist of Moody s Analytics, said he expects an average 250,000 job gains a month for the remainder of the year, just below the 260,000 added in That marked a 15-year high. 2 What s Keeping CFOs Up at Night? Managing risk and resource management are among the top concerns for today s financial executives. A staggering 41 percent plan to invest in data security due to an increased emphasis on risk management. Clearly, this is a critical issue as noted by Gartner Research Analyst Elizabeth Kim 3 : Interest in security technologies is increasingly driven by elements of digital business, particularly cloud, mobile computing and now also the Internet of Things, as well as by the sophisticated and high-impact nature of advanced targeted attacks

3 Gartner estimates that global spending on information security will reach $75.4 billion in 2015, an increase of 4.7 percent over Surprisingly, smaller companies ranging from $50-$250 million expressed more concern with risk liability than firms with revenues of $500 million and above. This may be due to the fact that they are more vulnerable to attack and would be more greatly impacted by a data breach or other crisis. While liability for risk is a top stressor for executives, location seems to play a role in what keeps executives up at night. Those located in New York City, Florida and the Carolinas appeared most concerned with risk, while resource planning was the top stressor for respondents in New England. This is not surprising in light of the fact that those in New England were highly optimistic about the economy and will be investing heavily in growth. Another concern for today s CFO is managing their CEOs expectations. In recent years, the role of the CFO has evolved from a role as financial gatekeeper to that of a strategic partner and advisor. In fact, in a report released by McKinsey, 88 percent of 164 CFOs surveyed reported that CEOs expect them to be more active participants in shaping the strategy of their organizations. Half of them also indicated that CEOs counted on them to challenge the company s strategy. 4 Global spending on information security expected to increase 4.7 % to $ 75.4 billion -Gartner The concerns identified in this year s TD Bank survey represent a significant change from the 2010 survey, when respondents cited cash flow management, inflation and interest rate volatility as their top concerns. Today, the possibility of interest rate hikes from the Federal Reserve is of little concern, with 74 percent of respondents saying hikes would have no impact on their borrowing in 2016 (although companies in the Carolinas and Mid-Atlantic states are less likely to borrow than those in other regions). In 2010, financial management priorities centered on capital allocation/cash flow and cost control and most noted that streamlining the cash-flow cycle and maximizing working capital remains a challenge. Cash flow remains a concern for financial executives, with 29 percent saying timeliness in collecting payments is their top challenge and 37 percent of those in the health care field naming that as an issue. Twenty-one percent noted outdated systems are creating inefficiencies and 17 percent cited manual processes associated with payment initiation as a top frustration, which may also relate to the fact that many plan to invest in technology. 29 % of financial executives report timeliness in collecting payments as their top challenge The Political Focus With the 2016 presidential elections drawing more attention, the most prevalent business issue that financial decision-makers want to see candidates address is health care reform, followed by government efficiency. While smaller companies appear to be more concerned about health care reform, larger companies are more concerned with government efficiency and wage/income inequality. Not surprisingly, those in the health care industry are extremely concerned about the impact health care reform will have on their business. About three-quarters (77 % ) of respondents indicated their organization s [health care] costs increased, 17 % said they stayed the same, and 6 % saw a decrease in costs. -SHRM Health Care Reform 2015 Update With the Affordable Care Act still under attack and health care reform ongoing, there remains trepidation in the market, especially amongst employers. According to the SHRM Health Care Reform 2015 Update, About three-quarters (77 percent) of respondents indicated their organization s costs increased, 17 percent said they stayed the same, and 6 percent saw a decrease in costs

4 In addition to health care reform and government efficiency, most CFOs would like our nation s leadership to put a greater emphasis on job creation. Corporate taxes were also more frequently mentioned by respondents in the Carolinas significantly more so than from those in New York City. The Big Picture Optimism about the nation s economic growth prospects much stronger than what respondents indicated five years ago appears ready to manifest in the form of growthoriented investments. Corporate decisions-makers are clearly moving toward the belief that they can now invest in people, technology and aggressive strategies instead of pulling back and remaining in a cautious mode. Of course, issues remain. Risk and liability are always causes for concern, and CFOs recognize that they need to address these matters effectively in order to protect the growth opportunities that appear to be on the horizon for But the shift toward optimism clearly indicates that, in the view of corporate decision-makers, the business community is in a stronger position than in 2010 and ready to embrace much more proactive strategies in the pursuit of growth. About the CFO Survey Corporate decisionsmakers are clearly moving toward the belief that they can now invest in people, technology and aggressive strategies instead of pulling back and remaining in a cautious mode. ORC International polled CFOs along the East Coast from Maine to Florida in a study commissioned by TD Bank in order to understand their outlooks on their companies financial health as well as their thoughts on the overall economy as it relates to their future business plans and expectations. The survey was conducted in September and October 2015, and surveyed a total of 300 executives at companies with annual sales of $25 million to $500+ million. More than two-thirds of the respondents were CFOs or held similar titles including controller, treasurer or director of finance. The remainder was comprised of executives who have significant influence over the financial decisions at their companies. About TD Bank, America s Most Convenient Bank TD Bank, America s Most Convenient Bank, is one of the 10 largest banks in the U.S., providing more than 8 million customers with a full range of retail, small business and commercial banking products and services at approximately 1,300 convenient locations throughout the Northeast, Mid-Atlantic, Metro D.C., the Carolinas and Florida. In addition, TD Bank and its subsidiaries offer customized private banking and wealth management services through TD Wealth, and vehicle financing and dealer commercial services through TD Auto Finance. TD Bank is headquartered in Cherry Hill, N.J. To learn more, visit www. tdbank.com. Find TD Bank on Facebook at and on Twitter at TD Bank, America s Most Convenient Bank, is a member of TD Bank Group and a subsidiary of The Toronto-Dominion Bank of Toronto, Canada, a top 10 financial services company in North America. The Toronto-Dominion Bank trades on the New York and Toronto stock exchanges under the ticker symbol TD. To learn more, visit

5 What issues make the wheels turn for today s financial executives? What are they concerned about? Office Politics Other Want presidential candidates to address: % 14 % 20 % Healthcare Reform (24%) Government Efficiency (19%) Job Creation (14%) Corporate Taxes (13%) Weakness/Gaps in Senior Management 28 % 27 % What's on their mind when it comes to government policy? Resource Planning are more optimistic about U.S. 56 % economic growth for 2016 vs say that potential FED 74 % interest rate hikes have no impact on borrowing in H Liability for Risk (Operational, Financial, Reputational) Their biggest challenges in streamlining cash flow and maximizing working capital... timeliness in collecting payments Other manual processes for payment initiation 69 % outdated systems that create inefficiencies 29 % 33 % 21 % 17 % 61 % What are they investing in? 58 % Technology (Hardware) 44 % 41 % expect to increase capital expenditures in 2016 (significant increase from last year) Existing Facilities Data Security are more optimistic about their company's performance in 2016 vs Source: TD Bank survey conducted 9/21/15-10/16/15 among 300 CFOs and other financial executives.