Transcript Analysis – in English - Duke CFO Global Business Outlook

African Business Outlook
Part of the Global Business Outlook
A joint survey effort between
Duke University,
The South African Institute of
Chartered Accountants
and
CFO magazine
1
CFO Global and African Business Outlook – Overview
Global Business Outlook
Duke University has surveyed CFOs around the world every quarter since 1996, most of those years jointly with CFO
magazine. The survey takes the pulse of the business community and has a strong record of predicting future economic
activity. The results are relied upon by Central Bankers, Analysts, Investors, and are widely reported in the press.
SAICA and the African Business Outlook
SAICA joined the survey in 2013, helping to found the African Business Outlook. South African results are highlighted in the
analysis, enabling SAICA and other survey partners to share key insights about the African economy with members of the
Institute and others focusing on Africa. The analysis in this report will assist companies to make important business decisions
as they can benchmark themselves against their global peers. The long run goal is to develop a large and steady set of
responding African firms.
Key Survey Facts

Survey Respondents: 35
 Of which, 31 from South Africa, 2 from Nigeria, and 2 from other parts of Africa
 Responses from Nigeria and other parts of Africa were excluded from analysis as the small number of
respondents may skew results. South Africa results are extrapolated to represent Africa in the global report.

Sample includes CFOs from both public and private companies representing a broad range of industries
 Retail/Wholesale, Mining/Construction, Manufacturing, Transportation/Energy, Communications/Media,
Technology, and Banking/Finance/Insurance

Certain questions are constant each quarter, to capture trends in corporate optimism, expected hiring and capital
investment plans, inflation, wages, and many other categories.

Other questions change each quarter to examine topical economic issues and newsworthy business or political
events that may affect the landscape of corporate finance.
African Business Outlook
Duke University / SAICA / CFO Magazine
Jun 2015
2
Sentiment Regarding Domestic Economy
African optimism about the next 12 months remains low
South Africa, Last Four Quarters
Trends in South African Optimism
Q3 '14
Q4 '14
No Change
CFOs are less optimistic about the domestic
economy
 Compared to last quarter, more South African
CFOs (77%) report being less optimistic about
the domestic economy this quarter
Less Optimistic
Q1 '15
More Optimistic
Q2 '15
0% 10% 20% 30% 40% 50% 60% 70% 80%
When ranked on a 100 point scale, the African Optimism Index (for the economic prospects of the continent
over the next year) reduced from 47.8 in Q1 2015 to 42.5 in Q2 2015.
African Business Outlook
Duke University / SAICA / CFO Magazine
Jun 2015
3
Own Company Sentiment
Most African CFOs are optimistic about their own companies, despite being less optimistic about the
overall economy.
South African Own-Company Optimism, Last 4 Qtrs
Q3 '14
Q4 '14
No Change
Own-company optimism is still high in South
Africa
 While some South African CFOs are less
optimistic for their own companies compared to
last quarter, a higher number of CFOs have
shown more optimism for the financial
performance of their own companies.
Less Optimistic
Q1 '15
More Optimistic
Q2 '15
0%
10% 20% 30% 40% 50% 60% 70%
When ranked on a 100 point scale, the Own-Company African Optimism Index (for the economic prospects over
the next year of each CFO’s own company) reduced from 67.6 in Q1 2015 to 61.4 in Q2 2015
African Business Outlook
Duke University / SAICA / CFO Magazine
Jun 2015
4
Top 10 Corporate Concerns for African CFOs
Concerns of African CFOs vary by country. Reliability and cost of electricity is a top concern in South
Africa while cost of borrowing is a top concern in Nigeria.
Top 10 Corporate Concerns
South Africa
Nigeria
Rest of Africa
1) Reliability and cost of Electricity
1) Economic uncertainty
1) Economic uncertainty
2)Government policies
2) Reliability and cost of Electricity
1)
3) Economic uncertainty
2) Government policies
1) Rising wages and salaries
4) Regulatory requirements
2) Currency risk
4) Government policies
5) Rising wages and salaries
2)Volatility of political situation
5)Employee morale
6) Employee productivity
2)Cost of borrowing
6)Corruption and white collar crime
7)Violent crime
7)Corporate tax code [domestic]
7)
8)
Difficulty attracting/retaining qualified
employees
Weak demand for products and
services
8) Employee morale
8) Currency risk
8)Rising input or commodity costs
9)
Difficulty attracting/retaining qualified
employees
Weak demand for products and
services
Economic uncertainty Difficulty
attracting/retaining qualified
8)
employees
9)Access to capital
10) Weak demand for products and services 10) Property rights
South African CFOs have identified competition from Chinese and Indian imports as a pressing concern
African Business Outlook
Duke University / SAICA / CFO Magazine
Jun 2015
5
Top 10 Company Changes (One-year Forecast)
African CFOs estimate the following changes (in %) will occur in their companies during the next 12
months.
Top 10 Company Changes
South Africa
Nigeria
Rest of Africa
Dividends (+)
Capital spending (+)
Earnings (-)
Earnings (-)
Revenue (+)
Cash on the balance sheet (-)
Capital spending (-)
Prices of company products (+)
Wages/Salaries (+)
Technology spending (+)
Wages/Salaries (+)
Research and development spending (-)
Revenue (-)
Technology spending (+)
Capital spending (+)
Wages/salaries (+)
Marketing/advertising spending (+)
Dividends (-)
Marketing/advertising spending (+)
Cash on the balance sheet (-)
Revenue (-)
Healthcare costs (+)
Number of domestic full-time
employees (+)
Research and development spending
(+)
Dividends (no change)
Prices of company products (+)
Earnings (+)
Productivity (+)
Number of employees (+)
Number of offshore outsourced
employees (no change)
African Business Outlook
Duke University / SAICA / CFO Magazine
Jun 2015
6
Effects of Changes in Interest Rates
African CFOs indicate that current and expected changes in Interest rates have a direct and negative
impact on their business.
Effect of Changes in Interest Rates
35.00%
Impact of Changes in Interest Rates on Business
50.00%
30.00%
40.00%
25.00%
30.00%
20.00%
15.00%
20.00%
10.00%
10.00%
5.00%
0.00%
0.00%
South Africa
South Africa
Direct
Indirect
Both
No effect
African businesses experienced direct
impact from changes in exchange rates.
African Business Outlook
+2=Very positive
+1=Positive
-1=Negative
-2=Very negative
0=No impact
The impact of exchange rates has a net
negative effect on businesses in South
Africa.
Duke University / SAICA / CFO Magazine
Jun 2015
7
Projections of Changes in Interest Rates (South Africa)
Projected Impact of Changes in Interest Rates on
Capital Spending Plans and Hiring Plans (South Africa)
Expectations of Changes in Long Term Interest Rates
(South Africa)
South Africa
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
-10.00%
No impact
35.00%
+50 bps
30.00%
25.00%
+100 bps
20.00%
15.00%
Very positive
Positive
Capital Spending Plan
Negative
Very negative
Hiring Plan
5.00%
Changes in interest rates has minimal impact
on the capital spending and hiring plans of
South African businesses.
-100 bps
+300 bps
-300 bps
0.00%
-5.00%
African Business Outlook
no chg
10.00%
0
2
4
6
8
10
12
14
30% of South African business leaders
expect a +50 bps change in Long Term
Interest Rates.
Duke University / SAICA / CFO Magazine
Jun 2015
8
Effects of Changes in Oil Prices
African CFOs indicate that current and expected changes in Oil Prices have an indirect and positive
impact on their business.
Effect of Changes in Oil Prices
70.00%
Impact of Changes in Oil Prices on Business
50.00%
60.00%
40.00%
50.00%
40.00%
30.00%
30.00%
20.00%
20.00%
10.00%
10.00%
0.00%
0.00%
South Africa
South Africa
Direct
Indirect
Both
No effect
The changes in price of crude oil has affected
more South African businesses indirectly.
African Business Outlook
+2=Very positive
+1=Positive
0=No impact
-1=Negative
-2=Very negative
The changes in price of Crude Oil has had a
positive impact on 43% of South African
businesses.
Duke University / SAICA / CFO Magazine
Jun 2015
9
Projections of Changes in Oil Prices (South Africa)
Projected Impact of Changes in Oil Prices on Capital
Spending Plans and Hiring Plans (South Africa)
No change
100.00%
Expectations of Changes in Oil Prices (South Africa)
45.00%
40.00%
80.00%
35.00%
60.00%
30.00%
25.00%
40.00%
20.00%
15.00%
20.00%
Up large
Up medium
Down medium
Down large
0.00%
$80 , 10.30%
10.00%
5.00%
0.00%
-20.00%
Capital Spending Plans
Hiring Plans
The changes in oil prices has not affected the
capital spending and hiring plans for most
businesses in South Africa.
African Business Outlook
-5.00%
$
$20
$40
$55 , 0.00%
$60
$80
$100
$120
$140
97% of South African business leaders
believe that the price of oil will end the yar
at about $60 per barrel. About on-in-ten
CFOs 10% posit that the price will rise as
high as $80 per barrel.
Duke University / SAICA / CFO Magazine
Jun 2015
10
Effects of Changes in Currency Values
African CFOs indicate that current and expected changes in Currency Values have a direct and mostly
negative impact on their businesses.
Effect of Changes in Currency Values
Impact of Changes in Currency Values on Business
45.00%
70.00%
40.00%
60.00%
35.00%
50.00%
30.00%
25.00%
40.00%
20.00%
30.00%
15.00%
20.00%
10.00%
10.00%
5.00%
0.00%
0.00%
South Africa
South Africa
Direct
Indirect
Both
No effect
Most South African CFOs believe
that changes in the value of the
US Dollar has impacted their
businesses directly and indirectly.
African Business Outlook
+2=Very positive
+1=Positive
0=No impact
-1=Negative
-2=Very negative
A significant number of South African CFOs
indicate that changes in the value of the US
dollar has had a negative impact on their
businesses.
Duke University / SAICA / CFO Magazine
Jun 2015
11
Projections of Changes in price of USD to Euro (South Africa)
Projected Impact of Changes in $/Euro on Capital
Spending Plans and Hiring Plans (South Africa)
Expectations of Changes in $/Euro (South Africa)
100.00%
60.00%
No change
80.00%
50.00%
60.00%
40.00%
40.00%
Down medium
Up medium
20.00%
30.00%
Down large
20.00%
Up large
0.00%
10.00%
-20.00%
Capital Spending Plans
Hiring Plans
More than 70% of CFOs in South Africa
indicate that the changes in the price of the US
$ has no impact on their company’s capital
spending and hiring plans.
African Business Outlook
-60%
-40%
0.00%
-20%
0%
-10.00%
20%
40%
60%
Nearly half of CFOs believe that the value of
the currency will increase by 5%.
Duke University / SAICA / CFO Magazine
Jun 2015
12
Information Security – Successful Hacking Attempts
Mitigating/Preventive Actions Against Hacking
Successful Hacking Attempts
#
Action
% of
respondents
1
Installed new software or changed procedures to try to
prevent a data breach
45.20%
2
Hired a data security firm to review your protocol and the
safety of your system
19.40%
3
Hired a consultant to try to hack into your system
19.40%
4
Purchased new hardware to try to prevent a data breach
19.40%
5
Instituted required employee training on best practices to
prevent hacking and data breaches
19.40%
6
9.70%
7
Currently considering how to better ensure the safety of your
network
Hired at least one staff member specializing in data security
16.10%
8
Moved to cloud servers
16.10%
9
Had your staff try to hack into your system
9.70%
10
Other data security steps taken in past year
6.50%
11
In the past year, we have not taken any significant steps to
address data security
45.20%
South Africa
Yes
No
85% of South African CFOs indicated that
hacking attempts on their companies’ servers
have resulted in data breaches.
45% of African CFOs have not taken ANY
significant steps in the past year to deter
hacking, likely due to the cost of prevention
African Business Outlook
Duke University / SAICA / CFO Magazine
Jun 2015
13
Focus of the CFO – African responses
Budget and Forecast
Executive Leadership Team
Liquidity Management
Financial Reporting and Compliance
Corporate Strategy (include M&A)
Risk Management
Capital Allocation
Board Relations
Capital Structure
0%
20%
Significant
40%
Moderate
60%
80%
100%
Minor
South African CFOs believe that, in order to best serve all stakeholders, CFO focus on Budget and
Forecast should be significant. In addition, more than 50% believe that focus on Board Relations and
Internal Growth should be moderate.
African Business Outlook
Duke University / SAICA / CFO Magazine
Jun 2015
14
Likelihood of a Recession
A significant number of South African CFOs believe that there is low likelihood for an economic
recession by the end of 2015.
South Africa
Yes
No
25% of CFOs in South Africa opine that there will be an economic recession by the end of 2015.
African Business Outlook
Duke University / SAICA / CFO Magazine
Jun 2015
15
Return on Assets and Capacity Utilization
South African companies expect an reduction in ROA over the next year and an increase in capacity
utilization in the second half of 2015.
South Africa
USA
Europe
Asia
Latin America
Approximate ROA in 2014
11.8%
10.1%
7.5%
9.5%
7.3%
Expected ROA In 2015
13.6%
11.5%
9.4%
12.7%
7.9%
% capacity in 1H 2015
82.5%
74.5%
69.5%
80.0%
74.4%
% capacity planned for 2H of 2015
79.4%
75.0%
78.5%
84.6%
75.9%
Return-on-Assets
Capacity Utilization
African Business Outlook
Duke University / SAICA / CFO Magazine
Mar 2015
16