HONG KONG – More chief financial officers (CFOs) in Asia Pacific are confident in their regional businesses, as measured by growth prospects, their ability to manage and mitigate risk, and their appetite to expand and invest, according to the Bank of America Merrill Lynch 2015 CFO Outlook Asia survey.
Eighty-four percent of respondents said they expect revenues to rise in 2015, up from 76 percent in the same survey last year. CFOs are also more bullish on profits in 2015, with 73 percent of those surveyed forecasting growth this year, compared with 60 percent in 2014. Their expected growth of both revenues and profits places confidence at its highest level since the survey began in 2012. Financial market risk (54 percent versus 36 percent in 2014), particularly higher U.S. interest rates and continued currency volatility, is the biggest risk facing corporations this year, the survey shows.
“CFOs in Asia Pacific are acutely aware of the risks in the market and have taken necessary steps to manage them better,” said Steven Victorin, head of Asia Pacific Corporate Banking and Global Corporate Banking Subsidiaries at Bank of America Merrill Lynch. “Past financial crises have taught the region’s most successful CFOs valuable lessons in prudent financial and risk management. As a result, we find that corporations with substantial cash surpluses, closely hedged currency exposures and an actively mitigated interest rate strategy are more confident in dealing with market challenges and pursing growth strategies.”
CFOs in Asia Pacific are more likely to expand their businesses in 2015 than compared to the same survey last year. CFOs name organic expansion (58 percent) ahead of acquisitions (37 percent) when asked how their companies will most likely use surplus cash in 2015. However, both figures are up substantially year-on-year – 48 percent for organic growth and 24 percent for acquisitions, respectively, in 2014.
Appetite for mergers and acquisition (M&A) activity is strongest among India (69 percent, up from 22 percent last year) and China (49 percent, up from 24 percent in 2014) CFOs. Acquisition targets have also changed, with Greater China, Japan and Australia being the most attractive markets, while Southeast Asia, the top destination in the 2014 survey, drops to fourth place. According to CFOs, factors driving this change include a stronger U.S. dollar. M&A volumes in Asia Pacific have risen sharply, with announced deals totaling US$302 billion in the first quarter of 2015, up 50 percent from 2014, according to Dealogic.
Other key findings from the survey include:
- Enhancing working capital and operations efficiencies: More CFOs are focusing on efficiencies to further enhance profits. A majority (70 percent versus 41 percent in 2014) of CFOs are looking to improve profitability through better management of working capital. More than half (56 percent) will be looking to operational efficiencies to improve profitability, up from 45 percent in the 2014 edition.
- Energy price impact: The price of oil is influencing the bottom line in Asia Pacific. Of CFOs polled, 78 percent say that lower energy costs will have a positive impact on their business.
- Financing to expand: More CFOs are taking on financing in 2015 to expand businesses compared to the same survey last year. Both debt and equity financing will increase in 2015, according to CFOs. Sixty-two percent of CFOs expect their borrowing needs to expand in 2015, double the number of respondents in 2014. CFOs are also actively exploring weighting the balance sheet with additional equity in 2015 (53 percent versus 27 percent in 2014).
- Local corporations going offshore: CFO confidence is driving appetite for international expansion, while also acting as a hedge against the possibility of slowing domestic businesses. Moderating growth at home is cited by 37 percent of Asia CFOs as the biggest macroeconomic risk for 2015, up from 23 percent in 2014.
- CFOs confident in risk controls: CFOs are more confident in their ability to manage and mitigate risk. Seventeen percent of CFOs believe that rising U.S. interest rates will have a negative impact on their businesses. Fifteen percent say that a strong U.S. dollar will provide headwinds for their business.
“For CFOs in Asia Pacific, growth is the clear priority and we are seeing significant uptick of strategic dialogue around acquisitions, financing and holistic balance sheet management,” said Victorin.
The Bank of America Merrill Lynch 2015 CFO Outlook Asia report includes the views of 630 respondents at the CFO or CFO-equivalent level within finance departments. Now in its fourth edition, the report offers insights into the strategies deployed by key financial decision-makers across multiple industries and 12 economies in the region. Approximately 97 percent of respondents come from corporations with at least US$500 million annual turnover and represent a balanced mix of multinational corporations and large local companies.
To download the Bank of America Merrill Lynch 2015 CFO Outlook Asia report, please click here.