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 (BofA Merrill).
In the bank’s ‘2015 CFO Outlook Asia survey’, 84% of respondents said they expect revenues to rise in 2015, up from 76% in the same survey last year. CFOs are also more bullish on profits in 2015, with 73% of those surveyed forecasting growth this year, compared with 60% 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% versus 36% in 2014), particularly higher US 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, BofA Merrill’s head of Asia Pacific corporate banking and global corporate banking subsidiaries.
“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, naming organic expansion (58%) ahead of acquisitions (37%) when asked how their companies will most likely use surplus cash in 2015. However, both figures are up substantially year-on-year – 48% for organic growth and 24% for acquisitions, respectively, in 2014.
Appetite for mergers and acquisition (M&A) activity is strongest among India (69% vs 22% last year) and China (49% vs 24% in 2014) CFOs. Acquisition targets have also changed, with Greater China, Japan and Australia 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 US dollar. M&A volumes in the region have risen sharply, with announced deals totalling US$302bn in the first quarter of 2015, up 50% 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% vs 41% in 2014) of CFOs are looking to improve profitability through better management of working capital. More than half (56%) will be looking to operational efficiencies to improve profitability, up from 45% in the 2014 edition.
- Energy price impact: The price of oil is influencing the bottom line in Asia Pacific. Of CFOs polled, 78% 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 2014 survey. Both debt and equity financing will increase in 2015, according to CFOs. Sixty-two per cent 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% vs 27% 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% of Asia CFOs as the biggest macroeconomic risk for 2015, up from 23% in 2014.
- CFOs confident in risk controls: CFOs are more confident in their ability to manage and mitigate risk. Seventeen per cent of CFOs believe that rising US interest rates will have a negative impact on their businesses; 15% say that a strong US dollar will provide headwinds for their business.
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