cfo outlook 2018 - citizens commercial · pdf filewe are pleased to share our 2018 cfo outlook...

CFO OUTLOOK 2018 MIDDLE MARKET

TABLE OF CONTENTS

Summary and Key Findings ....................................................................1

Growth in the Current Environment .....................................................2

Emerging Trends ......................................................................................6

An Increasingly Evolving Role ..............................................................10

SUMMARY AND KEY FINDINGSWe are pleased to share our 2018 CFO Outlook – an initiative that supports Citizens Commercial Banking’s

ongoing commitment to provide actionable intelligence that our customers and other organizations can

use to reach their potential. The findings come from a survey of 300 middle market CFOs and focus

on the expanding responsibilities that today’s CFOs face when it comes to driving corporate growth.

In some areas, our findings vary greatly among lower middle market companies ($25MM to <$500MM)

and upper middle market companies (>$500MM) and have been highlighted to demonstrate

the difference.

When the study was fielded at the end of Q3, 80% of CFOs had a positive outlook on economic growth

in 2018. However, confidence in policy changes under the new administration is waning. CFOs still

believe that changes to current tax policies will benefit their companies, but they have lower expectations

that change to trade and regulatory policies will impact their bottom line. When these attitudes are combined

with the muted-growth environment the country has experienced since the Great Recession, CFOs

clearly recognize that they can’t rely on broad economic growth or the external environment to lift their

company. Instead, CFOs are looking at continuous improvement to fund future growth. To highlight

this fact, 81% of the CFOs surveyed said one of their key objectives in 2018 is to improve operational

efficiencies, followed by expansion into new domestic markets and the development of new products.

To fuel these efforts, CFOs will take advantage of emerging technology trends. They expect to increase

their use of electronic payments, and invest more in both data scientists and big data technologies.

This, in turn, has CFOs reporting that greater technology awareness and adoption is viewed as the most

important new skill they must acquire.

At Citizens, we realize that CFOs are encountering change like never before. In addition to managing

the corporate financials, they are now expected to shape organizational strategies, identify new business

opportunities and expand the use of technology – creating a role more akin to a Chief Growth Officer.

Given this reality, CFOs need a trusted strategic and financial advisor who has the knowledge and

resources to help them quickly take advantage of new opportunities. At Citizens, we earn this role every

day by delivering objective advice, tailored solutions and timely execution, and welcome the opportunity

to discuss how we can help your company reach its potential.

1

GROWTH IN THE CURRENT ENVIRONMENTPositive Economic Momentum Should Continue

CFOs have positive expectations for the economy in 2018. Half expect improvement and another

30% believe economic growth will remain the same. CFO optimism is significantly higher among

upper middle market companies compared to lower middle market companies.

Improve50%

Worsen20%

Stay the same30%

Improve50%

Worsen20%

Stay the same30%

Economic OutlookEconomic Outlook

55% 36% 9%

Confidence in 2018 Company Growth

Extremely confident (10-8)

Moderately confident (7-6)

Not confident at all (5-1)

Confidence in 2018 Company Growth

The upshot of this positive economic view is evident in corporate growth expectations. More than half

of the CFOs surveyed are extremely confident that their company will hit their growth targets and only

9% lack confidence.

2

Tax Reform is Expected to Amplify Business Growth

The 2016 Presidential election created the expectation that major policy initiatives would help spur corporate

growth. At this point, CFOs are still optimistic about federal tax policy changes and a majority (60%) believe

the anticipated federal tax policy changes would amplify company growth, dwarfing the 6% of CFOs expecting

a negative impact.

However, the anticipated business impact of the other three major initiatives – trade, regulatory relief and

monetary – are divisively split.

Federal tax policy

Monetary policy

Federal regulatory policy

Trade agreement/Trade policy

17% 56% 27%

21% 55% 24%

25% 55% 20%

60% 35% 6%

Factors Influencing Business Success

Positive impact (10-8)

Moderate impact (7-6)

Negative impact (5-1)

Factors Influencing Business Growth

3

Efficiency and Expansion Lead the Way

Taking cost out of the business will remain a primary focus for CFOs. This powerful trend will continue

near-term as 81% of CFOs are focused on improving operations in the next 12 months.

Nearly half of firms will seek to expand in domestic markets or develop new products. Fewer firms will look

to undertake initiatives like international expansion, divestiture or acquisition. When it comes to acquisition,

two-thirds of upper middle market companies expect to pursue this action over the next 3 years.

81% 12% 6%

Focus on improving operational efficiency

47% 35% 19%

Expansion into new domestic markets

46% 27% 27%

Internal development of new products

16% 20% 64%

Expansion into new international markets

10% 20% 70%

Acquisition of new products

5% 24% 71%

Acquisition of another company

4% 8% 88%

Divestiture or selling parts of the company

Opportunities for Growth

No plans to pursue1 to 3 yearsNext 12 months

Opportunities for Growth

Upper middle market

Lower middle market

9% 56% 35%

4% 19% 77%


Upper middle market

Lower middle market Sources of Growth

Upper middle market>$500MM

Lower middle market$25MM to <$500MM

9% 56% 35%

4% 19% 77%


4

Global Expansion Strategies Vary by Industry

International expansion is a much greater focus for upper middle market firms as compared to lower middle

market firms, with 66% seeing it as an opportunity for 2018. As these global opportunities are assessed,

distinct patterns are apparent with different industries targeting different regions.

APAC is a leading market for expansion opportunity across industries. Western Europe is a focus as well,

particularly for the Retail and Hospitality industries. The Middle East is emerging as a target for manufacturing

and services companies.

Overall ManufacturingBusiness &

Professional Services

Retail & Hospitality

Other Asia-Pacific 44% 44% 47% 40%

Western Europe 42% 41% 35% 53%

China 42% 41% 47% 40%

Middle East 33% 41% 41% 7%

Australia 29% 26% 35% 27%

Eastern Europe 24% 24% 29% 20%

Japan 20% 24% 18% 13%

Canada 18% 15% 18% 27%

Central/South America 18% 26% 6% 13%

Mexico 17% 18% 6% 27%

Africa 9% 12% 12% --

Russia 8% 12% 6% --

International Markets Being Considered



Middle market$XMM to <$XX 5

EMERGING TRENDSGreater Utilization of Electronic Payments

In the near term, CFOs are looking to increase their utilization of electronic payment technologies to drive

greater business efficiencies, reduce costs and improve working capital. On average, CFOs seek an increase

of 17% in payables and 15% in receivables executed electronically.

CFOs realize that electronic payment technologies make good business sense: 4 out of 5 acknowledged the

positive impact they are having on overall company performance.

Payables Receivables

Current Wanted

41%

24%

Current Wanted

54%

39%

Electronic Payments Utilization21

Electronic Payments Utilization

6

A Measured Approach to Real-Time Payments

CFOs are well aware of the impending real-time payment systems and the business benefits. Widespread

implementation is likely to be delayed, though, as they are apprehensive about being among the first to market.

About half of upper middle market CFOs and nearly two-thirds of lower middle market CFOs who plan

to implement real-time payment systems are waiting for their peers to lead the way.

Current Status

Implemented

38%

30%

Aware, but no research or planning

Researched,planning to implement

Researched, no plans for implementation

19%

4% Among those who intend to implement after systems have been implemented by others

64%

49%

When Implementation Will Occur

Not aware 9%

Upper middle market

>$500MM

Lower middle market

$25MM to <$500MM

23

Current Status

When Implementation Will Occur

7

Unlocking Value From Data

Although some positive impact has already been felt, most CFOs believe they are not currently using big

data to its potential.

Upper middle market CFOs are further along, with the right talent and technology in place to realize a

positive business impact, as compared to lower middle market CFOs who have not been able to leverage

big data technology as much or as effectively.

24

Significant impact(10-8)

Moderate impact(7-6)

No impact at all(5-1)





Have the right People Have the right Technology

Current Impact of Big Data

Ability to Utilize Big Data

48% 14%39%

43% 37%20%

63%

23%23%

63%

Current Impact of Big Data24








Have the right People Have the right Technology

Current Impact of Big Data


48% 14%39%

43% 37%20%

63%

23%23%

63%


8

Technology Investments Will Accelerate

Both upper and lower middle market CFOs believe the future impact of big data will be significant and both are

planning to invest more to ensure success.

Almost all upper middle market CFOs anticipate spending more on people and technology to drive an

increased impact while about two-thirds of lower middle market CFOs plan to increase their investments.








26Expected Impact of Big Data

59% 39%

37% 48% 16%

2%

In People In Technology

Looking to Invest More in Next three Years

20%

87%

69%61%

93%

Expected Impact of Big Data

Looking to Invest More in Next Three Years








26Expected Impact of Big Data

59% 39%

37% 48% 16%

2%

In People In Technology

Looking to Invest More in Next three Years

20%

87%

69%61%

93%

9

AN INCREASINGLY EVOLVING ROLEPace of Change Will Accelerate

Continuous growth leads to a continuously evolving role, and CFOs expect the pace of this change to

accelerate. While only 10% of CFOs experienced a significant change in their role over the past 3 years,

twice this amount expect significant change in the next 3 years.

In past 3 years

In next 3 years

21% 60% 19%

10% 64% 27%

Change in CFO Role

2

Significant change(10-8)

Moderate change (7-6)

No change(5-1)

In past 3 years

In next 3 years

21% 60% 19%

10% 64% 27%

Change in CFO Role

2

Significant change(10-8)

Moderate change (7-6)

No change(5-1)

Change in CFO Role

Strategy and Financial Focus of CFOs

Only financial

Equally on both

61%

29%

Mainly strategy,some financial

Mainly financial,some strategy

2%

9%

Financial tasks 69%

Time Spent on Strategy vs Financial Tasks

Business strategy31%

16

17

Strategy and Financial Focus of CFOs

As this evolution continues, CFOs will be expected to work collaboratively with their CEO across a broad range

of strategic initiatives. While this expectation isn’t new, what’s surprising is that 29% of CFOs already spend as

much time on business strategy as they do on financial tasks.

Looking ahead, 58% of upper middle market CFOs feel confident in meeting this challenge compared to just

38% of lower middle market CFOs.

10

Where CFOs are Focused

Close to two-thirds of both upper and lower middle market CFOs are focused on the tasks that are necessary

to keep their company properly financed, and more than half are focused on cash management to help optimize

working capital. Where CFOs are Spending Time

Less focus çè More focus

Investor relationships

Corporate governance Investor relationships

Corporate governance

International expansion

International expansion

Cash management

Human resources management

Keeping the company properly financed

Systems processing and information technology

Fraud preventionand monitoring



Less focus çè More focus

Mergers and acquisitions

Regulatory compliance

Regulatory compliance

Cash management

Keeping the company properly financed

Systems processing and information technology

Fraud preventionand monitoring

63%

55%

42%

64%42%

57%36%

57%36%

39%

37%

28%

41%

52%32%

47%

43%

32%

11

METHODOLOGY

Survey Population CFOs of U.S.-based businesses with $25MM+ in revenue

Profile of Survey Respondents

Manufacturing, construction, energy, pharmaceuticals (116); business and professional services (87); retail, hospitality, food and beverage (97)

Total Completes N=300 CFOs

Weighting and Representativeness

Data were weighted to align with the national population of companies based on revenue group.

Revenue 2017

$25MM to <$50MM 48%

$50MM to <$100MM 25%

$100MM+ 27%

Data Collection August 9, 2017 – September 12, 2017

Survey Method Phone and web-based survey; ~12-15 minutes in length;statistical significance at the 95% confidence level

12

CITIZENS COMMERCIAL BANKINGOur experienced bankers and specialists understand the complexity of our clients’ business models.

Whether you’re a privately held company or Fortune 500 corporation, we have the expertise to assess

your unique needs and financial operating requirements, and to offer tailored advice, ideas and solutions

to help your business reach its potential.

We deliver a full range of banking services, including:

• Commercial Financing – Delivering financial flexibility for working capital, acquiring fixed assets,

funding equipment leases or furnishing growth capital

• Capital Markets – Bringing advice and access to debt and equity capital markets for restructuring,

recapitalizations or corporate development

• Leveraged Finance – Offering expertise and financing solutions for acquisitions, leveraged buyouts,

recapitalizations and refinancings for both sponsors and corporations

• M&A Advisory – Providing sell-side advisory, buy-side advisory, capital raising, financial valuations

and restructuring services

• Global Trade Finance – Offering services and tools to streamline international supply chain

management and international cash management

• Currency & Interest Rate Risk Management – Protecting the value of capital against inflation,

rising interest rates and fluctuating exchange rates

• Treasury Management – Creating solutions to optimize liquidity and streamline payables

13

citizenscommercialbanking.com

Disclaimer: This document has been prepared for discussion and informational purposes only by Citizens Bank, N.A. and/or Citizens Bank of Pennsylvania (“Citizens”). In the preparation of this document, Citizens has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. Citizens makes no representation or warranty (express or implied) of any nature, nor does it accept any responsibility or liability of any kind, with respect to the accuracy or completeness of the information in this document. The information in this document is subject to change without notice and Citizens does not undertake a duty or responsibility to update these materials. The information contained herein should not be construed as investment, legal, tax, financial, accounting, trading or other advice. Under no circumstances should the information be considered recommendations to enter into transactions. You should consult with your own independent advisors before acting on any information herein.

©2018 Citizens Financial Group, Inc. All rights reserved. Banking products and services are offered by either Citizens Bank, N.A. or Citizens Bank of Pennsylvania, Member FDIC. Securities products and services are offered through Citizens Capital Markets, Inc., Member FINRA, SIPC. Citizens Bank & Citizens Commercial Banking are brand names of Citizens Bank, N.A. and Citizens Bank of Pennsylvania. Citizens Capital Markets is a brand name of Citizens Financial Group, Inc.

cfo outlook 2018 - citizens commercial · pdf filewe are pleased to share our 2018 cfo outlook...

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