CFO OUTLOOK 2018 MIDDLE MARKET - Citizens Commercial Banking
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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 FINDINGS
We 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 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.
1GROWTH IN THE CURRENT ENVIRONMENT
Positive 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.
Economic Outlook
Economic Outlook
Worsen
20%
Improve
Stay the same 50%
30%
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.
Confidence in 2018 Company Growth
Confidence in 2018 Company Growth
55% 36% 9%
Extremely Moderately Not confident
confident (10-8) confident (7-6) at all (5-1)
2Tax 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.
Factors Influencing Business
Factors Growth
Influencing Business Success
Federal tax policy
60% 35% 6%
Trade agreement/Trade policy
25% 55% 20%
Federal regulatory policy
21% 55% 24%
Monetary policy
17% 56% 27%
Positive impact Moderate impact Negative impact
(10-8) (7-6) (5-1)
3Efficiency 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
Upper middle Lower middle
to undertake initiatives like international expansion, divestiture or acquisition. When it comes to acquisition, Sources of Gro
market market
two-thirds of upper middle market companies expect to pursue this action over the next 3 years.
Opportunities for Growth Upper middle market
9% 56% 35%
Opportunities for Growth
Focus on improving operational efficiency Lower middle market
81% 12% 6% 4% 19% 77%
Expansion into new domestic markets
47% 35% 19% Next 12 months 1 to 3 years No plans to pursue
Internal development of new products
46% 27% 27%
Expansion into new international markets
16% 20% 64% Upper middle market
>$500MM
Acquisition of new products
9% 56% 35%
10% 20% 70%
Lower middle market
Acquisition of another company $25MM toGlobal 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.
International Markets Being Considered
Business &
Retail &
Overall Manufacturing Professional
Hospitality
Services
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% --
Upper middle market
>$500MM
Middle market
$XMM toEMERGING TRENDS
Greater 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.
21
Electronic Payments Utilization
Electronic Payments Utilization
Payables Receivables
54%
41%
39%
24%
Current Wanted Current Wanted
6A 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
When Implementation Will Occur
Implemented 4% Among those who intend to
implement after systems have
been implemented by others
Researched,
38%
planning to implement
Researched, no plans
30%
for implementation
Aware, but no
19%
research or planning
64%
Not aware 9%
49%
Upper middle Lower middle
market market
>$500MM $25MM
toUnlocking 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
Current Impact of Big Data
24
Current Impact of Big Data
Upper middle market
Current Impact of Big Data
>$500MM
Upper middle market
>$500MM
39% 48% 14%
39% 48% 14%
Lower middle market
$25MM to $500MM
23% 23% Lower middle market
$25MM toTechnology 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.
Expected Impact of BigofData 26
Expected Impact Big Data 26
Expected Impact of Big Data
Upper middle market
Upper middle market
>$500MM
>$500MM
59% 39% 2%
59% 39% 2%
Lower middle market
Lower middle market
$25MM to $500MM
Lower middle market
61% 69% Lower middle market
$25MM toAN INCREASINGLY EVOLVING ROLE
Pace of Change Will Accelerate
Continuous growth leads to a continuously evolving role, and CFOs expect the pace of this change to
2
accelerate. While only 10% of CFOs experienced a significant change in their role over the past 3 years,
Change in CFO Role
twice this amount expect significant change in the next 3 years. 2
Change in CFO Role
In past 3 years
Change in CFO Role
In10%
past 3 years 64% 27%
10% 64% 27%
In next 3 years
In next
21%3 years 60% 19%
21% 60% 19%
Significant change Moderate change No change
(10-8) (7-6) (5-1)
Significant change Moderate change No change
(10-8) (7-6) (5-1)
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.
16
Strategy and Financial Focus of CFOs
Strategy and Financial Focus of CFOs
Only financial 9%
Mainly financial,
61%
some strategy
Equally on both 29%
Mainly strategy,
2%
some financial
10
Time Spent on Strategy vs 17Where 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
Upper middle market
>$500MM
Less focus çè More focus
Corporate governance 42% 63% Investor relationships
Human resources
41% 55% International expansion
management
Fraud prevention Keeping the company
32% 52%
and monitoring properly financed
Systems processing and
32% 47% Cash management
information technology
43% Regulatory compliance
Lower middle market
$25MM toMETHODOLOGY
Survey Population CFOs of U.S.-based businesses with $25MM+ in revenue
Profile of Survey Manufacturing, construction, energy, pharmaceuticals (116); business and professional
Respondents services (87); retail, hospitality, food and beverage (97)
Total Completes N=300 CFOs
Weighting and Data were weighted to align with the national population of companies based on
Representativeness revenue group.
Revenue 2017
$25MM toCITIZENS COMMERCIAL BANKING
Our 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
13citizenscommercialbanking.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.
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