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Global Business Outlook
A joint survey effort between
Duke Universityand
CFO magazine
1Global Business Outlook Duke University Sep 2015
John R. GrahamD. Richard Mead Jr. Family Professor of Finance
Director, Global Business Outlook SurveyFuqua School of Business
Global Business Outlook
2
• Quarterly Survey (www.cfosurey.org) – 1000+ CFOs (financial execs) share their views on their firms and the overall economic outlook
– Since July 1996 (78 consecutive quarters)
– Joint between Duke University, CFO, FGV, IMEF, PyME, SAICA, ACCA, Tias, GEM, Laurier, Asian universities.
• Global: Africa, Asia, Europe, Latin America, and US
• Disseminated widely– Policy‐makers: Fed, European Central Bank, Council of Economic Advisors, Bank of England, etc.
– Press: TV, WSJ, FT, BW, NPR, regional press, etc.
• Connect Ivory Tower with the Practice of Finance– Research, Teaching, Global Connection
Global Business Outlook Duke University Sep 2015
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3
BusinessOptimism
TopConcerns
Survey Questions – 2015 Q3
Global Business Outlook Duke University Sep 2015
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Business plans for the next 12 months• Hiring, Spending, Earnings, etc.
Global Business Outlook Duke University Sep 2015
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Global Business Outlook Duke University Sep 2015 5
Acquisition plans
Labor market conditions
Rotating Questions – 2015 Q3
Global Business Outlook Duke University Mar 2015 6
Stock market valuation, complacency for risk management, and 2016 presidency
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Demographics
Global Business Outlook Duke University Sep 2015
Preview of US Results
• Economic Outlook– North America outlook strongest in world, though down from Q2
– Europe weak but recovering.
– Asia getting weaker, Latin America and Africa weak and getting weaker
• Employment and Wages– Moderate U.S. labor market growth
– Wage growth due to labor market pressures (in some industries)
• Strong Dollar – Will temper U.S. growth, exporters reduce CapX
• Economy Not Too Sensitive to Potential Interest Rate Hikes
• Minimum wage (in US)– $10‐$15 will accelerate shift towards “machines” or outside of US
• Taxes: 13% of US companies have considered relocating
8Perspectivas de Negocios en Latinoamérica Duke University / IMEF / CFO Magazine Aug 2015
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Top US CFO Concerns
1. Economic uncertainty
2. Cost of benefits
3. Attracting and retaining qualified employees
4. Regulatory requirements
5. Government policy
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6. Weak demand for product/services
7. Data security
8. Employee productivity
9. Access to capital
10. Employee morale
Global Business Outlook Duke University Sep 2015
Top US CFO Concerns—by Industry
10
0%
10%
20%
30%
40%
50%
60%
70%
Cost of Benefit Regulatory requirements Difficulty attracting qualifiedemployee
Manu Finance Healthcare Tech Software/Bio Service&Consulting
Global Business Outlook Duke University Sep 2015
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Expected percentage change in domestic employment over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook
Domestic Employment ‐ Full Time
1.40%
‐…
‐5%
0%
5%
10%
Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015
United States Europe Asia Latin America
Global Business Outlook Duke University Sep 2015
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Expected percentage change in earnings over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook
Earnings Growth
3.00%
8.10%
0.10%
‐5%
0%
5%
10%
15%
Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015
United States Europe Asia Latin America
Global Business Outlook Duke University Sep 2015
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Expected percentage change in product price over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook
Product Prices
0.60%
7.50%
‐5%
0%
5%
10%
Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015
United States Europe Asia Latin America Africa
Global Business Outlook Duke University Sep 2015
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Expected percentage change in wages and salaries over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook
Wages and Salaries
3.30%
5.50%
‐5%
0%
5%
10%
Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015
United States Europe Asia Latin America Africa
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Expected percentage change in capital spending over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook
Capital Spending
2.40%
0.50%
‐5%
0%
5%
10%
15%
Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015
United States Europe Asia Latin America Africa
Global Business Outlook Duke University Sep 2015
Business Optimism Index
Global Trends
Co
un
try
/ Reg
ion
Sep 2015 Response
28
40
50
60
70
Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015Latin America United StatesEurope AsiaAfrica
Notes: Presented data are the mean value for each region or country, Scale from 0-100
Country Business Optimism Index
Own-Firm Business Optimism Index
Ow
n C
om
pan
y
40
50
60
70
Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015Latin America United States Europe
Asia Africa
0
10
20
30
40
50
60
70
80
Brazil Chile Peru Mexico Ecuador Uruguay
0
10
20
30
40
50
60
70
80
Brazil Chile Peru Mexico Ecuador Uruguay
Global Business Outlook Duke University Sep 2015
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CFO Optimism about own country’s economy, on a scale of 0 to 100
For U.S. firms,CFO Optimism about own firm’s financial prospects
Source: www.cfosurvey.org
Global Business Outlook Duke University Sep 2015
Can CFOs Predict the Future?• No, but CFOs know their business plans.
• CFOs tell us their plans anonymously, we aggregate across a region or industry.
• As long as business plans more or less hold for next 6‐12 months, CFOs predict the future reasonably well
• CFO own‐firm optimism highly correlated with 12‐month ahead national actuals:
– Earnings (43% correlation)
– Employment (81%) – see chart
– GDP (78%)
Source: www.cfosurvey.org
Global Business Outlook Duke University Sep 2015
y = -0.1715x + 16.418R² = 0.6481
0
2
4
6
8
10
12
40 50 60 70 80
Ne
xt 1
2 m
on
th
Un
em
plo
yme
nt R
ate
Optimism US Econ
Next 12 Month Unemployment Rate
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Global Business Outlook Duke University Mar 2015 31
Can CFOs Predict the Future? Part 2Current and Future Exports (as of 2010)
0%
10%
20%
30%
40%
50%
60%
70%
80%
0% 1‐24% 25‐50% >50%
Current Exports
Future Exports
Growth in DollarValue of ExportsOver Next Five Years
CFOs Predict Investment&Earnings
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Source: Expectations and Investment. Gennaioli, Ma and Shleifer (2015)
Global Business Outlook Duke University Sep 2015
Expectations of Next Twelve Month Earnings Growth by CFOs and Analysts
CFO Earnings Expectations and Investment Plans
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Why CFOs?
4) CFOs say it first
• Correlation with future quarter’s value for– CEO optimism (84%, 1 qtr ahead) – see chart
– ISM (75%, 1)
– Conf Board consumer confidence (86%, 2)
– Michigan consumer confidence (81%, 1)
– UBS/Gallup Investor confidence (49%, 2)
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Source: www.cfosurvey.org
y = 2.9312x - 103.34R² = 0.7033
-20
0
20
40
60
80
100
120
40 50 60 70 80
CE
O (
t+1)
Optimism US Econ(t)
US CFO optimism as a predictor of CEO
Global Business Outlook Duke University Sep 2015
Difficulty in Filling Key Positions
34
0%
20%
40%
60%
80%
United States Europe Asia Latin America Africa
How difficult is it for your firm to fill you key job opening?
Per
cen
tag
e fo
r fi
nd
ing
it
is d
iffi
cult
Global Business Outlook Duke University Sep 2015
0%
20%
40%
60%
80%
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Merger and Acquisition Activity
35Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015
0%
10%
20%
30%
40%
50%
60%
United States Europe Asia Latin America Africa 0%
10%
20%
30%
40%
50%
60%
During the next year, does your company plan to acquire other companies or part of other companies?
Per
cen
tag
e fo
r an
swer
ing
ye
s
Reasons for Making Acquisitions
0%
20%
40%
60%
Industryposition
Productdiversification
Cost synergies Industryconsolidation
Geographicdiversification
Revenuesynergies
36
Why is your firm making acquisition(s)? (Choose 3)
Global Business Outlook Duke University Sep 2015
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Has risk management become complacent?
37
0%
10%
20%
30%
40%
50%
60%
United States Europe Asia Latin America Africa
Do you believe that firms in your industry have become complacent about the threat of, and potential negative effects of, future economic stress (for example, a recession or crisis)?
Per
cen
tag
e fo
r an
swer
ing
ye
s
Global Business Outlook Duke University Sep 2015
Has risk management become complacent?
38
Do you believe that firms in your industry have become complacent about the threat of, and potential negative effects of, future economic stress (for example, a recession or crisis)?
Per
cen
tag
e fo
r an
swer
ing
ye
s
Global Business Outlook Duke University Sep 2015
0%
10%
20%
30%
40%
50%
60%
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Is the stock market overvalued/undervalued?
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I believe that the stock market in my country is:P
erce
nta
ge
for
ove
rva
lued
/un
der
valu
ed
Global Business Outlook Duke University Sep 2015
0%
10%
20%
30%
40%
50%
60%
United States Europe Asia Latin America Africa
overvalued undervalued
Expected Wage Growth
4.50%
3.90%
3.30% 3.30% 3.30% 3.30%3.00% 2.90% 2.90%
2.30%
‐0.10%
‐1%
0%
1%
2%
3%
4%
5%
41
Relative to the previous 12 months, what will be your company's PERCENTAGE CHANGE in Wages and Salaries during the next 12 months?
Global Business Outlook Duke University Sep 2015
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Return on Assets (ROA)
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0%
2%
4%
6%
8%
10%
12%
14%
US Europe Asia Latin America Africa
Approximate ROA in 2014 Expected ROA in 2015
Global Business Outlook Duke University Sep 2015
Takeaways
• Economic Outlook– North America outlook strongest in world, though down from Q2
– Europe weak but recovering.
– Asia getting weaker, Latin America and Africa weak and getting weaker
• Employment and Wages– Moderate U.S. labor market growth
– Wage growth due to labor market pressures (in some industries)
• Strong Dollar – Will temper U.S. growth, exporters reduce CapX
• Economy Not Too Sensitive to Potential Interest Rate Hikes
• Minimum wage (in US)– $10‐$15 will accelerate shift towards “machines” or outside of US
• Taxes: 13% of US companies have considered relocating
43Perspectivas de Negocios en Latinoamérica Duke University / IMEF / CFO Magazine Aug 2015
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From 2014 Q2
Global Business Outlook Duke University Mar 2015 74
Global Business Outlook Duke University Mar 2015 75
05
10
15
20
25
Cas
h /
Ass
ets
(%
)
1970 1980 1990 2000 2010
Average Cash/Assets (1970 – 2012)All firms on Compustat
Source: Graham and Leary, “Corporate Cash”
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Global Business Outlook Duke University Mar 2015 76
Cash/Assets (1920 – 2012)
Only NYSE
AddAmex
Add Nasdaq
05
10
15
20
25
30
Cas
h /
Ass
ets
(%
)
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Average Aggregate
Source: Graham and Leary, “Corporate Cash”
Global Business Outlook Duke University / FGV / CFO Magazine Mar 2015
Intention to Deploy Cash Reserves
77
0%
20%
40%
60%
80%
100%
US Europe Latin America Asia Africa
Yes No
Is it likely that your firm will begin to deploy its cash reserves during the next 12 months?
Most firms in emerging economies expect to use their cash reserves in the coming year, not US firms.
Only about half of US and European companies will spend out of cash reserves in the coming year
72% of Latin American firms will deploy cash reserves, which is the highest among all regions
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If Deploying Cash Reserves, on What?
Global Business Outlook Duke University / FGV / CFO Magazine Mar 2015 78
0% 10% 20% 30% 40% 50% 60% 70%
Research and development
Marketing and advertising
Increase hiring
Dividends or share repurchases
Pay down debt/line of credit
Acquisitions
Capital spending or investment
51.2% of Latin American firms plan to spend their cash reserves in the next 12 months. Among these firms
More than half will use the cash for business spending and investment, one‐fourth to make acquisitions
25% will use excess cash to pay down debt.
More than 20% intends to increase hiring.
If Not Deploying Cash, Why Not?
Global Business Outlook Duke University / FGV / CFO Magazine Mar 2015 79
0%
10%
20%
30%
40%
Do not need cashreserves as a source
of funds
Need cash asliquidity buffer
Lack excess cash todeploy
Save cash as drypowder for future
investmentopportunities
Holding cash untileconomic
uncertainty declines
48.8% of Latin American firms are NOT planning to spend cash reserves. Among these firms …
Nearly 30% say they lack excess cash to spend; another 30% say they have alternative sources of funds
More than 20% indicate that they need to hold their cash reserve until economic uncertainty declines
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Uncertainty and Business Planning—Econ Conditions
93
Does Uncertainty about Economic Conditions Affect Your Business Planning?
63% 62%
36%
12%
0%
10%
20%
30%
40%
50%
60%
70%
Reduce/DelayHiring
Reduce/DelayCapital Spending
Increase cashholdings
No real effect
Global Business Outlook Duke University Mar 2015