May 26 , 2011
Canadian CFOs say cash will flow, revenues will grow
MARKHAM--As Canada emerges from the economic downturn in growth mode, Canadian finance executives are taking a more aggressive stance when it comes to increasing top-line revenue and seizing investment opportunities the latest American Express/CFO Research Global Business & Spending Monitor reveals. With many companies sitting on large cash surpluses, companies report that they will deploy more resources toward developing new products and services, building new production capacity, and adding headcount in sales - a sharp contrast to the positions of their U.S. counterparts.
"Finance executives are opening up the company coffers to drive growth and are moving away from budget cuts," said Rob McClean, Vice President & General Manager, Global Commercial Card, Amex Bank of Canada. "Businesses are exercising caution but we will see greater spending to win and retain customers as they jockey for position in a recovering economy."
Growing the Top-Line: Spending to Drive Revenues
While U.S. companies are still focused on profitability and bottom-line growth (62%), finance executives in Canada say that over the next year they plan to concentrate on increasing top-line revenue (66%).
"This trend is likely a reflection of some of the significant cuts that Canadian companies made during the recession," said McClean. "They believe they have slashed back expenses as far as they can, and now is the time to focus on growing sales and revenue."
As economic prospects improve, companies will spend in order to capitalize on a better business environment. Almost half (49%) of Canadian respondents plan to invest more over the next twelve months on developing new products and services, and 44% are also focused on expanding market access through business development activities such as sales and marketing.
Job growth will be strongest in sales - more than half of Canadian finance executives (58%) plan to increase their sales headcount. Respondents also expect headcount to increase in marketing (44%), operations (38%), IT (39%), R&D (33%) and customer service (36%).
Most finance executives in Canada say their companies have been experiencing strong cash flow over the past year (83%) and a majority (75%) report that they have been pursuing a deliberate cash preservation strategy. With many companies now sitting on large cash stockpiles, Canadian finance executives have plans to put this capital to work: almost half (44%) are retaining cash so they can seize investment opportunities more quickly in the future.
While almost all Canadian respondents say their corporations are reserving cash so they can pay down debt balances (94%), they are still making some aggressive plays to grow their business. They say their companies will use cash somewhat or very aggressively in the next twelve months for each of the following:
--78% will use cash to expand operating activities and headcount.
--75% will spend more on R&D.
--74% plan to increase capital spending.
Today Looks Bright, Tomorrow Looks Brighter
Canada's finance executives are optimistic about the future of the Canadian economy, with three in four (78%) expecting substantial or modest economic expansion over the next twelve months.
There is also a feeling that the pace of economic growth will pick up in the months ahead. Over three-quarters (78%) of Canadian respondents see economic growth accelerating in the second or third quarter of 2011. This is in stark contrast to American respondents, where only 38% of executives expect growth to accelerate during this time.
Canadian respondents report a positive outlook for their own companies as well. Nearly three-quarters (74%) anticipate top-line growth over the next twelve months, including 14% who expect substantial (as opposed to modest) revenue growth.
Canadian CFOs Remain Conservative
Despite the positive outlook for their businesses and the economy, Canadian CFOs remain conservative in their approach to growth. Most believe that expanding too quickly would do more harm than good. A full 81% say expanding business operations too quickly would be a greater risk than expanding too slowly, and similarly 83% believe hiring staff too quickly would jeopardize their business.
Canadians were among the most conservative surveyed on this front, especially in comparison to U.S. respondents, who actually saw expanding too slowly as a greater risk to their business (57%).
Canadian companies also plan to exercise caution when it comes to their spending. Though cash will begin to flow, their difficult experiences during the recession have led to a more watchful approach to spending. The vast majority of respondents (81%) expect their companies to require a more vigorous business case for spending on technology, headcount and operating activities.
"Companies are leveraging their lessons learned in the downturn to shape today's corporate spending strategies for the better," continued McClean. "They are maintaining discipline and carefully weighing each investment and looking closely at the justification for spending and laying the foundation for more sustainable expansion."
Customer Service Revitalized
The experience of the economic downturn is also motivating companies to improve the experience they give their customers, with 39% of Canadian respondents planning to invest more in customer service over the next twelve months.
Canadian companies are also paying closer attention to critical customer service dimensions such as:
--Customer retention and loyalty (50%)
--Effectiveness of customer service investments (44%)
--Customer satisfaction (36%)
--Customer service performance (36%)
"This is a clear indication that businesses recognize a shift in consumer mindsets coming out of the economic downturn," continued McClean. "Customers are demanding value and impeccable service, and businesses are listening and adjusting their strategy accordingly."
About the Survey
CFO Research Services surveyed 665 senior finance executives at large global companies across a wide range of industries in the United States, Canada, Latin America, Europe, Asia, and Australia. Company revenues ranged from $500 million to more than $20 billion. The research program, which included an online survey and interviews with senior finance executives, was completed in April 2011.