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Vol. 1 ISSUE 7
Flying Finance
Emirates group finance svp michael doersam
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They are known as a power couple, but the relationship between the CFO and CIO, historically, hasn’t been very smooth, and is often fraught with tension. Yet, I can’t think of any other C-level executives so well positioned to forge an alliance to drive business value and transform the enterprise. As a journalist who is out in the field with corporate technology, I’m frequently a witness to the undercurrents of this complex relationship and the underlying reasons why CFOs and CIOs are at loggerheads. CIOs are often swayed by the latest and greatest in technology, and think more about IT, while their all-round business acumen is playing catch-up. On the other hand, CFOs, who control the purse strings, think beyond IT and have a holistic view of business and its underlying values. Lately, the number of CIOs reporting directly to CFOs in the region is on the rise, and I can’t really think of any IT purchase decisions where the CFO isn’t directly involved. This trend bodes well, and the CFO and CIO have no choice but to invest in collaboration as they both have equal stakes in compliance, risk mitigation and other tasks. In this issue, we have taken a closer look at the qualities that make a top CFO. The rise of capital markets, coupled with the need for governance, has made it mandatory that the CFO is of the highest calibre. Gone are the days when the CFO was just a glorified bookkeeper, and being a qualified Chartered Accountant could get you the job. The basic functions that the CFO has to perform may not have changed, but in the age of today’s high-performance business, they have to play a leadership role and define the business strategy. As Deloitte puts it quite succinctly, “It’s increasingly important for CFOs to be strategists, helping to shape overall strategy and direction, and catalysts, instilling a financial approach and mindset throughout the organisation to help other parts of the business perform better.” These are, indeed, evolutionary times for the CFO-CIO partnership.
DESIGN Neha Kalvani neha.kalvani@cpimediagroup.com
Jeevan Thankappan Group Editor
Analou Balbero analou.balbero@cpimediagroup.com Photographer Charls Thomas Production Manager James Tharian Data Manager Rajeesh Melath
Printed by Printwell Printing Press © Copyright 2015 CPI. All rights reserved. While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.
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tHE CFO MIDDLE EAST
Advisory Panel The CFO Middle East’s Advisory Panel presents a dynamic group of experts and leaders in various aspects of the world of finance. As industry captains arriving from world-leading organisations and specialising in financial strategies, accounting and management these key personalities will play a vital role in ensuring the delivery of relevant and accurate analyses of the latest trends and issues in the business community.
Ahmad Darwish Ahmad Darwish is a Board Member and Secretary General of the UAE’s Accountants and Auditors Association (AAA), an organisation tasked with the promotion and development of the accounting profession in the country. He is also the Senior Manager for Financial Accounting at DP World UAE and oversees the management accounting, treasury and asset management divisions of the company. With his extensive financial expertise Darwish is also the first Emirati to chair the UAE Members Advisory Committee of the ACCA.
Hanady Khalife Hanady Khalife is the Director of Operations, Middle East and Africa, of the Institute of Management Accountants (IMA). She is responsible for training providers, business partners, universities, governmental entities, amongst others. Khalife is also an expert consultant specialising in assisting clients develop and implement strategic business plans and build partnerships with key industry stakeholders.
Michael Armstrong Michael Armstrong, FCA is the Regional Director for the Middle East, Africa
and South Asia (MEASA) of ICAEW. He is responsible for the ICAEW’s work across the MEASA region, collaborating with key stakeholders, engaging with businesses across the region, supporting ICAEW members and working with both public and private sectors on raising awareness of the relevance of chartered accountancy catalysing economic growth. Armstrong has extensive experience advising financial institutions and energy and natural resources companies in addition to having held several leadership and advisory positions in business and government.
David Thomasson David Thomasson is the founder and Managing Director of Phoenix Financial Training. David is a fellow of CIMA and worked in the accountancy industry for many years before moving into training in the 1990s. PHOENIX offers courses leading to Professional Finance Qualifications in ACCA, CIMA and ICAEW in Dubai and India. Offering a range of bespoke financial courses in Financial Awareness Building and Corporate Treasury Phoenix’s student body ranges from independent students to practitioners of private companies and sovereign wealth funds.
Lindsay Degouve de Nuncques Lindsay Degouve de Nuncques is the UAE Head of the Association of Charted Certified Accountants (ACCA).
Her role entails spearheading discussions with regulators, business leaders and important stakeholders to strengthen the ACCA’s network and profile in the region. Degouve de Nuncques has spent more than eight years with ACCA in various senior roles.
Geetu Ahuja Geetu Ahuja is the Head of GCC for the Chartered Institute of Management Accountants (CIMA). Responsible for developing the growth of operations and positioning the global brand of CIMA across the GCC region, Ajuha establishes strategic partnerships with global and regional entities. She is also responsible for overseeing the launch of various region specific CIMA nationalisation programmes in the GCC.
Paul Gyles Paul Gyles is the Regional CFO and Board member for all ISG Group companies – an international construction services company delivering fit out, construction, engineering services and a range of specialist solutions. He is responsible for the finance, HR, IT, admin and legal functions for ISG’s Middle Eastern outfit. A key aspect of the role is project funding and raising external financing by working with both Arab and international banks. Gyles is also the Chairman of the Steering Committee of the MECA CFO Alliance, the largest CFO networking group in the Middle East.
CONTENTS 3
Editor’s note Group Editor Jeevan Thankappan on strengthening the CFO-CIO partnership
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Advisory Panel Leading finance personalities share their world-class expertise to ensure we give you accurate analyses of the latest trends
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News Latest news and developments impacting the finance industry
11 First class finance Michael Doersam, Group Finance SVP, Emirates, shares the firm’s remarkable financial performance and ambitious growth objectives
14 Common ground Improving CFO-CIO relationship for seamless business growth
19 Recipe for success The CFO ME explores different aspects that make a successful CFO
22 Raising the bar Adopting international norms can be key to developing high accounting and auditing standards, Crowe Harwath Managing Partner Saad Maniar tells us why
24 Game changers We bring you the highlights of the recently held IMA Middle East conference
26 Who has the power in your relationships? Blaise Jenner, Partner, Accounting Structuring, PwC, offers a comprehensive insight into accounting consolidation in deals
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Infographic The modern CFO
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Cash is king
Ready for the future 34 Austin Rudman, Head of
Keeping your business healthy – cash flow management best practices
Financial Services, KPMG Lower Gulf, on how CFOs can shape future-proof strategies
36 In-depth drilldown Regional Finance Director for MEIA Mark Paver, talks about SGB International’s latest financial database solution
39 Tech talk We give a run-down of the latest in software designed to enable business
41 Smart risks Improving risk management and enhancing growth strategies
Column
45 Fintan Somers, International CFO and change leader, SomersConsult, on building an effective finance function
46 Geetu Ahuja, Head of GCC, CIMA, discusses the value of HCM in modern business
News
Saxo Bank launches multi-asset trading platform
Christian Lund Hammer, Head of Platforms, Saxo Bank A/S
Saxo Bank, the online trading and investment specialist, has launched its SaxoTraderGO, the multi-asset trading platform – to retail traders and investors across the Middle East. SaxoTraderGO was built from the ground up with a focus on usability and supports the user journey between web, Android and iOS devices. The development of SaxoTraderGO was supported by a survey of nearly 3,000 Saxo clients globally who stated that maintaining platform performance and functionality when switching between different devices is a key priority for them. “Today 20 percent of our revenue from retail clients is generated via mobile and tablet devices and 75 percent of all our trades and orders come from clients who use multiple devices to trade,” said Christian Lund Hammer, Head of Platforms, Saxo Bank A/S. “In SaxoTraderGO, we have developed a platform that works the same on desktops, tablets and mobile phones and carries through changes to layout or settings across devices. Retail investors can now seize trading opportunities and achieve the best execution regardless of where they are and what device they are using.”
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RSM International adopts a single global brand name RSM Dahman will be rebranded to ‘RSM’ following the global announcement by its international network, RSM International, that it is adopting a single global brand. Jean Stephens, CEO, RSM International, explained the move - “Our clients are becoming ever more global as they seize new opportunities for growth. Leaders of entrepreneurial, growing organisations want advisers that take the time to really understand and care about their business and its drivers, both locally and globally.“ Stephens continued to highlight the changing needs of their customers as the driver for the change. “They want the highest level of service, a trusted relationship and ideas and insight that will really add value to their business. This is what we have been providing to clients for more
than 50 years and we see a huge opportunity for the development of our client offering and crossborder growth through moving to RSM as our one global brand.” The changes will be effective from 26th October 2015, when all RSM member firms will adopt the unified global name and a new logo. The grey of the logo is designed to signify a relationship based on a solid reliable foundation, the green a positive, ideas-driven, responsive approach and the blue symbolises forward movement and the attainment of future goals, RSM officials said. The logo aims to reinforce the global network’s dedication to helping clients feel understood and empowered to move forward with confidence. All member firms will remain independent legal entities within the RSM international network, but will trade as RSM.
Menacorp launches Investor Series
The inaugural Menacorp Investor Series took place at the main office in Downtown Dubai, with their session organised to create awareness about a number of listed companies operating in the UAE . The event brought Menacorp’s management, analysts, traders and selected clients in direct contact with C-level executives of top listed companies. A number of top companies
participated in the first Investor Series - a series that took place in May 2015 - including Aldar Properties, Waha Capital, Dubai Parks and Resorts, Emirates REIT, Dubai Islamic Bank, DAMAC Properties and Marka. “As the leading financial services firm on UAE Markets, Menacorp occupies a unique position to be the bridge between the senior management of listed companies and investors on the DFM and the ADX. All the companies that participated were fully transparent with respect to their strategy and development plans. Following a positive response from the market and companies, we will continue to organise the Investor Series on a quarterly basis,” said Fathi Ben Grira, CEO, Menacorp.
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News
UAE private wealth sector poised for strong growth managers need to raise Private wealth in the UAE their game on numerous showed solid growth of 8.4 fronts, and decide where percent in 2014, according to to invest in their own a new report by The Boston businesses if they hope Consulting Group (BCG). to ensure profitability In the UAE, the growth of through to 2020. private wealth was driven “Potentially disruptive mainly by equities. Between forces are everywhere,” 2013 and 2014, the amount said Markus Massi, a of wealth held in equities rose Partner and Managing by 13.8 percent across the Director at BCG Middle nation, compared with 1.6 percent for bonds, and 6.9 Markus Massi, Partner and Managing Director, East. “A more complex investing environment, percent for cash and deposits. BCG Middle East highly demanding Based on BCG’s study, the clients, technological evolution, UAE is poised for further growth in the tightening regulatory climate, and other next five years, with the wealth breakdown trends are straining traditional models. anticipated to be 43 percent in cash and As the pace and magnitude of change deposits, nine percent in bonds, and 47 intensifies, wealth managers need to percent in equities. think more strategically.” Overall, the analysis found that wealth
Primavera’s Pollen programme rewards accountants every recommended client Accounting firms or that implements Primavera’s professionals and CFOs software, discounts on the are now entitled to benefits acquisition of Primavera’s when endorsing Primavera’s products for their own use and management solutions to their a free Primavera accounting clients. The referral programme, solution after three closed deals. Pollen, was launched last Jorge Marques, Primavera’s month, offering commissions UAE Country Manager, said, and discounts to accountants “We all know that accountants that join the programme. Jorge Marques, UAE Country and CFOs spontaneously Pollen is a global programme Manager, Primavera recommend to their clients the running in all European and solutions that will facilitate their work, African countries where Primavera operates, and is now available in the Middle although they earn nothing by doing it. However, at Primavera we treat our East. The initiative enables accounting partners as part of our team, and it’s only firms and individual professionals to fair that accounting professionals that refer grow along with Primavera, as the more us are compensated. We want to spread they recommend, the more they win. The growth together with our partners.” benefits include a commission fee for
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Study highlights Digital Islamic Services opportunities
Abdulla Mohammed Al Awar, CEO, DIEDC
Deloitte and Noor Telecom have collaborated with Dubai Islamic Economy Development Centre (DIEDC) to compile a report that highlights the untapped potential of the Digital Islamic Services market, and offers key recommendations for realising Dubai’s vision of emerging as the capital of Islamic economy. The report, entitled ‘The Digital Islamic Services Landscape: Uncovering the Digital Islamic Services opportunity for the Middle East and the World’, combines a range of qualitative and quantitative research projects. The report points out that a growing global Muslim population with a dominant youth demographic, high consumption and expenditure patterns coupled with a rising level of technology readiness are creating a clear and largely untapped need for Digital Islamic Services. Abdulla Mohammed Al Awar, CEO, DIEDC, said, “The Digital Islamic Economy is a key pillar and area of focus for DIEDC and the Islamic world. We are pleased to extend out patronage to the study as part of our ongoing commitment to augmenting Dubai’s leadership in this area. The report underscores the criticality of building a sound digital infrastructure and ecosystem to foster the development of online services for the Islamic economy.”
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FEATURE
Michael Doersam
First class finance From New York to Nairobi, Paris to Perth and Beijing to Buenos Aires, Emirates is internationally acclaimed as one of the world’s elite airlines – and one of its most powerful brands. James Dartnell sits down with the company’s Senior Vice President of Group Finance, Michael Doersam, to discuss the firm’s remarkable financial performance and ambitious growth objectives.
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FEATURE
Michael Doersam
“
Once you’ve caught the scent of kerosene, nothing else will satisfy.” Michael Doersam recites the aviation adage with a wry smile, revealing a passion for the industry - which began in line with his tenure at German carrier Lufthansa in 1988 - that has seen him make a marked rise to becoming one of the most established and influential finance chiefs in the Middle East, at Emirates airline. Serving 144 cities in 81 countries from its Dubai hub, Emirates is currently experiencing something of a purple patch. Founded in 1985, the Group has seen the size of its business triple in the last nine years, and things don’t look like slowing down. Synonymous with excellent customer service, contemporary products - the company has just added routes to Bali, Orlando, Multan and Bologna to its roster - and a superlative travel experience, the name ‘Emirates’ is firmly established in the four corners of the globe. Emirates Group recently reported a formidable 34.6 percent operating profit increase for the financial year 2014-15, with an imposing ability to grow its customer base, and continually satisfy those who are already on side. Joining the company in 2006, Doersam’s initial role at the company was Vice President of Outstation Finance and Risk Management, and the international experience associated with the job has laid the foundations for a successful career in the UAE. “I’ve realised I love different cultures,” he says. “I love different thinking, work processes and ways of addressing problems. I’d lived in Bangkok and Toronto when I was working for Lufthansa, but Dubai as a place to live and Emirates as a place to work are both truly international.” Off the back of Emirates’ huge development, the company has some exciting expansion plans in store for 2016. As well as the new flight destinations, the firm is adding aircraft capacity to a range of its destinations, and where applicable, is phasing out A330 aircraft with Boeing
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777 and A380 models, with 28 new aircraft being introduced. Despite Emirates’ immense financial progress, the airline business remains a low-margin, cutthroat industry. For his part, Doersam is tasked with keeping a watchful eye on a number of performance metrics that make the difference between success and failure. “On the commercial side, the main KPIs that I pay attention to are revenue per passenger and seat load factor – how well the aircraft and passenger are filled with cargo,” he says. “On the finance side, it’s the cash we generate from our operation which can be used for our investments and debt services. In finance I think it’s a mixture between some productivity figures and also the qualitative aspect of the work we perform for the Group.” He says that the high pressure associated with the aviation industry gives it added intrigue. “From a finance perspective, working for an airline is challenging and interesting,” he says. “If a seat is empty today, it cannot be filled tomorrow. It’s not a product you can put into a store, or a business where you can reduce production. Working in a lowmargin industry makes you look at topics differently, and forces you to think of creative solutions to a range of issues.” As one of the most dynamic pillars of any business, the data gleaned by the finance department forms the essential groundwork on which all the majority of business decisions are based. Doersam says that a balance of risk and reward must be reached to achieve excellent results. “Finance is always there to support the business and be its partner,” he says. “These days, the function has access to so much data, but it’s a question of converting it and making that relevant to the business owners. As finance executives, we have to be very open to ideas and opportunities, as well as business risks and mitigation, and only then can the CFO role become meaningful; it’s not merely a question of presenting the balance sheet.” Doersam
“From a finance perspective, working for an airline is challenging and interesting. If a seat is empty today, it cannot be filled tomorrow.”
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FEATURE
Michael Doersam
feels fully supported by the C-suite including company Chairman and CEO His Highness Sheikh Ahmed bin Saeed Al Maktoum - in undertaking the right ventures for the company. “The senior management works in close collaboration with finance,” he says. “How we define our role is key as well; we need to ensure we think practically from a commercial and overall business perspective.” The shift to digitalisation - one that will impact businesses across the board - is a large part of what Doersam is referring to, and he is mindful of Emirates’ need to capitalise on the trend. The ability to exploit any possible advantage is key. “The main question for us is ‘what will be its impact on finance?’” he says. “The massive quantities of data that are available need to be used in a meaningful way, and for this to happen, a strong collaboration between technology and finance is needed. We need to find the right information so
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that the business can benefit.” Attributing Emirates’ profit hike to a range of factors, Doersam is keen to stress that despite the company’s success, it has had to face various unpredictable obstacles in what has been a turbulent period. “Financially, it’s been the most volatile year in our history,” he says. “A range of factors are behind that. The drop in the fuel price was hugely advantageous for us, while the strengthening of the US dollar impacted our revenue. Other factors like the Ebola outbreak, as well as political instability in the Middle East – which of course is crucial – have been obstacles that the company has had to face, but have been a testing and stimulating experience.” Throughout these tribulations, Doersam’s tremendous faith in Emirates’ quality of service and agility in coping with change have endured. “We’re highly flexible at dealing with demand shifts,” he says. “The products we offer are extremely
customer-focused, and both these things have played a massive part in keeping costs under control and assisting our revenue drive.” Doersam firmly believes that comprehensive upgrades in business processes and technology in the finance division over the last nine years have made a huge contribution to the company’s success. While modern initiatives like on-board Wi-Fi play their part in keeping customers happy, the sharpening of internal affairs has been hugely beneficial. “We’ve transformed,” he says. “On the one hand, the automation of systems and processes has been hugely advantageous from an accounting perspective. At the same time, it’s opened up new opportunities on the analytics side. Things move much faster compared to nine years ago. Finance is a vital partner to the business, and is always thinking of new ways of fuelling Emirates.”
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FEATURE
CFO-CIO
Common ground
The relationship between the CFO and the CIO is more important now than it has ever been. From streamlining finance operations, to exploiting Big Data and digitalisation for cutting edge initiatives, the duo need to blend their respective skills to get the best out of finance and technology to drive business growth.
T
he CFO and the CIO share a lot in common. Both have incredibly sharp and insightful minds. Both have immense technical acumen, and both have a huge hand in changing the direction of a business in their C-level berths. There was a time when the two would’ve been distant islands, with finance regarded as a bookkeeper, and IT as an introspective and undervalued department. Things have changed. Now more than ever, the two need to combine to maximise the possibility of business success.
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The impending reality of the digital transformation is an important part of this transition that requires their unity. Those who are unable to capitalise on the opportunities that cloud and mobile can bring will see their paymasters suffer, which spells failure for them as individuals. As consumers seek an increased number of online services, businesses need to be agile enough to deliver what the customer demands, while internal operational efficiencies need to be sharpened. What’s more, in the world of business and finance, millions of
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FEATURE
CFO-CIO
transactions will be created where there once were dozens. The need to capitalise on Big Data and real-time information, as well as providing the right technology to support finance, are goals that unite both parties. With such important transitions in mind, both the CFO and CIO need to be on the same page. This means that while the CIO needs to be adept at justifying the business value of technology investments, the CFO must acknowledge that technology investments may not always have tangible return on investment. “Some
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decisions to invest in technology are a no-brainer,” says Ralph Khoury, Chief Financial Officer, TBWA\RAAD. “We have seen what the investment in technology for data mobility has done for instance. Without going into specific experiences, when technology is introduced with potential benefits that are never realised, questions are asked as to how and why. CFOs don’t like that. They see it as a waste of corporate funds. Such instances can certainly strain the relationship between CIOs and CFOs.” Julia Stolyarova, Director, Vinci
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FEATURE
CFO-CIO
Solutions, sees the benefit of having aligned technological and strategic goals. “The CIO and CFO must both understand business goals, and commit to seeing the advantages of a sound technology infrastructure and the strategic use of business Big Data,” she says. “The key to a strong partnership is mutual respect and an understanding that both parties want the same success for the organisation, but have different
real-time analytics will be the true game changer in this respect. Faster, more accurate decisions can be made, which can make a huge difference. Stolyarova believes this will have a transformative effect on the CFO’s job. “Closing books in real time will fundamentally change the discussion between finance and business,” she says. “Online finance functions will not only drive transparency and serve
“The key to a strong partnership is mutual respect and an understanding that both parties want the same success for the organisation, but have different responsibilities in achieving their common goals.” responsibilities in achieving their common goals.” In order to maximise the profitability of the relationship, technology investments need to be made that help both finance and the business. “System driven business analytics, managing enterprise information, controlling cost and overall decision support systems create a key overlap and challenge both CFOs and CIOs,” says Vinay Sharma, Group IT Manager, Gulftainer. “The digital transformation of business is high on the organisation’s agenda. As the speed of innovation and change continues to increase, IT is becoming crucial in delivering shareholder growth and, in some digitally disrupted industries, to staying in business. Yet only a small minority of CFOs believe they have a role to play in setting an agenda for IT change.” The tasks of integrating book closing, working capital plans and regulatory and compliance concerns into ERP systems are no foreign concepts to any CFO. However, the ability to utilise
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the business, they will also enable simulation and become a cornerstone to healthy business, as they will support everyone in the enterprise with the right facts.” While aligning strategies with business goals in mind seems achievable with a certain level of collaboration, the finer technical points of finance and technology can be harder to come to grips with. Sharma is clear that, although not straightforward, if either the CFO or CIO is able to go the extra mile in understanding some of the more academic aspects of their partners’ specialty, the benefits will be huge. “Finance leaders who can develop their IT knowledge will have a distinct advantage - especially given that there are so many CFOs today who have only a limited comprehension of the issues at stake,” he says. “By the same token, CIOs need to be able to explain to finance leaders how IT-enabled services can create value-added business services and provide advantages that enable cost savings and can generate more business.”
Ultimately, the relationship between any two senior individuals in a company will not always impact overall business. However, while private discussions may not be fundamentally damaging, a cornerstone of any executive partnership – and the CFO-CIO axis is no different – is its ability to convince, and keep face in front of, the other executive board members. Khoury believes that proper preparation before any key meetings will ensure that neither party is left redfaced; leaving boardrooms without investment dollars – and the respect of their peers. “The ‘who, what, when, and how’ need to be addressed in alignment prior to board meetings,” he says. “Discovering issues or obstacles during the board meeting will likely see the initiative halted or at least delayed. Companies in general want to innovate and information technology is a key driver for that. It won’t happen if returns and value are not properly assessed. The boardroom is not the forum to debate this. It is the forum to present, support and justify new initiatives based on strong fundamentals.” Stolyarova, meanwhile, believes that that the CIO’s relatively new role in executive circles means that its increasingly important partnership with finance must be carefully fostered. “CIOs are now part of the boardroom, reporting directly to the CEO and to stakeholders,” she says. ‘The importance of the technology employed in the organisation has been recognised. The next step is to reach an agreement between IT and other business functions as to how best to serve, and monitor the performance of the IT services. “CFOs must look at entire platform that can connect the company to the outside world, rather than just at their own landscape.”
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FEATURE
CFO Role
Recipe for success
The CFO role is complex and demanding. Aside from leading the finance function, the job entails effective engagement with other executives, understanding other departments, and ultimately, supporting the business to drive the bottom line.
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FEATURE
CFO Role
W
hat does it take to be successful? There’s no set formula, but in any walk of life, the fundamentals tend to ring true. Ambition, hard work, tenacity and, crucially, talent, are traits that universally feature in those who come out on top. When it comes to the work of a CFO however, these qualities often aren’t enough to get into the job itself, let alone thrive. Hanady Khalife, Director of Operations, Middle East and Africa, Institute of Management Accountants, believes that the role’s evolution dictates that versatile and savvy characters are needed. “The role of the CFO is changing,” she says. “No longer simply the financial gatekeeper, today’s CFO is equally valued as a strategic partner and leader of the business. With businesses facing an increasingly competitive operating climate, increased regulation, greater risks and more complexity, today’s finance leader faces multiple challenges and opportunities.” Michael Armstrong, Regional Director, Middle East, Africa and South Asia, ICAEW, thinks it is crucial that CFOs can priotise their tasks so as to focus on the right job at the right time. “It must be taken as a given that the aspiring CFO will have strong financial and technical expertise, however their character traits must allow them to find the right balance between the big-picture thinker and attention to detail so that important matters are not overlooked,” he says. In the high-powered, competitive context of the company boardroom, a certain type of character is required to hold their own in a room of fiercely intelligent and business-oriented individuals. Michael Clifford, Chief Financial Officer, ALSA Engineering and Construction, believes that the ability to go against the grain in this scenario is important in order to achieve balance. “The CFO should be a consummate communicator to various constituencies internally and externally and yield soft power in influencing key decision makers,” he says. “Often, the CFO may be
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“Aspiring CFOs need to identify opportunities where they will get exposure to finance leaders who can have an impact on their outlook and can motivate them to perform at their highest level.” the one participant in a meeting who takes the difficult or non-consensus viewpoint, so being able to demonstrate conviction and a willingness to follow through on key decision points is a must.” Armstrong believes it is essential for a CFO to be astute, and have a knack for placating – and also questioning – the most senior figures in the organisation. This is no easy task, but if managed carefully and assertively, is the most productive avenue
for business. “They must be able to assist the CEO in the development of strategy, whilst at the same time providing an effective challenge them,” he says. “Some might say this requires a level of diplomacy to ensure that a necessary and robust challenge is heard and acted upon. In some circumstances, the CFO will need to be more outspoken rather than reserved.” As well as having the right personality attributes, any top CFO needs to focus
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FEATURE
CFO Role
“The CFO must be able to assist the CEO in the development of strategy, whilst at the same time providing an effective challenge to them.”
their technical acumen on the right areas of study and expertise. Clifford believes that finance professionals need to go above and beyond to be truly established at the top of their trade. “The right professional qualifications and technical skills can be considered prerequisites but will not provide any real level of differentiation,” he says. “The CFO in waiting needs to be able to demonstrate proficiency in the key areas that they will ultimately have responsibility for, whether that’s in management accounting, financial reporting, corporate finance, treasury or strategic planning and preferably in most if not all of these areas.” Clifford adds that CFOs who are able to diversify their skillset will have a huge advantage in a number of respects. “Venturing outside the finance function when opportunities present themselves highlights a closer alignment
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and understanding of the business and helps with developing deeper strategic awareness,” he says. “Developing key strategic insights in the course of one’s career that can then be later referenced and employed for the benefit of future employers or partners add significant weight to the budding CFO’s arsenal.” In a mercurial industry like finance, CFOs need to remain on their toes in order to react to market changes. Armstrong is particularly mindful that finance executives can never get too comfortable. “It is critically important for the future CFO to be vigilant of the fast changing financial world, both internal and external to their organisation,” he says. “This requires them to challenge themselves, be adaptable and proactive with high levels of infectious energy.” It is all well and good having such a quality, but it must endure, Armstrong says. He believes that CFOs must be experienced in defeat – and therefore better at coping with it – to stand the best possible chance of true success in the boardroom. “It is necessary for the aspiring CFO to have experienced failure and disappointment in business,” he says. “This may sound rather obtuse. However, without having been through failure, they will not have developed the resilience and skills to prepare themselves for the inevitable setbacks that occur
in business. This builds strength of character. It is important, however, that they understand the reasons for the failure, take ownership, learn from their mistakes and ensure that they are not repeated. This requires resilience.” Aside from the transition of the CFO role being more strategically based, there are a number of other nuances that have dictated what the position now demands. Khalife believes that 21st century shifts in particular need to be taken into account. “With the growing recognition of the breadth of the CFO role, and ongoing challenges in talent development, it’s important that future finance leaders develop the requisite leadership capabilities,” she says. “The role of the CFO is to help create market value while also operating a more cost-efficient finance function. Ongoing technology shifts, globalisation and the increasing impact of intellectual and human capital, culture, and intangible assets all create market turmoil.” Armstrong, meanwhile, believes that the days of testosterone-fuelled C-level discussions are a thing of the past. “There has been a move from the old-fashioned macho CFOs who tended to compete for the organisation’s resources and for Board attention,” he says. “The mode of working has evolved to one of collaboration whereby the CFO works more closely with others to ensure they achieve their and the organisation’s goals.” Clifford is an advocate of learning from the best, and believes that aspiring CFOs need to ensure that they surround themselves with the right people so that positive habits and ideas will become engrained. “Ensuring that you work with inspiring financial leaders will have an exponential impact on the growth and trajectory of your career,” he says. “Therefore, aspiring CFOs need to identify opportunities where they will get exposure to finance leaders who can have a profound impact on their outlook and can motivate them to perform at their highest level.”
21
Interview
Crowe Howarth
Raising the bar Saad Maniar, Managing Partner, Crowe Howarth, tells us why adopting international standards is key to the development of high accounting, auditing and ethical standards in the country.
H
ow is the UAE government applying IFRS to its range of financial offerings across the Emirates in order to become a world class financial capital of the world? Currently in the UAE, listed companies - and all banks - have adopted IFRS as their financial reporting framework. The financial meltdown in 2008-2010 left in its wake heightened commercial risks, and the government moved swiftly and tightened its regulatory measures to bring back investors’ confidence. These measures included assurance in the quality, transparency, reliability and credibility of financial information provided by companies.
22
All major companies that are listed on the UAE’s top exchanges like NASDAQ Dubai, the Abu Dhabi Financial Exchange and those in certain free zones together with those reporting to the Central Bank prepare their financial statements using IFRS. As the UAE continues to strive for increased investor confidence, compliance with internationally recognised standards will decrease risk to investors and help channel financial investment into the country as well as position it as one of the international world class financial capitals.
What role does the CFO play within this growth? The CFO often gets involved in strategic decision-making processes across the board. As an economic advisor to the organisation, to the government or to the business, the CFO is tasked with the responsibility of providing the right financial information to the right people at the right points in the decisionmaking process. This information is critical as it is used to predict and compare outcomes against a range of alternative options, thereby enabling better economic decision-making. As I mentioned earlier, the ability to take rational decisions based on
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Interview
Crowe Howarth
accurate financial reports is critical in optimising sustainable and profitable growth in the country. Decisionmakers want to be confident that the actions they are taking will deliver their economic objectives. Therefore, everything that the CFO does goes above and beyond the basics of ensuring statutory, regulatory and fiscal compliance. How important is the Emirates’ newest accountancy certification body, the UAECA? The launch of the national qualification was borne out of the need to have a certification framework that is based on UAE standards for knowledge, skills and competences and more importantly to have a local regulator. Similarly, it is intended to help streamline the current multiple sets of standards and requirements and ultimately regulate the finance and accountancy practices in the UAE. The UAECA qualification came into being after the ACCA signed a longterm strategic partnership agreement with the prestigious local accountancy body of UAE – AAA (Accountants and Auditors Association) to enhance the finance and accountancy sector in the UAE. I sit on the members’ Advisory Board of the ACCA in the UAE, and this milestone was one of our highlights for 2014. The introduction of a local qualification is largely seen as a precursor to a new regulatory body that is expected to map the direction for professional development and the maintenance of high accounting, auditing and ethical standards in the country. How significant is the involvement of UAE nationals in appropriating best practices in the country’s finance industry? The UAE is a transient country for many expats, and therefore it
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is important for qualified local Emiratis to take up key decisionmaking roles, particularly in a major industry like finance. The government and the private entities have in the recent past upped their efforts towards the promotion of the Emiratisation drive in the finance industry, to support the recruitment, development and retention of talented Emiratis. A number of initiatives have been launched or expanded by financial entities like regulatory bodies and banks, including providing sponsorship to UAE nationals attending the country’s top universities, where qualified students are offered lucrative positions once they complete their studies. This development of Emirati talent is critical for sustainable development.
financial markets are particularly sensitive to any seismic shifts in their operational boundary. The aftermath of the 20082010 global financial crisis adds to this market uncertainty. However, economies in the Gulf have remained resilient, shielded by the comfort of the region’s wealth in oil and gas supplies. On the other hand, the economies of the West, especially the US and the EU, keep struggling with severe debt and deficit problems post the global crisis. Their financial systems remain fragile and can no longer be regarded as pillars of financial stability. Continued uncertainty over terrorist and extremist threats also pose significant risks that discourage financial activities and foreign investments in these Western markets. Some risks inherent to finance professionals in the Gulf are primarily to do with uneven regulatory standards,
“Non-compliance with global standards is increasingly regarded as a risk factor by financial market professionals.” Which risks are most significant to finance professionals based in the Gulf? How do you they differ from their Western counterparts? It’s imperative to note that any risks caused by turmoil in the global financial markets would, on principle, also become a risk in Gulf markets given the interconnectedness of the economies of the world. In other words, the Gulf is vulnerable to spillovers from economic turmoil in Europe and America and therefore finance professionals are exposed to these risks in the same manner. Nevertheless, the Gulf remains politically and economically volatile and
low market liquidity and technological challenges. Whereas in global comparison, these risks are minimal as the financial markets have matured over the years, driven by solid global capital flows, technological progress and regulatory liberalisation. It’s important to note that we have witnessed marked improvements with the establishment and streamlining of international standards for financial regulation and oversight and the formation of sound legal framework in the Gulf region. Non-compliance with global standards is increasingly regarded as a risk factor by financial market professionals.
23
EVENT
IMA Conference
Game changers
IMA (Institute of Management Accountants) recently hosted its third Middle East conference, The Next Generation Finance Leaders, dedicated to the region’s corporate finance sector.
F
rom 14 to15 May, the IMA conference provided a forum for nearly two hundred finance management professionals to present key research findings and insights, and discuss critical factors that impact the landscape of today’s corporate finance world as well as the role of finance professionals. The emergence and use of new technologies, the increasing demand for insight-driven real-time data, and a widening of responsibilities for the next-generation finance leaders all featured on the agenda. “The theme of the third IMA regional conference, ‘The Next Generation Finance Leaders’, was very well received,” said Hanady Khalife, Director of Operations, Middle East and Africa, IMA. “It sparked important conversations and debates on the ongoing development of the profession, from management accountants to CFOs, and examined some of the challenges and opportunities ahead.” “As we charge into the future, there’s a lot to prepare for, learn and innovate. The remarkable
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line-up of partners, speakers and panelists who joined the conference was a true reflection of the wide range of issues impacting the development of the corporate finance world in the near future,” added Khalife. Joe Vincent, CMA, Chair of Global Board of Directors, IMA, set the agenda for the conference with a thought-provoking talk on ‘Digital Darwinism - The Shifting Business Landscape’, in which he characterised the digital age as “the end of business as we know it”, and examined how the new forces of creative disruption, such as mobile, Big Data, educational as well as social technologies, cloud and payment systems are shaping new economies and new business paradigms. Dr. Fahd Al Turki, Chief Economist and Head of Research, Jadwa Investment, offered a snapshot of the region’s economic outlook, in which he addressed longterm strategies such as economic diversification, and factors such as oil price fluctuations and its mixed effects upon the wider region.
The conference programme was packed with presentations, discussions and workshops that addressed a wide array of issues relevant to finance professionals, such as ‘Planning and Performance Management’ by Amir Saeed, Downstream Planning and Performance Management Group Lead, Aramco; ‘Revenue Recognition - Are You Ready?’ by Paul Raftery, Senior Vice President Finance and Corporate Affairs Group, Mubadala; ‘What Does it Take to Become a CFO’, by Saleem Sufi, Founder, MECA CFO Alliance; Workforce Planning Strategies to Support Organisational Needs’ by Brad Boyson, Executive Director, SHRM; and ‘The CMA Exam: Strategies for Success’ by Dennis Whitney, CMA, CFM, CAE, Senior Vice President, IMA. The panel dedicated to ‘The Role of CFOs in Family Businesses’, which was moderated by Loutfi Echhade, EY’s Family Business Centre of Excellence, MENA region, sparked an interesting
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EVENT
IMA Conference
“The remarkable line-up of partners, speakers and panelists who joined the conference was a true reflection of the wide range of issues impacting the development of the corporate finance world in the near future.” discussion. The participants Fadi Atallah, Chief Finance and Investment Officer, Al Ghurair Group; Tarek Amer, Group CFO Energy Care Holding; and Hassan A. Sharafeddin, Chief Executive Officer of Abnia, Danway Industries and Danway Fusion Glass – shared their insights into the most critical issues facing family businesses in the Middle
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East which is generational change, and discussed how their input as skilled finance professionals can impact positively, by lobbying for and establishing sound governance and operational structures in family businesses. The conference ended with a student competition, which drew participants from 23 universities from around the Middle East.
Four teams from the UAE and Egypt competed in the finals, showcasing their knowledge in front of a jury of industry experts. After the jury deliberation, the teams from Middlesex University Dubai and HCT-Dubai Women’s College were chosen as the winner and the runner-up and received cash prizes of $3,000 and $2,000 respectively.
25
insight
PwC
Who has the power in your relationships?
Blaise Jenner, Partner, Accounting Structuring, PwC, offers a comprehensive insight into accounting consolidation in deals.
I
n a number of circumstances the accounting assessment of control can be complex. In such situations it will be important to consider your accounting objectives at an early stage of your transaction and look to understand what potential structuring options can help you meet your accounting objectives. Failure to do this can result in an accounting surprise following transaction close – by which point it is potentially too late to readily address. Whilst transaction structures can be designed to achieve specific accounting objectives, in all cases there has to be clear substance to the arrangement – an artificial structure created solely to achieve a specific accounting answer will be open to challenge. Additionally, where control resides with a minority shareholder, this will also mean that any majority shareholder has sacrificed their own ability to control the group – a situation, which whilst technically possible under the IFRS framework, can often be commercially challenging to achieve. Across the region, it is common to see economic ownership of legal entities shared between two or more investors. Such arrangements may be entered into for a variety of reasons – an international corporate may join up with a local shareholder to gain access to that local market or two groups with
26
complementary activities may form a joint venture entity in order to effectively deliver a single contract. In such shared ownership structures, we often see that one party’s desire to consolidate or not consolidate the relevant investee is a key transaction structuring driver. Typically we see that this is driven by one of the following four factors: 1. Accounting consolidation ordinarily follows the underlying ‘control’ of an entity, which means that the party consolidating is in the driving seat; or 2. Consolidating an acquired target business may assist a group to establish and demonstrate sufficient size and scale in order to facilitate a future transaction – this is often seen with groups looking to grow their underlying asset base and revenues in advance of an envisaged Initial Public Offering or external investment; or 3. A group may have existing leverage, capital ratios, covenants and financing agreements that could be improved by not-consolidating an existing business; or 4. A start up target entity may demonstrate strong growth potential, but consolidating its current trading losses may negatively impact an investor’s short term financial results. Where the accounting consolidation structure is deal critical we often see
this leading to a delicate balancing of the contractual, governance and economic relationship between the parties in order to achieve the desired accounting outcome. Accounting consolidation – an overview Where an investor is acquiring 100 percent of an investee, the accounting analysis is generally straight-forward. But where there is risk sharing with another party, this can become more complex. International Financial Reporting Standards guidance for consolidation - ‘IFRS 10’ - follows a control-based framework - where an investor controls an investee, consolidation is appropriate. The requirement to consolidate an investee can have a fundamental impact on an investor’s balance sheet and results in: • Impact of consolidation – where an investor consolidates, it brings into its group financial statements the gross assets, liabilities, revenues and expenses of the investee on a line-byline basis. As previously noted, this treatment may be beneficial where the investee has material net assets, revenues and net profits. • Impact of not consolidating – where the investor has a significant economic interest, but not control, it will typically result in ‘equity accounting’. Here the investor records
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insight
PwC
its share of assets, liabilities, revenues and expenses as single line items in its group balance sheet and income statement. Such treatment may be preferred by an investor where the investee has material external liabilities that may impact the investor’s existing loan ratios and covenants. How do you ascertain which party has accounting control? Consolidation will be triggered where an investor controls an investee. IFRS 10 requires each of the following attributes to be present to support control: 1. The investor has power over the investee. This will be present when the investor has substantive rights that provide the current ability to direct the relevant activities of the investee. 2. The investor has exposure, or rights, to variable returns from its involvement with the investee. IFRS
decision-maker is acting as an agent on behalf of others or acting as principal on its own behalf. What are the structuring considerations for investors and deal makers? Where the accounting impact of a transaction is critical, it is possible to design structures under the IFRS framework that meet specific parties’ accounting objectives, such as enabling an investor with less than 50 percent equity in an investee to consolidate – this may be achieved through: • Designing a governance structure where voting rights are not aligned to economic interest – for example enabling an investor to control the investee board of directors despite holding less than 50 percent equity interests;
“Whilst transaction structures can be designed to achieve specific accounting objectives, in all cases there has to be clear substance to the arrangement – an artificial structure created solely to achieve a specific accounting answer will be open to challenge.” 10 identifies a wide range of possible returns - from traditional dividends and interest to servicing fees, changes in the fair value of an investment, exposures arising from credit or liquidity support, tax benefits, access to liquidity, economies of scale, cost savings, and gaining proprietary knowledge; and 3. The investor has the ability to use its power over the investee to affect the amount of its returns. IFRS 10 considers the concept of delegated power when assessing whether a
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• Arrangements with other vote holders – for example a contract that enables an investor to control sufficient votes held by other investors to provide itself with power over the investee; • Rights arising from other arrangements – for example a contract that allows the investor to directly control certain investee’s key activities such as manufacturing or marketing. If these are relevant activities, this may trigger control for the investor; • Potential voting rights – for example immediately exercisable options over
other investors’ shares; • ‘De facto control’ through the ownership of the largest block of voting rights where the remaining rights are widely dispersed; or a combination of the above. z Avoiding the requirement for a shareholder with greater than 50 percent equity to consolidate – applying similar principles to the above, where the majority investor does not have the current ability to exercise control; z Enabling a party to manage the dayto-day operations of an investee, whilst not being required to consolidate it – as noted above this may be possible where the manager is only enacting the strategy of other parties and can immediately be removed from its position; z Maximising protection for noncontrolling shareholders – this may be achieved through the use of a variety of ‘protective rights’ that enable veto rights over certain events or monetary thresholds that may be considered outside the ‘normal course of business’; z Enabling different activities of an investee to be controlled by different parties – for an investor to have control over an investee it is not necessary to have control over all aspects of the investee – for example, one investor may have the final decision over use of a brand whilst another investor may make decisions regarding distribution of a product. Whilst a highly subjective area of IFRS 10, where an investor can have control over the activity that will most significantly affect returns, it is possible to construct an argument for having overall control. As previously noted, however, only one party can be deemed to control an investee; and z Restricting the time period for which one party controls and consolidates an investee - the determination of control is based on current facts and circumstances and is continuously assessed. As a result, time limits may be placed on key investor rights, casting votes, and/ or any call options used to impact any future control assessment.
27
Infographic
THE MODERN CFO
CFO: THE TECHNOLOGY EVANGELIST
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TECH
CIO
66%
CEO CFO
CFOs champion the use of emerging technologies to deliver innovation and growth
Evangelist
CMO
66% of executives in the office of finance think their CFO is a strong technology evangelist Where as 72% of executives believe emerging technologies will benefit their organisation
ALMOST HALF
BUSINESS INTELLIGENCE
of CFOs say they do not have the right metrics, information, and tools needed for sound business decisions
46%
The barriers: 44% 5%
80%
38%
Lack of internal skill Risks associated with new systems & technologies Lack of support from other Senior Management
judge finance professionals to be “excellent” or “above average” at collaborating with the rest of the business
SKILLS A MODERN CFO NEEDS 84% Analytic thinking 24% Conflict resolution 50% Strategic thinking 28% Internal alliance builder 41% Risk management
84%
of CFOs say they will have more ability to provide value to customers
13% Logistics acumen 27% Investor relations 30% Global business acumen
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Infographic
CFOs ARE EMBRACING THE CLOUD TO MODERNISE FINANCE EXPECTED CHANGE WITHIN 5 YEARS What aspects of organisation systems will be cloud-based? Budgeting, Planning & Forecasting
16.6%
Financial Accounting
31.2%
Financial Consolidating & Reporting
17.5%
27.8%
33.7%
24%
16.4%
24.4%
29.1%
4.1% 1.3%
14.8%
24.6%
18.5%
4.1% 1.4%
9%
3.5%
Human Resources 11%
Business Intelligence
23.8%
28.2%
24.4%
20.6%
20.5%
26.9%
12.4%
17.2%
3.5%
7.9% 3.5%
34% We do not anticipate using the cloud for this
Already cloud-based
Within a year
1-2 years
U.K.
76% U.S.
85%
GERMANY
67%
of CFOs will move to cloud within next year
More than 5 years
RUSSIA
70%
FRANCE
73% Reported increase in CFOs influence globally
3-5 years
INDIA
72%
SINGAPORE
67%
Source: www.officeoffinance.com • Data from Deloitte CFO Signals report • Data from 2014 ‘Empowering Modern Finance’ report conducted by Accenture, Longitude Research and Oracle. • Data from the 6th Annual American Express/ CFO Research Global Business and Spending Monitor
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FEATURE
Cash Flow
Cash is king
Cash is the blood that keeps the heart of a company pumping. To survive and flourish, an organisation should have effective cash flow management to ensure that its growth objectives are met while fulfilling its financial obligations.
C
ash flow is one of the most vital elements of success for any small or mid-sized business. Without cash, profits are meaningless. A number of businesses that are profitable on paper have ended up in bankruptcy because the amount of cash coming in did not make up for the amount of cash going out. Firms that don’t apply good cash management are at risk of not making the
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investments needed to compete, and may end up borrowing money to function. Fundamentally, cash flow is the movement of funds in and out of your business. This process is something that should be monitored either weekly, monthly or quarterly. There are two kinds of cash flows, namely positive cash flow and negative cash flow.
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FEATURE
Cash Flow
Positive cash flow means the money coming from sales, accounts receivables and so on, is more than the amount leaving your business. Meanwhile, a negative cash flow demonstrates the opposite, meaning the outflow is greater than the incoming cash. Achieving positive cash flow is no easy task. It is something that finance leaders should work on –intricately analysing and managing cash flow to effectively control the inbound and outbound finances. It is a CFO’s responsibility to make sure the company’s financial obligations are taken care of while ensuring that it has sufficient funds to achieve its business goals and growth objectives. This calls for planning, analysis and solid cash flow management. In simple terms, cash flow management, or cash flow forecasting, is an important aspect of financial management. Through this, future cash requirements of the business are planned and identified to avoid problems in liquidity. Cash flow management allows for generating sufficient cash from a company’s business operations, investments and other sources to meet payroll, and utilities payment among others. More often than not, a strong cash flow management often makes the difference between a successful company and an unsuccessful one. Syed Asif Zaman, Managing Partner, Ahmad Alagbari Chartered Accountants, says that there are numerous benefits that an effective cash flow management has. “Through good and effective cash flow management one can identify potential cash balances shortfalls in advance,” says Asif Zaman. “This is, by far, the most important reason for a cash flow forecast.” Further to that, Asif Zaman says the importance of ensuring that the business can afford to pay suppliers
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and employees on time cannot be underestimated. “This is crucial to your business,” he says.” “Because suppliers who don’t get paid will soon stop supplying the business; what’s even worse is if employees are not paid on time they will no longer be happy within the organisation.” Asif Zaman also says it can help identify critical flaws, “Good cash flow management also helps the business spot problems with customer payments. It is also important in the process of financial planning – the cash flow forecast is an important management process, similar to preparing business budgets. “External stakeholders such as banks may also require a regular forecast, especially if the business has bank loans, the bank will want to look at cash flow forecasts at regular intervals. So it is ideal that you have the right cash flow management in place so you can provide this requirement in a timely manner,” adds Asif Zaman. However, while it has many benefits, challenges remain, making the task of managing the cash flow arduous. “Cash flow challenges are exacerbated by the lending climate, particularly for small businesses,” says Asif Zaman. “A changing regulatory environment is always of concern in certain industries, but uncertain energy, environmental and financial policy is wreaking
“Through good and effective cash flow management one can identify potential cash balances shortfalls in advance.”
havoc for nearly all companies today especially when it comes to cash flow management, Whether a demand from customers or shareholders to become more ‘green,’ or the threat of increased costs due to new carbon taxes, or indirect taxes.” According to Asif Zaman, applying the following three best practices can help you eliminate much of the heartburn associated with cash-flow management and help keep your cash flow positive –
1
Identify your peak needs Most businesses are cyclical and their cash flow needs may vary by month or season. Trouble can arise when an annual budget doesn’t reflect that.
No.
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FEATURE
Cash Flow
imposing a regular schedule to follow up on collections; and the latter entails negotiating favourable terms and rebates with suppliers, issuing purchase orders for new orders, and using available volume rebates and trade spend initiatives. One more thing that businesses should keep in mind is actively tracking cash flows. Forecasting is a critical step in cash management and can ultimately improving
“Good cash flow management also helps the business spot problems with customer payments.”
2
Account for everything Effective cash flow management requires anticipating and capturing every expense and incoming payment, as well as — to the greatest extent possible — the exact timing of each payable and receivable.
No.
3
➢Seek additional funding Managing your cash flow needs might involve a dedicated line of credit with a bank to fill in any periodic cash shortages. These loans typically are used to cover short-term operational costs such as payroll and supplies.
No.
A Deloitte report ‘Strategies for optimising your cash management’ emphasised that while cash flow management primarily concerns the
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finance function of a company, it is nonetheless an operational issue as well. It requires coordination between all departments from sales and marketing, procurement and production to finance and treasury. Furthermore, the report cited several best practices that can aid in effectively managing cash flow within an organisation. The best practices highlighted in the study include leveraging technology to shorten the cash conversion cycle – which entails delivering invoices electronically rather than via mail to speed up billing and collection. Another is enhancing the finance functions of the company. This can be done through effective accounts receivable and accounts payable practices. The first one is about reducing error rates on invoices and
profitability. This involves looking at both income and cash flow statements, and linking your cash flow forecasts to key working capital metrics from the balance sheet, such as DIO (days inventory on-hand), DSO (days sales outstanding) and DPO (days payables outstanding). Finally, matching funding to your cash flow obligations, every business has both short and long-term cash flow obligations. Short-term requirements encompass day-to-day operational expenses while long-term obligations normally refer to capital investments and term debt maturities. To have a proficient cash flow management, companies must match their various sources of funding to their capital flows. This then ensures that a profitable business has access to the cash it needs to meet its ongoing commitments.
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insight
KPMG
Ready for the future Austin Rudman, Head of Financial Services, KPMG Lower Gulf, writes how CFOs can shape a future-proof strategy.
D
eveloping strategy doesn’t get any easier. Although the immediate ordeals of the financial crisis may have been overcome, new and even more disruptive challenges are looming. Over the next five years, financial institutions are likely to experience an extremely rapid period of profound change in their external environments. Government responses globally to the financial crisis have been focused on increased regulation, changes to corporate structures and business models, and across the Middle East, the strengthening of the regulatory framework has been front of mind. These have placed heavy burdens on everyone - but especially on those in senior executive positions. The problem, though, is that developing effective responses may have crowded out the capacity to step back and to reflect deeply on how best to meet the future demands of customers over the coming period of change. Think strategically There’s no doubt that strategic thinking is increasingly vital. Technology is evolving
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more quickly than ever. Reliance on social media is becoming ubiquitous, not only for casual conversation but also for corporate communication and business processes. Consumers are increasingly demanding constant, online access to every service. In turn, the explosive growth of information technology and communication is generating vast quantities of data about customers, markets, products and preferences – which will be invaluable to those companies that learn to exploit it. These trends are accelerating. The very real challenge of getting fit for the ‘new normal’ has to run hand-in-hand with preparing both for short-term disruptors and for the impact of long-
term megatrends. In the first category, we have seen companies such as Apple, PayPal and others make significant inroads into the traditional financial services industry. In the slightly longer term, the industry will see major impact from demographic and social change, and from the increasing consumer tendency to value ease of operations over enduring relationships and brand loyalty and we see nothing to suggest this will be different in this region. The foresight challenge It is, of course, easy to argue for greater foresight, strategic thinking and preparedness. But it is far from clear actually how to begin engaging with
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insight
KPMG
the ‘unknown unknowns’. In recent conversations with senior executives, a number have said to KPMG that they find today’s environment intellectually very challenging. The five years after the crisis were tough, but the objectives remained clear. Now, however, fundamental decisions need to be taken about global and regional business models: which businesses to remain in, withdraw from or try to enter; whether the present low-interest, low-yield environment will ease soon or persist to drive more fundamental changes in strategy. Yet the foundation on which to base these decisions remains obscure. While many key decision makers agree that regional and global business landscapes will look very different in five years’ time, there is little certainty about how they will look. And there is no doubt that even the most far-sighted will both underestimate and overestimate the pace and extent of change. Foresight and decisiveness will be critical; so too will flexibility and agility. The FinTech contribution and new forms of partnership In clarifying the picture, the rapidlygrowing FinTech sector could have a major role to play. Rapid innovation in financial technology – the use of software and information technology to deliver better financial services – in this new environment will mean more fundamental forms of partnership are required. Engagement with the burgeoning FinTech environment has the potential to give much-needed direction to the formulation of new strategy in an increasingly uncertain world. Multiple stakeholders will come together to kick-start new initiatives, often in new physical contexts such as dedicated facilities and innovation labs. These provide an environment in which to incubate, encourage and nurture new ventures until they can be scaled up and commercialised. Participants in these initiatives will include venture capitalists,
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technology start-ups, national authorities and the local governments of major cities like Dubai, London and Sydney. A key area of focus is the potential of combining exploitation of ‘Big Data’ with new technology to streamline existing processes and transactions, or to develop much more personalised products and services. But scalability is a crucial issue. The challenge is not only to find ways of creating promising ideas but of identifying those which are capable of being scaled up into the mainstream business models of major financial institutions. KPMG’s own capital business (KPMG Capital) is investing in creating smarter data and analytics capabilities and has recently taken an equity stake in Bottlenose, a leader in real-time enterprise trend analysis. The benefits of these various alliances and partnerships flow to all participants. By joining with other stakeholders, established institutions can reduce risk, stimulate innovation and develop products and services to increase customer satisfaction and engagement. Start-ups gain injections of funding, but also, more importantly, access to business expertise and an understanding of how services are developed, marketed and delivered in the real world. New talent and skills can be developed in an atmosphere which preserves entrepreneurial attitudes and behaviour. New thinking, new investment, new approaches If FinTech can offer a way out of the foresight challenge and signpost some clear directions of travel, the question for CFOs in the region remains acute: how to embrace the current explosion of new thinking and nascent solutions, products and innovations, and sift through the rapidly changing environment, to identify those opportunities which will make a real contribution to the responses required. The guiding principle has to remain the need to focus on delivering what customers want in the way that they
want it, even as these change profoundly. Even in a period of consistently high oil prices, the last five years have seen many businesses across the Middle East concentrating first on survival and then on rebuilding their balance
“While many key decision makers agree that regional and global business landscapes will look very different in five years’ time, there is little certainty about how they will look.”
sheets. In the next five years – with continuing uncertainty over the demand for oil in the short, medium and longterm and subsequent market liquidity - we shall see a re-intensified battle for the customer. Those companies which can create lasting competitive advantage will be those which are most relentlessly focused on satisfying emerging customer needs and demands. The potential value of any technology development or other disruptor has to be assessed against this standard. For the foreseeable future, CFOs – even those outside of the manufacturing sector - need to adopt the attitudes of lean manufacturers, finding ways of doing business cheaper, faster and better in a low-margin environment. This is likely to be the best – or even only – way of surviving the coming wave of change. And if this frame of mind is sustained over a longer period, there will be corresponding longer-term benefits, for the region’s business, its owners and its customers – and of course its CFOs.
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CASE STUDY
SGB
In-depth drilldown In an environment where knowing where you stand is key to business, it is vital that CFOs and other interested parties can see their finances in a flash. Mark Paver of SGB International knew that the company’s new reporting solution had to be both user-friendly and provide real-time information with one click.
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I
n the world of infrastructure building, a clear and immediate view of current finances is not only a benefit, but increasingly, it is a mandatory part of the company arsenal. SGB, the foremost provider of specialty services for the global energy, industrial and infrastructure market could not afford to stay in the dark when it came to the numbers that the company and its many branches generated. As the company grew, it became clear to Mark Paver, Regional Finance Director MEIA, SGB International, that the company was in need of a new, cutting-edge, financial database solution.
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CASE STUDY
SGB
SGB International is the regional office of Brand Energy and Infrastructure Services. The company serves the infrastructure and commercial markets throughout the region and across the world. Its extensive portfolio of specialised industrial service offerings include scaffolding, coatings, insulation, refractory, forming and shoring, cathodic protection, mechanical services and other related crafts. The company has a network of over 300 branches in 32 countries across the globe and manages a workforce of 24,000 professionals. To manage the finances of this extensive network, SGB utilises an Oracle suite of tools – the Oracle E-Business Suite. “Oracle tools are powerful,” says Paver, “but the process to see the data we needed was slow and cumbersome.” The company was using Oracle FSG reports, Discoverer, Microsoft Access and Microsoft Excel to work their numbers each month, but it simply was not enough. “We had more than 100 FSG reports each month, and numerous Discoverer reports with little consistency or version control,” says Paver. Monthly analysis schedules were being manually entered from Oracle as a response to confusing outputs. Using the system that was in place, the finance department had to post journals, run FSG, convert the data to Excel, review and validate the numbers manually, and then publish and repeat the cycle. The process simply took up to four hours from start to finish, and by the time the appropriate reports were generated, the data was already dated. “We needed a solution,” says Paver, “that allowed our analysts to have real-time access to the data, and that gave our management a clear vision of what was happening at any time.” In addition, the solution would need to facilitate an ease of electronic
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“ The company serves the infrastructure and commercial markets throughout the region and across the world.” distribution, and allow a variety of users to drill-down into complex data. The brief was certainly not small. First and foremost, Paver needed to be sure that this new solution would not simply push work on to the IT department and database administrators. It needed to entail very little training, and the rollout needed to avoid putting undue pressure on other departments and users. Moreover, due to the company’s regional reach, the solution needed to work in multiple currencies. Last, but in no way least, it was imperative that the company’s data remain secure. “The solution,” says Paver, “was found with Excel4apps’s product GL Wand.” Paver chose the solution based on recommendations from industry colleagues, and because it promised to be both bespoke, and tailored to the needs of Oracle users. “The user-interface was such that very little training was necessary,” he recalls. “Essentially, after a few videos, most end-users were prepared to use the product.” The results were both profound and immediate. “It was so straightforward. Now, when the database is accessed there is an Excel4apps button. Users can click it, and have access to the tool,” says Paver. The product leverages the existing Oracle solution to do something that may sound simple, but is absolutely invaluable to any company – create user-friendly reports in real-time. GL Wand provides reports with drill-down capabilities that are refreshable on demand, yet preserve formatting and
Excel formulae. “Now if someone has a question about their budget,” says Paver, “for example, and inquiry about why their travel expenses were so high this month, I can drill-down and answer their question while they are on the phone with me rather than generating a report to locate the anomaly.” GL Wand now allows Paver and his team to process reports in minutes, rather than the previous four hour process. The process now is simply review, refresh and publish. If there is a change made to the database, the report is updated instantly, giving the user, and the entire company, a completely up-to-date view of SGB’s finances. Moreover, it puts power into the hands of the users that need realtime information. “Users that need information can simply access and manipulate the data by themselves,” says Paver. With easier access to the database often come additional security concerns. Not so with GL Wand. “GL Wand uses the existing Oracle security settings, so we didn’t feel like we were putting our data at risk at all,” says Paver. Paver can now close the month earlier than ever before. This frees the finance department to concentrate on optimising core business operations. “Now we are looking into standardising reports across the board,” says Paver. He is also looking to the future, to see how the company can leverage GL Wand going forward. “The solution is just so easy to use and the reports are so easy to read and function, there are no excuses now.”
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the nature of their business along with the company name. Wave subsequently generates a dashboard based on your accounting needs. Upon logging in, the user is greeted with an easy-to-use dashboard, while the sidebar menu is divided into categories including transactions, invoices, bills and reports, for monitoring accounting tasks efficiently. Users can also customise invoices and other documents depending on the company’s requirements. Add the contact information, such as business address and phone number, and this information will automatically appear on the official invoices for facilitating payments and other transactions smoothly.
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How it works: A perfect fit for small and thriving businesses, online software QuickBooks can be accessed at any time while providing the same features as a desktop product. The software allows you to manage inbound and outbound finances by keeping track of daily transactions, bill payments and pay rolls, sending recurring invoices and syncing data across your business’ financial accounts. QuickBooks supports iOS and Android. The dashboard receives regular updates
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and can be modified to specific business needs, while up to five users can access your dashboard. Data is backed up automatically, and is secured with the same encryption technology used by banking institutions. You can find out where the business stands and get profit and loss, balance sheet, and company snapshot reports in a single click. It is also integrated with more than 150 third-party apps like customer relationship management (CRM), payment processors, time tracking, and payroll services among others. This saves time by allowing the user to automatically import, export and sync data in real-time.
Leto Financials by Letosys
Leto Financials is desktop software that is ideal for traditional business owners. The software allows users to create a dashboard with unlimited account segments and categorise the business’ accounting needs by division, department, region and other criteria. The software is equipped with features such as customer credit rate tracking, invoice copying, multi-entity fiscal accounting, budgeting, and reporting. It also allows email integration with customer and other supplier accounts. Users can also send automatic statement of accounts to the customers and print the report in various file formats such as pdf, xls, doc, html & xml. Users can process and manage various accounts receivable receipts and accounts payable payments, in different currencies other than the invoice currency, as the software is also equipped with the Leto Multicurrency.
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FEATURE
Risk
Smart risks
The role of the CFO is now more than just budgeting and monitoring balance sheets. While risk management is a central part of their roles, as finance chiefs, they are expected to mitigate risk through a strategy that will not only protect finances but also contribute to the company’s growth objectives.
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FEATURE
Risk
T
he business environment is fraught with risks – markets are constantly changing, and with every change things become more complex. In any company, taking risks is a fact of life, because only then can they fulfil their potential. Managing risks is an important role that concerns anyone in the C-suite. However, as caretakers of a company’s finances, this responsibility can be more crucial for a CFO. First things first, what are the factors that CFOs perceive as risks? According to Ralph Khoury, CFO, TBWA/ RAAD, risks are any issues that can negatively impact a transaction, a decision, strategy or initiative. “If not managed, risks have the propensity to negatively impact a potential outcome, resulting in a lower return, asset impairment, and a higher exposure than desired,” Khoury explains. In simple terms, a risk is defined as someone or something that may cause an unpleasant or unwelcome event to happen. However, in a business sense, a risk is seen as any event, action or even lack of action that may affect an organisation’s capacity to achieve its strategic objectives. Often, there is a negative notion about risks, certainly if handled poorly they are bad for your business, but if managed in the right manner can be rewarding. Risk management goes hand-inhand with strategy. Devising risk mitigation plans is an area that requires a concerted effort by the organisation’s top decision makers. It is important that these plans are aligned with the business plan of an organisation. As stewards of a company’s financial health, CFOs are expected to play a lead role in orchestrating efforts for an effective risk management strategy while ensuring that the approach is integrated within the company’s growth objective. “There is a very strong correlation between a strong risk management and a
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positive bottom line performance of a company,” says Murtaza Chevel, CFO, Union Properties. “Financial risks do not only arise from oversight on a financial issue, but more often than not, risks arise from non-financial issues or transactions, which later inevitably translate into financial risks which can adversely impact an organisation.” Atif Khalil, CFO, Wavetec, agrees with this view, saying that strong financial risk management can certainly protect and even improve the overall performance of the company. “An effective risk management strategy definitely affects the bottom line of a company because if we fail to assess the possible impacts of a risk, two things are likely to happen – either revenue and income targets are not achieved or the company might have to pay abnormal expenses that are not budgeted. In both cases the bottom line profit decreases.” While there are a lot of systems and technologies available that can help a CFO to draw up approaches to mitigate
“In all business risks there are underlying financial risks which need to be assessed and addressed in a timely manner so that business objectives are met. This can only be achieved when CEO and CFO understand each other.”
risks, having the right intelligence is still key. The proper experiences and know-how are a big factor in leveraging management to enhance business growth. Although it is undeniable that CFOs have the acumen in dealing with these issues, that business arena is unpredictable and there really is no ‘one size fits all’ approach. CFOs and other executives from numerous segments deal with risks using different methods, however, the end goal still leans towards maintaining the growth of the business. Khalil believes that mitigation strategies are fundamentally dependent on the nature of the risk. “Firstly what we do is identify the risk, its threat level, the probability of occurrence, and impact,” he says. “Then we decide which strategy to adopt for
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FEATURE
Risk
“When analysing and assessing risks for a business, all the elements and factors need to be tabled. CEOs and CFOs view the business plan from different perspectives. Bringing those perspectives together to assess and manage risk is an optimal scenario. ”
risk mitigation. Sometimes we avoid the risk by changing our business plan, or we control the risk by adopting any process or additional procedure, or transfer the risk to another entity. But there are cases wherein we cannot do anything yet, except monitor various factors around it.” Chevel, on the other hand, thinks that your risk strategy is only as good as your implementation. “A strategy is only effective if properly executed and followed,” he says. “In reality the CFO has to be on a constant lookout for screening actions of all departments within the organisation to ensure nothing is overlooked. Having regular meetings with all departments to discuss new issues and developments can be helpful, and this serves as a significant source of identifying potential risks.”
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He goes on to say that when a significant financial issue arises they often seek a concurring review and input from legal and compliance teams to ensure no potential risk is overlooked. “On a personal level as CFO, I interact on an almost daily basis with most department heads to discuss recent departmental initiatives,” he adds. Another important aspect that guarantees value creation from risk management is the collaboration between the CFO and the CEO. These two highly influential individuals within the company are at the helm of progressing the business, therefore, a positive alliance between them is definitely advantegeous. “When analysing and assessing risks for a business, all the elements and factors need to be tabled. CEOs and CFOs view the business plan from different perspectives,” says Khoury. “Bringing those perspectives together to assess and manage risk is an optimal scenario. Without the input of these figures, dysfunctional decision-making prevails and business plans are left to chance, rendering the likelihood of success low.” He further explains that the collaboration between CFO and CEO is important whether it be for aiming to get a large client, or taking a bet on a particular strategic market, to determining whether to go for a short-term or long-term office lease. These decisions should be subject to an important collaborative risk
assessment and sensitivity analysis, as a firm basis to determine the final approach. The overall success of a business is reflective of the effectiveness of the C-level team. A harmonious rapport between these two leaders can maximise the business’ productivity and overall performance. Good synergy between them opens a lot of possibilities for the business to flourish. Khalil stresses that it is imperative that both are on the same page when it comes to business planning and risk mitigation; because only then can they develop a strategy that is most favourable for the company. “The CEO is responsible for business operations whereas the CFO is responsible for the financial operations of the organisation,” he says. “In all business risks there are underlying financial risks which need to be assessed and addressed in a timely manner so that business objectives are met. This can only be achieved when CEO and CFO understand each other.” Essentially, a good risk management is not about avoiding risks but instead having the capability to transform them into opportunities. With a role spanning the organisation, the CFO is well-positioned to link strategy and results. They are now viewed as co-pilots, responsible for effectively mitigating risks, aligning with business plans and driving growth.
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column
SomersConsult
Building an effective finance function Fintan Somers, International CFO and change leader, SomersConsult
O
ver the past twenty years I have served in a variety of international CFO roles with two large multinational banks and a bank in the Middle East. All of my assignments have involved improving business profitability and many have necessitated transforming the finance function into a more effective support tool for the business. What I have often found is that businesses that are not firing on all cylinders or are incapable of responding quickly to an external shock, have a finance function that needs improvements; to fix the business it is often necessary to fix the finance function to a greater or lesser extent. So, in this series of articles I will be discussing how to build an effective finance function. The series is aimed at CEOs and management teams who need some guidance as to the actions they should expect to see from their CFO to address their frustrations with perceived deficiencies of the finance function. Of course, it is also aimed at CFOs and finance teams that are on the receiving end of negativity from their business and who could benefit from practical guidance on how to make things better. However, perhaps the most important audience is those who think that no change is required. This type of complacency is a recipe for failure and loss of edge - which
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is why all well-run functions incorporate constant change into their operating model. I am a big fan of the “only the paranoid survive” school of thought. Having developed and executed several finance function transformations across a range of businesses and international locations, I have been struck by the similarity of the challenges faced by under-performing finance functions and, for that matter, under-performing businesses. Whether based in the Middle East, the UK, the US, Latin America or Europe, I have found that underperformers share many of the same or similar characteristics. In this series I will describe them. I have also found that the operating model for an effective finance function is pretty standard. I have transformed several finance functions using a fairly simple operating model that I will share with you over the course of this series. Over the years, I have developed a number of tools and processes for designing and implementing successful transformational change. These tools and processes can also be applied to transformation of other functions that share many of the challenges of finance, for example, risk and HR functions. These tools and processes are not, in themselves, enormously complex but assembling all of the components and executing them cleanly can sometimes be challenging and stressful.
So, let’s start at the beginning - what is the point of it all? What are the objectives of the CFO? Clearly communicated, these objectives will form the basis for much of what the finance team does. They also, to some extent, dictate the personality of the team. The objective I use is: Support the CEO and the executive team in building a sustainable and profitable business in a manner compliant with the policies and interests of the business. This communicates three important levels of focus for the CFO and the team: 1. We are in the relationships business, supporting the senior management team(s). 2. We are in the building profitability business; we are not just scorekeepers, we influence outcomes. 3. We are in the line-of-defence business against unsustainable or noncompliant plans or actions. Again, we influence outcomes. I have seen senior-level people endlessly debate this type of mission statement. In my opinion, you shouldn’t waste your time. And it does correlate fairly closely with the pithy strapline for the finance function of Lloyds Banking Group during my time there: “Insight and control at the heart of a winning business.” I couldn’t have put it better myself.
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CIMA
The value of HCM in Modern business Geetu Ahuja, Head of GCC, CIMA
W
e appear to be moving from a world dominated by all things financial to the age of people. This means the value of intangible assets within an organisation, such as that of human and intellectual capital, have increased significantly in recent years as the global economy has become more knowledge-intensive. The pace of this development, though, has not been matched by companies’ ability and willingness to report on their human capital management (HCM) strategies, nor on how HCM contributes to their sustainable performance. This is also evident in the mainstream investor community’s lack of interest in HCM metrics and narrative reporting as a means of deepening their understanding of the drivers of value and risk management within organisations. Given the importance and value of such data in illustrating the potential for future performance, it is surprising that uptake of improved human capital reporting standards has been so slow. Human capital clearly matters given that it is directly linked to the creation of value, and there is increased scrutiny on the way organisations are managed and operated: toxic organisational culture, poor people management and inadequate training are all now widely recognised as having played significant roles in numerous corporate failures over the last ten years.
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To enable human capital to be fully and effectively valued in business decision-making, there must be a change in mindset, competency, and culture within business at all levels. Recognition of how data on people, performance and behaviours links to financial performance and business success is key. It follows that there must be adequate competence within the finance and HR professions to recognise, develop and act on this insight. A 2015 report titled “Human Capital Reporting: Investing For Sustainable Growth,” produced by the professional body for HR and people development (CIPD), the UK Commission for Employment and Skills (UKCES), the Chartered Institute of Management Accountants (CIMA), the Chartered Management Institute (CMI), and Investors in People (IIP) suggests a series of recommendations for both increasing demand among investors for this type of information, and for improving practice among employers. The report focuses on both internal HR analytics to drive better business performance and external HCM reporting to improve transparency and deepen stakeholders’ understanding of what drives sustainable value in organisations. Human and intellectual capital form a significant part of the competitive advantage of twenty-first-century organisations, and yet remain out of view for most firms’ critical stakeholders. CFOs therefore have
an important role to play to ensure their organisations generate, analyse and report on key HCM information to improve decision-making, justify investments in people, and demonstrate to external stakeholders they are led and managed for the long term. CIMA’s Global Management Accounting Principles provide a framework to do this and build culture, leveraging financial and non-financial data to drive integrated thinking and behaviours within the organisation. While the availability of human capital data to businesses is increasing, there is still a lag in the willingness of organisations to actively communicate it externally. There is also a gap in the capabilities of investors to appreciate human capital data and derive real value from it. Despite both organisations and investors realising its potential, there is still a long way to go before the groups benefit fully from human capital information. Key decision-makers, specifically CFOs and management accountants, should be encouraged to actively use HCM data in combination with other perspectives on company performance to develop a more holistic view of their investments. This will enable organisations and leaders to see the big picture by joining the dots, and practising stewardship to build trust – all of which must be tested to enable value-creation over the short-, medium- and long-term.
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