The CFO Middle East | Issue 16

Vol. 2 ISSUE 16

Gulf air’S Sahar Kamran Ataei pg 26

BAYT.COM CFO Nauman Mian pg 32

RARE COMMODITY Jignesh Sanghvi on DMCC’s golden opportunities

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Kingdom come MANAGEMENT Dominic De Sousa (1959-2015) Founder, CPI Media Group Nadeem Hood Group CEO Rajashree Rammohan Publishing Director EDITORIAL Group Editor Jeevan Thankappan jeevan.thankappan@cpimediagroup.com +971 4 375 5678 Editor James Dartnell james.dartnell@cpimediagroup.com +971 4 375 5684 Online Editor Adelle Louise Geronimo adelle.geronimo@cpimediagroup.com +971 4 375 5683 ADVERTISING Commercial Director - Business Division Chris Stevenson chris.stevenson@cpimediagroup.com +971 4 375 5674 Group Sales Director Kausar Syed kausar.syed@cpimediagroup.com +971 4 375 1647 DESIGN Neha Kalvani neha.kalvani@cpimediagroup.com Analou Balbero analou.balbero@cpimediagroup.com Photographer Charls Thomas

Change is afoot in Saudi Arabia.

Panicked after years of overspending and the crash in the all-important oil price, the Kingdom is due to announce plans for radical changes in its economic policy.

These are expected to include reducing its reliance on oil, via an IPO for a portion of the world’s largest oil producer Aramco, and the creation of the world’s largest sovereign wealth fund.

With an estimated 90 percent of Saudi Arabia’s budget having relied on oil, the Kingdom is finally conceding that diversifying – and major transition – are needed.

This is also expected to include changes to the job climate in the Kingdom, with a ‘green card’ type system expected to deliver better treatment for resident expatriates.

It’s sure to be a major transitional period for finance chiefs in the country, with budget cuts proving testing, but also a host of opportunities opening up.

For this month’s issue I’ve had the pleasure of sitting down with a trio of top regional CFOs who have dealt with major transitions of their own, past, present and future.

Dubai Multi Commodities Centre’s Jignesh Sanghvi, our cover star, has worked his way to the top finance position in an organisation that has evolved into the largest free zone in the UAE – and an international trading hub – with 11,700 companies under its jurisdiction.

Sahar Kamran Ataei of Gulf Air, meanwhile, has been one of the drivers in negotiating a recently agreed $7.6 billion aircraft deal, which is sure to transform the airline’s future.

And on the digital front, I spoke with Nauman Mian, CFO of online job marketplace Bayt.com, who occupies one of the top roles in a business that is emblematic of many industries today.

The development of Saudi policy is an undoubtedly exciting time for the region, and will hopefully be a case study for success in the decades to come.

Production Manager James Tharian Data Manager Rajeesh Melath

James Dartnell Editor

Printed by Printwell Printing Press © Copyright 2016 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 comprises a dynamic group of experts and leaders in various aspects 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.

Amer Khansaheb Amer Khansaheb is the president of the CFA Society Emirates. He is the Managing Director of Khansaheb Investments, an investment company with investments in construction, real estate and infrastructure. His expertise includes real estate management, construction management and financial analysis.

Amer graduated from the American university in Beirut with a degree in Civil & Environmental Engineering.

In 2009, he received his MSc in Project Management from the British University in Dubai. He has been a CFA charterholder since 2009.

CONTENTS 8

News

The latest developments in the local finance indsutry.

12 Raising the bar Research from the UAE Internal Auditors Association reveals that strategic alignment is creeping up the list of priorities for internal audit departments in the GCC.

“We want DMCC to be the ideal platform for networking and business development.”

20

Jignesh Sanghvi, CFO, DMCC

18

The ‘Techno-Finance era’ Ben Mulling, Chair, IMA Global Directors, discusses the importance of IT — ­ and the need to embrace change — for the modern CFO.

12

20

The Midas touch

In an exclusive interview, CFO Jignesh Sanghvi shares his vision of how DMCC can transform Dubai into a global commodities hub.

26

Plane speaking Gulf Air CFO Sahar Kamran Ataei shares insights on the airlines’ most recently signed deal and the company’s future plans.

18

26

32 Cast the Net Bayt.com CFO Nauman Mian on the challenges of working for a digital enterprise and how the firm’s work is emblematic of the modern job marketplace.

34 Less is more The CFO Middle East takes a look at the potential strategic benefits of cost reduction within the enterprise.

38

34 32

Banking on growth We bring you the highlights of the latest study

by The Boston Consulting Group on the performance of GCC banks over the last year.

42

42

The key to cash Beehive UAE CFO Peter Tavener discusses why crowdfunding has the potential to save SMEs from the challenges of inflation and delayed payments.

44

Sales satisfaction

44

46

KPMG’s Andrew Robinson gives his take on what to consider to ensure maximum satisfaction in the sale of a business in the Middle East.

46

Looking out as well as in Fintan Somers of SomersConsult on why preparedness is the most effective tool to survive any market crisis.

News

DIFC, Middle East Global Advisors host World Takaful Conference Middle East Global Advisors, in strategic partnership with the Dubai International Financial Centre (DIFC), recently hosted the 11th annual World Takaful Conference (WTC).

Ehsan Abbas, Chairman of Middle East Global Advisors, said, “For over a decade, WTC has generated powerful insights to spur industry growth in Dubai and it is fitting to have the DIFC as our partner, as well as having the participation of luminaries from the Dubai Islamic Economy Development Centre and UAE Insurance Authority.”

The event featured keynote presentations from industry experts like Abdulla Mohammed Al Awar, Chief Executive Officer, Dubai Islamic Economy Development Centre; H.E. Ebrahim Obaid Al Zaabi, Director, General Insurance Authority; Salmaan Jaffrey, Chief Business Development Officer, Dubai International Financial Centre Authority; and Dave Matcham, Member of Executive Committee,

Salmaan Jaffery, DIFC

8

Islamic Insurance Association of London.

Salmaan Jaffery, Chief Business Development Officer of Dubai International Financial Centre Authority, said, “With the Islamic finance industry registering sustained momentum, the demand for Takaful products has witnessed a proportionate year-on-year surge, gaining increased popularity among people seeking sharia-compliant insurance options. It is crucial for policy-makers and key stakeholders to address the challenges facing the industry in order to achieve the long-term sustainable growth of the Islamic economy.”

WTC 2016 also gathered dignitaries from Dubai Islamic Economy Development Centre, Dubai International Financial Centre, Islamic Insurance Association of London, Insurance Authority UAE, PwC, Moody’s, EY, Swiss Re, Munich Re, Noor Takaful, Watania, Emirates RE and many more organisations.

Nasdaq Dubai welcomes listing of two Sukuk from Indonesia Nasdaq Dubai has welcomed the listing of two Sukuk issued by the government of Indonesia, which are valued at $2.5 billion.

According to Nasdaq Dubai, the total nominal value of Sukuk currently listed on Dubai’s exchanges has now reached $42.31 billion, strengthening its position as the largest centre globally for Islamic bond listings.

The listings support the goal of Dubai to be a global capital for Islamic economy under the initiative launched by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minster, of the UAE and Ruler of Dubai.

Bambang Bodjonegoro, Minister of Finance, Indonesia, said, “Our latest Sukuk issuances confirm Indonesia’s commitment to supporting the Islamic capital markets, and our choice of Nasdaq Dubai for listing provides us with close links to regional and international investors. We look forward to issuing further Sukuk in due course under our Trust

Certificate Issuance Programme, providing further sources for government infrastructure development financing as well as new opportunities for investors around the world.”

According to His Excellency Essa Kazim, Governor of Dubai International Financial Centre (DIFC) and Secretary General of Dubai Islamic Economy Development Centre (DIEDC), substantial listings like these confirm the international reach of Dubai’s Islamic capital markets as the emirate accelerates its expansion as the global capital of the Islamic economy.

AED

20B

total value of foreign direct investments (FDI) inflows to Dubai in 2015 Source: Dubai FDI Monitor 2015

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News

UBF hosts ‘Annual General Assembly Meeting’ to discuss 2016 plans The UAE Banks Federation has recently held its Annual General Assembly Meeting at the Head Office of the Commercial Bank of Dubai.

The meeting, chaired by HE AbdulAziz Al Ghurair, Chairman, UAE Banks Federation, was attended by Federation board members and representatives of member banks.

During the meeting, members reviewed UBF’s activities and key achievements from the past year. Followed by the ratification of UBF’s business plan for 2016, which aims to boost coordination and consultation with the Central Bank and other shareholders

on issues related to the banking sector. Also, members have discussed and approved financial statements, the auditors’ report for 2015 and budget for 2016.

HE Al Ghurair, said, “2015 was a successful and productive year for us. Our committees worked on different initiatives during 2015, and we formed new partnerships with different local and international entities to better support and enhance the banking sector in the UAE. We have also increased the number of our committees such as marketing, audit, IT, fraud prevention, operations, digital banking and information security

UAE, Jordan sign agreement to avoid double taxation

UAE, represented by the Ministry of Finance (MoF), has signed an agreement on the avoidance of double taxation and tax evasion on income with the Kingdom of Jordan.

The agreement aims to enhance joint cooperation in economic and tax fields, and encourage investment activities and trade exchange between both countries. The signing ceremony took place alongside the ‘Joint Annual Meeting of the Arab Financial Institutions’, which was held in Bahrain.

The agreement was signed

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by HE Obaid Humaid Al Tayer, Minister of State for Financial Affairs, and HE Omar Zuhair Abdelfattah Malhas, Jordanian Minister of Finance.

HE Al Tayer, said, “The Ministry continues to strengthen the UAE’s relations with different countries across the globe, and expand its network of agreements on the avoidance of double taxation and tax evasion on income, due to their role in protecting and encouraging investment on a global level. The Ministry is also continuously working on establishing direct lines of communication with prominent Emirati investors’abroad as well as local airlines to discuss prominent ways to protect and encourage investment within the country. “

During UBF’s annual meeting

committee, to better serve and protect banking customers. I also would like to welcome the new members, and thank those who left us for all their work in the past couple of years.”

HE Al Ghurair, CEO, Mashreq Bank; HE Sultan Nasser Al Suwaidi, exGovernor, UAE Central Bank and Deputy Chairman of NBAD; HE Mohammad Omran Al Shamsi, Chairman, RAK

Bank; Omran Abdalla Taryam, Chairman, Invest Bank; Dr. Sulaiman Mousa Al Jassim, Board Member, NBF; Amr Saad Al Menhali, EVP, Head of Islamic Banking, ADCB; Hamed Kazim, Board Member, CBD; Abdulla Qassem, Group Chief Operating Officer, ENBD; and Abdullah Zeid Al Shehi, Head, International Expansion, ADIB, were elected as the new board.

ADFG celebrates five years of success at Annual Conference Abu Dhabi Financial Group (ADFG) has recently celebrated its five-year anniversary, bringing together over three hundred investors and partners at its Annual Conference.

In his welcome address, ADFG Chief Executive Officer Jassim Alseddiqi provided an overview of the growth ADFG has achieved since its establishment in 2011.

Today, ADFG’s assets under management (AuM) stand at $3.5 billion, while the internal rate of return (IRR) achieved over its five year history is an impressive 27 percent.

Alseddiqi said, “In just five years, Abu Dhabi Financial Group has developed an international reputation for

attaining consistent success in the alternative investment space. Whether it is in prime Central London, Eastern Europe or the Middle East, our ability to remain agile and source quality deals, which represent true value, has allowed ADFG to deliver exceptional returns to our investors.”

According to the Group, with $3 billion of projects in the pipeline in prime Central London; leading assets in key growth markets, such as Eastern Europe; strong performance through its investments on UAE capital markets, as well as $2 billion of debt structured and financed to date, they are increasingly seeing strong success across all channels.

9

The

End of Sanctions for the Iranian Economy Why is there a crisis?

Early nuclear history

Iran’s uranium enrichment program revealed clandestine activity

Interest in nuclear technology as far back as

1950’s

2000’s Draw world powers’ attention over Iran’s capability to build a nuclear bomb

Imposed sanctions against Iran Suppression of nuclear technology Arms exports blockage Frozen assets Banking transactions restriction Bans on trading and exports

Iran back in business:

2013-2015

Iran and P5+1 countries started to engage in negotiations

A nuclear deal framework was settled - The Joint Comprehensive Plan of Action

Iran restricted its sensitive nuclear activities

LIFTED SANCTIONS Nuclear-related economic sanctions, especially those in the banking sector.

POPULATION

75

EU

Embargo on buying Iranian crude oil.

EU

Iranian trade, shipping and insurance.

EU

Blacklisted Iranian individuals/entities for nuclear-related activities.

UN Security Council resolutions.

MILLION

Revenue increase per year from oil exports

Crippled economy currency lost value against US dollar inflation rise in prices for basic needs like food and fuel

Release of assests frozen overseas worth roughly

2/3 40%

GDP boost by 2017 *according to the International Monetary Fund Lifting sanctions that added 15% to the cost of trading with Iran, will save the country yearly almost:

$10 BN $100 BN 5% $15 BN

Cheaper oil: • sales grow by 500,000 barrels • total exports 2.5 million barrels.

Nuclear deal A landmark nuclear deal is implemented between Iran and the P5+1. Economic sanctions are lifted

Easy international money transfer: • Allow Iranian banks to open offices in the EU • Iranian diaspora can send money home easier

2016

Source: International Money Transfers

research

UAE IAA

Raising the Bar Newly released research from the UAE Internal Auditors Association (IAA) reveals that strategic alignment is creeping up the list of priorities for internal audit departments in the GCC.

12

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T

he world around us has changed, and so has the macroeconomic landscape, technology industry, consumer preferences, and the way business is conducted.

New risks are emerging, business complexities have increased and economic and political uncertainties are higher than ever. All these have increased the opportunities for internal audit functions to contribute more to their organisations.

However, it is critical for internal audit functions to adapt and change in line with the changes in business and economic environment to remain relevant and effective, according to a recent research report by the UAE Internal Auditors Association and the Saudi Institute of Internal Auditors.

The results and analysis in the report are based on responses from over 900 internal auditors across the GCC region. Respondents included internal auditors of various ranks belonging to organisations of different sizes from various industry sectors. ‘Internal Auditing in the Gulf Cooperation Council Region: Promoting Internal Audit Effectiveness’ explored a variety of areas relevant to internal audit functions and the main findings were as follows:

• Internal audit reporting Lines: Over 75 percent of internal audit functions in the GCC report functionally to the board or audit

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13

research

UAE IAA

“In the GCC, it is essential for internal auditors to understand an organisation’s culture and the expectations of key stakeholders in order to be effective.”

14

committee. However, in the remainder of the cases – mainly the public sector or smaller companies – the internal audit function did not have an independent reporting line to the board or audit committee.

Furthermore, in over 60 percent of the cases, the board or audit committee also carried out the appointment of the chief audit executive and evaluated his/her performance in line with leading practices.

• Perceptions on added value: The research shows that internal auditors believe that assurance activities are the ones that bring most value to the organisation. 85 percent of internal audit functions in the GCC believed that ‘assuring the adequacy and effectiveness of the internal control system’ was the internal audit activity which brings the most value to the organisation.

This was followed by ‘recommending business improvement’. Also, the results show that almost half of the internal audit functions are actively involved in providing advice/ consulting for risk management activities, with about one-third of internal audit functions currently assuming responsibility for enterprise risk management.

• Strategic Alignment: While internal auditors believe that executive management is devoting significant attention to strategic risks, internal audit departments in the GCC on average allocate only 14 percent of their internal audit plan to strategic risks. Similarly, less than a fifth of internal auditors felt their departments’ activities were aligned to the organisation’s strategic plan.

This can largely be attributed to the

absence of formal internal audit strategic plans at many internal audit functions.

• Internal audit planning: The majority of internal audit functions update their audit plans one or more times per year but only a small fraction of internal audit functions seem to be adopting flexible audit plans.

Similarly, most internal audit functions appear to do annual risk assessments, with about one-third of the firms doing periodic updates. The update of the risk assessment is essential to ensure that the changes to the organisation’s risk profile are appropriately captured and reflected in the internal audit function’s activities.

• Compliance with internal audit standards: On a positive note, only 10 percent of internal audit functions in the GCC did not use the internal audit standards issued by the global Institute of Internal Auditors (IIA). The main reason cited for not using the standards was the lack of support by the company’s management or board.

• New audit areas and practices: Internal auditors in the GCC are behind when it comes to selected new audit areas and practices. Specifically, this was identified with regard to combined assurance and reporting, auditing sustainability, performance auditing, and auditing ethics and culture. Practices in these areas seem to be in place only in very few organisations.

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insight

IAA

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research

UAE IAA

RECOMMENDATIONS Here are five key takeaways from the research results that can help improve the effectiveness of the internal audit function:

1

Protect the independence of the internal audit function: The appointment, termination, performance evaluation, and reward of the chief audit executive – as well as staff of the internal audit function – has an impact on the independence and authority of the internal audit function. Ideally, all these powers should vest with the board or audit committee in order to guarantee the proper positioning, independence and authority expected for internal audit function to be effective.

Chief audit executives should take the responsibility for promoting awareness and understanding of sound corporate and governance practices to push the organisation to move up the maturity ladder. update the risks/changes. Similarly, a flexible approach to internal audit planning is required to accommodate changing circumstances and priorities.

2

4

3

5

Help internal audit support the organisation’s strategic objectives: Internal audit functions should align their activities to the strategic objectives and plans of their organisations. The board and executive management should help internal audit focus on the bigger picture and allocate appropriate time and resources to auditing strategic risks, risk management effectiveness and organisational governance.

Move away from fixed annual internal audit plans: It is important to keep track of changing internal and external business environments and the changes in organisation’s risk profile. Internal audit functions should adopt a flexible approach to risk assessment and planning. Risk assessments should be done at least annually with periodic reviews to

16

Ensure compliance with the IIA Standards: The board and executive management should understand the extent of the internal audit function’s compliance with the IIA Standards and where needed, provide the necessary support to close any gaps.

Internal audit functions are also required to undergo an external quality assessment (i.e. an audit of the internal audit function) every five years as a minimum.

Go beyond traditional audit areas: Leading organisations are using the internal audit function to assess new areas which are not usually part of traditional internal audit plans. Although there are plenty of new areas where internal audit can provide objective advice, it is recommended to start with the audit of an organisation’s

culture, given the impact it has on the overall control environment.

Such an audit will involve interviews, surveys and other techniques to get a feel for the organisation’s culture.

CONCLUSION Operating a successful and effective internal audit function is not without challenges. The main challenges include immature corporate culture and organisational practices, limited understanding of importance of governance and risk management resulting in lack of support from the board or management to promote best organisational practices.

Chief audit executives should take the responsibility of promoting awareness and understanding of sound corporate and governance practices to push the organisation to move up the maturity ladder.

Chief audit executives should build a right image for the internal audit function which can only be achieved by positive contributions such as highlighting critical risks and issues, providing concrete recommendations and solutions to address such risks, and helping business improve.

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INTERVIEW

Ben Mulling

The ‘TechnoFinance era’ In advance of its upcoming fourth Middle East conference to be hosted in Riyadh, IMA’s chair of global directors Ben Mulling sat down with James Dartnell to discuss the criticality of IT – and the need to embrace change – for the modern CFO.

W

hy have you chosen the ‘Techno-Finance era’ as the theme for your upcoming conference?

Blending the two has never been more important for CFOs, and we want our regional partners to fully appreciate the gravity of that situation. It’s so important to gain insight from sources of information that only technology can provide.

The role of financial leaders has shifted from being purely financial

18

statement-oriented figures to one that is heavily involved in operations, and needs to have a full understanding of them. CFOs need to drill down into the stories behind the numbers, and to get an understanding of customers, the marketplace and personal issues.

Finance has been purely a microlevel issue, but also needs to now look at macro issues such as supply chain. Around 20 years ago, a CFO’s job was 80 percent numbers-related,

now I’d say it’s around about 20 percent.

Technology is essential for information reporting and as a means of measuring satisfaction.

Senior finance figures should touch all aspects of a business. Technology and finance overlap in this respect.

What’s your perception of the Middle East?

I’ve only been in the region for a few days, but there’s one thing that

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quickly becomes clear about a place – whether or not it is willing to embrace change, and the Middle East certainly is. I’ve been to offices in the US where lights and computers are off, paper is everywhere and there’s no sign of technology investment for the last 20 years.

People are embracing change here.

You only have to walk through the malls, and see the prevalence of social media to realise that people are passionate about modern technology and progress here. This region may be primarily driven by oil, but it is making huge efforts to diversify – in tourism, construction and transport to name but a few industries.

Why have you chosen Riyadh as the destination for your conference?

It’s an area of fantastic growth for IMA. We’ve hosted the conference in Dubai before, but it’s important that our members across the region know we are supporting them.

You’ve been promoting your Academic Endorsement programme and resources across the region, can you please discuss the motivations behind it?

It was created two years ago, and an important aspect of it is reaching out to help students with their education, and academics in terms of teaching opportunities. Students need to know that universities will prepare them properly for the realities of the working world.

Most finance jobs are not in tax or audit, and a lot of universities don’t advise enough on this. We believe that finance and accounting courses need to offer more to help prepare students for the CMA, and so that they can label themselves as ‘IMA universities’. We’re setting up chapters at universities, and are

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doing all we can to help students take the CMA before they graduate.

It’s so important for candidates to differentiate themselves in the job market. Employers want candidates who can demonstrate leadership capabilities, initiative and a dedication to learning.

Demonstrating a willingness to sit the exams before graduating is a prime example of those qualities so that’s why we’re backing that initiative.

How can finance professionals ensure their technology education runs parallel to their finance knowledge?

It’s a question of refining skills.

At a certain point, you will not get any better without going back to the books. Classes and conferences are a necessity. It can be hard for a CFO to get back into a classroom environment, but it’s something that I feel is necessary in order to improve.

CFOs need to embrace ideas and suggestions from educational sources.

This can take time, but once results of these suggestions become clear, then it can be easier to embrace them.

Organisations need CFOs who can drive change. In most SMEs now, finance and IT departments end up reporting to the CFO, but at the same time, a lot of CFOs don’t know IT as well as they should. This IT knowledge is a must for someone in such a position of power. A lot of people don’t like change, but this has to be embraced in order to achieve growth.

I don’t want to be the same as I am now in five years’ time. I want to be better, and for that I need to change.

The same applies to today’s CFOs. What are you planning to do to support your local members?

The same as we do for all our members worldwide. We have our Academic Endorsement programme,

“I don’t want to be the same as I am now in five years’ time. I want to be better, and for that I need to change. The same applies to today’s CFOs.”

as well as our conferences and CPD options for CFOs. Our local chapter events are important; if you want to be a good CFO, it’s important to surround yourself with other good CFOs. It’s also important to develop employees from a skills standpoint, and we work with CFOs to help them achieve that.

19

COVER

DMCC

The midas touch Dubai Multi Commodities Centre has come a long way in its 10 years.

Sitting at the finance helm for an authority that boasts 11,700 companies and 44,000 employees under its jurisdiction, CFO Jignesh Sanghvi is tasked with strategically driving an organisation that is a global hub for gold, diamonds and tea trading.

“

I’m not a particularly talkative person; I believe in walking the talk and getting things done.” For an influential figure in a commodities authority – one that deals with complex trading – Jignesh Sanghvi has always been a fan of keeping things simple.

As CFO of Dubai Multi Commodities Centre (DMCC), Sanghvi sits in a

20

position of strategic influence in an organisation that was named ‘Global Free Zone of the Year 2015’ by The Financial Times’ fDi Magazine. “It’s important to apply common sense to situations and not to overcomplicate matters,” he says. “I always endeavour to look at the positives of a situation before anything else.”

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COVER

DMCC

Sanghvi completed his high school education in home city Ahmedabad, before obtaining a finance and accounting degree from Gujarat University in 1999. After graduating, he was quick off the mark in creating a platform for personal financial success, obtaining his Institute of Chartered Accountants of India (ICAI) qualification in 2000.

He kicked off his career as a finance management trainee at Indian FMCG firm Nirma Limited in Ahmedabad.

He was quick to impress at the firm, and was headhunted for a senior auditor role at a Dubai-based audit firm after just six months, a move that would prove to be pivotal in his career.

Joining the company in June 2000, Sanghvi quickly adapted to life in the UAE, thriving in his new role for the next three years.

Sanghvi believes that his experience of settling in the emirate is one that resonates with a number of its expatriates. “I think that most people move to Dubai with a short-term goal, but reach a point where they find it hard – if not impossible – to do a U-turn, and end up staying here,” he says. “The city is such a great platform for business and to have a great lifestyle – it’s cosmopolitan, diverse and can provide you great experiences.”

Sanghvi’s first big break soon arrived. Still based in Dubai, he joined international engineering giant Chicago Bridge & Iron Company as a consolidations accountant for the eastern hemisphere, where he would undertake a range of key responsibilities for the firm. The company’s business was largely split between the Western and Eastern hemisphere, with Sanghvi tasked with

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the group consolidations function for the latter.

“My work covered the APAC and EMEA regions, as well as Russia and China,” he says. “I was responsible for more than 100 companies and entities, and had to deal with complex accounting systems for each jurisdiction, and obviously a diverse range of nationalities.” Working for a company listed on the New York Stock Exchange also provided additional pressure for Sanghvi. “Meeting deadlines was critically important in this respect,” he says. “My time at CB&I was a launchpad for my career.”

It was with a heavy heart that Sanghvi departed CB&I. He was offered roles in London and Perth with the company, before receiving a fateful call from a Dubai-based recruiter “I

“We want DMCC to be the ideal platform for networking and business development. The world is volatile in terms of economic growth, so we need to target the right markets and make sure we bring them to Dubai.”

was very happy at CB&I, and didn’t want to leave,” he says. “The company had a great track record of employee retention – and with good reason.” He fondly recalls the excitement he felt upon being approached by DMCC for a business analyst role. “I got the call asking to go for an interview with a newly formed free zone, a government entity,” he says. “I met with the CFO, we talked for almost two hours, and by the time we were done I was told that I’d effectively been hired. It was made clear to me that I would need to develop a strong understanding of the business – and commodities.”

Established by His Highness Sheikh Mohammed bin Rashid Al Maktoum, vice president of the UAE and ruler of Dubai in 2002, DMCC had less than 100 employees in its ranks by the time Sanghvi joined in 2006. “It was imperative that we strengthen our processes; we were preparing for growth and needed to be able to operate as a conglomerate in line with international standards,” he says. Having followed through on these plans, efficiencies improved significantly for DMCC. “To give you an example, in 2005 our year-end financial results were ready within a period of 6 months, today they are delivered within 45 days subsequent to the year end,” Sanghvi adds.

The healthy state in which DMCC finds itself today has not come about without challenges. Sanghvi clearly recalls the struggles the body faced from 2009-2010, in the aftermath of the financial crash of 2008. He and his team were adamant that the poor state of the market would not impact on DMCC or its stakeholders, and that timeliness would not be affected. “There’s no doubt that that

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COVER

DMCC

The definition of ‘commodity’ is broad, so deciding which companies we want to have here is a process. This takes time to correctly judge. was a challenging time,” he says. “We underwent a reorganisation process, which was a steep learning curve but also unique opportunity.” The organisation subsequently pulled through the tough times, avoiding defaults on any of its payments.

Now that DMCC has healthily emerged post economic crisis, it sits as the largest free zone in the country, with 11,700 companies and 44,000 employees under its jurisdiction. Over 2,000 companies have joined DMCC every year for the last three years, with the authority gaining an 86 percent client satisfaction rate en route. Its primary source of income is from membership fees, while making Dubai a “global commodities hub” remains its main aim.

At the core of this target is Sanghvi, whose job is to drive DMCC’s differentiation. “We want DMCC to be the ideal platform for networking and business development,” he says.

“The world is volatile in terms of economic growth, so we need to target the right markets and make sure we bring them to Dubai. The definition of ‘commodity’ is broad, so it takes time to develop which companies we want to have here. This takes time to correctly judge.”

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Already a hub for gold, diamonds and tea trading – the UAE is now the world’s largest re-exporter of tea – DMCC also features a heavy presence from companies in the shipping, energy and food trade industries.

Sanghvi says the firm is currently targeting firms from specific markets – China, India, Germany and Turkey – and believes Dubai’s location and business culture are an attractive prospect. “Dubai’s port facilities, infrastructure and transparency can give investors confidence,” he says.

A key part of bringing new business to DMCC has been facilitating customer experience. For Sanghvi and DMCC, this mean digitalising their business. He has recently overseen the automation of services, making a variety of processes more straightforward. “We want to make life easy for customers,” he says.

“Prospective foreign investors can now sit in their home country and submit all documents and licenses electronically to set up a business here.”

As could be said for most senior finance professionals in this day and age, Sanghvi believes his role has evolved – not just in terms of seniority – since he joined DMCC. “I started working more in terms of

operational finance,” he says, his 10-year anniversary at the company approaching in June this year. “But I now spend much more time working on the strategic side of things.” Over the years, Sanghvi became a finance controller and then director of finance in 2014, where he was a “de facto” CFO until being given the top title in 2015.

Sanghvi has also undertaken a hands-on role on DMCC’s Advisory Committee, taking on the role of company secretary at the beginning of 2015. Sanghvi is responsible for setting the agenda for board meetings, as well as taking minutes for proceedings. This is in addition to the other ways he directly works with DMCC’s most influential members.

“I’m responsible for accounting, governance and reporting, as well as providing strategic support to our CEO and executive chairman,” he says. “DMCC has a strong governance framework, and all business decisions are taken at committee levels.”

He also believes it is imperative that his team remain mentally fresh.

“Numbers, per se, can be boring,” he says. “When it’s a question of ‘numbers, numbers, numbers’ it can be easy for work to become stale.” With this philosophy in mind, Sanghvi organises a social calendar for the finance team, comprising team outings and Almas Tower staircase climbs. “I try to help the team think differently,” he says. “Since becoming CFO I’ve had an open door policy, and I try to help my team to have a good work-life balance. They work long hours and need to be appreciated.”

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INTERVIEW

Gulf Air

new heights Following the announcement of the airline’s $7.6 billion restructured purchase of Boeing and Airbus aircraft, Gulf Air CFO Sahar Kamran Ataei discusses her part in the deal and the complex plans that have been laid for the Bahraini firm’s future.

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escribe your role in the financing of the new $7.6 billion fleet that will be introduced in April 2018.

For context, in 2012 Gulf Air underwent a major restructuring exercise.

The aim of this was to achieve a significant reduction in costs, improvement in revenues and simplification of operations.

By mid-2015, the company concluded and approved its 10-year fleet and network plan, which formed the basis of

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negotiations with aircraft manufacturers to align the order books to the new 10-year fleet plan. We concluded negotiations with the aircraft manufacturers and currently have a defined aircraft delivery plan up to 2024 worth $7.6 billion.

I develop financing strategies for the fleet and present them to Gulf Air’s Board of Directors. Once the pros and cons of each strategy are weighed and the way forward chosen, my role is to implement

the most suitable financing options and methodologies, negotiating with lessors and financiers as needed. One of my critical tasks is ensuring the timely availability of the right financing.

How will this change impact Gulf Air’s business?

This fleet addition marks an exciting time for Gulf Air. We will now not only continue to be one of the safest airlines but

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“Gulf Air isn’t the biggest airline, and that’s not our goal. Our aim is to be the safest, most sustainable, reliable and friendly airline.”

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INTERVIEW

Gulf Air

also one of the most comfortable, reliable and state-of-the-art airlines in the region.

Gulf Air will now have the necessary expansion capabilities to back up our comprehensively studied future network requirements. This new fleet is one of the youngest in the region – we’re replacing and expanding the fleet with the Boeing 787-9 Dreamliners and narrow-body A320neo family aircraft fleet. The new fleet comes with state-of-the-art products, while building upon its awardwinning reliability, Arabian hospitality and on-time performance. With the right shape and size, this addition will allow Gulf Air to truly connect Bahrain to the world.

The efficiencies of the 787 family will provide Gulf Air with superior fuel conservation, reliability and passenger comfort, while the A320neo family – fuel-efficient aircraft – will provide the airline with a higher operational efficiency and profitability while its wider cabins will open a new dimension of passenger appeal.

Gulf Air isn’t the biggest airline, and that’s not our goal. Our goal is to be the safest, the most sustainable, the most reliable and friendly airline. This always has been and will continue to be the yardstick by which we measure our success. The development of our fleet certainly represents a huge leap forward in this regard.

What challenges arose in structuring the deal?

A few years ago Gulf Air started an aggressive restructuring plan. Thankfully, there’s been positive progress in financials and performance since.

Creating a 10-year network and fleet strategy for the airline was the next major hurdle to overcome, which involved a lot of nuance and careful consideration. The network plan needed to be balanced to provide Bahrain with

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“Creating a ten-year network and fleet strategy for the airline was a major hurdle to overcome, which involved a lot of nuance and careful consideration.”

the desired connections, maintaining its links with east and west. The fleet plan needed to serve the airline and its passengers, bringing in the desired cost and operational efficiencies, and providing distinctive products.

Once the strategy was resolved, it was necessary to revise Gulf Air’s previous order books with Boeing and Airbus.

Gulf Air has always enjoyed a strong partnership with both these aircraft manufacturers. Following extensive negotiations, the restructured orders took place last January, simplifying Gulf Air’s future wide-body fleet to Boeing 787-9 Dreamliners, while also ensuring its future narrow-body fleet will focus on the A320 neo family aircraft.

What unique challenges and experiences come with being the CFO of a major airline?

In the airline business, CFOs don’t only need the financial skills but they also need to draw on extensive experience from across the business. CFOs need direct crossdepartmental knowledge and to understand other functional areas within the airline (commercial, bilateral agreements, revenue management etc.), and certainly exposure to international markets.

As with any airline CFO, the main challenge within the function is fuel price volatility. Fuel represents one of the biggest expenses for airlines. On average, fuel costs account for 30 percent of total airline operating expenses. This needs careful and continuous monitoring, with the right hedging strategy at the right time. Tackling these tasks while staying up-to-date with their other responsibilities represents some of the unique of a major airline’s CFO responsibilities.

Cash management is also an important aspect of being an airline CFO – the need for the timely availability of funds to support the airline’s activity is an ongoing challenge. Likewise, regulatory compliance and tax reporting across different countries throughout the airline’s network keeps me busy.

What do you think needs to be done to encourage the presence of more female CFOs in the region?

Prospects have never been better for females to increase their presence in the field. Women today, both in the region, and in Bahrain in particular, are empowered and have their needs integrated throughout the workplace.

Particularly for female CFOs, I think exposure through articles and interviews like these are a good step to showing

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INTERVIEW

Gulf Air

other women that female CFOs exist.

Exposure is a big part of encouragement – helping to raise awareness of this position as one that has already and can continue to be filled by women.

Lastly, female financial experts should grab every chance their professional journey offers to unleash their potential as valued financial experts. They have the ability to make a real difference for themselves, their employer, and the entire profession. It is theirs for the taking. To every woman, I would say the culture and time is with us – and with courage, you can get anywhere.

Describe your greatest professional/financial challenge in your career to date.

At the end of 2012, Gulf Air’s management team had to deliver a turnaround strategy within two weeks; we needed a survival plan that would take the airline out of its current path and into sustainability mode – realising its fullest potential and utilising its assets effectively.

The most important element of the plan was producing financial forecasts and P&L, which meant big challenges, lots of number crunching, input from various stakeholders, analysis, forecasts, and projections, all within a critical two-week deadline.

A further challenge was to implement this aggressive restructuring plan and achieve sustainability with a reasonable downsizing – right-sizing with minimal negative impact that could lead to the least damages or unpleasant situations such as station closures or manpower reductions.

Thankfully, it turned out that we seemed to make the right decisions when it counted. Gulf Air has – since the implementation of our strategy – seen bolstered financial results, and its performance is showing a steady and continued improvement in both financial and operational business.

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We are proud of what has been achieved over the last three years and this momentum is poised to continue and form an economically sustainable airline.

How do you perceive the evolution of the CFO role over the last 10 years?

The job of CFO continues to evolve, moving outside the finance silo and into an international and interdisciplinary role. Being a chief financial officer is no longer just an accountant job with a calculator and a blue notebook. We no longer sit on the sidelines writing out and managing internal reporting systems for financials. With the widened array of data available, the CFO’s presence and role grows to encompass true data interpretation and economic corporate strategy.

Today, we wear the hat of the adviser who ensures the company sustains financial growth and stays competitive in their field. CFOs must be able to communicate with other like-minded people – to be able to bring their vision to non-financial colleagues. It is also vital that CFOs can truly be collaborative partners to CEOs. In the end, a true CFO must crunch the numbers and be

able to translate those numbers into opportunities.

What will be demanded from the role in future?

The CFO role is expanding to include being the company’s premier champion of strategic discipline, especially in dynamic environments like that of aviation. CFOs are now more than ever charged with ensuring value creation: through focused decisions, asking the right questions, and providing the right insights so that everyone understands when to say no and how to say yes. The deciding factors are strategic value, profitability and economies of scale. These are the dynamics in which a CFO excels.

Compliance and controls will also become more complicated in a global environment. Navigating these subjects remains a vitally important responsibility, one that CFOs must continue to focus on even as they are invited to take on other roles inside their organisations. In that vein, the task of providing corporate strategy, compliance, and contributing to an organisation’s success – these will fall more than ever in the domain of the CFO of tomorrow.

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INTERVIEW

Bayt.com

Cast the Net Bayt.com CFO Nauman Mian discusses the pressure of being a change agent for a digital platform, and how the firm’s work is emblematic of the modern job – and business – marketplace.

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region will surely increase, and there will be even more opportunities to reach a population that is evidently becoming fully connected and mobile.

How digitalised is the region’s job market?

Today, using the Internet and online services is one of the best and easiest ways to hire. Going forward, we can deduce that the economic impact of internet growth in the MENA

When and how will Digital Darwinism affect the region?

With digital dependence steadily growing in the region, digital Darwinism is something everyone has to be conscious and aware of.

Although it may seem intimidating to many organisations, there are ways to stay ahead of the possible consequences and outcomes.

• Adaptability: the most important factor is adaptability. Welcoming change with a positive attitude already puts a company a step ahead of the rest, and allows them to start transforming the change into something beneficial instead of seeing it as an obstacle.

• Continual learning: By empowering employees with the tools needed to learn continuously, by attending training sessions, workshops, conferences and seminars, companies

o you believe Bayt.com has a unique advantage as a digital job platform?

When Bayt.com was launched in 2000, there were only two million internet users in the Middle East.

Since then, it has been leading the online recruitment scene in the region, and is one of the most trafficked websites in the world.

Bayt.com addresses regional requirements such as having a portal available in key spoken languages, Arabic, English and French. Another example is the availability of a mobile app, for the members who prefer to enhance their careers on the go, giving Bayt.com a wider reach and making it a reliable and alwaysavailable tool for people in the region to depend on.

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can stay ahead of the changing market. Having a workforce that is well-informed on the ever-changing market, and has the technical skills and abilities to handle new tools and technology, better prepares the company for any challenges or new trends in the region and the market.

• Fostering innovation: Encouraging diversity and fostering employees’ innovation helps keep the stream of ideas fresh and flowing in a company. By hiring professionals with different academic backgrounds and various qualifications, the company can build a team that is well-versed in a multitude of various areas, and who can learn from one another, building a great support system and a strong foundation, and helping it grow in the face of change, instead of standing still.

How does your experience as a CFO running a digital platform compare with someone who runs non-digital operations?

Things are really fast and dynamic when running a digital platform. We

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“Things are very dynamic when running a digital platform. Constant changes in technology mean that finance teams have to stay flexible and nimble.”

have new products constantly, and constant changes in technology mean that the finance team has to stay flexible and nimble.

CFOs working in tech industries face a dynamic and challenging environment. We work with

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large sets of live data that many other industries do not have, with a potential of information overload, to find crucial insights into our company’s performance. The efficient monitoring of this data is key to ensuring that this data is used as the driver for smart decision-making.

What technologies are you looking to introduce to push Bayt.com forward?

Our tech teams are constantly hard at work to provide both our employers and our job seekers with tools that will empower them to build their lifestyle of choice, in line with our mission.

From the employer side, we’re currently designing an A-Z candidate qualification system to empower employers with the data they need to assess whether candidates are the right fit, culturally and skills wise. Bayt. com Tests is a simple tool that allows employers to administer professional tests, covering a huge spectrum from IQ to EQ to technical and soft skills, to test candidates that apply to their vacancies.

We grade them on the fly so employers have an extra level of information before making an expensive hire. We also have Verified Recruitment services, where our experts source, qualify, and contact job seekers on behalf of our clients.

Another exciting employer product is Talentera, an A-Z recruitment portal that companies can brand and use on their own websites, which we are constantly improving. It’s a great product because it puts the recruitment process in the hands of HR directors, enabling them to measure, plan, analyse, source, and even future-proof their hiring.

From the job seeker side, we recently launched a new design for Bayt.com, as well as a learning portal to empower job seekers to advance certain skillsets.

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Feature

Enterprise cost reduction

less is more With an economic slowdown taking place in some parts of the globe, cost reduction efforts are becoming more crucial for companies seeking to maintain profitability.

However, even for enterprises who are not affected by such challenges, reducing costs present a number of strategic benefits.

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ost commonly, cost reduction is largely associated with struggling organisations, or those that operate in challenging markets.

The most obvious example is the financial downturn of 2008 forced many business leaders to cut costs and dissolve various functions just to keep their business afloat.

However, many businesses today are recognising the potential strategic benefits of reducing costs, and have focused on cost-cutting as a way to drive growth, rather than just as a way to survive or avoid insolvency.

According to a recent report by Deloitte, the top cost reduction drivers are ‘gaining a competitive advantage’ and ‘required investment in growth areas’. Moreover, the next highest

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drivers are ‘international portfolio performance’ and ‘reduction in consumer demand,’ which are more defensive in nature.

Christine Ahn, Principal Consultant and leader of the shared Services and Enterprise Cost Management, Deloitte Consulting, explains that different situations present different requirements and priorities in managing costs. “A company in distress should focus on short-term survival, while a company that is growing steadily should seek ways to strengthen its competitive advantage through smart investments and possibly M&As.” Macroeconomic concerns remain the top external factor that can influence a company to drive down costs. “There’s a confluence of factors that can drive

us to reduce costs in the company,” explains Koshal Mundhra, Group CFO, Dhofar Global. “Some of the main considerations include the current state of the economy, along with the profits for the year and return on investment. However, there are some positive motivations behind any cost reduction initiative of an organisation, which include boosting a company’s competitiveness and improving its profitability.”

Reducing costs strategically is important to the C-level’s agenda, and

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if done successfully, paints the CFO in a great light. This enables organisations to remove activities and processes that do not drive business value, assign or on-board the right people to complete them, and focus on more important resources.

Mundhra further explains that when cost reduction efforts are done progressively, they can lead to greater gains in value creation. “To do so, an enterprise must employ informed strategies that will drive out costs and enhance efficiency,” he says. “Careful

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“Ultimately, it is crucial to think beyond short-term savings and focus on some of the key dimensions of the business to determine core cost drivers, and deploy appropriate measures accordingly.”

Koshal Mhundra, Dhofar Global

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Feature

Enterprise cost reduction

“CFOs are also under greater scrutiny and pressure to ‘save to grow’ - to cut costs while simultaneously driving growth and ensuring control in the context of economic uncertainly, regulatory requirements and investor scrutiny.”

Professor Chris Rowley, Cass Business School, City University London

and in-depth analysis of the current market situation and its effect on a company’s profitability and overall operations must guide cost-cutting programmes. Ultimately, what is crucial is thinking beyond short-term savings and focusing on some of the key dimensions of the business to determine core cost drivers, and deploying appropriate measures accordingly.”

CFO’s are expected to take the lead wheels in navigating the company towards a more profitable future.

“The CFO’s role is more diverse and challenging and is evolving to that of an architect of business value and managing complexity while controlling costs,” says Professor Chris Rowley, Cass Business School, City University London. “CFOs are also under greater pressure to ‘save to grow’, which means to cut costs while simultaneously driving growth and ensuring control in the context of economic uncertainly, regulatory requirements and investor scrutiny.

However, more traditional approaches to cost savings, such as streamlining processes, headcount and external spend, have lost impact with over-use, requiring more strategic actions.”

According to Prof. Rowley, there are quite a few challenges that CFOs face in taking on cost reduction responsibilities.

The weaknesses in the role could stem from a lack of strategic talent and

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planning, being bogged down with operational issues and lacking support.

Any cost reduction initiative needs its context, parameters and desired outcomes to be clearly understood.

Lowering costs can definitely cause major transition within an organisation.

Therefore, during this period, it is imperative for the finance function to optimise all relationships with all the key stakeholders of the company. A big part of a CFO’s role in this situation is helping everyone within the business to understand the operational decisions required to improve its financial position.

Therefore, the finance chief must aim to retain business confidence and avoid surprises during this period.

Prof. Rowley suggests that businesses integrate these three streams of thought. “First, the ‘Four Faces of the CFO’ (Deloitte) framework, which distinguishes a dichotomy of CFO roles: ‘traditional’ (steward, operator) and ‘new’ (strategist, catalysts).

“Second, they can look at Dave Ulrich’s model of the different HR practitioner roles which can increase a business’s competency even while it is undergoing operational changes ­­­— strategic partner, change agent, employee champion, administrative expert; revised to strategic business partner, capability builder, change champion, technology proponent, HR innovator and integrator and credible

activist. What all these models have in common is the idea of a spectrum of the CFO and HR roles, moving from reactive and implementers to proactive strategists, in turn becoming change catalysts and business partners. Third, to move away from universal, blanket approaches by adding the Ulrich and Rowley framework of the ‘3Cs’ — context, culture and competence to fit the CFO’s cost reduction strategies,” he says.

Finance heads are encouraged to establish a strong symbiotic relationship with the HR function to ensure both internal and external support in employee resourcing and development.

“Doing so will also help HR’s search for its ‘Holy Grail’ (the same one for CFOs) of importance, which is about not only being involved in strategy but also creating measurable impacts,” says Prof.

Rowley.

Mundhra agrees with this notion, explaining that it is vital for CFOs to maintain regular internal communications with employees and other stakeholders during the course of the implementation of cost-reduction measures. “They must be flexible enough to adapt to various strategies according to the different requirements of each department,” he says. “It is imperative for CFOs to take precautionary measures when implementing such strategic decisions. Cost reduction must be implemented gradually and re-adjusted according to the current market situation. The most common mistake is haphazardly laying off people or dissolving departments during these times, which does not always result in a drastic outcome.”

It is crucial to keep in mind that cost reduction efforts need executive commitment and expertise. It requires a consistent and measurable programme and the value of communication during this period in the company cannot be over-emphasised.

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research

GCC banking

Banking on growth The Boston Consulting Group’s most recent study revealed that despite the vast decline in oil prices, GCC banks’ performances still exceeded their international counterparts.

We bring you highlights of the report.

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omprehensive research from BCG has shed light on the GCC’s banking figures for 2015.

Revenues grew by 7.2 percent, down three percentage points from 2014. The impact of the vast decline in oil prices has hit the banking industry – affecting some banks more than others. Despite this, profits rose by 6.3 percent compared to a 14.7 percent in 2014.

“In addition, 2015 saw two patterns that have rarely been witnessed in the last six years: operating costs grew by only six percent, i.e. below revenue growth rates,” said Dr. Reinhold Leichtfuss, a senior partner and managing director at BCG’s Middle East office.

“It has typically been the other way around in previous years. The second interesting pattern showed that, at an aggregate level, provisions for bad loans increased slightly – by 0.6 percent.”

The main customer segments – retail and corporate banking – grew as well, with 8.1 and 3.3 percent growth rates, respectively.

Extraordinary income declined by 21.5 percent.

Again, the performance of GCC banks clearly exceeded that of their international counterparts, a number of which experienced further revenue declines in 2015.

Based on the banks’ 2015 annual results released in the first quarter of 2016, the newest study is part of BCG’s annual banking performance indices measuring the development of banking revenues (operating income) and profits for leading GCC banks.

BCG launched the first edition of the banking performance index in the GCC in April 2009, creating a customised index specifically for

the regional banking markets, with 2005 revenues and profits as starting benchmarks. The index covers the largest banks in Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the UAE. “The 2015 BCG index includes 45 banks from across the GCC, capturing about 80 percent of the total regional banking sector,” Dr. Leichtfuss added.

Oman and UAE banks show strongest growth In 2015, Oman banks led the pack in terms of growth numbers, with 9.6 percent in revenues and 10.5 percent in profits. In parallel, UAE bank revenues grew by 8.1 percent and Kuwait banks recorded an 11.4 percent profit growth. The spread of revenue and profit growth rates between the GCC countries was significantly smaller than that of last year, ranging from 4 to 11 percent. There was no negative growth on a country level.

Instead, in 2015, the development of loan-loss provisions (LLPs) varied significantly between the countries, resulting in total, in a small increase of 0.6 percent. The two biggest countries, the UAE and Saudi Arabia, ended up with a small increase of two percent and 4.8 percent, respectively. Bahrain banks grew LLPs by 39 percent and Oman banks by 21 percent.

This is compensated across the GCC by a strong decline in Qatar and Kuwait. In 2014, BCG observed a decline in LLP across almost all countries. Going forward, a slight increase can be expected due to current trends in economic development. A first sign of this is that the majority of banks in the UAE provisioned more in 2015 than they did the year before.

After a number of years with growth in operating expenses exceeding that

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Growth of GCC banks in 2015 10

GCC Banks Growth, 2015 vs. 2014

8.1%

8.1%

8.0%

7.2% 6.3% 6.0%

5

3.9% 3.3%

Group Retail

0.6%

Corporate

0

-1.8% -21.5%

-25

Operating Income

Operating Profit

of revenues, 2015 came out with a moderate aggregate cost growth of six percent, with Qatar and Kuwait banks managing almost zero and Bahrain recording negative growth in cost of one percent. A number of banks preempted the consequences of a low oil price environment and restricted costs and investments. Some larger banks as well as those that had significantly increased costs in the past, managed to achieve low and, in several cases, even negative growth.

Retail revenues strong as profits decline In 2015, retail banking revenues in the GCC experienced a further uptick of 8.1 percent, largely due to an increase in Qatar (16 percent), Oman (11 percent) and the UAE (10 percent).

GCC retail profits faced a decline in aggregate, largely because of negative

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Operating Expenses

Loan Loss Provisions

Extraordinary Income

growth in the UAE. The growth rate in all the other countries was moderate; only banks in Qatar reached a doubledigit growth rate with 13 percent.

Corporate revenue and profit growth In 2015, only Oman experienced double-digit growth rates in both corporate revenues and profits. In the UAE, however, there was a slight decline in revenue while profits grew

by 22 percent due to a decline in provisions. All other countries realised moderate revenue growth. Profit growth numbers, on the other hand, range from minus one percent in Saudi Arabia to 18 percent in Kuwait.

“In 2015, the majority of GCC banks were able to achieve revenue growth,” Dr. Leichtfuss said. “The increasing divergence when it comes to profit development is remarkable: while 11 to

“The spread of revenue and profit growth rates between the GCC countries was significantly smaller than that of last year, ranging from four to 11 percent. There was no negative growth on a country level. “ 39

research

GCC banking

Banking performance indices: revenues, profits and loan-loss provisions per country (2015 vs. 2014) Income & Profit 2014 $B

Income & Profit 2015 $B

UAE

2

KSA

3

Qatar

4

Kuwait

5

Bahrain

6

Oman

58.7

54.7

Total

1

7.2%

29.6

27.8

6.3% 8.1%

20.0

18.5

8.2%

9.8

9.0

7.5%

18.1

16.8

4.1%

10.2

9.8

8.4

7.9

6.8% 5.1%

5.0

4.8

6.3

5.9

5.6% 11.4%

2.2

2.0

3.6%

4.0

3.9

4.7%

1.6

1.5

9.6%

1.9

1.7

$B

0.7 0

10

20

60

$B

0.8 0

10

Operating Income

“In the coming three to five years, we consider the digitisation of processes as the most important task that banks need to achieve, since this will enable advanced banks to reach the next level of customer experience as well as cost efficiency.”

40

Growth Rates 2015 VS. 2014

20

60

10.5% 0%

20%

Operating Profit

17 banks still achieved double-digit growth, 11 to 15 banks witnessed negative growth overall or in customer segments. The number of banks in ‘group’ and for the ‘retail’ and ‘corporate’ segments deviate, since not all banks have a complete segment reporting yet.

“The midfield of banks with singledigit growth has become quite small.

It is interesting to note that, in several markets, not the top banks but some of their followers achieved the highest growth rates. According to BCG’s analysis, it is obvious that banks with superior strategies and strong business

models can truly execute decisively and grow the strongest.”

Over the past decade, the leading banks have grown at double or triple the rate of the average ones. In almost all cases, such a development is based on a superior and consistentlyexecuted strategy.

Dr. Leichtfuss added, “In the coming three to five years, we consider the digitisation of processes as the most important task that banks need to achieve – since this will enable advanced banks to reach the next level of customer experience as well as cost efficiency.”

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insight

Beehive UAE

The key to cash Beehive UAE’s CFO Peter Tavener discusses why crowdfunding has the potential to save SMEs from the dual challenges of rising inflation and delayed payments.

A

growing number of the world’s largest corporates have begun demanding 90 to 120 days to pay their suppliers, in a bid to maximise their working capital and ease their accounts payable. However, much of the SME sector who supply them are facing major financial constraints even beyond the hurdles they already have.

But as SME balance sheets face the squeeze from delayed payments, banks and other conventional lenders are increasingly reluctant to take chances originating small-business loans.

Heightened post-crisis credit checks, extensive filing requirements, and slower approval times have caused a massive SME funding gap in the MENA region, reaching as high as $260 billion, the International Finance Corporation (IFC) estimates. This gap demonstrates the mismatch between the needs of small businesses and the supply of financial services firms, who prefer to cater to larger firms that can garner much higher fees.

Access to capital is vital for the growth of the UAE’s SME sector. These small firms account for up to 60 percent of GDP and over 90 percent of employment. They include some 300,000 or so businesses which form the backbone of the economy. But because of their size, they are particularly vulnerable to suffering from late payments from suppliers and distributors.

Delayed payments not only harm SME’s, they keep corporates from engaging in more sustainable methods of growth, potentially even exposing them to greater risk in the long run.

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What started as a way to preserve funds during the financial crisis of 2008, has become a means of freeing up large amounts of capital to support dividend payouts, buy back equity, and fund growth during periods of poor sales and falling profit margins.

If corporates continue to treat their suppliers as a source of cheap finance rather than partners, long payment terms will eventually undermine the companies they rely on to supply them.

As suppliers experience shortages of cash due to delayed payments from purchasers, they can find themselves in

Access to capital is vital for the growth of the UAE’s SME sector. These small firms account for up to 60 percent of GDP and over 90 percent of employment. the fragile state of being unable to keep fully stocked warehouses or to participate in bids on high-priced items. Corporates subsequently either go without these items, or are forced to choose from a limited range of suppliers based on who has enough cash on hand to survive receiving a delayed payment. Small businesses lose out because they don’t have enough cash to front for the item, and corporates lose out by either paying more for the product, or by not finding a supplier at all.

Delaying supplier payments for months is simply bad business practice.

It means that large companies are essentially receiving cheap credit from their suppliers rather than going to the banks themselves, turning suppliers into lenders and, significantly, reducing cash flows in the SME sector. SME’s aren’t the only ones suffering: their additional financing costs eventually translate into higher prices for consumers.

Banks and other conventional lenders may be large, but they continue to fail to address this gap. And so new business models like crowdfunding have come in, matching creditworthy businesses directly with investors seeking higher returns.

Now a new kind of financing offering is promising to provide finance to help them ease cash flow issues and reach their full potential. Invoice finance offerings are a rapidly growing tool designed to serve SMEs and help them manage their cashflows by closing the gap between the issue of an invoice and the receipt of actual payment. By unlocking the value of their accountsreceivable, they are able to tackle the dual challenges of rising inflation and late payments. These products give SMEs more options to plug invoice gaps, giving them more control over their business and finances, and thus a greater opportunity for security and growth.

Financial tools that ease the burden placed on small suppliers by larger companies will have powerful effects, not only on the SMEs they serve, but on the corporates themselves, and the economy as a whole.

43

Insight

Andrew Robinson

Sales satisfaction

KPMG Lower Gulf non-executive director Andrew Robinson gives his take on what to consider to ensure maximum satisfaction in the sale of a Middle East business.

A

lthough globally, almost half of business owners say they would like to sell if they were given the right price, the reality is that only about one in five businesses that are put up for sale actually sell within 12 months and may not yield the desired amount.

To make your selling strategy work you should firstly consider your personal and financial objectives. This will determine the commitment that you have to the sale.

The things you should consider are:

Investment of your time Consider the sale of the business to be an investment of your personal time.

The more time you invest, the better your reward. Therefore, the day-to-day running of the business may have to be delegated for periods whilst you focus on your exit strategy.

Avoid selling under pressure You are at risk of underselling your business if you are rushed into selling.

Business continuity should be treated as a continuous practice whereby the owner and the team are prepared for transitions at any time, and at multiple levels.

Consider semi-retirement We might think we have to work 80 hours a week for a number of reasons, but many doctors will tell you that the transition from full time work to retirement is one of the most stressful times in life and leads to many premature health issues.

Consider if it is time to slow down and start handing over the business in phases so that you can enjoy semi retirement.

44

Three year planning

Third-party relationships

I recommend that you start planning your exit no later than three years before you want to exit. The longer you wait, the more disruption you will get in the sales’ process. To attract potential buyers you should take a long term strategic view and strengthen your business.

Ensure contracts with third parties are in place and current, particularly those with key customers and suppliers.

Consider customer and supplier contract transferability clauses. This is especially important in the Middle East as there are specific rules regarding the registration of licences and distribution contracts.

Business and financial Prepare an annual business plan, including a three-year projection. The more a buyer can count on expected future revenue, such as a sales backlog, the better. The business plan should include a SWOT analysis. A buyer will want to know not only your strengths but also your weaknesses.

As part of your business plan, construct a brief summary of your industry, its key success factors, and future growth prospects. Know your competitors and be able to explain how your products, services, or business are positioned to succeed.

Management succession You should perform a dispassionate evaluation of your second-tier management team members. Do they possess the skills to step into your shoes after the sale? Think about how they can achieve their potential, and develop individual plans to help them get there.

If you can’t see a strong future for a team member, consider replacement.

You should prepare the business to run on its own and coach your leadership team, giving them ownership to execute those decisions flawlessly.

Assets We often see that intellectual property needs to be protected through patents, trademarks, or copyrights. Usually any surplus cash can be withdrawn by the seller on exit so it is in your favour to tidy up the balance sheet. Do this by collecting overdue debts and ensuring the payments made to suppliers and banks are within the allowed credit limits. Organise inventory and dispose of obsolete or slowmoving items.

Corporate reputation Buyers may be concerned about potential liabilities lurking inside your business, and you need to show them a clean bill of health. This includes having a good corporate reputation or image. You can provide evidence of this through documenting compliance with various regulatory requirements, documenting public relations initiatives you have undertaken, gathering positive customer testimonials, etc.

On the other hand you should also be up front and document any past, current, or pending litigation affecting your business, and show how you are handling any risks.

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Empowering the Financial World FISGLOBAL.COM

column

SomersConsult

Looking out and in I n an earlier article in this series I said that “Businesses need to anticipate and have the flexibility to react to sudden-shock or slow-burn changes: the businesses that lose out are often the ones that can’t or won’t develop an operating model that supports this goal.”

The CFO needs to play a critical role in ensuring that this happens effectively.

We need to spend a lot of our time looking out (at competitors, markets, economics and so forth) as well as looking in, at function effectiveness, financial management culture, efficiency, compliance, and the many other things we have to ensure we get right.

If you think about it, many of us have spent virtually all of our careers supporting businesses through tough times caused directly or indirectly by economic crises. For example, my career as CFO has spanned businesses impacted by the sovereign debt crisis of the ‘80s, the UK economic crisis of the early ‘90s, the Asian economic crisis of the late ‘90s, the Argentina debt crisis of 2001, the crazy credit expansion in the US and Europe up to 2007 and the ensuing crash – the impact of which is ongoing after more than eight years.

My observation over the years is that all of these crises originated from the bursting of credit bubbles, and progressive globalisation has increased the likelihood of credit bubble risks in one country or region being transferred to another country or region. Currently, for example, many commentators are expressing concern about the sustainability of China’s credit-driven growth.

46

Why should the CFO in the Middle East worry about this? After all China is far away, so, if your business is, say, selling products or services in Dubai, why should you worry?

I was discussing this recently with an equity analyst and he said that, for his purposes, he focused pretty much entirely on the relative competitive positioning of the companies he evaluated (profitability, efficiency, market share, product innovation etc). He tended to stay away from speculating about the effect of macroeconomic forces.

Of course this has a logic to it: if you are an equity analyst or fund manager, whose objective is to pick a stock that will beat the average of an index, then by picking the strongest company in the index, you get to your goal.

However, I would argue that this approach is not sufficient if you lead a company. Business leaders also need to try and identify the medium term existential threats and opportunities that may be presented outside of their zone of direct control and position the organisation to rapidly adjust in anticipation of these risks and opportunities.

I won’t speculate about the price of oil.

I’m not sure anybody can say whether its medium term price will stabilise with any certainty. However, what I can speculate about is whether businesses in the Middle East have adequately stress-tested their medium term plans for various oil price scenarios and developed contingency plans for them.

Different scenarios will have different

“It is better to prepare for a scenario in advance than to wait for it to occur and then begin thinking about it.”

Fintan Somers, CFO, SomerConsult

consequences, necessitating different balance sheet, cost and investment positioning. It is better to prepare for a scenario in advance than to wait for it to occur and then begin thinking about it. Even if your business is to sell stuff in Dubai.

So, back to the China question: why is it important?

China’s banking system has grown from under $3 trillion to over $34.5 trillion in assets over the last 10 years. There is no precedent in recorded history for this rate of credit expansion. In doing so, China has sucked in a very large share of the world’s commodity production to support the biggest investment and commodity price boom of all time.

Many commentators feel that the credit bubble supporting this growth may burst and China will have a “hard landing”. Other commentators feel that a “softer” landing will happen. Whoever you believe, there is a likelihood that the Chinese demand that was there in the past 10 years may not be there in the future and that this is likely to have an impact on markets and producers in the Middle East and elsewhere, particularly oil, gas and other commodities.

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