November 17, 2015
CAPEX on technology driving 2016 financial plans
U.S.--A survey from TD Bank reveals chief financial officers (CFOs) plan to significantly increase their company's capital spending in 2016, as the economic outlook remains positive despite forecasts of an interest rate increase and uncertainty in government policies heading into an election year.
According to TD Bank's fifth annual CFO Survey, which polled CFOs and other corporate financial decision makers at middle market and large corporations, a majority (61 per cent) of respondents expect to increase capital expenditures next year, reflecting a marked and steady climb since 2010, when TD’s inaugural CFO Survey found 39 per cent of executives planned to increase spending. Participants cited three keys areas of capital spending for 2016: technology (58 per cent), existing facilities (44 per cent) and data security (41 per cent).
Despite speculation that the Federal Reserve may soon raise interest rates for the first time in over a decade, the majority of executives reported this would not alter their plans to make business investments in the year ahead. Nearly three-quarters (74 per cent) of executives noted the rate increase would have no impact on their borrowing, and 6 per cent said a rate hike would make them more likely to borrow.
“We’ve seen a significant shift in sentiment over the five years we've been surveying the market as a number of looming economic headaches have largely subsided,” said Greg Braca, Executive Vice President and Head of Corporate and Specialty Banking at TD Bank. “Rising interest rates may create headline noise which impacts the stock market, but executives are prepared for an eventual rate increase and are moving forward with investments in their infrastructure, facilities and people. It’s clear that businesses have adjusted to the ‘new normal’ and are focused on growing within that environment.”
Operational Risks, Government Concerns Linger
While 69 per cent of CFOs are optimistic with regard to their business outlook for the year ahead, they expressed some concerns with both day-to-day operations and longer-term performance. Respondents indicated liability risk – operational, financial and reputational – as the most stressful part of their job, followed by resource planning. Several challenges lie in managing their revenue stream efficiently, with executives noting the following distresses in the cash flow cycle:
- Timeliness in collecting payments (29 per cent)
- Outdated systems creating inefficiencies in operations (21 per cent)
- Manual processes associated with payment initiation (17 per cent)
Government policy continues to be a chief concern for executives as well, though the importance of economic issues has shifted. Healthcare reform and government efficiency rank as the top priorities for executives and resonate as key areas respondents would like 2016 presidential candidates to address in their campaigns. In previous years, TD’s CFO Survey found job creation, federal regulation and monetary policy were among the leading political concerns, indicating a change in executives’ attitudes toward government over the past five years.
Strong Alignment Regionally
Across the East Coast, executives are largely aligned on outlook for the economy and business performance, although Florida respondents reported stronger optimism in both their company's performance and the national economic outlook than those in other regions.
Respondents also reported similar appetites for increasing expenditures. Differences in opinion were largely tied to the prioritization of concerns and expenditures, showing some regional trends:
- New England, Philadelphia and D.C. CFOs find resource planning to be the top stressor, while executives in New York City, Florida, and North and South Carolina named liability for risk as their greatest concern.
- D.C. and Florida CFOs reported a higher anticipated increase in capital expenditures than other regions (on a directional basis).
- Significantly more respondents in D.C. are much less likely to borrow if the Federal Reserve increases interest rates compared with their counterparts in New England and New York City.
“The survey results are promising, and reflect what we're seeing across our Maine to Florida footprint. Businesses are feeling positive about their ability to perform in current and near-term economic conditions, and are ready to borrow and make investments,” said Fred Graziano, Executive Vice President and Head of Regional Commercial Banking for TD Bank. “Companies seeking to make strategic investments in their growth need a partner with both an understanding of regional dynamics influencing these needs and the solutions to manage risks and improve efficiency to support this growth.”
The full results of TD Bank's Annual CFO Survey, including regionally specific findings from the Carolinas, Florida, Metro D.C., Metro Philadelphia and New Jersey, New York and Northern New England and Boston, can be found at https://mediaroom.tdbank.com/surveys.