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Latin American Business Outlook Part of the Global Business Outlook

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Presentation on theme: "Latin American Business Outlook Part of the Global Business Outlook"— Presentation transcript:

1 Latin American Business Outlook Part of the Global Business Outlook
A joint survey effort between Duke University Fundação Getúlio Vargas CFO magazine El IMEF PyME Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

2 Top Concerns of Latin American CFOs
1. Economic Uncertainty 2. Government policies 3. Weak demand for product/services 4. Access to capital 5. Cost of borrowing 6. Corporate tax code (domestic) 7. Regulatory requirements 8. Employee productivity 9. Currency risk 10. Difficulty attracting/retaining qualified employees Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

3 Business Optimism Index
Latin American CFO optimism continues to increase, led by Mexico and Peru. Global Trends Sep 2017 Outlook Country Business Optimism Index Country / Region Own-Firm Business Optimism Index CFOs in Latin America have become less optimistic about financial conditions in their home countries, with the average declining by approximately 10 points on a 100 point scale Latam CFOs no longer most optimistic in world Latam optimism has fallen below that in Asia and now equals US optimism Latam optimism still higher than in Europe and Africa Mexican CFOs are most optimistic Among Latam CFOs, those in Mexico, Peru, and Chile are most optimistic Brazilian optimism has fallen almost as low as in Argentina CFOs are relatively optimistic about the futhre for their own firms in Latin America and elsewhere around the world, with own firm optimism equalling about 65 on a 100 point scale Slide edge in emerging own-firm optimism CFO optimsm about their own firms is highest in Asian, Latin America, and in Africa US and European own-firm optimsm is not far behind Own firm-optimism highest in Mexico, Chile, Peru CFOs in Brazil are fairly optimistic about their own firms CFOs in Argentina, Eduador, and Colombia are less optimistic Own Company Notes: Presented data are the mean value for each region or country, Scale from 0-100 Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

4 Expected Product Price Inflation
Latin American companies expect to increase their prices by a smaller amount, relative to last quarter Global Trends Sep 2017 Outlook Product Prices 17q3: Mexico is using mean, median is worse =11.08 Inflationary expectations moderate in Latin America Africa CFOs expect highest price increases among all the regions CFOs in Asia expect the lowest inflation Inflation expectations highest in Mexico Prices expected to moderate in Brazil Import prices drive some of the Latin American price inflation Notes: Presented data are the mean or median values for each region or country. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

5 Expected Growth in Sales Revenue
Latin America sales revenue expectations increase Global Trends Sep 2017 Outlook Revenue 2017 q3: Brazil and Peru using median; means are & 11.48 Latin American revenue growth increases Revenue expectations increase from last quarter Asian revenue growth expectations remain low Brazil and Mexico expect most rapid revenue growth Overall Latin American revenues pulled down by Chile and Colombia Mexico expects rapid sales growth, due in part to inflation Notes: Presented data are the mean or median values for each region or country. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

6 Capital Spending Plans
Latin American capital spending expectations remain the weakest among all continents in 2017 Global Trends Sep 2017 Outlook Capital Spending Capital spending plans rebound but still low Latin American CFOs expect moderate business spending growth Business spending is ramping up in Europe and Asia, softening in US Business spending varies within Latin America Brazil and Colombia anticipate moderate growth in capital expenditures Spending expected to decline in Peru Notes: Presented data are the mean or median values for each region or country. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

7 Expected Change in Earnings
Earnings expected to increase Global Trends Sep 2017 Outlook Earnings Latam CFOs expect moderately stronger earnings Asia has the lowest earnings expectations for the next year Africa expects the highest earnings growth, rebounding somewhat from very low levels Positive earnings growth in Latin America Brazil and Mexico have the strongest earnings expectations Earnings are expected to grow moderately in Peru and Chile Notes: Presented data are the mean public company value for each region or country. Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

8 Fulltime Employment Outlook
Latin American CFOs expect little fulltime employment growth in 2017 Global Trends Sep 2017 Outlook # FT Employees 17q3 Brazil and peru using median, mean are 5 & 0 Weak employment outlook in Latin America Asia and African CFOs expect no employment growth in 2017. Employment growth stays strong in US Employment growth varies across L.A. Expected employment reductions in Chile, flat in Peru, pull down the average for all of Latin America Employment in Mexico and Brazil is expected to grow Notes: Presented data are the mean value for each region or country #FT=Number of Fulltime Employees Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

9 Notes: Presented data are the mean value for each region or country
Expected Wage and Salary Increases Latin American wages and salaries are projected to increase by 3.8% in 2017 Global Trends Sep 2017 Outlook Wages & Salaries Dec 2016: Dec 2016 Ecuador median=0, mean = -4.8 Similar wage growth expectations cross all regions Africa expects wages to grow 4.9% in 2017, which is the highest among all regions Asia expects the lowest wage growth Latin American wages to grow nearly 4% All participating Latam countries expect positive wage growth, lowest in Peru Wage growth in Brazil beats inflation Notes: Presented data are the mean value for each region or country Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

10 Hurdle Rates and Investment Decisions
What hurdle rate does your company use to evaluate investment projects? (blue line) Does your company pursue all NPV>0 projects? (gray and orange rectangles) Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

11 Why Not Pursue All Value-Enhancing Projects?
What prevents you from pursuing some projects that are expected to earn a return > hurdle rate? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

12 Why Not Pursue All Value-Enhancing Projects?
What prevents you from pursuing some projects that are expected to earn a return > hurdle rate? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

13 Why Not Pursue All Value-Enhancing Projects?
What prevents you from pursuing some projects that are expected to earn a return > hurdle rate? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

14 Shortage of Management Time or Expertise?
Does a shortage of management time or expertise prevent your firm from pursuing some NPV>0 projects that you would otherwise pursue? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

15 Why Not Hire More Managers?
Among firm with a shortage of managers: Why doesn't your firm hire more managers? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

16 Does Management Shortage Cause Higher Hurdle Rates?
Does your firm require that proposed projects earn a higher expected return (e.g., set a higher hurdle rate) because of a shortage of management time or expertise? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

17 Shortage of Non-management Workers?
Does a shortage of non-management labor prevent your firm from pursuing some NPV>0 projects that you would otherwise pursue? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

18 Why Not Hire More Non-management Workers?
Among firm with a shortage of workers: Why doesn't your firm hire more –non-management labor? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

19 Does non-Management Worker Shortage Cause Higher Hurdle Rates?
Does your firm require that proposed projects earn a higher expected return (e.g., set a higher hurdle rate) because of a shortage of non-management labor? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

20 Shortage of Technology Talent?
Does your company have difficulty attracting and retaining qualified technology employees? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

21 Technology Talent Shortage
Which areas/aspects of your organization are currently adversely impacted by a technology talent shortage? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

22 How Many NPV>0 Projects Are on the Back-burner?
Compared to 3 years ago, has the number of NPV>0 projects that your firm has 'back-logged' changed? Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

23 WACC vs Hurdle Rate Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

24 Return on Assets (ROA) Profit growth in Latin America is strong compared to US and Europe March 2017: Argentina too high: 21.1 & 23.3 Profit margins are expected to increase in all regions CFOs in Latin America expect profits to grow as measured by ROA Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

25 Duke/FGV Latin American Business Outlook in Press
The Latin American Business Outlook is frequently reported in the press Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

26 Duke/FGV Latin American Business Outlook in Press
The Latin American Business Outlook is frequently reported in the press Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

27 Latin American Business Outlook Part of the Global Business Outlook
A joint survey effort between Duke University Fundação Getúlio Vargas CFO magazine El IMEF PyME Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2017

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