Every day, margins are being squeezed, skilled staff members need to be found and growth needs to be funded. The challenges that CFOs and Finance Directors face are multiple and they all come at the same time. What better way to recharge their batteries than bouncing some ideas off fellow finance leaders in the industry? Or shedding some frustrations during a delicious dinner in a top restaurant, surrounded by colleagues who share them?
The concept has proven extremely successful overseas and it’s South Africa’s turn now. Introduced by CFO South Africa, the leading networking platform for top finance professionals, an Executive Dinner took place on Wednesday 15 May in the Westcliff Hotel in Johannesburg. Hosted by financial services provider Transparent, it was an evening that the participants won’t soon forget.
CFO SA director Melle Eijckelhoff kicked the discussion off during the starters, asking all CFOs what’s keeping them occupied at the moment. Amanda Albäck, Financial Director at starch and glucose producer Tongaat Hulett Starch, replied it is “the margin squeeze” that keeps her pre-occupied. The paradox of balancing ever-increasing operating costs against keeping customer price increases reasonable, and showing satisfactory profit growth is a reality that businesses find themselves having to deal with every day.”
Peter Walsh, Group CFO at multi-service company Servest, mentioned “expanding into Africa” as one of the most stressful parts of his work. “There is a lot of pressure to get it right, but people we deal with quite unashamedly ask for facility payments, as they call it. There are massive opportunities in the continent, but there are also plenty of headaches.” Domestically, Walsh sometimes senses distrust for his company, because it can provide an integrated package of many different services, ranging from security to lawn mowing. “When we manage a property, there is one point of contact. If any part, regardless if it is security or landscaping, does not do well, it brings risks for the whole development. That is certainly a risk that we face.”
The challenges of Jobo Moshesh, CFO of SITA, are different. His parastatal company consolidates and coordinates the State’s information technology resources, leading to some unique issues. “A significant majority of our clients get money from National Treasury. My role at SITA requires consistently maintaining a creative balance between ensuring the financial sustainability of the organisation, while effectively lowering the cost of delivering ICT services and solutions to our clients. This environment is governed with laws such as the Public Finance Management Act (PFMA), a piece of legislation that requires a combination of sound fiscal management and a commitment in practice to implementing effective governance”
Morrison Smit, Finance Director at property investment company Ardor SA, has a more familiar problem. “Raising capital is on my mind,” he said. “In the property market it is not that easy to grow organically, so we need to deploy other people’s money to grow our portfolio and then hopefully also manage that portfolio. Until 2007 that went like a song, but since 2008 it has been a nightmare. European capital is fleeing, but a lot of the investors consider South Africa too risky. They prefer Eastern Europe, Brazil, India and China.”
Although Africa is spoken off more positively than ever, investors are still apprehensive, the CFOs agreed. “The indication that we got was that our transaction structure does not meet European requirements,” said Smit. “We even listed a company in Frankfurt with the purpose of investing in Africa. That company ended up investing in Malaysia.” Walsh agreed wholeheartedly: “The problem is that many African companies say the same thing and are raising issues about investing in their own backyards. Another problem is that Africa is often seen as one homogenous entity, instead of a myriad of different countries.”
When there is money to expand into Africa, it brings its own challenges. Not only is there corruption, as Walsh noted earlier, but the quality of the local staff can leave a lot to be desired, said Ranga Mabgwe, CFO at consulting-engineering firm Stewart Scott International. “My challenge is the quality of reporting and auditing, especially Tanzania. You have to mentor people and if that does not work, we second them to somebody in South Africa or send somebody up temporarily. At the moment I spend almost three weeks of each month in Africa. There is good money to be made in Africa, but the skills are lacking.”
“Cash flow is my biggest issue,” said Errol Campbell, Finance & Operations Director at Edenred South Africa. Established in 2005, Edenred has been providing the South African market with reward and incentive solutions in the form of gift and incentive cards and incentive programmes under the brands Compliments and Compliments Exclusive. “In 2010 we split off from our mother company. At the time 40 percent of our business was in developing countries, now this is already 60 percent. We are noticing that Europe is declining and Brazil is growing fast. There are also competitors and there is no loyalty among customers.”
“University does not prepare us for having to make phone calls to the bank to ask not to put a cheque through because I won’t be able to pay my staff otherwise,” replied Walsh, acknowledging cash flow is a challenge that many finance bosses grapple with. What some companies seem to be trying to do is to extend their payment cycle with their suppliers from the normal 30 day cycle, which would seldom get approval from the supplier who themselves are doing their best to maximise their own working capital management, observed Albäck. According to Eric van Marle (Transparent) many companies stretch the payment terms to see what they can get away with. “We have customers that pay within 30 days in The Netherlands, 60 days in Italy and 120 days in some other countries. It is important to get to know each other, because squeezing a vendor can be dangerous for the whole industry.”
Johnson & Johnson’s Cost Accountant Kudakwashe Chipanda says implementation of IT is his biggest concern. “We do theatre equipment and implants. Cheaper products are coming onto the market from China and India and that puts pressure on us. We need more financial data, but the roll out of our SAP has been delayed while it’s happening in the rest of the world. I don’t want to be compared to colleagues elsewhere who have the system.”
Mariette Ebersohn, CFO at Mango Airlines, mentioned that one of their constant key challenges is to challenge the Shareholder (SAA) with regards to the allocation of aircraft within the group, to ensure sufficient capacity made available for Mango to grow to meet the low cost product demand. However, Ebersohn had a mostly optimistic story. “We are keeping ourselves busy with interesting projects such as the successful launch of WIFI on-board our aircraft with partners Vodacom and
Wireless-G, the launch of our Mango Mobi-site as well as our cell phone Apple, Blackberry and Android applications. We are also dedicating time and effort to our Africa expansion strategy and the diversification of our revenue streams of which we will be launching a new Mango Travel Packages solution soon. She also told the table about the success Mango has had pioneering its approach on Facebook and Twitter. “We can make 2 million rand in sales in less than an hour after we post a special on social media, which is predominantly free advertising. We encourage our guests to actively engage with us through social media and we take all feedback seriously, whether it be a compliment or a complaint, it reaches the relevant department affected. Such feedback find its way right through to our performance management system and it is an excellent way to reward good behaviour and to put processes in place to eliminate failure points which need to be visible to ensure improvement for the future. We are constantly looking for ways to differentiate ourselves from our competitors and try to stay ahead with an innovative approach to enhance customer experience and to increase productivity.
The CFOs then moved on to the main course, discussing the future of information technology. “In South Africa the funny thing is that enterprise resource planning systems (ERPs) are introduced for their own sake, instead of lifting the systems to a new level,” said Moshesh. “Your investment priority depends a lot on how important IT is for your operations,” added Albäck. “For banks and telecoms it is crucial and they have a powerful CIO, for us it is important but not equally vital, so IT falls under the CFO.” Walsh said the same goes for Servest: “If the internet fails, we can still cut lawns.”
One of the biggest concerns CFOs face relates to human resources. Albäck asked her fellow finance leaders how they deal with the skills shortage that is challenging South African companies. “The cost of replacing someone is very high,” said Smit. “We cannot afford to employ the wrong person.” Campbell agreed, saying “it takes up to 18 months for a person to be effective It is hard to find the most practical and cost effective way to deal with the threat of people attrition too, said Albäck. “Ideally you want to have potential successors for crucial roles waiting in the wings. But this comes at a cost, and you run the risk of the pipeline getting bored if they don’t get a chance.” Walsh said he has noticed that it is crucial to position your company as a preferred employer. “Salary does not help; candidates look at other things these days.”
After desert, the participants expressed their enthusiam about the round table. “It opened our minds beyond what we thought we knew,” said Mabgwe and Van Marle found it “amazing how open everybody was”. Smit called the Executive Dinner an idea “that worked out exceptionally well” and Walsh said “this forum is invaluable”. Moshesh said: “It baffles me that we needed an organisation with origins in The Netherlands to start this in South Africa.” Ebersohn called the dinner “inspiring”, Campbell “wonderful” and Chipanda said it was “critical to build on the initiative, not only for us and our companies, but also for South Africa”.
Based on a successful Dutch concept CFO South Africa has rapidly become the leading CFO community in South Africa. Their website connects finance professionals to help them share knowledge, exchange interests and open up business opportunities. The Executive Dinner was sponsored by Transparent, which specializes in Accounts Payable analyses. They leave no stone unturned in their search and use the outcome to provide extensive, free and tailor-made recommendations for improving the accounts payable process for their clients. Transparent recently opened a new office in South Africa.
View the photos from the event here.
If you also want to be part of the leading South African CFO community or you want to know more about hosting a CFO event, you are most welcome to get in touch with CFO SA. Please contact Jurriën Morsch at [email protected]