CFOs learn how to preserve and create value in an uncertain world

PwC's Robert Beighton explained the levers to create shareholder value in CFO Community Conversation.

On 15 April, a CFO Community Conversation, brought to the community in partnership with Workday, took a close look at the levers that drive business value.

Kim Milward-Oliver, director of Capital Advisory & Restructuring Services from PwC South Africa, unpacked the five urgent global issues under the acronym ADAPT, being:

  • Asymmetry: Primarily around wealth disparity, with more developed countries seeing an erosion of the middle class and divergence within communities;
  • Disruption: Dealing with the pervasive nature of technology and how consumers are consuming. Technology has an impact on individuals and the choices they are making
  • Age: Demographic pressures are being faced in North America and Europe in terms of an ageing population, while Africa has the potential to pay a demographic dividend;
  • Polarisation: There is an increase in populism and nationalism, with a trend towards more localisation and away from globalisation;
  • Trust: There is declining confidence in institutions and political systems.

Interestingly, a poll run during the webinar revealed that two thirds of attendees believed disruption was the main factor affecting their businesses, with one-third choosing all five issues.

“The conversation started pre-Covid and the pandemic has accelerated these things. Poor countries have been harder hit. This is exacerbated by the vaccination drive and led to an increase in inequalities, sovereign debt problems, growth in technology platforms and acceleration of climate concerns,” he said.

Kim added, “It is a huge amount of uncertainty for all of us. It is constantly changing and what to react to is constantly changing.”

Responding requires companies to repair the business effects of Covid, rethink business models, dramatic reconfiguration and transformation of business and report - all at the same time – in order to ensure value preservation and value creation, according to Kim.

Fragile recovery
The SA economy was in recession prior to the pandemic and the economic recovery is expected to be fragile. This means the route to recovery will not be smooth and business needs to be in best possible shape to survive.

“There tends to be a curve of performance. So, there is a need to act now to recover. Without taking mitigating actions, things get more difficult and business goes from a place of comfort to concern to crisis to catastrophe,” he explained.

Robert Beighton, Deal Strategy & Value Creation lead at PwC, then took attendees through a value creation bridge framework, which can help companies think about all the levers available to create shareholder value.

“It is important to have a framework without losing sight of the need to pursue value creation activities. Value preservation, on the other hand, is generally used in distressed and crisis situations. Many companies are stressed right now and need to shore up value in the short term. They need to address value destruction in highly volatile environment,” he explained.

ESG
In terms of value creation, the bridge contains four levers, being strategic positioning, performance improvement, asset optimisation and multiple impact and purpose.

Rob said, “Once all the value levers are identified and quantified, then there is an end point enterprise value. From this, business can map complexity implementation against the value matrix, prioritise and develop an implementation plan.”

“It is a framework on how a company can consider value creation and value preservation, and give a roadmap to tangibly deliver on the value,” he added.

In terms of multiple impact and purpose, Rob pointed out that value creation was no longer in the traditional fundamentals of business.

“There are new and emerging expectations from a range of stakeholders. ESG is now being built into the core of organisations and results in multiple uplifts on the value bridge. If unaddressed, it could destroy a lot of value,” he said.