Atul Kumar Agarwal of India’s MedPlus Health Services. Ysmael V. Baysa of Jollibee Foods in the Philippines. Ajay Kapoor of Tata Power Delhi Distribution in India. Frank Lai Ni Hium of China Resources Enterprise.
NiQ Lai Ni Quiaque of Hong Kong Broadband Network. Alberto M. De Larrazabal of Globe Telecom in the Philippines. Vincent Liew of Hong Kong-based international design practice Aedas International.
Seven CFOs in very different markets and industries, at the helm of companies with different revenue and profit levels, facing different challenges and trying out different solutions. This is a very motley group of finance professionals – but they share one thing in common.
All seven have such an outstanding track record that they have been nominated by CFO Innovation readers – and shortlisted by our editors – for the 2013 CFO of the Year awards.
The CFO of the Year will be announced on 19 November at a dinner gala in the Marina Mandarin Singapore, along with the honorees in the Regional CFO of the Year category and the banks, accounting firms, technology providers and other outstanding partners of the CFO in the Partner of the Year awards.
We introduce these seven outstanding CFOs (in alphabetical order) below. They are all winners, in our estimation. What they have done and are doing to keep their company ahead of the game holds valuable lessons for every CFO and finance professional.
Engineering a Turnaround: Atul Kumar Agarwal
When Atul Kumar Agarwal joined MedPlus Health Services three and a half years ago, the Indian pharmacy chain was losing money despite compounded annual growth rate of 34%. It was still unprofitable in fiscal year 2012, when the red ink came to 142.9 million rupees (US$2.3 million).
But the CFO’s turnaround efforts appear to be finally bearing fruit. MedPlus reported net profit of 44.3 million rupees (US$723,000) in the year that ended March 2013 on revenues of 8.9 billion rupees (US$145 million). That’s a small profit, but hopes are high it can be sustained and nurtured.
Fresh from a stint as CFO and member of the board of Anheuser-Busch InBev’s Indian operations, Agarwal started at MedPlus nearly from scratch. The company was growing so rapidly that the management information system, financial reporting and other processes could not keep up. It was difficult to identify the reasons for the losses, especially since there was no structured finance function.
Agarwal created a finance team comprising existing employees and new hires, streamlined financial operations, defined processes and policies, and established systems for board, MIS and GAAP reporting. A new quarterly document on economic value added (EVA) is helping shareholders understand empirically how their investment is performing. The monthly close and other financial processes were speeded up, resulting in on-time visibility into the profitability of each division, segmented into various profit drivers.
Prodded in part by finance’s analysis, MedPlus has started expanding into the hospital pharmacy business. It currently runs 38 in-house pharmacies in four states across India, even as Agarwal and his team continue to evaluate the finances and potentials of more hospitals with which MedPlus can do business.
Tough Love: Ysmael V. Baysa
Since joining Philippine fast-food operator Jollibee Foods ten years ago, Ysmael V. Baysa has presided over a hot streak that saw revenues surge 173% from 26 billion pesos (US$600 million) in 2004 to 71 billion pesos (US$1.6 billion) in 2012 – and net income jump 131% from 1.6 billion pesos (US$37 million) to 3.7 billion pesos (US$85 million) in the same period.
The stellar performance continues this year, with first half 2013 revenues at 38.1 billion pesos (US$879.6 million), up 11% from the same period last year, and net profit at 2.1 billion pesos (US$48.5 million), an increase of 30%. According to the Euromonitor World Consumer Food Service Report, Jollibee is now Asia’s second-largest quick-service restaurants chain by system-wide sales, after Japan’s Zensho Holdings.
The key driver has been a series of acquisitions in the Philippines, China, Hong Kong, Singapore, the US and Vietnam, which was orchestrated in large part by finance. Baysa played a leading role in valuation (Jollibee did not engage investment bankers), negotiation, funding, integration and continuing financial oversight of the businesses.
Formerly senior vice president at Union Bank of the Philippines and finance director at Procter & Gamble Southeast Asia, the CFO has a rather unorthodox philosophy. Baysa believes that scarce capital compels very sound investment selection, while abundance of capital can lead to carelessness. Thus, he has deliberately avoided increasing the company’s debts despite historically low interest rates, and kept the investment hurdle rate very high.
Baysa has developed a new way of measuring and managing investments in new stores – the company opens about 200 new outlets every year, representing about 90% of its entire capex. Within four months of a store opening, the new method estimates its ROIC for the next 12 months and predicts its IRR for the entire project life of 10 years.
It also calculates the total ROIC and IRR of a batch of stores opened in the last 15 months, which serves as the Investment Performance Indicator of a Business Unit (compared against ROIC and IRR hurdle rates). Business heads are thus able to view their store investments like a portfolio. They can decide to tolerate lower returns from some stores for competitive or strategic reasons as long as this is offset by superior performing stores – and the overall hurdle rate is still met or exceeded.
Master of Risk: Ajay Kapoor
A lawyer, chartered accountant and MBA from NYU Stern, Ajay Kapoor is both CFO and Chief Risk Officer at Tata Power Delhi Distribution (fiscal 2012 revenues: US$864 million). The double designation is indicative of the high priority placed on risk management and finance in the Indian utility – and the direct line drawn between the two functions.
Three years ago, Kapoor spearheaded the effort to formally identify risks facing Tata Power. Existing processes were mapped against the standards of the International Organization for Standardization and the deviations and gaps identified for action. The potential impact of every risk was quantified and its transfer or mitigation was linked to the Balanced Scorecard performance.
In the process of implementing the enterprise risk management system, finance gained insights into quantifying areas of cost reduction, revenue leakages and realization, interest costs, areas of wasteful expenditure, and improvement of databases for analysis. And with a culture of risk inculcated across the organization, getting buy-in for finance initiatives such as cost management measures became easier.
It is also easier now to trace the root causes of underperformance and measure the impact on revenue and profit. For example, customer dissatisfaction is designated a KRI (key risk indicator) and is linked directly to processes such as billing and supply of reliable power, and indirectly to equipment failure, improper maintenance and so on.
When customer surveys show a spike in dissatisfaction, the company examines the chain of processes and accountabilities linked to that KRI while finance is alerted to the potential impact on revenue, earnings, capex (because investment in new equipment may be required) and so on. Finance is also alerted to the possibility that budgets may need to be reallocated and bank lending and other sources of financing may have to be tapped.
It all seems to work. Net profit for the first half of fiscal year 2013-14 is up 37% to 2 billion rupees (US$32.6 million) even though turnover for the same period rose just 6% to 29 billion rupees (US$466 million). Turnover in fiscal year 2012-13 had jumped 30% to 53 billion rupees (US$864 million), at around the same pace as profit growth of 31% to 3 billion rupees (US$55 million).
Deal Maker: Frank Lai Ni Hium
Soon after becoming CFO of Hong Kong-listed China Resources Enterprise in 2009, it became clear to Frank Lai Ni Hium that the company was too diverse. It had more than seven different lines of business in China and Hong Kong. It was difficult for the management team to efficiently oversee operations in food, textiles, ports, microchips, retail, beer and other products – and for the investment community to properly assess the stock’s value.
Lai proposed that China Resources (fiscal 2012 turnover: US$16 billion) sell non-core assets and use the proceeds to focus on the consumer retail sector. He and the finance team sold the Esprit China distribution business for HK$3.8 billion in cash (US$490 million), which formed the war chest for future acquisitions. The CFO also engineered asset swaps with the parent company, exchanging holdings in textiles and ports for a beer brewery and a hypermarket chain in China.
Finance then proceeded to reinvest the freed capital by buying more breweries and retail assets. The latest acquisition closed in February this year, when China Resources paid HK$5.38 billion for the seven breweries and distribution and sales assets of Kingway Brewery in southern China, a region where the company had little market share.
In October, China Resources announced a partnership with Tesco, the UK’s leading retail group, to create a joint venture that would own and operate hypermarkets, supermarkets, convenience stores, cash-and-carry businesses and liquor outlets in Greater China. Tesco will pay HK$4.325 million for a 20% share in the joint venture, inject its existing assets in China and share its technology and know-how. China Resources will own 80% and inject about 3,000 stores.
The Tesco deal, which has yet to close, follows a 2011 joint venture that Lai negotiated with Kirin, Japan’s largest beer-and-beverage company. Leveraging on Kirin’s product and processes know-how and China Resources’ intimate knowledge of the China market, the 60-40 JV (China Resources owns 60%) has been growing by an annual 50% in the past two years. Before being injected into the joint venture, China Resources’s beverage assets were expanding at 20%-30%.
Despite the series of deals, China Resources had net cash of HK$3.8 billion as of 30 June 2013, up 56% from the same period in 2012. Turnover last year jumped 15% to HK$126 billion (US$16 billion) while net profit rose 24% to HK$5 billion (US$648 million). First half 2013 sales rose 12% to HK$72 billion, but net profit for the same period fell 46% to HK$1.5 billion on sharply lower revaluation gains.
Like other consumer companies in China, the company is getting hurt by the new political leadership’s crackdown on corruption drive, which has crimped sales of high-end liquor and other consumer items that were traditionally bought as gifts and regarded as symbols of wealth. Stripping out mark-to-market gains and other exceptionals from the first half 2013 results, underlying net profit in the first half of 2013 slowed just 11% to HK$1 billion.
CFO and Co-Owner: NiQ Lai Ni Quiaque
NiQ Lai Ni Quiaque is Frank Lai Ni Hium’s younger brother, but their career paths are rather different. Where Frank Lai heads finance at a huge China state-owned enterprise, NiQ Lai is CFO and Head of Talent Engagement at the much smaller but scrappier Hong Kong Broadband Network (HKBN). He also owns the company along with 78 other executives and employees, a result of a HK$5.1 billion management buyout that the CFO helped orchestrate in 2012.
HKBN was carved out of Hong Kong-listed City Telecom, now known as Hong Kong Television Network, which had been at a crossroads with a growing telecom business and a brand new TV content start-up. The decision was made to hive off the telecom business and use the sale proceeds to fund the television business.
NiQ Lai worked with CVC Capital Partners on the management buyout in early to mid-2012 – when a resurgence in the Greek financial crisis made it difficult to secure long-term financing. The decision was made to over-equitize to get the deal done, at around 60% equity and 40% debt (a syndicated HK$2.1 billion loan). When the global funding environment improved in early 2013, the CFO refinanced to bring debt to 60% and equity to 40% through an unrated HK$3.5 billion bond that nevertheless was issued essentially on investment-grade terms.
Five of the 79 co-owners are from finance, so there is added incentive to make sure finance and operations operate efficiently and effectively. Expenses are differentiated into “bad costs,” which include overheads, and “good costs,” which include salaries and capex. Bad costs are minimized – the company buys back its bonds when it has excess cash, for example. Good costs are maximized based on expectations of customer demand and other forecasts.
For example, agreements are reached with the salesforce about how much they can keep for every $10 they bring in). “Once we have agreed on the contribution ratio, we will work in partnership with our talents – we don’t have any staff in our company, only 2,600 talents – to maximize their take-home pay,” says Lai. “For our high-potential talents, we actually ask them: ‘How can the company help you 2x your pay?’”
In its first reporting period as a post-MBO organization, HKBN said revenue for the six months to February 2013 reached HK$974 million (US$126 million), up 10% from the same period last year, when HKBN was still part of City Telecom. Earnings before interest, tax, depreciation and amortization increased by 13% to HK$347 million. Covenants for its bonds restrict HKBN’s ability to publicly release additional financial information.
Savings Maestro: Alberto M. De Larrazabal
Globe Telecom in the Philippines is in the midst of implementing a US$790-million network and IT modernization program. Under the guidance of Alberto M. De Larrazabal, who has been CFO since 2010, the company negotiated US$200 million in capex cuts. Globe has also realized US$160 million in opex savings from more efficient power usage, efficiencies in fleet deployment and spares inventory, and lower maintenance costs.
The key is the close working relationship between the CFO, CIO and chief technical adviser, and their creation of the Global Vendor Council, which was critical in resolving priority issues in a timely manner with major suppliers Huawei and Amdocs. Finance also works closely with other parts of the business to continue optimizing efficiencies, an effort that should benefit from the implementation of real-time, faster business support systems, which is part of the modernization program.
De Larrazabal also led the acquisition of bankrupt Bayantel Telecommunications, which owns spectrum assets, broadband and corporate data operations, and a fiber optic network that augment Globe’s own assets. The transaction that was finally approved by the rehabilitation court in September this year after several attempts dating back to the early 2000s.
The amended plan will reduce Bayan’s US$425 million debt to US$131.3 million through a debt-to-equity conversion in two tranches. Globe successfully tendered for over 97% of Bayan’s debt at 31 cents to the dollar. The purchase price is estimated at 3.2 times Bayan’s EBITDA, which is considered cheap in the Philippines compared with previous takeovers.
In fiscal 2012, Globe’s service revenues increased 6% to 83 billion pesos (US$1.9 billion) while core net income rose 3% to US$237 million. First half 2013 revenues are up 9% to 44 billion pesos (US$103 million) and net profit by 12% to US$6 billion (US$147 million).
Dashboard Guru: Vincent Liew
When Vincent Liew became CFO of Hong Kong-based design group Aedas International (fiscal 2012 revenues: US$159 million) in 2010, finance staff routinely worked until 11 in the evening. Today, three years later, it is rare for anyone to be in the office after 7 pm. No one in the 38-strong finance team has left this year, a zero attrition rate that was not the case three years ago.
What made the difference? Financial operations at Aedas have been remodeled, with a new ERP system implemented, manual work processes streamlined and automated, and multiple accounting systems standardized (the company has offices in 20 countries), along with reporting templates and basic terminologies. Freed from the grunt work, five finance team-members have been deployed to FP&A work. Finance staff numbers have fallen to 38 from 48 three years ago – even though revenue has grown 42%.
Liew also made it a priority for finance to communicate effectively with close to 2,500 architects, designers and other non-accountants, who find the traditional columns of figures and written analysis heavy going. He devised what he calls the “profit funnel,” a graphical representation of the accounting, billing and cash profit of every individual project, every office and the entire company.
The profit funnel is among the near real-time pieces of information that show up on the Aedas Dashboard, which sits on top of the ERP system and is accessible on computers and mobile devices. Drillable to the country level, the dashboard measures achievement of KPIs against the benchmark, analyzes salaries, tracks the status of billings and cash collections, and monitors project performance. The enhanced transparency also breaks the silos among offices and project teams, and encourages cooperation and healthy competition.
Aedas reported an 8% increase in fiscal 2012 turnover to HK$1.2 billion (US$159 million) and a 19% rise in net profit to HK$217 million (US$28 million). First-half 2013 turnover was up 10% to HK$660 million (US$85 million), with net profit doubling to HK$133 million (US$17 million), on the back of revaluation and other exceptional gains.
About the Author
Cesar Bacani is Editor-in-Chief of CFO Innovation.