At the Wheels of a Transport Giant

by Chew Xiang, Apr 24 2009 Balancing internal controls with commercial perspective is not easy, says Chew Xiang.

The objective of the Best CFO awards is to recognise those who promote good governance, disclosure and transparency beyond the needs of regulations and who help create long-term shareholder value. Those are tough targets to hit. A study earlier this year by BNP Paribas found that 176 CFOs of listed companies here resigned from September 2007 to January 2009, a rate of 2.5 a week. Over a third of CFOs quit without even seeing through a year in office.

That itself makes this year's winner, Choo Chek Siew of ComfortDelGro, something of a rarity. Mr Choo joined the company in July 2003 after stints with Big Four firm PricewaterhouseCoopers and United Engineers Ltd, as well as DBS, Citibank, UBS and OCBC. But despite all that experience, he admits the role isn't an easy one.

'Being an effective CFO requires me to constantly balance the need for strong internal controls with a commercial perspective to support the growth of the business. This 'attacking while defending' role is not always easy but it is very invigorating and fulfilling,' says Mr Choo, an Australian chartered accountant who has an economics degree from Australia National University. While the company's recent inclusion in the benchmark Straits Times Index will have increased its visibility among investors, this can be a double-edged sword, he says. 'Fund managers expect strong growth every year despite changing competitive environments.'

The company had a challenging year. Its net profit for the full year to Dec 31 fell 10 per cent to $200 million, even as sales rose 3.6 per cent to $3.13 billion. Higher operating expenses eroded profitability, as full-year fuel and electricity costs jumped 31.8 per cent to $285.4 million. 'With the economic crisis we have tightened financial authority limits to better control expenditure,' he says.

He has also had to manage investor expectations. 'We have to manage the expectation for ever-increasing dividends against conserving cash when economic conditions are tough,' says Mr Choo.

'Investors too expect immediate returns for each acquisition that we make. Unfortunately, this is again not always possible given that the land transport industry, being such a capital and labour-intensive industry, usually requires a relatively long gestation period.'

One of the big challenges of being the CFO at a big multinational company like ComfortDelGro is, well, its multinational operations - which is also why good CFOs with the requisite experience are so highly prized. 'With operations spread across seven countries worldwide, we are often exposed to currency translation risks. As CFO, my role is to manage these risks and to ensure that translation costs are kept to a minimum. 'My accounts and finance team is also required to attune itself to different practices in different countries. We also have to adjust for the differences in accounting standards across countries. It is important to manage cross-cultural sensitivities without compromising on ethical standards and corporate governance practices,' explains Mr Choo.

Besides managing the internal financial requirements of the company, the CFO is also responsible for external funding - in most companies, he is the point man for bankers and analysts. 'The funding needs of a diversified and international group are challenging as the credit standing of different companies vary. This results in a wide range of credit spreads and bank covenants imposed by banks,' he says.

What ComfortDelGro does is to arrange funding through an umbrella facility. 'To overcome the wide range of interest costs and bank covenants, we structured all the borrowing needs of the group under an 'umbrella' facility based on ComfortDelGro's strong balance sheet. As a result, we managed to achieve a consistent low interest rate.' There are other challenges unique to the company. 'Many companies are either capital or labour intensive. ComfortDelGro is unique in that it is both asset/capital and labour intensive. The management of cash flows is therefore critical,' says Mr Choo. 'We also have diligent long-term cash flow forecasting and forward planning over vehicle purchases.'

Investor relations is unsurprisingly a big task for CFOs and Mr Choo admits a fair amount of educational work is required.

China contributed 19 per cent of operating profit last year, just behind Singapore (53 per cent) and just ahead of the United Kingdom and Ireland. 'Some fund managers are wary about investing in ComfortDelGro as they have a misperception about the risks associated with investments in China.'

'In my dealings with them, I try to correct their misconception. Sometimes I am successful, sometimes I am not. It is frustrating when I find myself up against a brick wall of preconceived notions.' So how does he and his team manage to keep up with their heavy portfolio of duties? 'The corporate culture in ComfortDelGro is a very positive one. There is a strong sense of teamwork and camaraderie, with everyone working towards the Vision and Mission of the group - both of which are very clearly articulated. 'The key strength of the group is undoubtedly the leadership of the group CEO who provides strong strategic direction. Our flat management structure also helps ensure that everyone is pulling in the same direction.' For Mr Choo personally, the way he copes is through 'the outdoors'. 'I like to go snow skiing,' he says, although that's another problem in itself. 'The closest resort is at least nine hours away by plane and snow conditions are unpredictable.'

Thankfully other pursuits are less arduous. 'I try to find time to appreciate the visual arts and make it a point to visit art museums whenever I travel to other countries. Food and good wine is another interest of mine.'