FDs confident despite continuing crisis

Last summer
Financial
Director magazine ran its first litmus test of finance directors’
feelings about the credit crunch, where the UK economy was headed and what it
meant for them. At that time, FDs revealed they were readying themselves for a
prolonged downturn, planning to reduce headcount and scale back discretionary
spends such as investment in IT systems or travel and entertainment budgets.

Well over half said the credit crunch hadn’t forced any changes to existing
strategies and plans and about the same number thought the crunch was an
opportunity to actively seek discounted acquisition targets in 2009 ­ though
many thought financing and financing terms could end up being prohibitive given
that credit markets were drying up fast.

None of us could have anticipated just how dry the credit river was about to
run. In the 20 weeks that followed the survey, we witnessed one worst-case
scenario after another, from the Lehmans collapse, the total seizure of credit
markets on both sides of the Atlantic, leading to Alistair Darling’s vast bank
bailout, an emergency VAT cut and a mass march of high street brands into
administration ­ led by pick ‘n’ mix icon Woolworths.

All of this strangled the last vestiges of hope that we weren’t heading for
recession.

Here we go again

Last month, to see if sentiment had followed the economy south, many of the
same questions posed last summer were put back before finance directors. What
was found was one of the only groups in the corporate world not reporting
wide-scale and devastating change to their jobs, situations and outlook.

FDs remain surprisingly upbeat about their chances of survival, about riding
out what most think is going be a deep recession and a vast financial regime
change, about their financing, the skills of their finance teams and, crucially,
their own abilities. Of the 155-strong FD cross-section polled, half tell us
they are confident in their own skills to face the challenges ahead and a
further 43% say they are ‘very confident’.

Forty-four percent have high confidence in the skillset of their finance
function to help survive recession ­ almost holding steady at just 3% lower than
six months ago ­ while those ticking the top ‘very confident’ box for that
question rose a few percentage points to 39%.

We asked FDs the areas of their business in which it was most likely they
would make cuts, choosing their most important area, then a second and third.
Surprisingly, only 33% said staffing was their first port of call this year ­
and even more surprising was the fact that this represents just a 6% rise on
last year’s figures for that option. Those hoping to uphold the status quo
dropped away sharply in the period between the two polls, with just 9% of
respondents saying they plan to make no cuts at all, compared with 30% last
year.

Systems investments, M&A activity and travel and entertainment are a
shade more popular as first choices this year, the latter being the most poplar
option in the ‘second choice’ list and first in the ‘third choice’ list.

As the economy contracts sharply, so too are the bonuses board level
executives enjoyed throughout the credit boom; this ranked higher as a first
choice, with 7% putting this first in a list of cuts this year, compared with 3%
in 2007 who chose board-level bonuses as first in line for the chop.

Despite heightened awareness of the growing financial and regulatory burden
on pension schemes, cutting contributions figured last in FDs’ minds, showing no
real change on 2008’s figures.

The critical question of funding was illuminating. When we asked if FDs had
been forced to refinance their business this year, 13% said yes compared with 9%
in 2008, making reassuring reading. Of those who say they had to refinance since
last summer, 44% found a new finance provider altogether, making it the top
response. This wasn’t offered as an option last year.

Perhaps 2009 will be the year of the FD. It will certainly be the year when
getting the numbers right really counts ­ and who better to look to for that
reassurance than the finance director? As one FD says: ‘If we can survive while
all around us are losing their heads, as they say, then there should be
significant rewards in being the last man standing.’

This is a version of an article that first appeared in
Financial Director
magazine