Soldiers of misfortune: FDs ready to take on recession

This time around, with the banking sectors in the UK and the US caving in, FDs report less renegotiation of existing credit arrangements. In 2008, the most popular route to refinancing was to renegotiate existing credit lines to obtain more cash, with 56% of the vote; that compares with 33% that chose this in 2009. In joint third place this time were the options of a new share issue to raise capital, or a business unit spin-off. Refinancing through asset-based finance or lending dropped from second place last year to fourth this year. “Funding, liquidity, funding, liquidity, funding, liquidity", was one FD's quip when asked what is most important now. Unfortunately, their bankers have the same predicament.

Good relationships
Curiously, though, this has put some in a position of strength. FDs tell us their relationship with their bankers and principal finance providers is holding up well. A 43% chunk of respondents say there is no change in the relationship ­ though that's down on the 72% that agreed with this statement in 2008 ­ while about 7% say the relationship has actually improved since last time we asked. Though 29% report that the cost of credit to them increased significantly (relative to Bank rate) in the past six months, only 12% say they have had their credit limits curtailed or even withdrawn in that period and 10% say they've had tougher covenants imposed on their finance agreements in that period.

That said, FDs are vociferous on what they think the government needs to do to help the economy, mostly lambasting Messrs Brown and Darling for the failure to get bank lending going again ­ from the banks they now control, by and large ­ and instead taking what they see as pointless actions such as cutting VAT. “The government needs to bring some sort of confidence back to the economy and forcing the banks to readjust lending criteria on mortgages4 would certainly help our business," says one FD for a building company.

Another believes that Brown and Darling “need to get lending to companies going again ­ if that means giving banks guarantees so that they lend to one another and Libor falls as a result, then great."

The government announced it was going into the insurance business a fortnight after our survey closed, saying it would guarantee banks against the effect of defaults if they started lending again, which, interestingly, answered one of the solutions many FDs wanted to see. But respondents were strong in their condemnation of the government's softly-softly approach to recession. The VAT rate cut, not forcing banks to lend and not being creative in finding ways to help business through various other tax relief options all came up.

“The priority is not lower base rates, which is a bit like pushing on a piece of string, but to get the banking system lending again," one FD says. “I have no faith that the government has understood this, let alone that it has any clue how to do it." Another says, “Rather than reducing VAT, the government should have injected cash into pockets via personal allowances."

FDs suggest to us everything from using tax breaks to reduce insolvency risk and stimulate investment in employment and business, to reducing corporation tax, cutting National Insurance contributions and even compliance burdens. But a good number simply say they think the government should “stop tinkering" with the economy and let nature take its course. This chimes with what they told us last year ­ that a recession is badly needed as a ‘reality check' on fuelling the last decade of growth on the back of credit.

What’s needed
What is now most crucial to FDs? Not just getting cash in the door (though some FDs tell us their top concern is “keeping their job” and “getting paid” ­ not many respondents let on to us that they are in such dire straits).

Many FDs now feel under pressure to find ways to save money, with headcount reduction being the most popular route, but mindful of the risk. Nobody knows when recovery will kick in and companies won’t want to cull good people, only to have to find more people in a few months’ time who may not be as good. Many FDs say they feel keeping up morale and confidence among staff at all levels of their company is key to them.

One FD says the top priority in 2009 is “keeping confidence of the group in the ability to maintain revenue and resisting the tendency of the group to demand headcount reduction when this would definitely reduce revenue.” “Keeping everyone’s respect” and “remaining positive” listed regularly in FDs’ priorities.

Perhaps 2009 will be the year of the FD. It will certainly be the year getting the numbers right really counted 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.”

See the full survey at www.financialdirector.co.uk/surveys