FD Q&A: what to expect in 2011

Financial Director recently caught up with five FDS – David Tilston, group finance director, Mouchel Group; Paul Pomroy, vice president, finance, McDonald’s; Andy Blackstone, finance director, M&C Saatchi; Neil McConachie, finance director, Lancashire Holdings; and Giles David, finance director, Brighthouse – to find out their views on 2011.

What is the most pressing priority as an FD in 2011?

Paul Pomroy (PP): To ensure we continue to provide great value for our customers. With the VAT increase in January, increased economic uncertainty, consumer confidence levels low and austerity measures about to bite, our customers will be searching for value more than ever.

Our approach to pricing needs to be sensitive to this backdrop but value means more than just price. We must continue to maximise the experience in every one of our restaurants for every customer.

Andy Blackstone (AB): Revenue expansion and to carry on with our global expansion. It will be important to be very cautious. I have a gut feeling that this year will be a bit like last year. Everyone is going to be nervous.

David Tilston (DT): It is how we will go about completing a refinancing exercise that was launched late last year, whereby we are extending the maturity of our existing facility.

Neil McConachie (NM): For us it is a softening insurance market where we are paid less money for every dollar of risk. It is about maintaining margin. We must be willing to reduce the topline and shed accounts that don’t have sufficient margin.

What are the chief risks your business will face?

AB: We have got economic risk and then there is the whole issue of the Bribery Bill. It is yet another system the government has put in place but lawyers can’t give a definitive answer on what actually constitutes a bribe [in terms of non-monetary items] under the new rules. Bribes are generally 95 percent fraud, but some of the other areas are quite grey.

DT: We are very heavily exposed to government procurement and therefore the decisions taken as a result of the Comprehensive Spending Review (CSR) will have a major impact on trading. I think you will find that, while many decisions taken are positive for us in the long term, during the next 12 months there may be a hiatus on decisions on government spending and I anticipate lower trading.

Giles David (GD): For us it’s all about controlling growth. We have opened 30 stores in the last 12 months and have grown rapidly in the past five years. The skill is not to be knocked off that growth trajectory.

PP: Our business momentum over the past four years has been strong and, although we continue to outperform retail footfall trends, the risk of reduced consumer spending as a result of the austerity measures is an area of real concern.

The other area of risk to our business is inflation through our supply chain. Although we do all we can to achieve cost certainty across our key expense lines, like other businesses we are subjected to national and global pressures on commodity prices in particular.

NM: There are always the external insurance risks: earthquakes and hurricanes don’t go away. The other risk is that you worry too much about volume and market share. It is about pricing discipline and concentrating on return on equity.

What do you think will characterise the business world in 2011 - and why?

AB: It will be the impact of the internet as companies move online. In publishing you moved from print to online. If you look at the companies in our building, out of the seven floors, two of those are writing web and phone apps. There is a convergence going on with marketing and communications. We need to facilitate where it sits - is it PR or direct marketing?

DT: I think there will be continued uncertainty in the UK and the developed economies arising from the austerity measures governments have introduced. There will be very low growth and a recessionary environment. In less developed countries, there are opportunities and the potential for continued growth. There is going to be a balancing of the outlook driven by the spread of business between developed and less developed economies.

GD: I am naturally an optimist but it is going to be very tough to be an optimist. It will be a very tough year and the environment will be very difficult. The people that will succeed are the ones who can differentiate themselves.

NM: It will be confusion over the health of the economy. I expect different messages to come through with good news one week and bad news the next. The danger is overreacting in any one direction when that news hits.

PP: Successful companies will be those that continue to invest in their brand to build loyalty and trust. Customers will reward businesses that are relevant, affordable and consistent but at the same time show leadership and make progressive, innovative moves. I would expect to see more businesses struggle to survive through 2011 as the fight for value intensifies.