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FD opinion poll: the challenges ahead

Providing our cross-section in 2009 are Craig Smith, finance
director for the Management Consulting Group; Jo Knowles,
finance director for the charity Voluntary Service Overseas; Richard
Pennycook
, finance director at supermarkets giant Wm Morrison;
Stuart Bridges, finance director of FTSE-350 insurance
underwriter Hiscox; and Martyn Wates, chief financial officer
for the Co-operative Group.

What is your most pressing priority as an FD in 2009?
Craig Smith: Cash and debt management. We need to ensure we
generate as much cash as possible out of our operations.

Jo Knowles: Managing the impact of sterling’s decline to
protect our international programme work.

Richard Pennycook: Being totally focused on continuing to
win customers by offering great value.

Stuart Bridges: To ensure that capital is deployed to the
businesses where returns can be maximised, while controlling insurance risk
(aggregates) and the risks of expansion ­ we will also look to double our number
of US offices.

Martyn Wates: Successfully integrating the Somerfield
business.

2008 was all about financial market corporate failures. What do you
think will characterise the business world in 2009 and why?

Smith: There will be further corporate failures in sectors such
as manufacturing and retail. The lean, well-managed, cash-rich businesses will
survive and be stronger when confidence improves.

Knowles: My world will probably be characterised by worries
about income, particularly expectations around charitable fundraising in a
recessionary context.

Pennycook: A deep recession ­ many high-profile business
failures, good companies in distress, and a significant rise in unemployment.
This will happen because consumers will continue to reduce spending regardless
of any attempts at stimulating demand.

Bridges: The UK economy will continue to weaken and we will
see increasing numbers of corporates with difficulties. Consumer spending will
continue to weaken.

Wates: A new austerity as people and businesses bunker down
to ride out the storm. With luck we will start to emerge as the year closes ­
but people and businesses will have changed their behaviour, thought processes,
and the way they act.

The FTSE fell 35% from 6,457 at the close of 2007 to 4,153 at the end
of November 2008. What is your expectation for the index at the close of
2009?

Smith: I expect the market to recover in H2 2009. Perhaps 4,500
by year end.

Knowles: Don’t know.

Pennycook: 4,350.

Bridges: I can’t predict where the FTSE will end in 2009 but
I do believe that it will continue to show significant volatility. Many of the
FTSE valuation metrics make it look very good value but the actual profit and
cashflow of companies assuming several years of weak economic conditions need to
be factored in.

Wates: 4,400.

What crucial advice would you give to a fellow FD for riding out
2009?

Smith: Be conservative and go back to basics.

Knowles: To focus on costs and take the long-term view.

Pennycook: It is important to understand the security of
each of your sources of credit and invest a high proportion of your time
ensuring that they remain available to you.

Bridges: Cash is king and liquidity is the key. The old
adage of raising capital and debt when you can, not when you need it is proving
very true. The advice is to make cashflow the top priority.

Wates: Get back to basics, focus on costs, particularly
those that don’t add real value. Remember cash is king ­ the optics of the
financial statements are secondary; concentrate your efforts where you can make
a difference, for example, by controlling what you can influence, and mitigating
what you can’t.

FD as soothsayer in the year all bets were off
When Financial Director ran this opinion poll with previous interviewees at the
close of 2007, with recession barely a glint in the devil’s eye, the feeling
that something was brewing – but that we had to avoid contagion – was pervasive.
With hindsight, the accuracy with which our FDs predicted the power of emotion
to drive the economy is impressive.

“The danger is that warnings of recession become self-fulfilling”, said Rugby
Football Union’s FD Nick Eastwood, while Asda’s CFO Judith McKenna said that,
“We must make sure we don’t talk ourselves into a bigger crisis”.

The icing on the cake was their advice to other FDs in 2008. “Be prepared for
any adverse trends in consumer behaviour,” was the nugget from William Hill’s
group FD Simon Lane.

Standard Life’s David Nish perfectly summed up the trouble ahead. “Expect the
unexpected and be clear about the level of performance you can control and
influence.

Ensure contingency plans are robust and tested – taking things for granted
can be risky,” he said.

As the FTSE-100 soared at 6,310 on the day in 2007 we polled our FDs, only
one was brave enough to take a punt on the result at the end of 2008.
Computacenter’s Tony Conophy predicted a modest rise to 6,500 points: as we
write this, in mid-December, it lay battered at 4,049 – 4,000 being the level at
which traders start to spontaneously combust.

Conophy wasn’t alone in being wrong: William Hill’s Lane and RFU’s Eastwood
expected no change, while Asda’s McKenna and Standard Life’s Nish saved any
potential blushes and left us without a number. They must have figured it would
be irrationally exuberant to call what we now know is one of the greatest
periods of uncertainty since… the last one.

See our interviews with leading FDs at
www.financialdirector.co.uk/interviews.

For more Financial Director interviews, go to
Jo
Knowles
and
Craig
Smith
.

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