This year's The Economist CFO Summit brought together a number
of finance leaders, looking to drive growth in a challenging
Timotheus Höttges, Chief
Financial Officer, Deutsche Telekom
The World in 2013
Alaisdair Ross, Global Product Director at Economist
Intelligence Unit, opened the conference by describing the cautious
optimism with which many businesses were approaching 2013. "This
year I hope to be more cheerful than on previous occasions," he
stated, before adding; "We can see recovery coming but it's a
difficult path to get there."
In terms of the global economy, he highlighted six countries,
Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa, as
those to watch this year. This group of nations, referred to as
"CIVETS", each has a young, growing population, a diverse economy
and a relatively stable political system.
Source: Alaisdair Ross, Global Product Director at Economist
Intelligence Unit, presentation at the CFO Summit 2013
China and India were underlined has the countries which would
see the highest levels of growth. China's economy in particular, is
expected to grow by 8.5 per cent in 2013, which may represent a
downturn compared to previous years, but should be viewed as a move
towards "long term stability."
Turning his attention to the Eurozone, Ross explained that the
situation was moving from "crisis to chronic [issues]" and that
although definite progress has been made, much remains to be done.
Speaking about the UK, he suggested that the current austerity
programme could continue for another decade.
Andrew Palmer, Finance Editor, The Economist
On a more positive note, increased consumer spending in Asia was
singled out as an important opportunity for British companies
looking to increase revenue. This point was echoed by Rt Vince
Cable MP, Secretary of State, Department for Business Innovation
and Skills, who described Britain's output towards emerging
markets, during the past decades as "dire".
Managing corporate assets during a period of economic stagnation
is one of the key challenges currently facing finance leaders.
Kenneth Gregor, CFO at Jaguar Land Rover (JLR), explained that
despite the economic downturn, JLR had continued to support its
investment programme. This strategy ensured the company was ready
with new products when the economy began to recover.
Ben Stevens, Finance Director and Chief Information Officer at
British American Tobacco
Ben Stevens, Finance Director at British American Tobacco,
discussed the necessity of a global approach, particularly when
some parts of the world were struggling. In terms of business
strategy, Stevens advocated the need for FMCG companies to invest
in markets characterised by strong population and GDP growth. In
addition, British American Tobacco took advantage of the current
climate to implement a number of cost transformation initiatives;
"We took the opportunity to drive through cost savings and to
emerge stronger from the recession."
When asked if they had also taken advantage of the current
climate to invest in cost saving operations, each of the panellists
replied affirmatively. Gregor said JLR was in the process of
installing an SAP system and Dr Frank Weigand, Chief Financial
Director at RWE Generation, explained that although he was involved
in cost saving initiatives, they would have been carried out
regardless of the economic climate.
Speaking on the recent resurgence of manufacturing in the West,
Gregor downplayed the notion that onshoring was the short and
medium term future of manufacturing. "In Europe it is the case that
growth calls for jobs and governments see the automotive industry
as valuable in this respect," he said. "Wage rates will eventually
catch up but that is a long term development, manufacturing will
remain cheaper in the East." Stevens agreed but added that in
certain cases onshoring was increasingly attractive.
From left to right: Paul Dennis, Senior Director at CEB, Dr Frank
Weigand, Chief Financial Officer at RWE Generation, Kenneth Gregor,
Chief Financial Officer at Jaguar Land Rover, Ben Stevens, Finance
Director and Chief Information Officer at British American
The CFO's Great Balancing Act
Modern CFO's are expected to advise the board on how best to
make savings, whilst simultaneously driving company growth. This
challenge is particularly relevant in fast moving markets, where
businesses have to balance strategic, long term planning with
reactive initiatives. This is particularly relevant in the
"In the telcoms industry, maybe flat is the new up," explained
Timotheus Höttges, Chief Financial Officer at Deutsche Telekom. "We
are in a very, very tough environment and facing different
challenges from multiple angles." He listed high capital lockup,
increasingly short product lifecycles, a shrinking core business
and asymmetric regulations, as the main concerns for the industry
Timotheus Höttges, Chief Financial Officer, Deutsche Telekom
Speaking more generally, Höttges explained that CFOs of leading
organisations also need to tackle the challenge of simultaneously
serving the interests of various interest groups. Entrepreneurs,
for example, want investments to be made in innovative solutions,
M&A, security planning and related areas. On the other hand,
the debt market wants assurance that debts are secured. The most
important group is the consumers, who demand low prices and high
"I will not [separately discuss] cost management, because in
this environment, when you are always managing a decline in your
revenue streams, cost management and productivity gains are always
a must do."
For Höttges there are three guiding principles for any finance
leader looking to manage these challenges. The first is to focus on
avoiding surprises. Höttges pointed out that there was more to risk
management than simply reading reports in the press; "We are
measuring 50 KPIs for each of our markets and getting a better
picture on future developments." It is also essential to map out
the potential impact of the threats facing a business. For example,
what would happen if the dollar declines by a euro cent? Or if a
strategic supplier was unable to deliver.
Höttges' second principle is "Be Focused". This strategy is
based on the sound allocation of capital. Here Höttges recommends
focusing on the areas you are good at. He cited several telecoms
companies which spread their resources too thinly by investing in
new markets. The final principle is "Be Reliable", which again
highlights the need to balance the interests of the company with
those of multiple stakeholders.
Today's CFOs find themselves in a position where they have to
guard against an increasing number of threats, whilst driving
business growth. The challenge for finance leaders is to
successfully mitigate threats and ensure that tighter margins do
not translate into a lack of preparedness.
Ainsworth, Managing Director at 4C Associates, pointed out that
the continued global expansion of many companies was opening them
up to new risks. He underlined the need for businesses to call on
an external viewpoint, or simply other members of staff, to gain
fresh insights into this area. "The key for leading companies is to
find a way of optimising cost and risk," he said. "An important
element of this is recognising new threats, such as the risk of
new, more agile, low cost entrants, into the market."
From left to right: Julian Metherell, CFO and Executive
Director at Genel Energy, Jean Drouffe, Group Finance, Risk and
Strategy Director at AXA UK and Ireland, Edward Ainsworth, Managing
Director at 4C Associates, Mark Morris, Finance Director at Rolls
Royce, Jeff van der Eems, Chief Operating Officer and CFO at United
Jean Drouffe, Group Finance, Risk and Strategy Director at AXA
UK and Ireland, agreed, and added that as insurance is being
increasingly distributed online, new competitors were entering the
market. Drouffe, highlighted easily accessible data as the main
reason companies such Google, Tesco and car manufacturers, were
beginning to move into the insurance sector. Remaining vigilant and
learning from the mistakes of others, were seen as key elements for
any company wishing to remain successful.
Companies which remain successful despite the economic landscape
remain greatly affected by the current climate of austerity. Mark
Morris, Finance Director at Rolls Royce explained that although
Rolls Royce as a company could benefit from opportunities resulting
from the crisis, other partners were not in the same situation. "We
have access to cheap funding but many of our own suppliers do not,"
he said. Morris also highlighted the sheer complexity of some of
the industry's products as a potential risk. Most recently, Boeing
saw its new Dreamliner range grounded after a series of technical
issues caused concern.
Leading companies are thinking much more carefully about what
risks they are taking and communicating these to investors. This
allows for an approach focused on mitigating or eliminating
threats. Ainsworth pointed out that by doing this in a structured
way, company value can be increased. Julian Metherell, CFO
and Executive Director at Genel Energy agreed and explained that at
Genel, investors understand their exposure to the Middle Eastern
and North African oil markets and consequently demand a high return
on equity. On the other hand, investors are not expecting
risks to be run with funds secured on the overnight market.
The panel ended with a discussion regarding longer term risks,
such as changing demographics and climate change. Jeff van der
Eems, Chief Operating Officer and CFO at United Biscuits, employs a
"shooting duck strategy" to ensure UB stays on top of consumer
trends. This entails predicting future changes in consumer
behaviour and reacting to them slightly before they take place. The
difficulty lies in ensuring changes are not made too soon or too
late. "Snacking has been going on for years and this is an industry
in which changes happen slowly," he said. "We have already removed
trans-fat and palm oil from our products and will continue to
evolve with our customers."
Steering the Business
The tone of 2013's CFO Summit was undoubtedly more hopeful than
in previous iterations. Many finance leaders are cautiously
optimistic about what their businesses will be able to achieve in
the coming years. Although the Eurozone crisis is still very much a
cause for concern, Mario Draghi's pledge to do "whatever it takes"
to save the single currency has helped dissipate a number of fears.
Many of the speakers also pointed to the rise in purchasing power
in emerging nations as a key opportunity for long and short term
On the other hand, none of those present believed the coming
years would be easy for any industry. Driving growth, be it through
cost transformation, sound investments or risk management,
continues to be a key concern for businesses. In this context, many
stakeholders will look to finance leaders to carry out the complex
balancing act that has come to be seen as the role of the CFO.
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