1. 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
Giles David, finance director
Brighthouse
2011 PREVIEW The FD’s view
34 | www.financialdirector.co.uk | January 2011
Ready for the worst
This year is shaping up to be as challenging as the last. Richard Crump asks five
FDs what they think the next 12 months has in store
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 Tilson (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
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2. January 2011 | www.financialdirector.co.uk | 35
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.
What crucial advice would you give a
fellow FD for surviving 2011?
PP: It is vital to never become complacent
and to never compromise on your values
and strengths as a business and a brand.
Discounting, lowering the quality of your
offering or chasing short-term gains can
damage your brand for the long-term. For
2011, those that stick to their core values
and plan and invest for the long term will
prosper – but 2011 will be a difficult year
for the UK.
AB: Don’t ignore the Bribery Bill – it will
be a high risk to businesses. And cash is
still king.
NM: I would advise not to bet the farm in
any one direction. To be cautious on
strategy and be prepared to sacrifice a
little bit of return on equity to reduce the
risk of making a decision that turn out to
be bad call on the economy or your
business prospects and make you look like
a fool.
DT: If you have any refinancing
requirements coming up over the next 18
months to two years you should be
working on it now, as the process will
take longer than may have been
experienced in the past. The banks are still
clearly cautious about the outlook in
certain territories because of the tough
economic environment.
GD: You need to have the fundamentals
right, the ones that no one else will do.
Cash management, legal compliance etc
are the ones no one else will take off your
shoulders. Get the basics right then you
can get on with more strategic things.
What valuable lesson did you learn
about business in 2010?
AB: That there is quite a lot of resilience in
the great people working for us. I have also
learnt the importance of making proper
decisions quickly.
GD: I have learned to be more prepared to
change my mind, to believe the worst. It is
easy to become too optimistic. Optimism is
good to drive enthusiasm and as a
turnaround skill but it needs to be on a
steady trajectory. You need to look for
pitfalls.
NM: Our share price has gone up 40
percent despite us pulling back in our
market share. I learned that our
shareholders and analysts, if you educate
them about your strategy, can see reduced
market share to be a good thing. It means
that by communicating your strategy
clearly it doesn’t matter if it is different to
the market norm.
PP: The importance of staying close to
your customer, investing in your brand and
not forgetting your people. The
fundamentals of business have not changed
in 2010 but the fight for market share has
intensified. We have seen all successful
businesses look for ways to differentiate
and those that have seen most success have
been those that have continued to listen to
their customers.
DT: My perception is that there are not
many people in senior positions that have
experience navigating through such an
extremely tough downturn. The last one in
the UK was arguably in 1990. The skills
required to navigate a market like this are
not as widespread. People have been used
to generally experiencing a growth
environment.
What will be your most important
professional relationship in 2011?
DT: Given that I am undertaking a
refinancing project at present, banking
relationships are the most important
relationship I have. It is also critical that
Giles David
Paul Pomroy
Neil McConachie
➔David Tilson
I have learned to
be more prepared
to change my
mind – to believe
the worst
SEE OUR 2010 POLL AT
www.financialdirector.co.uk/1743197
034-037_FD_Jan11_FDs 2.qxp_The FD Interview 14/12/2010 16:15 Page 35

3. The FD’s view 2011 PREVIEW
January 2011 | www.financialdirector.co.uk | 37
continue to service our existing customer
base well in a period where we expect a
pretty dry market.
GD: For the FD it is always the CEO as a
starting point; you can’t let that
relationship slip. Banks are more important
than ever. We try our hardest to get them
on side and keep them on side.
PP: McDonald’s system ethos centres
around its relationships between its
suppliers, its franchisees and its employees
and in 2011 these relationships will
continue to be key. The support of the
franchisees, and in particular their ongoing
commitment to investing in their
businesses, will be vital. To this end, the
franchisees have enjoyed access to capital
from the key banks throughout the
economic crisis and this is expected to
continue to be central to success in 2011.
NM: Broker relationships are always
important, particularly in a softening
market. We are having difficult
conversations with our brokers. Where we
have supported clients in the last few years
but cannot do so this year is a difficult
message. You need a good relationship to be
able to give bad news and still get support.
How will spending cuts announced in
the CSR impact your business?
GD: Many of our customers rely on
benefits and customer affordability will
reduce. The timing of the CSR and the
review of the benefit system will be
negative, but it is manageable. There is
enough time to change our activity in line
with affordability.
AB: The Conservatives announced that all
media budgets would be slashed before the
CSR. We knew advertising would be seen
as an easy, low-hanging fruit. We will now
see the opposite of a zero-based budget so
anything you get is a positive. The issue is
allowing government debt to get rid of
uncertainty so that business can get back to
normal.
PP: The main impact to our business will
be the effect that the review has on
unemployment levels and ultimately on
consumer spending. We will need to stay
closer than ever to our customers to ensure
we are providing the great value that they
demand.
DT: The CSR is a positive thing for us in
the longer term. There will be an increased
move to outsource.
Given our experience in helping local
authorities to manage and reduce their cost
base, I think that there is a significant
growth opportunity in the long term.
However, the time taken to take such
outsourcing decisions will be long.
What are your expectations for the
economic climate over the next 12
months – and how will it shape your
business strategy?
NM: Honestly, I have no idea! That is an
answer more people should give. It is so
hard to predict that we will not make
business decisions based on where we
think the economic climate will be. It will
unfold as it unfolds. It is too uncertain to
make a call.
PP: It will be a challenging economic
climate characterised by increasing
unemployment, low consumer confidence
and a fight for market share. Our business
strategy will not change. We will continue
to stay connected to our customers, strive
to be the employer of choice and aim to
further improve the restaurant experience
with great food and service in a
contemporary environment at an
affordable price.
AB: We expect the climate to be as difficult
as it has been although there may be some
mild improvement. The question is what
will happen to overseas trade. The risk
we have is cash risk. Will countries like
Brazil and China shut their cash market
borders? There is more international risk
than last year.
DT: In our sector we expect a tough
economic environment. For the next 12
months we will focus on continuing to
reduce our cost base where possible and
keep a high focus on cash generation and
working capital management.
GD: It will be a tough year. We will plan
for worst and be conservative in our
projections. You must make sure there are
enough things in your control to deliver the
bottom line. It may be that 2011 will be
better but to expect it will be bad is a good
starting point. ■
If you educate
shareholders
about your
strategy, they can
see reduced
market share to
be a good thing
Andy Blackstone
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