David Tilston, group finance directorMouchel GroupPaul Pomroy, vice president, financeMcDonald’sAndy Blackstone, finance directorM&C SaatchiNeil McConachie, finance directorLancashire HoldingsGiles David, finance directorBrighthouse

2011 PREVIEW The FD’s view

34 | www.financialdirector.co.uk | January 2011

Ready for the worstThis year is shaping up to be as challenging as the last. Richard Crump asks fiveFDs what they think the next 12 months has in store

What is the most pressing priority asan FD in 2011?Paul Pomroy (PP): To ensure we continueto provide great value for our customers.With the VAT increase in January,increased economic uncertainty, consumerconfidence levels low and austeritymeasures about to bite, our customers willbe searching for value more than ever.

Our approach to pricing needs to besensitive to this backdrop but value meansmore than just price. We must continue tomaximise the experience in every one ofour restaurants for every customer.

Andy Blackstone (AB): Revenueexpansion and to carry on with our globalexpansion. It will be important to be verycautious. I have a gut feeling that this yearwill be a bit like last year. Everyone is goingto be nervous.

David Tilson (DT): It is how we will goabout completing a refinancing exercisethat was launched late last year, wherebywe are extending the maturity of ourexisting facility.

Neil McConachie (NM): For us it is asoftening insurance market where we arepaid less money for every dollar of risk. It isabout maintaining margin. We must bewilling to reduce the topline and shedaccounts that don’t have sufficient margin.

What are the chief risks yourbusiness will face?AB: We have got economic risk and thenthere is the whole issue of the Bribery Bill.It is yet another system the government hasput in place but lawyers can’t give adefinitive answer on what actuallyconstitutes a bribe [in terms of non-monetary items] under the new rules.Bribes are generally 95 percent fraud, butsome of the other areas are quite grey.

DT: We are very heavily exposed togovernment procurement and therefore thedecisions taken as a result of theComprehensive Spending Review (CSR)will have a major impact on trading. I thinkyou will find that, while many decisionstaken are positive for us in the long term,during the next 12 months there may be ahiatus on decisions on governmentspending and I anticipate lower trading.

Giles David (GD): For us it’s all aboutcontrolling growth. We have opened 30stores in the last 12 months and havegrown rapidly in the past five years. Theskill is not to be knocked off thatgrowth trajectory.

PP: Our business momentum over the pastfour years has been strong and, althoughwe continue to outperform retail footfalltrends, the risk of reduced consumerspending as a result of the austeritymeasures is an area of real concern.

The other area of risk to our business isinflation through our supply chain.Although we do all we can to achieve costcertainty across our key expense lines, likeother businesses we are subjected tonational and global pressures oncommodity prices in particular.

NM: There are always the externalinsurance risks: earthquakes andhurricanes don’t go away. The other risk is

that you worry too much about volumeand market share. It is about pricingdiscipline and concentrating on returnon equity.

What do you think will characterisethe business world in 2011 – and why?AB: It will be the impact of the internet ascompanies move online. In publishing youmoved from print to online. If you look atthe companies in our building, out of theseven floors, two of those are writing weband phone apps. There is a convergencegoing on with marketing andcommunications. We need to facilitatewhere it sits – is it PR or direct marketing?

DT: I think there will be continueduncertainty in the UK and the developedeconomies arising from the austeritymeasures governments have introduced.There will be very low growth and arecessionary environment. In lessdeveloped countries, there areopportunities and the potential forcontinued growth. There is going to be abalancing of the outlook driven by thespread of business between developed andless developed economies.

GD: I am naturally an optimist but it isgoing to be very tough to be an optimist. Itwill be a very tough year and theenvironment will be very difficult. Thepeople that will succeed are the ones whocan differentiate themselves.

NM: It will be confusion over the health ofthe economy. I expect different messages tocome through with good news one weekand bad news the next. The danger isoverreacting in any one direction whenthat news hits.

PP: Successful companies will be those thatcontinue to invest in their brand to buildloyalty and trust. Customers will reward

034-037_FD_Jan11_FDs 2.qxp_The FD Interview 14/12/2010 16:15 Page 34

January 2011 | www.financialdirector.co.uk | 35

businesses that are relevant, affordable andconsistent but at the same time showleadership and make progressive,innovative moves. I would expect to seemore businesses struggle to survivethrough 2011 as the fight for valueintensifies.

What crucial advice would you give afellow FD for surviving 2011?PP: It is vital to never become complacentand to never compromise on your valuesand strengths as a business and a brand.Discounting, lowering the quality of youroffering or chasing short-term gains candamage your brand for the long-term. For2011, those that stick to their core valuesand plan and invest for the long term willprosper – but 2011 will be a difficult yearfor the UK.

AB: Don’t ignore the Bribery Bill – it willbe a high risk to businesses. And cash isstill king.

NM: I would advise not to bet the farm inany one direction. To be cautious onstrategy and be prepared to sacrifice alittle bit of return on equity to reduce therisk of making a decision that turn out tobe bad call on the economy or yourbusiness prospects and make you look likea fool.

DT: If you have any refinancingrequirements coming up over the next 18months to two years you should beworking on it now, as the process willtake longer than may have beenexperienced in the past. The banks are stillclearly cautious about the outlook incertain territories because of the tougheconomic environment.

GD: You need to have the fundamentalsright, the ones that no one else will do.Cash management, legal compliance etcare the ones no one else will take off yourshoulders. Get the basics right then youcan get on with more strategic things.

What valuable lesson did you learnabout business in 2010?AB:That there is quite a lot of resilience inthe great people working for us. I have alsolearnt the importance of making properdecisions quickly.

GD: I have learned to be more prepared tochange my mind, to believe the worst. It iseasy to become too optimistic. Optimism isgood to drive enthusiasm and as aturnaround skill but it needs to be on asteady trajectory. You need to look forpitfalls.

NM: Our share price has gone up 40percent despite us pulling back in ourmarket share. I learned that ourshareholders and analysts, if you educatethem about your strategy, can see reducedmarket share to be a good thing. It meansthat by communicating your strategyclearly it doesn’t matter if it is different tothe market norm.

PP:The importance of staying close toyour customer, investing in your brand andnot forgetting your people. Thefundamentals of business have not changedin 2010 but the fight for market share hasintensified. We have seen all successfulbusinesses look for ways to differentiateand those that have seen most success havebeen those that have continued to listen totheir customers.

DT:My perception is that there are notmany people in senior positions that haveexperience navigating through such anextremely tough downturn. The last one inthe UK was arguably in 1990. The skillsrequired to navigate a market like this arenot as widespread. People have been usedto generally experiencing a growthenvironment.

What will be your most importantprofessional relationship in 2011?DT: Given that I am undertaking arefinancing project at present, bankingrelationships are the most importantrelationship I have. It is also critical that

Giles David

Paul Pomroy

Neil McConachie

➔David Tilson

I have learned tobe more preparedto change mymind – to believethe worst

SEE OUR 2010 POLL ATwww.financialdirector.co.uk/1743197

034-037_FD_Jan11_FDs 2.qxp_The FD Interview 14/12/2010 16:15 Page 35

The FD’s view 2011 PREVIEW

January 2011 | www.financialdirector.co.uk | 37

continue to service our existing customerbase well in a period where we expect apretty dry market.

GD: For the FD it is always the CEO as astarting point; you can’t let thatrelationship slip. Banks are more importantthan ever. We try our hardest to get themon side and keep them on side.

PP:McDonald’s system ethos centresaround its relationships between itssuppliers, its franchisees and its employeesand in 2011 these relationships willcontinue to be key. The support of thefranchisees, and in particular their ongoingcommitment to investing in theirbusinesses, will be vital. To this end, thefranchisees have enjoyed access to capitalfrom the key banks throughout theeconomic crisis and this is expected tocontinue to be central to success in 2011.

NM: Broker relationships are alwaysimportant, particularly in a softeningmarket. We are having difficultconversations with our brokers. Where wehave supported clients in the last few yearsbut cannot do so this year is a difficultmessage. You need a good relationship to beable to give bad news and still get support.

How will spending cuts announced inthe CSR impact your business?GD:Many of our customers rely onbenefits and customer affordability willreduce. The timing of the CSR and the

review of the benefit system will benegative, but it is manageable. There isenough time to change our activity in linewith affordability.

AB:The Conservatives announced that allmedia budgets would be slashed before theCSR. We knew advertising would be seenas an easy, low-hanging fruit. We will nowsee the opposite of a zero-based budget soanything you get is a positive. The issue isallowing government debt to get rid ofuncertainty so that business can get back tonormal.

PP:The main impact to our business willbe the effect that the review has onunemployment levels and ultimately onconsumer spending. We will need to staycloser than ever to our customers to ensurewe are providing the great value that theydemand.

DT:The CSR is a positive thing for us inthe longer term. There will be an increasedmove to outsource.

Given our experience in helping localauthorities to manage and reduce their costbase, I think that there is a significantgrowth opportunity in the long term.However, the time taken to take suchoutsourcing decisions will be long.

What are your expectations for theeconomic climate over the next 12months – and how will it shape yourbusiness strategy?NM: Honestly, I have no idea! That is ananswer more people should give. It is sohard to predict that we will not makebusiness decisions based on where wethink the economic climate will be. It willunfold as it unfolds. It is too uncertain tomake a call.

PP: It will be a challenging economicclimate characterised by increasingunemployment, low consumer confidenceand a fight for market share. Our businessstrategy will not change. We will continueto stay connected to our customers, striveto be the employer of choice and aim tofurther improve the restaurant experiencewith great food and service in acontemporary environment at anaffordable price.

AB:We expect the climate to be as difficultas it has been although there may be somemild improvement. The question is whatwill happen to overseas trade. The riskwe have is cash risk. Will countries likeBrazil and China shut their cash marketborders? There is more international riskthan last year.

DT: In our sector we expect a tougheconomic environment. For the next 12months we will focus on continuing toreduce our cost base where possible andkeep a high focus on cash generation andworking capital management.

GD: It will be a tough year. We will planfor worst and be conservative in ourprojections. You must make sure there areenough things in your control to deliver thebottom line. It may be that 2011 will bebetter but to expect it will be bad is a goodstarting point. ■

If you educateshareholdersabout yourstrategy, they cansee reducedmarket share tobe a good thing

Andy Blackstone

034-037_FD_Jan11_FDs 2.qxp_The FD Interview 14/12/2010 16:03 Page 37