Hit the road Positive leadership for troubled times - ICAEW
Hit the road Positive leadership for troubled times - ICAEW
Hit the road Positive leadership for troubled times - ICAEW
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
NEWS<br />
News on <strong>the</strong><br />
financial front<br />
COMMODITIES<br />
Input inflation could come<br />
under more control if IMF’s<br />
<strong>for</strong>ecasts <strong>for</strong> commodity<br />
prices are right. In a recent<br />
report, it claimed: “The<br />
weak global economic<br />
outlook suggests<br />
commodity prices are<br />
unlikely to increase at <strong>the</strong><br />
pace of <strong>the</strong> past decade. In<br />
fact, under <strong>the</strong> baseline<br />
World Economic Outlook<br />
projections, commodity<br />
prices are <strong>for</strong>ecast to<br />
decline during 2012-13.<br />
Sizeable downside risks to<br />
global growth also pose<br />
risks of more downward<br />
adjustment in commodity<br />
prices.” Slower growth in<br />
China looks set to fuel this<br />
trend. Oil could be a major<br />
exception, with traders<br />
suggesting an average price<br />
above $130 a barrel <strong>for</strong><br />
much of 2012. Any armed<br />
conflict with Iran would see<br />
this higher by around 20%.<br />
CASH<br />
UK corporates have cash<br />
worth £754bn sitting on<br />
<strong>the</strong>ir balance sheets,<br />
according to Ross Walker of<br />
<strong>the</strong> Royal Bank of Scotland’s<br />
economics team. According<br />
to KPMG, if all UK defined<br />
benefit schemes had a<br />
mark-to-market funding<br />
valuation at 30 September<br />
2011, <strong>the</strong> aggregate deficit<br />
was £300bn.<br />
But according to evidence<br />
to <strong>the</strong> Commons Finance<br />
Committee in April by<br />
Robert Chote, chairman of<br />
<strong>the</strong> Office <strong>for</strong> Budget<br />
Responsibility. “There is a<br />
fair amount of cash out<br />
<strong>the</strong>re, but it is not clear it is<br />
in <strong>the</strong> hands of companies<br />
that might engage in capital<br />
investment to <strong>the</strong> extent<br />
<strong>the</strong> official figures suggest,”<br />
he said.<br />
FDS LEAD THE WAY ON OPTIMISM<br />
Judging by <strong>the</strong> pronouncements of <strong>the</strong><br />
Organisation <strong>for</strong> Economic Co-operation and<br />
Development (OECD) over <strong>the</strong> past couple of<br />
months, <strong>the</strong> UK is both in a double-dip<br />
recession – and on <strong>the</strong> <strong>road</strong> to recovery. At<br />
<strong>the</strong> end of March, it’s data suggested that UK<br />
output declined at an annual rate of 1.2% in<br />
<strong>the</strong> final quarter of 2011 and 0.4% in <strong>the</strong> first<br />
three months of 2012.<br />
But just two weeks later, according to its<br />
composite leading indicators (CLIs), which<br />
reliably predict <strong>the</strong> economic outlook <strong>for</strong> <strong>the</strong><br />
next six months, <strong>the</strong>re was an increase in UK<br />
economic activity in January and February.<br />
The OECD might be in two minds – but its<br />
more upbeat data was confirmed by <strong>the</strong><br />
Deloitte CFO Survey, where finance leaders<br />
expressed renewed optimism <strong>for</strong> <strong>the</strong>ir own<br />
businesses, albeit with some caution over<br />
<strong>the</strong> wider economy.<br />
True, on average <strong>the</strong>y assign a 30%<br />
probability to a double-dip recession – but<br />
FINANCE HEADS IN THE CLOUD<br />
that’s down from 54% in December. And<br />
<strong>the</strong>ir aggregate confidence <strong>for</strong> <strong>the</strong>ir own<br />
companies’ finances has risen at <strong>the</strong> fastest<br />
rate since <strong>the</strong> survey began in 2007. For <strong>the</strong><br />
first time in a year, higher numbers of CFOs<br />
are more optimistic about <strong>the</strong>ir own financial<br />
prospects than less so.<br />
That’s reflected in a new appetite – among<br />
<strong>the</strong> larger company CFOs, at least – <strong>for</strong><br />
risk-taking, which has also risen at record<br />
levels. But that appetite is focused on new<br />
product development. CFOs remain<br />
conservative on balance sheet issues, still<br />
looking to maximise cash and minimise<br />
new borrowing, see chart below.<br />
Deloitte reckons this is at least in part a<br />
function of global instabilities. Weak global<br />
growth, eurozone unpredictability and<br />
volatile commodity prices make tight balance<br />
sheet management – and, in particular, <strong>the</strong><br />
near record levels of cash being held by UK<br />
corporates – sensible course of action.<br />
Corporate priorities – percentage of CFOs who rated each of <strong>the</strong> following as a strong priority <strong>for</strong> <strong>the</strong>ir business<br />
Introducing new products/services or<br />
expanding into new markets<br />
Reducing costs<br />
Increasing cashflow<br />
Expanding by acquisition<br />
Increasing capital expenditure<br />
Reducing leverage<br />
Disposing of assets<br />
Raising dividends or share buybacks<br />
The increasingly strategic role <strong>for</strong> IT –<br />
particularly as new technologies like cloud<br />
computing change business models – is<br />
<strong>for</strong>cing finance directors to up <strong>the</strong>ir geek<br />
game. That’s <strong>the</strong> central finding of a survey<br />
Google conducted earlier this year into <strong>the</strong><br />
strategic impact of IT.<br />
Nearly 67% of <strong>the</strong> senior financial<br />
decision-makers questioned said “cloud” has<br />
highlighted <strong>the</strong> IT department’s contribution<br />
to corporate strategy. Half <strong>the</strong> respondents<br />
think this will result in closer involvement in<br />
decisions traditionally seen as <strong>the</strong> preserve of<br />
<strong>the</strong> IT function or CIO. And 93 per cent said<br />
10 % 20 % 30 % 40 % 50 %<br />
2012 Q1<br />
2011 Q1<br />
that cloud computing would be important to<br />
<strong>the</strong> success of <strong>the</strong>ir company in <strong>the</strong> next year<br />
to 18 months.<br />
“Enterprise cloud adoption has been<br />
largely driven by <strong>the</strong> IT function,” said<br />
Thomas Davies, head of Google Enterprise <strong>for</strong><br />
<strong>the</strong> UK and Ireland. “However, today we see<br />
ourselves having more discussions with<br />
CFOs, COOs and CEOs. The strategically<br />
significant role [cloud] can play within an<br />
organisation in terms of driving innovation<br />
and productivity is making it an increasingly<br />
attractive option <strong>for</strong> businesses that want to<br />
remain competitive and agile.”<br />
FINANCE & MANAGEMENT MAY 2012<br />
5