Financial Director, CFO: How do you manage the fallout from Brexit?
By Bruno Leblanc, EMEA Managing Director Planning, Sigma Conso
Everyone knew that Brexit was a possibility, but few companies anticipated it. The first obvious consequences, outside of companies in the United Kingdom, are for European companies that have subsidiaries or significant trade with the United Kingdom. In both instances, the first impact has been on currencies: the pound sterling plunged against the Euro the day after 23 June. What happens to dividends, payments in pounds, etc.? Products may also become less attractive or less competitive as a result of exchange effects. Regardless if your business is in direct contact with the United Kingdom or not, a fairly long period of uncertainty has begun for all European companies.
How do you anticipate the impact on results? According to the experts at Deloitte, Brexit swept away the optimism of British CFOs: only 8% now voice confidence about the future (1) and 63% are anticipating a drop in their company’s turnover over the coming years as a result of the risk of recession, a drop in purchasing power, revised community exchanges, revised interest rates, etc.
A PWC study shows that initial public offerings decreased by 46% in Europe in the second quarter of 2016 (2) as a result of Brexit, falling from 125 to 95 (-23% compared to the same period in 2015).
Given this environment, how can a CFO provide information about future projects and realities? The 2017 budgeting and forecasting exercise is difficult with, in addition, upcoming elections in the United States, Germany and France compounding the economic uncertainty.
The consequences will impact all companies in the United Kingdom and Europe, and potentially worldwide. Initial analyses vary significantly and new uncertainties are now replacing some that our companies had begun to overcome.
How can CFOs manage uncertainty and provide more visibility to executive management, shareholders, analysts and all other parties and stakeholders in an ecosystem which has now become very unstable?
Provide good financial communication
Reliable financial communication is more indispensable than ever for both internal audiences, such as executive management, and external ones like analysts and road shows given that we are in a period of such uncertainty.
Being first to announce results or prospects can provide a significant competitive advantage. However, you have to be sure of your data’s reliability and have enough information to ensure that you won’t trip up on a relevant question, or worse, see all of your work destroyed by contradictory information on your company’s website. The modern CFO, or at least their teams, can reap the benefits of collaborative technologies that link performance management system data to presentation tools without disrupting the chain and ensure overall information consistency and significant time savings and productivity gains.
Provide information on the prospects for several years
Providing visibility about the consequences of decisions taken today and the direction taken by your company is key to reassuring the markets and the various stakeholders. Depending on your business, this can range from a three-year strategic plan to a 10-year period in the case of industries which require heavy investment, debt and have a slow return on investment. Your planning tool must be agile and quick to implement to be able to provide major trends in-house to define the key aspects of the 2017 budget. The information must be consistent with all of the information disclosed, notably to the markets.
Anticipate potential risks and model them
The risks of these events are difficult to anticipate and the consequences of Brexit will also depend to a large extent on how and when the United Kingdom finally leaves the European community. Using tools that integrate and model risk can be a major asset for your business, financing, management and shareholders and will provide reassurance and legitimise your forecasts. Only a few technologies enable easy and exhaustive integration of risk in your assumptions, enabling measurement of its true impact on your business and on financial aspects.
Create detailed forecasts with several alternative operational and financial schedules
It’s difficult to anticipate events; however, it’s essential to be able to provide a detailed forecast of future changes in sales, human resources, marketing, production, etc. to achieve your objectives and execute plans that have been maturing for a long time. The challenge is also to motivate staff with accurate forecasts so that they carry out their duties with the satisfaction of meeting their goals.
What are or will be the human resources required to achieve your goals? Will you have to reassign part of your workforce or let people go? Or, on the contrary, will you need to hire more people for other businesses or geographical areas? Everything must be put in perspective and aligned with the other financial and non-financial elements we’ve already touched on.
Get the benefit of the best technology now
In addition to a tool for strategic, financial and operational planning or an easy modelling tool, notably for risks, current technology should enable you to become autonomous quickly and easily. Technology has evolved significantly over the past few years. It allows companies to get the immediate benefits of an application that creates quick alternative scenarios with the agility of the latest technology available, notably, the power of in-memory computing. In addition, you can take advantage of Cloud technology. It enables you to become operational immediately without having to acquire the technology or in-house skills. You will easily remain within your IT budget.
Planning solutions provide the best technology to prepare forecasts and budget needs as accurately as possible with alternative scenarios and including the slightest details.
(1) Deloitte survey: “Brexit blow to business confidence”, Deloitte survey finds, revue Accounting Age, 16 juillet 2016.
(2) « IPO Watch Europe Q2 2016 », étude PWC Juillet 2016, http://www.pwc.fr/fr/publications/introduction-en-bourse/ipo-watch-europe/ipo-watch-europe-q2-2016.html