Make your mark in 2017 22 Dec 2016

Rather than endlessly pore over the entrails of 2016 – a year many people will class as the worst in living memory for all sorts of reasons – we though now would be a time to look forward. One of the oldest clichés in the financial management book is that it’s hard to steer when you’re only using the rear view mirror, and if you’re reading this blog, chances are you’re a go-ahead type of FD or FC.

Oh, OK, actually we do have to take a short look back before looking forward. Because despite Brexit, Trump, Aleppo and Celebrity Death – which is a lousy reboot of the Four Horsemen of the Apocalypse, if we’re honest – 2016 was not actually bad year for business.

Interest rates remain low, making financing easier. Consumer spending (like it or loathe it, that’s a main engine for the UK economy) has soared even while “consumer confidence” has fallen. (That might explain why consumer credit is at such high levels…).

The UK is forecast to be the fastest growing economy in the G7 in 2016 at around 2.3% and the employment rate is at a record high of 74.5%. Sterling’s fall post-Brexit vote helped drive exports to record levels – and we’ve yet to see input inflation from imported raw materials really bite yet.

Even the most optimistic outlook suggests things will cool off in 2017. And while Brexiteers will write off pretty much any downside risk forecasting as “Project Fear” (guys, you won – give it a rest), the real challenge for those of you running businesses is not certain doom, but unpredictability.

That hasn’t stopped there being masses of forecasts for us to play with. Pretty much all of them are heavily caveated – not just for Brexit risk, but also a host of geopolitical factors that, more than at any time in the past 30 years, feel like they have the potential to affect business. From the rush of European elections to the Trump effect on global trade – and even the refugee crises – it’s hard to remember a time when FDs and their boards needed to pay more attention to world events.

Focus Economics is pretty strong brains trust if you are looking for some insight. “Political uncertainty stemming from the referendum will continue to deter investment. Growth is expected to decelerate in 2017 amid a slowdown in real household income growth. However, accommodative policy action taken by the BoE will soften the impact. This month, our panel upgraded its 2017 GDP forecast by 0.2 percentage points and now expects the economy to expand 1.1%. For 2018, GDP growth is projected to accelerate to 1.3%.”

It’s not hard to find positive noises. The manufacturing PMI (purchasing managers index, an indicator showing whether manufacturing industry is net positive on its outlook) rose strongly for the quarter after the Brexit vote, for example. That’s important: if Britain is to make the most of its post-EU existence, it needs exports.

Specialist manufacturing in particular will be economically critical – especially if the UK starts to lose some of its other sectors, such as financial services. (That’s not just a Brexit point, incidentally. Robotic automation is starting to bite hard in traditionally human areas of FS.) It sustains R&D efforts and helps the economy retain skills and capacity in strategically important industries.

Among growth and PE-backed businesses, there’s also some buoyancy. Take this from Coller Capital’s latest investment barometer: “Investors are optimistic about the medium-term outlook for their private equity portfolios, with 77% of LPs forecasting net annual returns of over 11%, and around a fifth of LPs forecasting net annual returns of over 16%.”

(OK, so “37% of LPs believe their European private equity returns would suffer as a result of a ‘hard’ Brexit,” but we’re still a way off that happening.)

For those investing in, and running the finance at, manufacturers, even the Brexit process holds out some hope. Deals to protect the likes of Nissan and Jaguar Land Rover may also help smaller specialist manufacturers that also have extended supply chains across Europe.

The trick – not just in manufacturing, but across the growth business universe – will be having a finance team that can help deal with that unpredictability. It looks clear that 2017 is going to test every FD’s risk management mettle – both on the downside, and seeking out ways to optimise the opportunities. In tricky times, you really do need to make hay when the sun shines.

That means scanning the horizon effectively to prepare for the vagaries of trade negotiations, market moves and the impact of geopolitical events. But it also means ensuring the business has the agility it needs in terms of financing, operational capabilities and human resources.

That’s a pretty big challenge for finance functions. But you know what? It’s also fun. Loving a steady-state business is not why you’re visiting EquityFC.com or EquityFD.com – and it’s at time of unpredictability that great CEOs and FDs can really profit. 2017 might be a bumpy ride – but for the prepared, it could be thrilling.

 

* The acute need to broaden your risk management skills at a time of unprecedented uncertainty is one reason we’ve made the theme of The Contemporary FD 2017 “Navigating Risk ; The art of the possible”. With sessions on the economic outlook (and your own Brexit planning), the technologies changing the way you manage, new thinking about approaching markets and some terrific keynotes speakers, it couldn’t be more timely.

You can check out the 2016 programme here – but if you receive an invitation for the 2017 event in March, don’t hesitate to reply. Places are limited and it’s going to be a really great day of briefings, networking and shared experience of managing risk.