It’s now six years since the onset of the Global Financial Crisis (GFC) and chief financial officers are taking stock of what’s changed and what’s next.
Apart from finance companies, New Zealand corporates went into the crisis with much stronger balance sheets than their counterparts did after the 1987 market crash.
CFOs report their boards are more exacting about cash flows and investment returns in tougher environment.
“It sharpened the focus on ensuring payback for investments made with less room for exploratory or R&D type investment,” said Alistair Smith, the chief operating officer for insurer Lumley, which has also had to deal with the Christchurch earthquakes.
“It has also placed greater focus on reviewing where our capital is employed and exiting or reducing business lines that do not fit strategically, do not deliver the required returns, or are exposed to segments of the economy that are vulnerable to the GFC,” Smith said.
Chye Heng, the CFO of engineering consultancy Beca, said the GFC had been test for Beca’s employee-ownership structure.
“When the GFC hit, we worked hard to keep redundancies to the bare minimum, focusing less on the short-term cost impact of maintaining our workforce and more on the long-term needs and growth of the business,” Chye said.
“Employee shareholders have very high expectations which extend to financial and risk management. This has become even more evident in recent years,” he said.
Mainfreight CFO Tim Williams also described the GFC as test that ultimately strengthened and streamlined the business.
“For example at the height (depth) of the GFC we implemented programme of ‘doing more with less’ and it enabled us to make significant cost savings with the buy-in of our people, which was critical for the success of the programme,” he said.
“This helped us emerge from the GFC stronger and more efficient business.
“It also produced greater acquisition opportunities. It reduced some of the inflated earnings multiples that private equity buyers were putting in the market prior to the GFC so that trade buyers such as ourselves could now compete,” he said.
CFOs said they were now in good shape to look ahead at new challenges and opportunities, particularly around technology and globalisation.
“We have invested significantly in back end technology over the past four years to get the platform right for future connectivity,” said Lumley’s Smith.
“The ability – or inability – to adapt to the digital age is going to be very important. Our customers and partners will expect connectivity on their terms and we need to be able to embrace this,” he said, adding there was also potential for Lumley to use digital tools itself to run its business.
Beca and Mainfreight in particular are grappling with the opportunities of globalised customers and markets. Beca operates in 16 countries across the Asia Pacific and Mainfreight is rapidly extending its network in Europe and elsewhere after its acquisition of Dutch logistics firm Wim Bosman in 2011. Africa and Latin America are among the next targets.
“This expanded network and intensity will enable us to provide greater services to global companies around the world and the increased ability to participate in ‘global’ tenders,” said Mainfreight’s Williams.
“The risk of providing global solutions like this is that the service quality must be maintained throughout our entire organisation or else the entire account can be put at risk by one poorly performing operation,” he said.
That globalisation makes exchange rates increasingly important and the New Zealand dollar’s strength was an issue for CFOs. Beca noted the recent strength of the New Zealand dollar against the Australian dollar, which reduced the opportunities for outsourcing Australian work to New Zealand.
“We have been the Bangalore to Australia so to speak. We have had to focus closely on managing this, both through more sophisticated hedging techniques and through business management such as by increased outsourcing to our offices in Indonesia and Myanmar,” said Beca’s Chye.
For the full version of the answers provided to our questionnaire by these three senior private sector executives go to www.management.co.nz/TheBigIssues.asp.
