Investors typically look to a company’s chief financial officer for guidance about its earnings outlook. But in the midst of this recession, many of Europe’s top CFOs are openly acknowledging that the future is as clear as mud.
“We pride ourselves on being pretty good with our forecasting,” says Robin Freestone, CFO of U.K. publishing company Pearson. “But this year we’ve stopped giving guidance on sales and margins because it’s too difficult to get that accurate.”
That stance, which would have invited swift punishment from the market in years gone by, wins acceptance from investors in these volatile times. Instead of focusing obsessively on earnings targets, shareholders are looking for candor from CFOs about business developments, cost control and capital management. Such actions build the credibility that is vital to maintaining confidence in hard times.
Freestone has certainly delivered. While many companies gorged on cheap credit during the boom years, Freestone reined in borrowing and slashed Pearson’s ratio of debt to earnings before interest, tax, depreciation and amortization by more than half since 2000, to 1.7 last year. That prudence is a major reason investors voted Freestone No. 1 in the Media sector in Institutional Investor’s seventh annual ranking of Europe’s Best CFOs.
“At the time when everyone was leveraging, Freestone never went to extremes,” says Andreas Wagenhäuser, analyst with Deka Investment in Frankfurt.
Some CFOs built credibility by tackling problems in ways that prepared their companies for an economic downturn. Joseph Kaeser of Siemens, who ranks first in Electronic & Electrical Equipment, helped the German company recover from a bribery scandal by spearheading a restructuring that aims to generate €1.2 billion ($1.7 billion) in annual cost savings by next year. Nicolas Dufourcq of Cap Gemini, No. 1 in Technology/Software, helped the consulting firm rebound from a big loss four years ago by tightening financial controls and expanding the group’s presence in India.
Companies that maintained discipline in the go-go years now find themselves in a position to capitalize on the weakness of competitors.
At BNP Paribas, CFO Philippe Bordenave, a former markets chief, helped limit the growth of the firm’s investment banking unit and minimized its exposure to U.S. subprime mortgages and other shaky assets. When turmoil shook the European banking industry after the collapse of Lehman Brothers Holdings last year, he led a team that struck a deal with the governments of Belgium and Luxembourg to acquire control of Fortis while taking on few of its toxic assets. Bordenave was also quick to take advantage of the recent thaw in credit markets to raise €23 billion of BNP Paribas’s €30 billion funding requirement for 2009 by early June.
Zurich Financial Services has avoided complex financial derivatives in recent years and focused on its core insurance business. In April its Farmers Group subsidiary snapped up the auto industry unit of troubled rival American International Group for $1.9 billion.
As Zurich CFO Dieter Wemmer, winner in Insurance, puts it, “We came through the crisis fairly well, and now we intend to be fast in taking opportunities.”
Click on the names below to view their individual profiles.
Philippe Bordenave, BNP Paribas
Joseph Kaeser, Siemens
Dieter Wemmer, Zurich Financial Services
Robin Freestone, Pearson
Nicolas Dufourcq, Cap Gemini
