Published: May 26, 2011
European finance directors are being encouraged to overhaul their finance function as the recovery takes hold.
Chief financial officers of European companies should revisit their funding choices if they want to take advantage of growth opportunities outside of their domestic markets, claims a new report.
The study by HSBC and PwC, “Forward Thinking Finance: The Growth Challenge”, surveyed mid-market European firms and concluded that companies face particular challenges as they move into high-growth emerging markets, including increased demand for credit, looming debt repayment dates and a requirement for new sources of investment.
The paper estimates that these companies could tap a cumulative €120bn by dipping into cash reserves built up during the downturn and increasing their borrowing to historical levels.
John Casey, HSBC’s head for continental Europe, tells EMEA Finance that the next two years present “an opportunity for companies to make step changes” in their finance functions, reviewing their existing funding arrangements, strengthening internal processes and working more closely with banks and other financiers to vary their funding sources.
Given that it’s possible for more companies to hit the wall during an economic recovery than a recession as they expand too quickly, the risks are clear, and some companies will find the process easier than others. “You still have a significant amount of variability between the quality of finance departments,” says Chris Jones, UK financial services leader at PwC. “The best finance departments are something like 40% more effective than the average.”
For many companies, the question could be whether their finance teams embrace the idea of spending their cash piles and taking on more debt to fuel their next stage of growth. Jones believes most will see sense: “I think that [CFOs] are much more receptive to saying ‘we now have a unique opportunity to move on, it doesn’t require the same levels of gearing or levels of cash, and because we are underpinned by an increased level of profitability it means we won’t achieve our potential if we carry on with belt and braces.’”