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Be prepared. It’s tough out there right now, isn’t it? But it’s not so much the credit crunch that is causing headaches; the sheer volume of bad news and doom-mongering being thrown at us from every direction is the real killer. Sure, the numbers aren’t good. According to Eurostat, the eurozone saw GDP shrink in the second-quarter by 0.2% the first contraction since the launch of the euro sparking many a ‘European recession’ headline. However, the UK was one of the only countries that grew, albeit by 0.2%. We’ve not yet had those two consecutive quarters of negative growth that define a technical recession but it seems we may be talking ourselves into a psychological slump, at best.
A year on from the start of the credit crunch, and mindful that even Financial Director is susceptible to the power of suggestion, we thought it would be a good time for our readers to tell us the facts as they see them. Our credit crunch survey asked FDs to tell us what they have done to respond to these new challenges, and to give us their four-year predictions for the direction of the UK economy right up until 2012. To download a PDF of the full results of our Credit Crunch Survey, click here.
We had a fabulous response, which gave us a great cross-section to examine, from the upper reaches of the FTSE-100 to unquoted mid-caps; the survey cut across a range of sectors to give us the best snapshot of finance director experience and opinion on the economic situation across UK business as a whole.
What we found was that, while finance directors accept recession is either upon us now or will be shortly, they have spent year-one of the crunch preparing their businesses for the worst and feel confident they can manage their way out the other side. According to the results of our survey, the FDs, FCs and CFOs we heard from are as realistic about the prospects for the economy as they are upbeat about their readiness.
What they say about the ‘big picture’ isn’t good. Just over 60% thought that
the UK might already be in recession, while just under 40% believed that we’re
not there yet, but we probably will be soon. To add to that, 82% of respondents
thought the effects of recession (if not, perhaps, the recession itself) will
last into 2010, while half thought the knock-on effects will spill over into
2011. Just under a quarter said the aftershocks would hang around until 2012.
We asked our readers to tell us in what corners of their business they believed
they’d have to lead cuts in 2009, offering them a raft of options including M
&A activity, green initiatives, pension contributions, staff cuts and
business lines, and asking them to give us their top three in descending order
of importance.
Overwhelmingly, the option ‘We are not planning any cuts as a result of the credit crunch’ came top, with more than 30% of respondents telling us this, indicating surprising confidence and stability for the coming year.
Jobs on the line
For those that are planning cuts, as expected, staff cuts loom large as the
first option for 28% of our respondents, the second priority for another 11% and
the third choice for a further 10%. Travel and entertainment budgets were next
on the hit list. Creeping in as further options were cuts in systems investments
13% of respondents put this third on the list and, even more startlingly,
just over 11% of respondents made cutting management bonuses and other
management reward schemes their second priority for next year (less
surprisingly, only about 2% chose to list board-level compensation or bonuses as
a target for cutbacks).
Some tough action has already been taken, though, as 37% of respondents told us they had already reduced their headcount while a similar number said they were planning redundancies for 2009.
Worryingly, however, when we asked if FDs thought it was necessary to make short-term cuts that might be potentially damaging over the longer term, 9% strongly agreed that it was and a further 34% slightly agreed.
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