Past Briefings

1. Paul Kenyon, SVP group finance, AstraZeneca, London, June 10
2. Jeff van der Eems, COO & CFO, United Biscuits, London, December 09
3. Philip de Klerk, CFO, INEOS Olefins & Polymers Europe, London, June 09
4. Dr Lothar Steinebach, CFO, Henkel AG & Co. KgaA, Frankfurt, October 08
5. John Hele, CFO, ING Group NV, London, June 2008
6. Kimberly Ross, CFO Royal Ahold NV, Amsterdam, April 2008
7. Steve Lucas, Finance Director, National Grid plc, London, November 2007

Collaborative finance

Sponsored By

Location: The Dorchester, London
Date: 09 June 2010
Speaker: Paul Kenyon, SVP group finance, AstraZeneca

At June's FDE business breakfast, Paul Kenyon, AstraZeneca's SVP group finance delivered a presentation that highlighted how AstraZeneca is embedding collaboration and business partnering into its finance function. Ian Duncan reports.

On a rare sunny London morning, finance leaders gathered at the Dorchester Hotel for the first in a new series of FDE business breakfasts on collaborative finance, hosted in association with Genpact, Lloyds TSB Corporate Markets and REL. Participants at the breakfast were drawn from across industries including telecoms, automobile manufacturing, transportation and media.

Ahmed Mazhari, Genpact's SVP UK, welcomed keynote speaker Paul Kenyon, SVP of group finance at pharmaceutical manufacturer AstraZeneca. With the World Cup only two days away, football was the dominant metaphor - unfortunately for Mazhari whose home nation of India ranks, as he pointed out, 114th in the world.

Gamely suggesting that if he was offered a £6 million salary, he'd be happy to take on the role of coaching England, Kenyon introduced his Gerrard, Lampard and Rooney - the other members of his senior finance team Ian Brimicombe, Sean Christie and Graham Colbert.

Kenyon started by acknowledging that the pharmaceutical industry faces a unique challenge. Its current high margins make improving efficiency and finding ways to cut costs an uphill struggle. The temptation is to ask, why bother?

The answer is that AstraZeneca is perched on top of a 'patent cliff'. In 2014 a number of its biggest products will be released into the wilds of the generic market and the company needs to maintain high levels of investment in R&D to find future growth. The topic of his presentation was how the finance function can effectively support core business activities, a subject relevant even in industries not facing such a clear challenge ahead."

The company has 1600 employees in its finance function performing three core roles: business partnering and support; specialist finance; and transactional finance. All three have undergone significant change in recent years but it was the first on which Kenyon concentrated. To support the transformation, AstraZeneca has centralised its organisational structure as well as rationalising its systems and processes. Finally, and most importantly from Kenyon's perspective, the company has made major investment in people and skills.

"As we move to a more geographically focused organisation and from having a lot of generalists to many more specialists, there is a real need to take your people with us," he said. "We're asking people to work almost exclusively on business partnering, which is a big shift and requires them to be quite brave about the change. There's a big piece about equipping them to make that transition but also exciting them about it and demonstrating that these are skills with future utility."

The picture has not been all rosy, Kenyon acknowledged. The shift towards the creation of global centres of excellence for specialist finance and the outsourcing of many transactional functions to Genpact initially cannibalised the role of business partners at a time when they should have been becoming more important.

"We found was that we were not having a terribly positive conversation with our business partners," he explained. "They felt it was just a land grab away from them and not a terribly motivating place to be."

Realising this, the company turned the process on its head. The focus now is on creating clearly carved out roles for the business partners centred on a six-stage process. "Essentially we've defined the performance and strategy cycle so you set the targets; develop the business plan; allocate resources; set short term forecasts and budgets; measure test and mitigate risk; and align the rewards and consequences," Kenyon explained.

The company's 2007 acquisition of MedImmune, a manufacturer of vaccines, for $16 billion acquisition was financed through borrowing, putting it in a net debt situation for the first time in working memory. This offered a chance for the finance function to change the way it measured its success.

"It was a great catalyst for us because it was a chance to say it's not just about growth," Kenyon said, "it's about earnings performance, working capital and cash flow. It has enabled our business partners to rally around something other than the normal metrics that we had in the past."

To build on this change for the long term, AstraZeneca established a finance knowledge centre after conducting an extensive review of its business partnering practices. For Kenyon it highlighted areas where the company was performing well but also revealed targets for future improvement. Looking to a model established by Unilever, the company worked to create a more robust finance community that provided employees with information and insights but also enabled them to drive progress themselves.

In support of the shift, members of the finance team were brought together for a summit. "It's something I'd really encourage you to do," Kenyon told the audience. "It's easy to say we're constraining budgets and we can't afford the amount of travel, but getting people into a room to talk through stuff and spend time with senior management is really valuable in terms of getting people behind you on the journey."

Thanking Kenyon, Mazhari followed up with some further points on the role of transactional finance, praising AstraZeneca's investment in systems and processes. "I haven't seen the passion and commitment I've seen in AstraZeneca right from Simon [Lowth, CFO] downwards through the organisation," he said.

In a question and answer session led by Daniel Windaus of REL, the discussion turned towards outsourcing customer facing processes such as order-to-cash. Kenyon acknowledged that these could be sensitive but argued in favour of a market by market approach. Mazhari added that horizontally slicing processes can allow companies to handle customer relationships in-house while gaining efficiencies in other transactional areas.

It was clear from the morning's discussion that AstraZeneca has made great use of partnerships to drive improvements and, Kenyon noted, the business is always looking out for best practices it can adopt and chance to share its own knowledge.

The next business breakfast will be held in October in London.

Selected participants

SVP group finance	AstraZeneca
VP global commercial finance	AstraZeneca
Group treasurer	AstraZeneca
Finance director UK	Reckitt Benckiser
CFO & COO EMEA	Jones Lang LaSalle
Finance director	Innocent Drinks
CFO	HJ Heinz UK & Ireland
Group head of shared services & finance Transformation	British American Tobacco
Head of operations, finance transformation	British American Tobacco
Finance director, UK and Euro International	Revlon
General manager - business administration	Honda Motor Europe
CFO	Stream Oil and Gas
Finance director EMEA	Ethicon
COO & CFO	Citigate Dewe Rogerson
CFO	Eaton Telecom
CFO	Ecometals Limited
Financial controller, downstream	Shell
Group financial controller	BBC
Deputy Group CFO	Colt Telecom

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Cash is King

Location: London Hilton on Park Lane
Date: 04 December 2009
Speaker: Jeff van der Eems, COO & CFO, United Biscuits

To listen to Jeff van der Eems' speech click here

Senior executives from some of the world’s largest companies, including Shell, T-Mobile, Nestle and GE Healthcare, convened at London’s Park Lane Hilton on 4 December for the latest instalment in a new series of FDE Executive Breakfast Briefings.

This season’s events, supported by Genpact and Santander Corporate Banking, are running under a title that chimes particularly well with these straitened times: Cash is King. Tackling this theme and the challenge of aligning finance and operations to improve working capital was keynote speaker Jeff van der Eems, COO and CFO at United Biscuits.

The third largest biscuit company on the planet, responsible for 14 million unsupervised transactions a day, was rocked in late-2007 and early-2008 by the twin threats of skyrocketing commodity prices and a global financial crisis that was having dire consequences for many of the organisation’s suppliers, customers and consumers.

This challenging operating environment, as well as internal drivers, saw van der Eems and his team instigate a real drive towards cash savings. "Why was that so important to us," van der Eems asked his audience. "In one word: leverage. In two words: leverage and recession." He went on to explain where the initial internal motivations arose: United Biscuits being bought in a secondary buyout by private equity in December 2006 – ‘at the height of the buyout boom" – in a deal one would be unlikely to see the like of in the current market.

"Luckily we were only leveraged at 7.2 times EBITDA rather than the peak of more than nine," he announced to chuckles of recognition. "We made enough to pay the interest and not a great deal more. That sort of scenario tends to focus the mind."

When wheat and palm oil prices tripled and cocoa costs doubled the following year such focus was vital, but nothing could have fully prepared the company for the worst economic downturn in living memory.

"Favours or new money from banks became an impossibility,’ van der Eems explained. ‘Customers were going out of business – Woolworths was an important client of ours and suddenly wasn’t there anymore. Consumer confidence fell through the floor. New issues were popping up daily – who have ever given credit insurance that much thought?’

Using Hackett benchmarks to compare performance against other food companies, van der Eems was already aware that CAPEX spend and working capital C2C at United Biscuits were below its global peers and that DPO and DSO did not compare favourably.

‘The need for change was there as a result of leverage recession and fear,’ he explained, ‘and it converged nicely with the opportunity that high levels of working capital would bring.’

So he set about instigating those changes. ‘We were pretty tight on our CAPEX spend and expected returns,’ the CFO explained. ‘We were clear that CAPEX today is tomorrow’s EBITDA. Therefore, a lot of focus was paid to working capital as it was our biggest area of opportunity. We’d known for years that our working capital was high but just couldn’t get at it.’

Van der Eems cited a quote from the Financial Times that helped emphasise the challenge they had on their hands. ‘The FT renamed working capital as "waiting capital", just to highlight the cash it tied up,’ he said. ‘We’d had a few abortive attempts at rectifying the situation. Procurement ran off and extended payment dates, but the terms were such that we had to order in twice as much stock and the result was cash neutral. Supply chain also sought to lower stocks, but the director wanted to know whether I wanted them lower at year-end or at the end of each quarter. Again, the gain was negligible.’

This time, the approach was rather different and its success depended upon two fundamental requirements: the process had to be conducted in a cross-functional and sustainable manner.

The first step was measuring. "It sounds boring and simple, but you have to analyse these things down to the most basic level," van der Eems explained. "We also ensured that measurements were consistent. In the old days, people were measuring working capital, but different departments did it in their own language.

"The second thing was enlisting outside help; finding a consultant with rifle shot experience who could bring in a methodology and framework that could bring with it a fully focused approach. Such expertise has huge benefits."

What followed – the setting of objectives, understanding where opportunities lay, picking out quick wins to get the ball rolling and selecting champions to help lead the charge – would be recognisable to any executive with experience of implementing change programmes. In order to increase the likelihood of success, however, United Biscuits ensured all stakeholders were brought onside.

"Finance has to lead it," van der Eems acknowledged, "they’re navigators of the business and can see how the dots connect. However, you won’t save the cash and sustain it unless you get the people who actually touch the cash involved: procurement who set the terms, sales guys who chase collections. We got these people on the steering committee from the very beginning."

This involved a great deal of communication and education. "Never overestimate the level of cash awareness in your business," the CFO warned. "There are a thousand things happening in your organisation that effect the cash coming through and individuals need to understand what they can do to help change the patterns."

For van der Eems, the success of this collective effort brought to mind an old Harry S. Truman quote: "It’s amazing what you can get done if you don’t care who takes the credit." By the end of the process, United Biscuits had a list of 80 ideas that would have collectively saved over £100 million. In the end, £40 million was released.

However, the speaker was keen to emphasise that cash savings should not be the sole focus of any successful operation: the best reason to save cash is to invest it. "This was achieved in the context of growing our top and bottom lines five years in a row," he explained. "Make sure you’re investing in the business in order to grow. If you can do that and release cash, fantastic."

The next FDE Executive Breakfast Briefing will be held in London in the Q2 of 2010.

Selected participants

CFO	Shell Aviation
Group Finance Director	Progressive Digital Media
Group Programme Controller	United Biscuits
CFO, UK & Ireland	GE Healthcare
Group Controller	Premier Oil
VP EMEA Finance	Travelport
Group Tax & Treasury Director	National Grid
Finance Director EMEA	3 Com
COO	United Biscuits
MD Corporate & Structured Finance	Santander Corporate Banking
Commercial General Manager FN	Shell
CFO	ABF Ingredients
Group VP Financial Control	Intertek
CFO	XL Re
CFO	GE Money Home Lending
Editor	FDE
Finance Manager, Retail & Alternative Energies	Shell
CFO	INEOS Olefins & Polymers
Corporate Finance - Business Development,	Nestle UK
Director	Hackett REL
Head of Corporate Procurement	AstraZeneca
SVP Business Development Europe	Genpact
Partner	PwC
Director, Finance Projects	Tate & Lyle
Finance Director	T-Mobile
VP Finance	Shell Retail
Technical Officer	ACT
CFO	HJ Heinz UK & Ireland
Research Analyst	Hackett REL
VP Finance International	McKesson Corporation
Group Financial Controller	Vodafone
Senior Vice President	NelsonHall
Research VP	Gartner
Senior Director International Procurement	Eli Lilly
Group Treasurer	Marks and Spencer

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Cash is King

Location: London Hilton on Park Lane
Date: 30 June 2009
Speaker: Philip de Klerk, CFO, INEOS Olefins & Polymers Europe

London’s Park Lane Hilton hotel on 30 June was the setting for the opening event in a new season of FDE breakfast briefings. While previous briefings addressed primary finance concerns such as creating business impact through BPO and controlling the financial supply chain, this latest set of seminars tackled a maxim that has taken on particular resonance during the economic downturn: ‘Cash is King’.

Attendees included senior executives from some of the world’s largest companies, including BAE Systems, BG Group and BHP Billiton. They had convened to hear a talk from Philip de Klerk, CFO of the olefins and polymer business in Europe at INEOS, the largest division of the biggest privately-owned company in the UK. The chemical giant has seen its sector hit badly by the financial events of the past two years.

The combination of a covenant waiver request and a major competitor declaring Chapter 11 bankruptcy saw its credit rating downgraded twice in the space of six months. Rising costs and a slowdown in sales have forced the group into taking some tough decisions in an extremely short timeframe and de Klerk was in town to discuss how his organisation had addressed these challenges head-on.

Andrew Groth, senior vice-president and head of business development Europe at Genpact, co-sponsors of the event alongside Santander Corporate Banking, introduced the keynote speaker. He put the theme of this series into context, citing the Aberdeen Group’s finding that companies with efficient processes improved DSO over their competitors by 25 to 40%.

"Take a company in the financial services sector with $50bn of assets under management," Groth explained. "They can improve their losses ratios by $500m to $700m. The importance of looking at all areas around cash and cash management, regardless of the business we’re in, cannot be overstated."

De Klerk agreed, saying that during times such as these cash has a particular resonance because of its value as an objective measure of a company’s health. "We used to focus on EPS or EBITDA and cash was more or less a second thought," he explained. "But it is truly measurable. Some companies choose operational or free cashflow, but at Unilever [de Klerk’s previous employer] we changed the meaning of free cash flow every other year. Cash is the most objective measure you have for gauging how a business is doing."

But financial events have made accessing and maintaining liquidity a major challenge for the CFO. A more risk-averse climate has seen suppliers demanding changes in payment terms, with INEOS losing €200m of credit as a result. A steep decline in orders from September onwards has also forced the group to make some drastic decisions. A cash fixed cost reduction of 10% was made in the fourth quarter of 2008, with a further 10% planned for 2009. Cash available for CAPEX fell from €600m to €250m virtually overnight. Working capital, particularly in regards to stock levels, was reduced by a further 25% in the first quarter of this year. Reporting, measuring and forecasting techniques were overhauled and investment was made in a new ERP system.

"There are trade offs," de Klerk told the delegates. "Can we maintain levels of customer service with lower stocks? Do we want to invest in working capital or spend on growth? The challenges are constant."

One area where de Klerk was insistent upon compromises not being made was in the search for new customers. He cited the example of a large potential partner seemingly severing its ties with a previous supplier and approaching INEOS for business. Payment terms of 45 days were agreed only for it to become clear that after 44 the new client had financial problems.

"You need to be really careful these days when selecting your customers," de Klerk explained. "Some of our sales guys are eager to explore this new customer base and that makes it difficult for those of us in finance to tell them to hold off a while. Yes we need cash, but if they can’t pay we have nothing."

Such an approach is counterbalanced through the way in which trusted customers are treated. While de Klerk admitted that he studies the overdues every week, firing off calls and emails to ensure that the people responsible are aware events are being closely monitored, he also encourages a more holistic approach. He told the room of his regular conversations with the CFOs of his top ten or so customers, managing expectations and ensuring both parties were fully up to speed with developments, and the compromises for those in difficult positions. "We know some of our customers are having the same problems in regards to relatively low supplier credit and the like," de Klerk said.

"We ask whether there’s anything we can do to help. For simple things such as covenants, some may need more cash in the bank at the beginning of June than they do in September. You can do a bit of wheeling and dealing and try to manage proactively. People are very appreciative that we’re going the extra distance."

This sentiment encapsulated a major theme of de Klerk’s address: the importance of trust and its erosion as a result of the financial crisis. "I am a great believer in the value of trust and as we emerge from this cycle suppliers, customers and banks are going to need each other more than ever," he said.

"Open, transparent relationships are vital and I like to share the information I have on the company and our plans. INEOS is privately owned and hasn’t always been as open as it should have been in the past, but we’re getting there.

"Those companies that have been honest with their stakeholders will emerge stronger. We can’t live with everyone on prepayment and it’s therefore vital that levels of trust are re-established as soon as possible."

There followed a short presentation by Genpact’s vice president of business process re-engineering, Lester D’souza, on the key levers for optimising cash across receivables, payables and inventory. We then returned to a Q&A session with the keynote speaker, conducted by Andrew Morris, director at Santander Corporate Banking.

Much of the discussion concerned how de Klerk incentivised a cash-savvy mindset at a time when his company had imposed a payment and bonus freeze. "You need constant communication," the CFO responded. "When you go through a cash-reduced cycle people become very concerned about the future and you must put a lot of work into keeping them onboard. This can’t be entirely finance-driven; all stakeholders need to be aligned. Everyone now recognises the need to be cash-tight and emerge from this cycle in better shape than we entered it. Ensure the relationship between sales and finance is strong and that you’re both after the same thing."

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Location: Stigenberger Frankfurter Hof, Frankfurt, Germany
Date: 31 October 2008
Speaker: Dr Lothar Steinebach, CFO Henkel AG & Co. KGaA

In April 2008, German consumer goods giant, Henkel acquired the adhesives business of ICI subsidiary National Starch for €4bn. At this breakfast, Dr Steinebach discussed the transition, challenges and the types of synergies that was created from this transaction.

Following Dr Steinebach’s presentation, there was a supporting address by Christian Specht, partner, KPMG, Corpoate Finance and a Q&A session hosted by Andrew Groth of Genpact

Dr Steinebach joined Henkel in 1980 and has been a member of the company's management board since July 2003. Prior to joining Henkel he was assistant professor at the Institute for International and Comparative Law, University of Cologne, Germany.

Read an exclusive interview with Dr Steinebach as featured in the April 2008 edition of FDE.

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Location: Stationers Hall, St Pauls, London
Date: 26 June 2008
Speaker: John Hele, CFO, ING Group NV

To view the presentation in PDF format click here

To listen to John Hele's speech click here

It may have been hosted in one of the City of London’s few remaining ancient Livery Halls, but the latest FDE Business Briefing, held in the shadow of St Paul’s Cathedral on 26 June, could not have been more grounded in the here and now. ING CFO John Hele had flown in from Amsterdam to deliver a keynote address on the best means of approaching the regulatory regime in order to create value, using Basel II and the current credit crisis as primary case studies.

These global issues were being tackled within an equally international context. ‘A Canadian speaker from a Dutch financial services company in a central London setting attended by an array of UK and international businesses,’ Genpact SVP Andrew Groth commented in his introductory remarks. ‘He’s being introduced by an Australian from a company listed on the New York stock exchange with headquarters in Delhi. It really is a flat world we’re living in.’

Perhaps still not flat enough. As Hele outlined, there are not many industries that have a truly global regulator, Basel I and banking having been one of the few examples. ‘The big corporations can arbitrage any national regulator,’ he told the assembled audience. ‘I’m not sure whether the playing field will ever be level, but we as CFOs have to find a way of helping that process along.’

He may have insisted that his address would be low on jokes – ‘I’ve found regulators don’t have a very good sense of humour’ – but for those not au fait with the workings of ING, the resources at Hele’s disposal may have sounded rather far fetched: 4500 pure finance employees under his control; 90 real CFOs from across the globe reporting directly to him; and a €1.3 trillion balance sheet footing.

When working on this scale, it can be difficult to steer change and reform. What Hele emphasised time and again, however, was that it has been ING’s ability to be proactive and take the long view that accounts for its relative buoyancy at a time when other financial services operations are feeling the squeeze. ‘Since the mid-90s we’ve essentially replaced our entire way of scorekeeping,’ he said. ‘That’s a huge change and we’ve been closely involved with the regulators throughout the entire process.’

Basel II offers a perfect example. Despite only coming into operation this year, Hele and his team have invested eight years of work on the subject. ‘We were fully on the system three or four years ago,’ he said. ‘We led the way beforehand and were involved in committees, invested huge resources and created big departments.’ The fact that this process has freed up €7 billion in capital, and seen ING complete a recent €5 billion share buy back, suggests that the strategic bet has truly paid off. ‘You have to get in early,’ Hele explained. ‘When the regulators are still thinking about it, there’s the opportunity for influence. The moment they start going down a particular path, you lose that.’

Early involvement had additional benefits when the credit crunch hit in August of last year. ‘We’d created a global system in banking and insurance to look at all our credit exposures worldwide,’ Hele explained. ‘I can’t tell you how handy that proved to be.’

Again, Hele’s relationship with his regulators and the pro-active approach practised within his department paid untold dividends. ‘We had always done a liquidity test with our regulator – a crisis test, if you will,’ he began. ‘It just so happened we had one planned for August. A lot of people hadn’t even thought about liquidity – I can think of one bank here in the UK that ran into this issue.’

Hele claimed that the direct impact of the crisis upon ING had been relatively limited, citing as fundamental his refusal to put excessive leverage into its balance sheet and a close control of off balance sheet exposure. He called it a ‘common sense approach’.

‘My basic philosophy is that if I can’t follow the cash flows, I don’t want to buy the instruments,’ Hele explained. ‘I was talking to a CFO who was trying to buy out some of these instruments and the documentation for one deal alone came to 150 pages. If you can’t figure it out, don’t play.’

In fact, Hele was keen to extol the unintended benefits of the crisis. Firstly, the market turmoil has been an important stress test for IFRS and underscores the challenge of valuing assets in an illiquid market – ‘one of the hardest jobs of the CFO’. Hele also commented that the limits of current accounting standards had been exposed, there was a hunger for knowledge about financial and operational risk and market values were now being established more systematically.

‘What we’ve learnt is to be proactive, pick the spots that are really important and work extremely hard on them,’ Hele concluded. ‘It’s been said that making laws is like making sausages: an awful process but worth it in the end. Taking the long view can be difficult; we’re talking about regulations not coming in until 2011 and my business people are worried about next year. You have to balance the two, but when things haven’t gone well in the past, it’s been down to not having paid enough attention in the early stages.’

Henkel CFO Dr. Lothar Steinebach will deliver the next Executive Breakfast Briefing on creating value from M&A in Frankfurt on 31 October. To register, contact Steve Dunkerley on +44 20 7753 4223 or SteveDunkerley@spgmedia.com

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Location: Hotel de l’Europe, Amsterdam, Netherlands
Date: 2 April 2008
Speaker: Kimberly Ross, CFO Royal Ahold NV

Finance Director Europe (FDE)’s sixth Executive Breakfast Briefing, held at the magnificent Hotel de l’Europe in Amsterdam, attracted 40 high-calibre delegates from various vertical industries, including those from the energy, agri-food and financial sectors. After a welcome address by FDE editor Michael Jones, American-born Kimberly Ross, CFO of Dutch food giant Royal Ahold took to the lectern to summarise her company’s ‘strategy for profitable growth’, the Breakfast’s overall theme.

She began by giving a brief history of the company, including the well-publicised accounting scandal of 2003 which resulted in a fine of $1 billion. Ross was admirably frank in discussing how the company maintained focus and confidence in moving forward from this short-term hiccup. "We were so focused on the crisis that we weren’t aware of what our customers really wanted and also what our competitors were doing," she explained, emphasising the theme of giving the customer what they want as being a pillar feature of any strategy for profitable growth. Ross went on to explain Ahold’s ‘four pillar’ strategy, which involved divesting its non-retail business – US Food Service, building its brands, better positioning of in-store products and the Value Improvement Program.

"Keep it simple, and then people will get it", Ross explained, as she went on to detail how a number of small "fill-in" acquisitions ensured that progress was made without taking large, perhaps rash steps. While Ahold’s actual turnover may have halved since 2003, its profit margins have doubled and its core offerings are now far more efficient as a result. Operations have been made effective through the appointment of two COOs, one based out of Holland, one in the USA.

Next, KPMG Holland’s Jurgen van Bruekelen shifted the focus towards the M&A space, with particular emphasis on the Netherlands itself. "Are we on the tipping point?" he asked the delegates, in reference to the continuing global credit crisis. M&As, he concluded, would increase in number, while decreasing in value in 2008. Mid-market transactions below $1 billion would be the norm, with a growth in private equity and funds raised higher than the amount invested. Tying his short address to Kimberly’s, he pointed to strategy as the main driver for future investors.

To round off this insightful briefing, Cok Volgering of Genpact hosted a Q&A session, asking the all-important question: "What is sustainable growth"? To highlight this, he pointed to the ‘Seven Sisters’, oil companies that dominated the market in the 1950s yet are largely non-existent today. "One of the few companies that has been around for over 100 years and still exists, doing the same things, is Ahold," he pointed out. Thus Ahold has maintained sustainable growth, remaining consistent over the course of the last century when many companies that didn’t grow have fallen by the wayside. But what would the delegates define as growth? Profit? Production? Tjerd Borstlap, CFO of ING Real Estate, felt that profit is the Key Performance Indicator of growth. Kimberly Ross then added that reputation, not only with customers but also with the wider investment community, was the key.

To conclude proceedings, Volgering asked whether or not IT should be seen as chiefly a CFO role? Ruud Nijs of Rabobank reckoned that, based on the fact that risk, something inherent to IT systems, is now a core CFO responsibility, it should be.

The next breakfast briefing will be held in London in June 2008.

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Location: Dorchester Hotel, London
Date: 21 November 2007
Speaker: Steve Lucas, Finance Director, National Grid plc

Following on from the success of Finance Director Europe's inaugural Executive Breakfast Briefings series, 21 November was the opening date for a new season of seminars, concerned with 'creating business impact'.

Held in association with Genpact and KPMG, some 40 delegates were present at the Dorchester in London's Mayfair to hear National Grid FD Steve Lucas deliver his keynote address on managing M&A risk.

Speaking without notes or visual aids, Lucas's main focus was on National Grid's recent £6bn acquisition of American utility KeySpan and the total £12bn his company has invested in the US since 1999. "We announced the deal in February of last year but it only went through this August," he explained. "In our sphere we need approval from various bodies and if there's one thing the Americans love, it's regulators. New York State has more energy regulators than the UK has for all utilities."

On this subject, Lucas conveyed the energy sector's mixed feelings on this high level of intervention. "There are positives and negatives," he revealed. "On the one hand, we know there are people out there who care about us still being in business in 20 years' time. On the other, these same people want to make sure we don't make too much money."

Not that National Grid appears to be having too much trouble in that respect. Now the world's second-largest utility operator, much of the company's success rests upon a deep-rooted M&A approach. "You are only ever as good as your worst deal," Lucas began. "In the utilities field, you see an average 10% to 11% return on equity. We are incredibly cautious about what we invest in, and between 2002 and 2007 there was nothing. This was not because we weren't looking, but no deal gets done unless it does something for our customers. Then, we had two deals in two weeks."

While regulators may try to prevent NG from making too much money, Lucas also believes that the system provides potential targets with real profits to be made. "Many utilities operate as protected species," he said, "they would never survive in the real world. We have a lot of confidence in our ability to run other people's businesses better than they do."

The time it took to close the KeySpan deal had the potential to scupper the transaction. The NG board were aware of this, however, and left little to chance. "It may have taken 18 months,"' said Lucas, "'but we did not spend that time sitting on our hands. We were looking at cost synergies and, before the deal was closed, had announced details of our early retirement plan."

Lucas also raised a whole lot of money. "It's risky to borrow before you're totally sure," he began. "If you go to the bank and lay out lots of money for a facility that only has 12 months on it, you may well find yourself having to refinance. However, we did not want to find ourselves in a position where we had to raise a great deal of money in a very short space of time and were sitting on a low interest rate that was only ever going to go one way. Between February and December 2006, we raised $7.2bn through the bond markets and eliminated the risk of not being able to close the deal."

The danger was not necessarily over. As the transaction finally looked to be going through, the subprime mortgage crisis hit. "The board told us not to trust anyone with that money," Lucas recalled. "We were told to get treasury bonds every time it was moved – something everybody was after. We closed the transaction at 8am and got value at lunchtime. Someone had to trust someone but, in the end, our approach towards risk avoidance saved the shareholders a whole lot of cash."

While generating cash for investors sits near the top of Lucas's agenda, he did not shy away from the level of debt that the company is currently operating with. "It stands at £16.6bn and is rising fast," he revealed. "This is not cause for alarm and we're looking at a £16bn capital investment plan taking us through to 2012."

If such a level of debt is daunting, Lucas made little show of feeling the heat. "I do sometimes feel as though National Grid's business is risk management and, in our spare time, we provide a little energy on the side," he joked.

There followed a brief presentation from Swetal Desai, VP client development at co-event sponsor Genpact, on the company's approach to risk management in offshoring transitions and then a Q&A session.

Quizzed about the inherent risk associated with personnel integration by HSBC's global head of transaction banking Andrew Long, Lucas stressed the importance of cultivating strong relationships. "If we did not get on with the CEO it simply wouldn't work," he explained. "We now have an ex-KeySpan CEO on our board and this has been a vital component in winning hearts and minds. If you look at the money we've invested, we need more than the mere kit; we need the people. Without them it's nothing."

The next breakfast briefing will be held in Amsterdam in March 2008.

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