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For years, Yann Delabrière had been crunching the numbers as chief financial officer of PSA Peugeot Citroën. Then, in the late 1990s, newly arrived chief executive officer Jean-Martin Folz gave him a much more strategic responsibility: helping the French automaker determine where to focus its marketing and capital investments. Since then, Delabrière has worked hand in glove with Folz to reorient the business, building up production in low-cost countries like China and the Czech Republic and increasing sales outside Peugeot's core market of Western Europe. Today that region accounts for 70 percent of the group's sales -- down from 83 percent eight years ago -- and that share is set to decline further as Peugeot targets fast-growing emerging markets.
"The sluggish euro economy makes the European car market challenging, obviously," says Delabrière. "Today our priorities for further development are Eastern Europe, China and then Latin America. Those markets have clearly taken off and still have a lot of potential." Delabrière's wide-ranging role is far from unique among Europe's leading finance officers. They are no longer concerned with numbers alone. Instead, these executives are using their financial skills in the broadest sense possible -- cutting costs, allocating investments, reviewing acquisition targets -- to enable their companies to thrive in ever-more-competitive markets.
All of these new duties come at a price, though: The finance officers' time and energy are increasingly strained. For at the same time that they exercise a greater strategic role, Europe's CFOs have their hands full with the traditional responsibilities of financial control. The switch this year from national accounting standards to International Financial Reporting Standards has required countless hours of internal preparation and extensive outside consultations to educate investors about the change. Most companies also are spending millions of euros, pounds and other currencies to upgrade their reporting systems to comply with the Sarbanes-Oxley Act in the U.S. and similar regulations in Europe.
Who best fulfills these multiple, challenging tasks? To find out, Institutional Investor surveyed more than 470 fund managers and analysts at about 185 firms that manage a combined $2.37 trillion in European equities; we also sampled the opinions of some 570 sell-side analysts from about 90 brokerage firms and banks.
Like Delabrière, many of the winners play key roles in setting their companies' broad strategies. Consider John Rishton of British Airways. He took over as chief financial officer just days before the September 11, 2001, terrorist attacks on New York and Washington. In the wake of the tragedy, Rishton worked closely with CEO Roderick Eddington to shrink the airline's size to maintain its profitability in the face of a sharp drop in air travel. Over the next two years, Rishton eliminated 13,000 jobs, or 23 percent of the carrier's workforce. His efforts reduced costs by £869 million ($1.5 billion) over two years, compared with an initial target of £650 million.
Investors appreciate CFOs' strategic role. As the main source of information on companies, chief financial officers now can provide even greater insight into operations and prospects.
"All you can ask of a CFO is that they elucidate a clear strategy and execute it," says Andrew Dickson, managing partner of Dickson Capital Management, a $150 million equity hedge fund set up in London last year by Dickson and other exFidelity Investments managers. "You want them to show they are in control of the risks that they can control and explain what the other risks are. When a CFO does that, it gives an investor confidence and makes investing in that company easier."
Jean-Louis Beffa's desire to communicate strategy more clearly to investors helped Philippe Crouzet land his job as CFO at Cie. de Saint-Gobain. Beffa, head of the French glass-and-building-materials company, felt he needed to better explain the business reality that underlay the figures, so he tapped Crouzet, who had run the high-performance materials division, which is Saint-Gobain's fastest-growing unit.
Crouzet believes that investors want more than just the numbers: "They want to hear stories about what is going on."
But the CFO also listens to investors. Saint-Gobain never put much of a premium on managing working capital, believing that maintaining healthy inventories was the best way to serve customers. But after investors raised the inventory issue repeatedly, Crouzet concedes, "I knew we could do better." He has tightened up on inventories and pressed for speedier payment from customers. The result? While the group grew sales by E2.5 billion ($3.4 billion) last year, its working capital increased by only E100 million.
The increased authority that CFOs wield these days makes the relationship between the finance chief and his or her CEO boss particularly important. The survey results testify to this fact. In 14 of the 31 industry sectors included in the survey, the top-ranked chief financial officers -- including Rishton at British Airways and Delabrière at Peugeot -- come from companies whose chief executive officer was also ranked No. 1.
At Total, CFO Robert Castaigne defines his role as cautionary counterweight to CEO Thierry Desmarest, whose bold acquisitions and aggressive investment over the past decade have transformed the French company into the world's fourth-biggest oil concern.
Whereas Desmarest is always looking on the bright side, Castaigne feels his duty is to be a bit of a doomsayer, to make sure things don't go wrong. And if that means being labeled a chronic pessimist, so be it.
For CFOs, being less than ebullient comes with the territory, considering that one of their main responsibilities is keeping a tight grip on costs. In slow-growth Europe the emphasis on cost reduction to bolster earnings is as strong as ever.
Klaus Sturany has spearheaded a campaign of cost-cutting and divestments at German utility RWE Group to pare debt and bolster profits, following a wave of acquisitions in the late '90s. RWE has trimmed expenses by E2.6 billion and slashed its payroll by 70,000 employees, or just over 40 percent, in the past four years.
"In bad times it's easier to turn around a company. There is only one way to go: up," says Sturany.
At British Airways, Rishton is looking to cut costs by an additional £250 million by 2007 to offset the impact of higher fuel prices and growing competition from budget airlines. That presents a communications challenge: conveying the same cost-cutting message to investors and to hard-pressed staffers who have endured years of stress. Two years ago wildcat strikes called to protest earlier cutbacks cost the carrier £40 million in forgone revenue.
"My job is to communicate clearly what we are doing, both externally and internally, and that message needs to be consistent," explains Rishton. "Anyone who believes you can say one thing to the City and another thing to your staff is kidding himself."
The new accounting and regulatory rules might be seen as another reason for pessimism. But most CFOs say they are ready to adopt IFRS -- and some have taken advantage of the changes.
Saint-Gobain's Crouzet has used the introduction of the new standards as an opportunity to retrain the company's accountants and to eliminate minor differences in accounting treatment across the 50-odd countries in which it operates. One result: The company is likely to cut back on equipment leasing, which is less advantageous under international standards, Crouzet says. Saint-Gobain may also tighten its criteria for acquisitions -- insisting on a 12 percent return on capital over two years instead of three years at present -- because of the tougher treatment of goodwill under IFRS. Additionally, the company is considering whether to cut back on the use of options because of the requirement to expense them under the new rules.
Despite all the added work, Crouzet is happy with the shift to international standards. "The way we look at our balance sheet is closer to the way rating agencies were looking at our debt," he notes. The change should also make it easier for investors to compare Saint-Gobain with its peers, he adds.
Crouzet's positive view of the new standards isn't shared by Peugeot's Delabrière. He notes that development costs, which amount to 5 percent of the group's revenues, must be amortized under the new European regulations. U.S. and Japanese automakers, meanwhile, can continue to expense such costs.
"We have a system that makes the European auto companies more comparable, but in the process we have become less comparable to U.S. manufacturers, and that is frustrating," he says. "Instead of making the global car industry more transparent, IFRS is making it more difficult to understand."
The new U.S. reporting requirements also mean less comparability among European companies. Although most European CFOs say their companies are prepared to comply with the tough reporting standards stipulated by Sarbanes-Oxley, those companies that aren't required to comply are happy to stay that way.
In part because of the regulatory burden of U.S. law, RWE's Sturany says his company has no plans to seek a listing in the American market. "We can't see the need for the extra administration, the extra bureaucracy," he says.
Peugeot is tightening its reporting controls to meet new French regulatory standards but has no plans to comply with Sarbanes-Oxley or seek a U.S. listing. "Between 10 and 15 percent of our investors are in the U.S., and they tell us they see no difference between buying shares in a French company listed in France and one listed in the U.S.," says Delabrière. "I visit the U.S. twice a year to meet investors, and I've never met one that asked us to list there."
Vive la différence!
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HANS OLA MEYER
Atlas Copco
Age: 50
Year named CFO: 1999
Company employees: 25,000
Earnings: 6.7 billion Swedish kroner ($1.01 billion)
Meyer: "I'm very fortunate to be working for a group that, in these times, is not in financial difficulties and does not have a reputation problem. That's a good basic pillow for a good night's sleep."
One voter: "He is factual, open and tells it straight. I think the market appreciates that."
Hans Ola Meyer has held the top finance post at Atlas Copco for five of his 19 years at the Swedish industrial company. Investors say he's as stable and consistent as the company's products.
"He's done all the right things," says Peter Lawrence of J.P. Morgan Fleming Asset Management, who began covering Atlas more than a dozen years ago when Meyer was comptroller. Lawrence says Meyer is on top of his company's numbers and has a firm grasp of every aspect of its business.
Meyer helped the company through a Skr1.7 billion loss in 2002, when Atlas wrote down goodwill on two expensive acquisitions in its rental division. That accomplished, the company has improved its performance each successive year. It reported a Skr6.7 billion net profit on Skr49 billion in revenues in 2004.
Meyer says his challenge is to help Atlas's various divisions develop unique ways of meeting customer needs while maintaining a single corporate identity. "My focus is to get the benefits of being a group -- keeping financial control, milking synergies -- without jeopardizing the divisions," he says.
Atlas's minuscule debt and strong revenues, combined with the $713 million sale of its electric tool business to Techtronic Industries Co. of Hong Kong in January, have left the company with a mountain of cash. This February the company's board proposed a three-for-one share split that would be accompanied by one additional redemption share that would be redeemed automatically at Skr20. (Shares traded at Skr337.50 in mid-April.) Combined with a proposed Skr9 dividend, the package would return more than Skr6 billion to shareholders.
The company also is pursuing acquisitions. In January it bought Scanrotor Global of Sweden, an industrial toolmaker that has annual sales of some $10 million, and in February it added GSE Tech-Motive Tool, a Michigan-based company with annual sales of $24 million. And last year it paid $225 million in cash for Ingersoll-Rand Co.'s drilling business. By doing smaller acquisitions and by building its dealer network, Atlas wants to strengthen its position in the U.S., where it is No. 2 in compressors, behind Ingersoll-Rand.
Some 98 percent of the company's revenues come from outside Sweden, but trading of Atlas shares was so illiquid away from the Stockholm Stock Exchange that the company delisted from the London and Frankfurt exchanges last year. Although the company is not listed on a U.S. exchange, Atlas American depositary receipts trade over the counter.
As a multinational's top financial executive, Meyer must manage the risks of manufacturing in countries using euros and earning 60 percent of revenues in dollars or dollar-linked currencies while reporting in Swedish kroner. "Yes, we'd be better off in euro- or dollar-based accounting, in the eyes of investors. But then we ask ourselves, 'Do we desire or need to improve our attractiveness?' So far the answer is no. It just means we have to spend more time on communication," says Meyer, who notes that having spent eight years at a bank before joining Atlas gives him insight into what investors look for in a company. -- Alison Langley
YANN DELABRIÈRE
PSA Peugeot Citroën
Age: 54
Year named CFO: 1990
Company employees: 207,000
Earnings: E1.36 billion ($1.85 billion)
Delabrière: "We are focused on giving this company the cash flow it needs to ensure consistent year-after-year growth in the auto industry."
One voter: "Delabrière has artfully overseen the implementation of a flexible low-cost structure that produces high margins and allows the company to reinvest in a steady stream of new models."
During his first eight years as PSA Peugeot Citroën's chief financial officer, Yann Delabrière reported to one of two chief operating officers and spent most of his time on issues of accounting, treasury management and financial reporting. That all changed in October 1997 when Jean-Martin Folz, the head of Peugeot's auto division and a former senior official in France's Ministry of Foreign Trade and Industry, succeeded Jacques Calvet as chief executive. Aiming to trim management fat and increase individual initiative at the then-money-losing automaker, Folz promoted Delabrière to a new nine-person executive committee and gave him what Delabrière believes is now his most important assignment: deciding how to allocate marketing and long-term development expenses to boost profit margins and cash flow. "What we've done over the past seven years is create a company where marketing and sales talent can be focused on the most financially rewarding market segments, whether it's new models or new markets," says Delabrière.
The Paris-born CFO earned a Ph.D. in mathematics at Paris's Ecole Normale Supérieure before qualifying as one of France's civil service elite by graduating from the Ecole Nationale d'Administration in 1978. After spending nine years in government, the last four as CFO of France's export-import credit agency, Delabrière entered the private sector as CFO of retailer Printemps. He stayed three years before joining Peugeot.
Delabrière has helped Folz identify low-cost production venues in high-growth auto markets like Eastern Europe and China, while curtailing low-margin activities like car fleet sales. Between 1997 and 2004 these moves resulted in Peugeot's doubling revenues, to E56.8 billion, and boosting operating profit a stunning 20-fold, to E2.2 billion. Over the same period, Peugeot's share price more than doubled. The stock closed at E46.41 in mid-April.
Delabrière believes foreign sales and the company's two new compacts will continue to drive growth. His current mandate is to chop expenses by E600 million annually over the next two years.
"There are almost 3,000 parts in a car," says Delabrière, "so there are 3,000 places to cut costs." -- David Lanchner
JOHN RISHTON
British Airways
Age: 47
Year named CFO: 2001
Company employees: 49,072*
Earnings: £230 million ($443 million)*
Rishton: "We are a proper, rationally run business. Unfortunately, we are in an irrational sector."
One voter: "Rishton must deal with a surge in fuel prices, unions, a £1 billion pension deficit and competitors operating under a different set of rules. He keeps it all under control."
Just ten days after John Rishton became chief financial officer of British Airways, the tragedies of September 11, 2001, sent the airline industry into a dive. So gloomy was the outlook, a newspaper headline predicted the carrier would survive only a few months longer.
Rishton's first job was to persuade skeptical investors and the media that British Airways would indeed weather the crisis. Next was developing, with chief executive officer Roderick Eddington, a thorough plan to make the talk reality. The result, announced in February 2002, was the Future Size and Shape initiative, which has defined Rishton's term as CFO. Finally, because analysts and investors are not his only audience, Rishton had to sell the initiative to another key constituency -- the airline's staff.
His message wasn't pleasant. Eliminating 13,000 jobs, or about 23 percent of the workforce, was central to Rishton's plan to save £650 million over two years. (Actual savings: £869 million.) The cuts have been hard for staff and trade unions to swallow. Wildcat strikes in the summer of 2003 cost BA £40 million, and the threat of a walkout over last August's bank holiday weekend, the busiest of the year, was avoided only at the 11th hour.
But British Airways executives, Rishton included, have proved deft at managing staff relations. They helped out at Heathrow Airport terminals during the strike and on holiday weekends, and last year the board of directors opted not to take the bonuses to which they were entitled. "United Airlines CEO Glenn Tilton took a bonus in 2004 at the same time he asked his staff to take pain. For me the two just don't sit together. They just don't," says Rishton.
Although he exceeded his original savings goals, Rishton will continue the cost battle as British Airways struggles with oil prices that have tripled, to a record $57.65 a barrel, in a little over 18 months. Raising its passenger fuel surcharge from £10 to £16 has helped somewhat. Nevertheless, high oil prices led to a 20 percent decline in BA's operating profits, to £110 million, for the final quarter of 2004. Rishton is now looking to cut employee costs by a further £250 million by March 2007.
Having restructured the business to compete more effectively with low-cost competitors such as EasyJet and Ryanair Holdings on short-haul routes, BA also must contend with state-subsidized carriers on long-haul routes. "The U.S. taxpayer has spent billions bailing out its airlines since 9/11. There is no level playing field," says Rishton, adding wryly, "Sometimes I think I must have done something bad in a former life to deserve this job." -- Andrew Capon
* For fiscal year ended March 31, 2004.
NICHOLAS ROSE
Diageo
Age: 47
Year named CFO: 1999
Company employees: 24,000
Earnings: £1.39 billion ($2.68 billion)
Rose: "We have to be ruthless about cost efficiency when it comes to resource allocation."
One voter: "He has a great understanding of strategic issues and how they intersect with finance."
When John McGrath retired as chief executive of Diageo in 2000, he left a management team determined to focus the diversified food and beverages giant on wine and liquor. Incoming CEO Paul Walsh, who had been in charge of Pillsbury Co., Diageo's foods division, and Nicholas Rose, chief financial officer since 1999, went to work immediately.
They spun off Pillsbury for $10.5 billion and then sold the Burger King fast-food chain for $1.5 billion in 2002 to a private equity consortium led by Texas Pacific Group. At the same time, they cemented Diageo's No. 1 position globally in alcoholic beverages by negotiating an $8.15 billion takeover of the spirits business of Toronto-based Seagram with acquisition partner Pernod Ricard, of France. The deal closed in December 2001, with Diageo taking labels that accounted for about two thirds of Seagram's sales.
The deal making completed the work McGrath had started in 1997 when he created Diageo by merging Grand Metropolitan and Guinness, with Rose's assistance. Even if Pernod Ricard, the world's second-biggest spirits company, acquires third-ranked Allied Domecq for £7.4 billion in a deal expected to close in August, the merged group's liquor sales still will amount to about half of Diageo's 2004 turnover of £8.9 billion. "Walsh and Rose are a tight-knit duo who deserve praise for successfully mustering marketing and distribution clout in alcohol," says Sabine Maillard, a food, beverages and tobacco analyst at Geneva-based Pictet Asset Management, which manages E200 billion ($273 billion).
Over five years, Rose and Walsh have boosted sales by 26 percent and operating profits by 49.2 percent, to £1.9 billion. Rose's cost-cutting focus has helped Diageo save £115 million a year since 2002, largely by centralizing payment and collection operations for 150 liquor brands sold in 200 countries. He aims to chop a further £40 million annually over the next two years by cutting duplication in support services such as information technology and human resources.
The son of an autoworker, Rose earned a master's degree in chemistry from Oxford University in 1981 but opted for a job in finance at Ford Motor Co. rather than become a research chemist. After several global posts he was recruited by Grand Metropolitan in 1992 to be its treasurer. "What I stand for in this company is an almost religious pursuit of return on capital," says Rose. -- D.L.
WERNER BRANDT
SAP
Age: 51
Year named CFO: 2001
Company employees: 32,000
Earnings: E7.51 billion ($10.25 billion)
Brandt: "You have to have good analytical skills and a good understanding of the business -- and you have to communicate it all to investors."
One voter: "CFOs come in two molds. The strategic visionary or the guy like Werner who knows the details."
Until SAP's ongoing investment in software development starts to make itself felt in 2006 or 2007 earnings results, Werner Brandt's task as chief financial officer of the world's third-biggest software provider will be managing investor expectations.
"Brandt has to tell people that revenues will rise this year but that costs will too, because of research and development spending. His biggest challenge is to urge patience for the sell side," says Ioannis Papassavvas, who manages a $350 million portfolio at Deutsche Investment Trust, part of Allianz Global Investors in Frankfurt.
Brandt, says Papassavvas, is up to the challenge. Analysts say that the financial executive, on the job for four years, is a walking encyclopedia -- er, spreadsheet -- of all facets of the 30-year-old company, which is based in Walldorf, Germany, about an hour outside Frankfurt.
"When we published our guidance in January, we got a lot of questions," says Brandt. "But we laid out a very clear product road map. Over time the financial community will understand it."
With 12 million users of its software, SAP is growing at above-market rates and commands 22 percent of the $30.5 billion global applications market. (No. 2 Oracle Corp. holds 11 percent.) Revenues for 2004 were E7.5 billion, an increase of 7 percent over revenues of E7.0 billion in 2003.
Brandt projects SAP will have more than E4 billion in cash by the end of this year and essentially no debt -- putting it in the perfect financial position to go company shopping. He says SAP is sticking to its goal of acquiring and growing its software solutions business in the retail, financial and public sectors, particularly in Asia and North America, the company's two fastest-growing markets.
"We are still keeping a lookout for fill-in acquisitions," Brandt says. He says that losing out to Oracle in March on a bid for Minneapolis-based Retek, a maker of retailing software, "doesn't change that."
Indeed, some analysts were pleased that SAP did not try to outbid Oracle, choosing prudence over the thrill of the catch. "Brandt is very disciplined. I actually find it a plus that they didn't buy Retek at any price," says Thilo Schmidt, an analyst at MEAG Asset Management in Munich.
"He ultimately makes sure investment plans stack up financially," says James Clark, a technology analyst at Credit Suisse First Boston in London. "He knows the details and doesn't worry about the technology: He cares about the cash."
-- A.L.
ROBERT CASTAIGNE
Total
Age: 59
Year named CFO: 1994
Company employees: 111,000
Earnings: E9.60 billion ($13.10 billion)
Castaigne: "I try to take account of all the potential risks that could be associated with a deterioration of the economy, the sector or the company."
One voter: "There is no CFO in the oil sector more on top of the business than Castaigne. He knows all the details and the potential pitfalls."
As Robert Castaigne sees it, a good chief financial officer is a cautionary counterweight to his chief executive. As confidant and adviser for the past ten years to Total chief executive officer Thierry Desmarest, one of the most successful risk-takers in the oil industry, Castaigne ought to know. He says one of Desmarest's most important characteristics is being an optimist. "That means I have to be a bit of a pessimist," says Castaigne.
This tension in Paris-based Total's executive suite has worked spectacularly well. It was Castaigne who engineered the details of what at the time was the biggest takeover in European history -- Total's hostile, yet successful, E61.7 billion acquisition of French rival Elf Aquitaine in 2000. Just the year before, Castaigne also assembled the E13.2 billion takeover of Belgian refining giant PetroFina. Those deals and aggressive exploration and production programs in Africa, the North Sea and political pariah states like Myanmar and Iran allowed Total to increase its net profit more than 17-fold over a decade, to E9 billion in 2004. Over the same period, Total grew from the world's 13th-biggest oil company by revenues to the fourth, with annual sales of E122.7 billion.
The son of a local mushroom-canning entrepreneur from St. Dizier in northeastern France, Castaigne earned engineering and economics degrees from the Ecole Nationale Supérieure du Pétrole et des Moteurs before taking his first job in 1972 as a junior analyst at Total. From analyzing oil supply and demand and the activities of Total's competitors, he moved on to supervise shipping activities. Promoted to financial controller for Total's network of domestic and overseas subsidiaries, Castaigne showed a sharp eye for corporate flab, attracting the attention of then-CEO François-Xavier Ortoli. After five years as Ortoli's personal adviser and four years as deputy finance director, Castaigne was promoted to his current post by Ortoli's successor, Serge Tchuruk, in June 1994. Tchuruk left to become CEO of Alcatel a year later and was succeeded by the company's production and exploration boss, Desmarest, an engineer like Castaigne.
To fund new exploration projects and meet targeted annual production gains of about 5 percent, Castaigne will be vetting roughly $10 billion annually in new capital expenditures over the next two years. He also will be returning about $5 billion a year in dividends to shareholders during that period as well as using an additional $7 billion or so for share buybacks. "We would prefer to distribute cash rather than use it for a major acquisition at a time when oil prices are at an all-time high," he says. -- D.L.