Role: group finance director
Highlights: varied career
As an engineering business supplying the car industry, Ricardo must be having a hard time, surely?
At one time the impact of General Motors’ insolvency would have been catastrophic for us, but in fact we have weathered the economic storm better than many companies in our industry because we started to diversify and tighten our cash management well before the crisis began. We have had orders cancelled, of course, but the recession has had far less impact on Ricardo than it might have had.
What prompted your timely precautions?
Five years ago we relied on a few key contracts in the automotive industry. When a couple of these were cancelled we realised that we didn’t want to depend on so few clients. A new chief executive joined and he introduced a policy of not relying on any one sector, region or client for more than ten per cent of revenue. The change was partly about risk management, but it also made us realise the value of our engineering consulting skills to other markets.
Which new markets did you enter?
We’ve diversified into sectors including clean energy, marine, rail and the military. After all, if you strengthen a car it becomes a tank and if you take its wheels off it’s more like a train. There’s plenty of growth potential here. We’ve focused a lot of our R&D investment on wind power because that’s a huge market in Denmark, Germany and Spain. Clean energy is also important in the car industry.
All European car makers must meet emissions targets and the US recently got tougher on this, too. We estimate that meeting emissions targets will cost the top 14 car producers €35bn by 2015. They need people like us to help them achieve their targets. Another important opportunity is health and safety – cars are becoming so automated that there are plenty of things we can offer here. We also work in peacekeeping with the US and other military forces, providing technology for their vehicles. The diversification has been good for our workforce, because engineers are motivated by varied and complex projects.
You make it sound easy, but you were changing the direction of a 100-year-old company. It couldn’t have been that straightforward, could it?
There were challenges. The finance side was interesting, because taking on new clients meant we had to focus more on our credit management and due diligence, and decide new terms. We had to be sure we weren’t creating new problems. For example, in some countries we insist on cash up front. We also had to explain the diversification to our shareholders, so we embarked on a massive investor relations programme to tell them how it reduces risk.
Some changes seem small, but they underline a major shift in focus – for instance, our annual reports used to have pictures of cars but now they show green energy elements such as wind power as well. The current shareholders understand this now, but new ones often need to have it explained. It’s easy to have a knee-jerk reaction and panic when you see the word “automotive” at the moment.
What other big changes have you been involved in since joining Ricardo in 2006?
Finance wasn’t at the heart of the business when I arrived. It was more of a back-office function and needed to enter the 21st century, so I had to refresh and restructure it. I wanted it to focus on business performance and I had to bring in people with the commercial background to achieve this.
In 2006 our growth was on a good trajectory, but cash management wasn’t a big priority, so we tackled some key aspects of that. Clamping down on outstanding debts was obvious, but we also asked our sales people to consider how cash flowed through the business throughout a contract’s term. We introduced a cash flow curve to the tender process so that they’d understand the cash flow for a project before signing the deal.
We also aimed to bring in some money up front – too many existing contracts allowed all of it to come in at the end. All this had to be explained at every level from the top down. Everyone needed to understand that we couldn’t talk about profit alone. As a result we got cash under control and started making working capital reductions while the business was growing, which is rare.
Diversification must make your R&D investment far broader. How do you plan?
We have to map the future of other businesses in the sectors we supply as far as we can. We are involved in technology reviews and collaborate with the government on issues such as clean energy, but we must decide carefully where to put R&D money because it’s so expensive to get this wrong.
We have formal processes for approving investment and we constantly refresh our technology plans. Some of these are long term (up to 25 years), so we discuss them with experts and clients, because we need to know where they’re going. Every investment programme includes a view on the return and we link new orders to the original outlay. We must be able to stop if that investment doesn’t work or the market shifts.
So how did a nice girl from Newcastleupon- Tyne end up working for a Sussex engineering firm?
I started out in technology- and engineering-related roles. After my A-levels I was supposed to go to Brunel University in London to do an IT degree, but I was offered a job just up the road at the Port of Blyth, which gave me the chance to learn IT and finance. I thought that would give me a four-year head start on everyone else. It was great training because I was studying for CIMA and I also got the chance to write software – in those days you couldn’t get off-the-shelf applications for this kind of business. The port then bought a small engineering firm and made me company accountant for it.
It seems that you’re the ambitious type.
I always did well at school and I suppose I was pretty competitive in sports, too – I was the north Tyneside gymnastics champion, for instance. When I get interested in something I am driven to succeed.
Is that how you became the youngest director at Rolls-Royce?
I qualified with CIMA at the port but realised that I needed experience in a larger business. So I joined Rolls-Royce as management accountant for a manufacturing unit, which put all my CIMA skills to the test. I progressed to financial controller in 18 months and then was fast-tracked. Rolls- Royce has an excellent progression scheme, but I also hunt out good mentors. When I was 25 I asked the group FD how I could get his job. You must never be afraid to ask. You need to find the right people who can help you and tell them that you’re serious about your job.
Rolls-Royce was great at helping people to excel, which is why I stayed for ten years. The company also enabled me to take a role as business development director for a large part of the group, which was useful. All finance people should take a non-financial job at some point, because it’s good to see business from another perspective.
Were there many women in engineering at that time?
Very few. It was a man’s world and I did sometimes feel excluded. It’s much easier now, but that might be because I’m older, more confident and more senior. It is hard when you’re in your twenties, your colleagues are in their fifties and some of them prefer to deal with men. But times are changing. It helped that I’ve worked with engineers throughout my career and I think the financial mind is similarly logical.
You learn strategies to get people on your side and see your view. And it helps if you earn respect through hard work and ability. When I was appointed to the Rolls-Royce board at a very early age, I knew that some people were uncomfortable, but one colleague I worked with later said: “We were uncertain, but we’re really pleased with how this has gone. Well done.”
You left engineering to manage a utility company and then an airport. Why?
Rolls-Royce divested my division to an Austrian firm and I moved to Anglian Water as second to the group FD. We had to refinance the whole company by getting £1.6bn of new debt and transforming a further £1.7bn of existing debt to new covenants. It was a massive transaction. I then became finance and property director of BAA at Gatwick airport because I wanted to try a new sector. It was completely different.
What attracted you to the Ricardo job?
The role offered me the chance to become a main board director at a listed company that had great potential for growth. It also brought together my skills and experiences. It was exciting because, despite being an old company, it had a young, dynamic board and felt entrepreneurial.
Ricardo has given me a great opportunity to develop a strong finance team with traditional skills in accounting and analysis but one that’s also commercially aware and involved in driving strategy and ideas. This can involve everything from project management to coaching and influencing skills. Some people want to do only one aspect of this, but if you aspire to be a finance director you have to want to do all of it. We’ve been developing such people here, but it has to be fun. It’s difficult to enjoy your work if you’re not involved in the business. Finance has so much to offer – and that’s incredibly motivating.
This article first appeared in Financial Management magazine January/February 2010