At last an FD has lost his job for the right reasons. For Chris Woodhouse, outgoing commercial director and deputy CEO of DIY retail chain Homebase, there were no accounting scandals, missing millions or systems errors to explain away in his last 18 months at the company – just sales increases, rising profits and large returns for the shareholders.
Woodhouse’s success has also been recognised by his peers as he was named Finance Director of the Year at the Accountancy Age Awards for Excellence in November 2002. And Homebase’s transformation under Woodhouse’s tenure has been such that retail giant GUS announced its intention late 2002 to acquire Homebase for £900m, bringing the company under its Argos Retail division.
“It’s been a hell of a couple of months,” he says. “At the time I won the award nobody really knew about the GUS sale. But as soon as the deal was announced things calmed down pretty dramatically.” As Woodhouse points out, once you sell a private business to a large PLC like GUS it’s the listed FD, David Tyler, that takes all the media attention while Woodhouse can reclaim his Sundays.
Two years ago Homebase had been considered a problem child under the ownership of J Sainsbury. But Woodhouse, Homebase chairman John Lovering and chief executive Rob Templeman, were brought in as a management swat team by venture capital group Permira when Homebase separated from Sainsbury in a management buy-in worth £750m in March 2001.
After raising £30m by selling five properties, making staff cuts, reinvesting in the stores and refocusing the business on home furnishings, rather than tools and hardware, the team managed to increase sales by 8% to £1,380m in 2002 and increased operating profit to £85.9m from £26.5m in 2001.
The management plan was to get the business in shape for a flotation: “As soon as venture capitalists buy anything their thoughts turn to how they are going to exit the deal – if not before,” Woodhouse says.
But following the flotation of HMV in May 2002 and unfavourable market conditions the IPO window closed.
But Woodhouse and his team had already been talking to GUS about a trade sale since late 2001. “As ever with these things retail is a tight community,” he says. “We knew many people at GUS quite well, and in particular Rob Templeman has a long-standing relationship with Terry Duddy (Argos chief exec).”
The sale to GUS has caused a stir in the City. It seems that no one can quite work out why GUS has spent so much money acquiring a DIY chain when it specialises in catalogue shopping. Even Terry Duddy was a little confused: “It is one of those ones you have to think about,” he told the Financial Times.
Woodhouse feels that the deal makes more sense the more you think about it. “GUS’s decentralised approach to management means that Homebase can get one with it, and as both companies are moving more into home furnishings there are buying synergies and savings to be had.” However, Woodhouse doesn’t have to worry about that side of the deal: “The impact of Homebase on GUS is really an issue for them.”
From a financial standpoint a trade sale was always preferable to a flotation for Woodhouse as “you crystallise all the value on the date the business is sold”. But his forced separation from Homebase is bitter-sweet. “We did the deal and the exit was completed. But there is more to be done and it would have been nice to be with the company a bit longer,” he says.
Woodhouse will stay on at Homebase until May 2003 “if GUS want me to” and will probably be replaced by a GUS internal candidate operating under Terry Duddy and the Argos management team.
But Woodhouse isn’t too upset about his impending unemployment: “A fast trade sale realises all the value on day one … everybody from GUS through to Permira and the employee base are very positive about it.” Presumably that includes Woodhouse’s own bank manager: the Homebase senior management team was given an 11% stake by backers Permira. Woodhouse could walk away from the deal with millions.
But just how much? “You can ask but I won’t tell you,” he says. National press journalists after the “fat cat” story estimate the Homebase 60-strong management team should share anything between £50m-£60m with chief executive Templeman walking away with about £20m. But final return for the directors’ stake will remain a mystery: filings at Companies House show that five different classes of shares were issued and the final #900m price GUS paid includes an undisclosed amount of debt.
Nevertheless venture-capital-backed deals wouldn’t work without giving the management a stake in the business and managers reap what they sow on exit. “The reason that VCs give you stake in the business is because it does incentivise you,” Woodhouse says.
Being VC-backed also means that as an FD you are more focused on cash flow, returning money to investors and maximising shareholder value, rather than gaining market share. After Woodhouse completed secondary refinancing of Homebase in March 2002 he degeared the business, returned £175m to shareholders, removed £89m of mezzanine finance from the company’s capital structure and paid an interim dividend of £25m to shareholders in April 2002.
Of course it helps that one of the investors you are creating value for happens to be yourself. And, Woodhouse believes that for a business to be successful, especially in retail where the biggest challenge is “getting 17,000 to march in the same direction”, you have to make all of your employees feel that they are reaping rewards – not only the senior management.
“Store managers didn’t have shares but we paid between £7m and £8m in bonuses in 2002. Even if the employees didn’t have bits of paper called share certificates they felt as thought they had a strong financial stake in the business,” he says.
Described as a “tough operator” in the press Woodhouse readily admits that he doesn’t suffer fools gladly. “I have also been criticised for not praising people enough,” he says. This is from an man who got his first finance director position at the age of 27 after “terminating” (as he puts it) the CFO and CEO of William Street Holdings, a US bond-broking subsidiary of British & Commonwealth.
A headhunter told Woodhouse to “get a proper job” when he returned from the US in 1990, so he put himself out into the marketplace and joined Kingfisher as FD of its Superdrug subsidiary, where he helped transform the company from a discount drug store to a health and beauty retailer.
He was later introduced to John Lovering, then chief executive of Birthdays, a greetings card retailer that was going through a £90m management buy-in. In 1996 Woodhouse was persuaded joined Lovering’s team. But ever the man for a big challenge, Woodhouse had sold his stake in Birthdays by 1999 and was off to Albert Fisher, a frozen food retailer in need of a serious debt workout.
“Albert Fisher was really difficult,” says Woodhouse. At the time the business had interests around the world but was “strategically unfocused with a disillusioned investor base”. Woodhouse made it his remit to renegotiate all of Fisher’s banking arrangements and paid back about #100m to the banks: “We made some pretty good progress turning the business around,” he says.
Woodhouse left Albert Fisher in March 2001 because he was asked to join another VC-backed business, Gala Bingo. But before he could put pen to contract, Lovering popped and pitched him the job at Homebase.
“We sat down, had a glass of wine and talked through Homebase. I had got a long way down the road with Gala but they were taking forever to get a contract together,” he says. “I took the Homebase job. Gala weren’t pleased about it but I wasn’t contractually tied.”
The one slight blemish on an otherwise impeccable CV is that Albert Fisher went bust, albeit over a year after Woodhouse’s departure. Woodhouse says that Fisher’s downfall was “unfortunate” because the company “was moving in the right direction” during his tenure. He also points a finger at “a series of management changes” post his departure.
Nevertheless, Woodhouse says you learn a lot from situations where your back is against the wall – concentrating on the important issues such as servicing bank debt. He has also been able to apply his experience at Fisher to Homebase. “You have got to get people to work as if they are in crisis. This is a constant challenge – particularly in retail because of all the employees and the large number of sites. Homebase is like a business with 275 subsidiaries. Some of the stores can turnover £10m-£20m.”
One of the first things he did at Homebase was to hold a series of “brutal” question and answer sessions with the employees en masse to clear the air. “The buy-out processes had been quite painful for the employees: it had gone on for 12-to-18 months and Homebase had been hammered in the press. Morale was poor and the staff had had enough,” he says.
“The worst thing you can do is dance around and kid people. The big question was ‘Are we going to lose our jobs?’ The answer was that yes, unfortunately some of them would. We asked the employees what they wanted – a 90-day consultation process or would they rather know if they were staying with a job or leaving with a cheque? They all said that they would rather know. So in the first three weeks we made between 300 and 350 positions redundant,” he says.
Woodhouse also took it upon himself to immediately take charge of IT implementation in the business by removing layers of consultants, saving #10m on a giant SAP implementation in the process. And, as commercial director, business strategy and store plans also come under Woodhouse’s remit.
“Homebase used to spend too much time making decisions and often involved thousands of people in them,” says Woodhouse. This is where venture-capital-backed business with a multi-tasking management team can make a difference.
“With my previous experience I’m able to take on a wider role than just finance. To be successful in a buy-out you need to be resourceful. Perhaps I suit a venture capital environment rather than being the divisional finance director of a massive PLC.”
So when Woodhouse gets his P45 and his cheque in the next few months what will he do? “I don’t know. In an ideal world I would like to do another VC deal. But it isn’t like putting yourself out into the recruitment market. On the positive side there are quite a lot of businesses out there at the moment that look as if they represent quite good value for money in terms of acquisition,” he says.
Woodhouse’s career history suggests he is not the type to put his feet up: “I always get thoroughly involved in business. My wife and family recognise that. I will immerse myself completely in a project, no matter what. In terms of carving up my time my wife and children are equal in priority (to my work). I suppose I better say that!” he says.
HOMEBASE AT A GLANCE
Sales: 2002 – £1,380m; 2001 – £1,273m
Operating profit: 2002 – £86m; 2001 – £27m
Name: Christopher Woodhouse
Qualifications: FCA, AMCT
2001-: Commercial director and deputy CEO, Homebase Group
1999-2001: Group finance director, Albert Fisher Group
1996-1999: Commercial director, Birthdays Group
1990-1996: Finance director, Superdrug Stores
1988-1990: Chief financial officer, William Street Holdings
1985-1990: Business development, British & Commonwealth Holdings
1982-1985: Price Waterhouse
What is the biggest challenge in your job? How do you get 17,000 employees marching in the same direction? It’s a challenge you never completely achieve.
Biggest hassle? Dealing with internal politics in terms of getting things done.
What other company would you like to be FD of? Homebase has been such a success that it would be hard to think of a business that could top it at the moment.