FOR A young finance director still in her first job as an FD, Rebecca Worthington has already picked up her fair share of financial battle scars. As FD of urban regeneration specialist Quintain Estates & Development – a company she joined in 1998 before being promoted to the FD role in 2001 – the years since Worthington spoke to Financial Director’s sister title Accountancy Age in 2007 have not been kind.
The construction industry has arguably had a harder time than most over the last four years. And while 2012 is likely to be another tough year for FDs across most industries, Worthington is cautiously optimistic having emerged from the toughest period of her career so far.
“It has been one of those rides which with hindsight I would describe as absolutely fascinating and an essential piece of any finance director’s learning experience,” Worthington says.
Worthington is pragmatic about a period that has been challenging for the company – before the financial crisis Quintain was knocking at the door of the FTSE 100 but has since slipped out of the FTSE 250 – as it naturally suffered with the headwinds affecting the sector as a whole.
Now she is able to look back and view the years as a formative experience; one she suggests every FD should experience.
“Beforehand I thought that I had the experience I needed. I was worldly wise, I had read all the economics books, I was a fully qualified finance director. But actually it was going through a recession that taught me the importance of trading through these conditions,” she says. “Reading it in an economics textbook is never the same as the barefaced understanding of something we all know: that cash is king, liquidity is everything in a business. You know it, but you don’t know it.”
Keep calm and carry on
The ride has not been an easy one for Quintain. The company saw its gearing surge from 30% in 2007 to 105% in 2009, while the company’s total returns – measured by the movement per share and adding back the dividend – collapsed to -39%.
Worthington says that when the economic crisis hit, the important thing was to establish what the problems would be early and then come up with a clear plan to tackle them.
In August 2008, Quintain released an interim management statement that set out to the market a clear plan of how it was going to see its way through what it thought would be very choppy waters.
In response to the difficult conditions, Worthington set out a plan that included a recycling of capital, predominantly through a disposal programme of assets – and repatriated about £150m of cash as part of that. In addition, she set out a cost reduction programme to reduce Quintain’s overheads by 25%.
“I question whether anyone really at that point understood the scale of what was going to happen,” Worthington says. “Inevitably these things are quite painful but with hindsight no one could ever say they were the wrong thing to do.”
Worthington then set about restructuring Quintain’s banking covenants. Interestingly she did this in a way that was very different to popular advice and where the markets were coming from. The issue was the company’s gearing covenant, which at its peak reached 105% against a covenant of 110%. As a public company, Worthington concedes that Quintain “couldn’t just sit there and say ‘that is a risk I am going to take’”.
Quintain came up with a structure whereby the company only paid for the headroom if it needed it. Each year, Worthington had to elect if she wanted the headroom, while the company margins remained the same and only increased if the gearing went over 110%. In the event, the gearing never went over 110%.
“Coming out of the other end, there was no noose going round our neck of expensive debt, and if you look at our debt now our average cost of debt is 3.2% so we have ended up with a cost-effective, flexible debt package coming out the other end,” she says. “It wasn’t just about surviving; it was also about having a business that could drive forwards after that.”
By coming out in a healthier state than many would have expected, the business was in a position where it was safe and it was able to look to third-party equity as a way to take the strain of the balance sheet.
Worthington says that the company did not have the capital available to drive the business. So at the end of 2009 Quintain launched a rights issue which raised £184m and gave it the capacity to fund growth in business, something that would have been all but impossible if the right action had not been taken in 2008.
“We had done the safety bit ourselves, then it was about how do we drive the business,” she says. “That was the position we put to the market and that has been very useful.”
Despite all the protective action taken by Worthington, the company was still to experience its most challenging year in 2010. At the nadir of the crisis, the company slumped to a £58.8m loss. But battered and bruised, the company is still operating, and its latest trading figures for the six months ended 30 September 2011 show it has surged back to a pre-tax profit of £3.7m.
Worthington says the most important thing she did to affect a turnaround in the company’s fortunes in terms of adding value was to have a real searing focus on underlying profitability; Quintain further cut its costs and by its half year announcement it had taken another £2m off its overheads, with ambitious targets driving revenue growth alongside that.
Getting the normal stuff right
While Worthing puts the increase in part down to an improvement in market conditions, she adds that it is also about getting the “normal stuff” right.
“It’s getting the lettings in, it’s making disposals, it’s buying leases that do add that value, it’s minimising costs out, minimising irrecoverables on void space. It’s just the nuts and bolts of what a good property management team should be doing,” she says.
The business has also protected itself against what will undoubtedly be a tough year – for FDs and their financiers alike – by going to the banks earlier and extending £353m of the company’s debt out to 2016. That was done well ahead of the debt’s maturity profile, but could turn out to be a shrewd move given the huge amount of financing that could take place market wide in 2012 and 2013. “It was important to go to the markets early and get some early wins on that,” Worthington says.
With a continued liquidity squeeze on the banks, 2012 is sure to be a bumpy ride for the construction sector. However, Quintain can be fairly confident in that it is redeveloping Greenwich Peninsula, a 190-acre site surrounding the O2 arena and one of the largest regeneration projects in the UK, not to mention its ongoing work at Wembley City. Both of these, incidentally, are venues for the upcoming 2012 Olympics.
Combined, the two sites make up about 21 million square feet, which Worthington says is ‘a huge regeneration project by anyone’s standards’. Focusing on such mammoth projects was partly behind Quintain’s decision to focus on its core development business in London and withdraw from financing BioRegional Quintain, the company originally formed as a joint venture between Quintain Estates and BioRegional Properties.
“We wanted to focus all our efforts on the schemes at Wembley and Greenwich. For every pound of capital we have available it is difficult to imagine an economic argument that doesn’t put it into those two,” Worthington says.
The Greenwich project is something that is close to Worthington’s heart, having been given the job of project managing the entire development. When Worthington spoke to Accountancy Age in 2007 she strongly advocated working in a small company where there are opportunities to take varied and senior roles. Here, she says, that is clearly in action.
Worthington says that project managing the site is a good trade-off between herself and the company. As an FD she feels there is a lot she can add to the process, while it also expands her experience beyond the traditional finance piece.
“When you look at what it takes to lead internally a project like that, the key skills are stakeholder management, project management and understanding the numbers. Those are skills you absolutely have to have as a finance director,” she says. “There is a huge crossover.
“One of the huge benefits of seeing Quintain through massive evolution, through some very good times and through some very challenging times is that I have really been able to get to grips with the business. Doing this now is a great extension of that and is something that I can add value to and bring a lot of value back into the finance piece.”
With Greenwich on her plate, and a mission to get Quintain back in the FTSE 250, Worthington has no plans to move on in the near future. But as someone always looking to gain more experience, Worthington says she will soon be in the market for a non-exec role, but: “I just haven’t got round to that yet.” ?