AS EVERYONE is aware, the last five years have been something of an economic roller-coaster – albeit with an unusually pronounced dip in the middle.
Of course, when that market change is a rapid transition from buoyant confidence to deep recession, as witnessed in 2008, everything that a company does is that much more pressured and that much more important to get right. At Northgate, as I’m sure was the case for countless other major employers in the country, financial operations, both on a day-to-day and strategic level, took even greater prominence.
Having experienced these challenges first hand from the perspective of a company that – in hiring commercial vehicles – is affected by fluctuations in the wider economy and, thankfully, having seen many of our initiatives have the desired effect, the business has consolidated its industry position and emerged stronger than it was pre-2008.
This is down to an approach that was both pro-active and honest about where improvements could be made. However, that’s not to say that a fair amount of faith and patience wasn’t required.
Our financial objective, kicked off by a rights issue and refinancing in the summer of 2009, was to fundamentally increase the strength and resilience of the group’s balance sheet, whilst improving return on capital employed (ROCE).
On a very simplistic level, by restructuring both our UK and Spanish operations and improving our debt structure, we could give the group the ability to establish a much stronger platform for the future.
Of course, we scrutinised areas where greater efficiencies could be made, though we also felt strongly that in keeping with our intention to become a true market leader, it was vital to continue our investment in our operational capability so the company continued to progress – even if the wider economy didn’t. As a finance department, we acknowledged that our long-term success depended on careful and progressive investment in our people and systems.
Alongside a full rebrand (reverting to a single nationwide brand) and a number of key personnel changes, there was also a major management delayering, with four UK regions becoming eight areas, enabling swifter actions at branch level.
From a financial perspective, these changes required investment, but with the ultimate aim of deploying Northgate capital in better and more efficient ways. Likewise, through ostensibly the actions of other departments (for example marketing and HR), these changes also contributed to increasing Northgate’s ROCE, to ensure that the company became an increasingly attractive and transparent investment option.
For example, while the rebrand helped unify the public and customer facing perception of the business, the operational centralisation (in both the UK and Spain) equated to a major financial change internally. Aside from removing the ‘noise’ of intercompany charging, bringing the various finance and administrative functions of 35 largely autonomous individual companies (as was previously the case pre 2008/09) under one central control, made the financial side of our operations significantly easier to assess, modify and improve.
We subsequently improved our workshop planning, workshop utilisation and efficiency systems as well as enhancing our reporting capability, measurement and management of real-time data. Of course, in keeping with our underlying strategy, the finance and revenue effectively ‘saved’ by the benefits of centralisation, were then invested in improved IT systems, as well as other enhancements to the group’s systems and infrastructure.
We were therefore pleased to see our financial performance vindicate the strategy we had taken. In April 2013 we reported ROCE of 11.8%, more than double the 5.8% achieved in the year ended 30 April 2009. We had also seen our net debt halved, from £886m to £363m, while our pre-tax profit was up to £49.4m from £27.5m in 2009.
From a financial standpoint, and with the luxury of hindsight, it does seem as though the decisions taken in terms of both strategic direction, centralising and operational streamlining have paid dividends, and I’m confident will continue to do so in 2014 and beyond.
However, being able to take and make the right decisions can be traced back to the fact that every single major financial action was subject to the professional analytic scrutiny of those both within the company, and that of the external shareholders and stakeholders. This is not something that has necessarily made for an easy process, but it has been the right one.
Chris Muir is group finance director of Northgate Plc