LORNE VARY has just returned from a trip to China – specifically Shanghai and Beijing – where he was part of the British Council’s GREAT Britain campaign which seeks to promote the UK internationally as an ideal place to visit, study and do business.
Given his role as finance director of Brompton bicycles – the quirky and slightly eccentric fold-up British bike manufacturer – it won’t have escaped his attention that China is home to more than 500 million push bike owners. Or the fact that in Shanghai – China’s most populous city with 19.2 million people – more than 60% of its inhabitants cycle to and from work every day.
On his trip, Vary met Prince William (there to promote his kingdom), which, while a pleasant royal aside, was merely a precursor to the real business of the trip: finalising a JV with the company’s Chinese partners in Beijing.
Travel now makes up a big part of Vary’s work schedule, which is not surprising as his firm’s Queen’s Award for Export-winning product currently sells in 43 territories outside the UK, a figure set to grow to 50 within the next five years.
And while the air miles may be clocking up, it’s the road miles – astride a hand-built Brompton – that concern Vary the most.
A natural and effervescent evangelist for the firm, Vary joined the Brentford-based business from digital consultancy outfit Reading Room in 2009 at a time when Brompton was “going through growing pains”. Back then, it was generating £600,000 and was overdrawn. Fast-forward six years and the company now boasts a healthy balance sheet with profits of £3.5m.
Back to basics
Much of that turnaround can be attributed to some of the changes introduced by Vary. “I could see that we had this fantastic product and great ideas, but we had to get the basics right,” he says.
He recounts the first management team meeting he attended, where “every senior manager in the business reported on the KPI of the number of bikes we sold and all had a different figure and that was crazy”.
He says he asked himself: “What the hell is HR reporting on the number of bikes for? Why is the design team doing that? I just want to hear that from production or sales.”
So he set about his transformative process, kicking off with writing clear job descriptions, outlining clear accounting procedures and putting in a KPI system to make it clear to each senior manager who should report on what. Immediately, he started receiving meaningful data.
He “got a fantastic accounts team in place, moved banks, moved auditors and now we have a sizeable business”, he says
Vary switched the banking from Lloyds to HSBC because the company was now doing so much business in south east Asia – Singapore is now its biggest export market, for example, and it gleaned huge exposure as a brand from HSBC’s network. HSBC was also the catalyst for it going into Hong Kong “because they know the market in Asia so well”.
In January, Brompton ended a 20-year business relationship with accountants HW Fisher, switching to PwC for its wider international reach, especially in the Netherlands and Belgium where it needed “really good local advice”, having last year brought back in house its distribution in the Benelux territories.
Brompton is also “a more complex beast” now, having set up a Brompton Asia subsidiary as well as Chinese operating trading vehicle and Hong Kong subsidiary.
Vary has overseen the manufacturer’s review of its routes to market and now goes dealer-direct for 50% of its bike sales – up from 20% just two years ago.
Overseas turnover has now risen to 80% of turnover from 66% when he started – “a phenomenal shift”, beams Vary. And the company now has 240 employees on one site, up from about 100 five years ago. Vary’s five-year plan expects that figure to grow to 500.
Founded almost 40 years ago, Brompton is now desperately looking for new premises, having virtually outgrown its existing site which nestles under the thundering M4 flyover in Brentford. Vary is searching out new sites and may even expand further along the M3/M4 corridor.
He’s keen to stay in the London Borough of Hounslow, “on the doorstep of Chiswick” because the ‘Made in London’ tag “is part of our DNA” and carries such powerful cultural and financial capital for the firm in its growing Asia Pacific markets.
And the company is keeping a constant focus on continual improvement in its manufacturing processes and a relentless focus on stripping out cost that has allowed it to avoid the heresy of manufacturing abroad. It’s also ensured that the price of its most common model will only rise by 0.5% in 2015 – although inflation is 1.8% and it is exposed to material cost rises. Part of that is down to KPIs introduced by Vary with his team on the factory floor that saw it increase production from 110 a day to 150 – with the same labour cost.
And he’s ensured the business has grown by recruiting the “right quality staff and paying reasonable salaries”. And in order to keep them, he’s brought in various incentive schemes, including an EMI option scheme and a new bonus and profit share scheme, so people can share in the company’s profitability. And that includes everyone from the cleaner right up to William Butler-Adams, its CEO.
In February, Brompton announced a JV with Formula One technology to help it create a pedal-assisted electric bike. While they are currently relatively slow to take off in the UK, electric bike sales now outperform conventional bike sales in the Netherlands. Its hook-up with Williams Advanced Engineering, an off-shoot of Williams Formula One, will see the creation of the company’s first folding electric bike.
Meanwhile, in order too counter any cross-border selling concerns, Vary looks at the UK price and any uplift in carriage, import and other additional costs before “using our crystal ball and putting in the exchange rate” and agreeing on a price for the year. Brompton has also built an online ordering system where dealers can place orders through distributors, and customers can go online and see what happens to price and weight when they alter the spec of the bike.
One of those pricier options is titanium parts. Currently, the company sources its titanium from Ukraine and Russia – both risky territories – and has to pay for the material two years before it’s actually mined and processed. So in a bid to de-risk, Vary is “trying to wean these guys off that pre-payment before it’s mined” and is also looking to ultimately bring it in house by signing a JV with an aerospace company in Sheffield which will allow it to obtain the rare metal from alternative sources.
Given Brompton’s huge export market, currency hedging is a clear concern. But Vary has it covered.
“We manage a large proportion internally and deal predominantly in two currencies: US dollars and euros. We work out that if we’re going to build 50,000 bikes, that will amount to X amount of US dollars and X amount of euros. We look at what income we’re getting in Europe and what income in US dollars and try to balance it off,” he says. “Five years ago, we billed everything in sterling and we were massively exposed, so we manage this internal hedge. Fortunately, our working capital is such that we don’t have to repatriate any funds, so we can just monitor.”
Vary, with a strong retail background garnered from his time as FD of Planet Organic and at Paperchase, was a driving force behind the Brompton Junction retail shop brand. Currently, there are Brompton Junctions in London, Kobe, Shanghai, Chengdu, Bangkok, Milan, Hamburg and Amsterdam. New openings are set to include New York, Copenhagen, Madrid, Singapore and Seoul.
Vary says the concept is not purely about selling bikes. “It’s about promoting Brompton as a business. If we can push sales to our local bike dealers, we do. We have maps of all our local dealers and up-to-date stock levels – so we can forward sales to their team. It’s been a phenomenal success,” he explains.
He’s also keen to expand the Brompton bike hire business in the UK, which – after launching in 2010 – now has some 40 docks across 20 cities. Many are situated at train stations such as Manchester Piccadilly and Turnham Green tube, while others are located at NHS venues such as the Whittington hospital and GlaxoSmithKline.
Brompton has literally been a life changer for Vary, who is now infinitely fitter than during his pre-Brompton days, thanks to cycling into work every day – a risky business given the perilous state of many of the nation’s pot-holed roads and the recent spate of cyclist deaths in collisions with cars and lorries. But Vary is an old hand at “throwing a bit of caution to the wind”.
“You have to take risks. It’s not a case of being a prudent accountant – if I was the prudent accountant, we would have outsourced manufacturing to Asia – but that’s not what we’re about. Our design team has tripled in last 18 months. Why are we doing that? We’re looking five years ahead. Innovation has to be in our staff and our projects. The amount of R&D spend has been huge, but that’s because we’re not just focused on immediate profit but on expanding the business,” he says.
Costing from £800 to about £1,800, a Brompton is not cheap. But it is the world’s smallest collapsible and genuinely portable bicycle. And that’s something for which an increasingly global and, more importantly, urban population is more than prepared to shell out its hard-earned yen, Singaporean dollar or renminbi. ?
IN BLACK AND WHITE
2009-present Chief finance & BD officer, Brompton
2005-2009 FD, Reading Room
1996-2000 Financial controller, Paperchase