UK building supplier Wolseley has made an embarrassing U-turn on the appointment of its new chief financial officer Simon Nicholls, who was due to join from aerospace and defence business Cobham.
An uprising by shareholders has driven the FTSE 100 listed company to shelve plans to appoint Nicholls as CFO over concerns of accounting irregularities at Cobham, the company where he has been finance boss since 2013.
David Keltner, current CFO of Ferguson Enterprises, the group’s US subsidiary, will be appointed as the interim group CFO of Wolseley on 1 September 2016. The selection process to appoint a permanent group CFO will commence immediately, the company said in a statement.
Nicholls was appointed as the new finance chief at the plumbing giant in January, four months before Cobham was forced to launch a £500m emergency rights issue to shore up its balance sheet following a fall in first-quarter profit and to stop debt from a 2014 acquisition spree pushing it towards a breach of banking covenants. It was also reported that Cobham had dismissed tow director from its wireless operation after it discovered mistakes with revenues from contracts.
In a note to clients, Howard Seymore, an analyst at Numis, said that “several institutions were very adamant” that Nicholls should not join Wolseley after the profit warning. Analysts at Barclays, Wolseley’s house broker, said the decision not to proceed due to the recent issues at Cobham was the right thing to do given ongoing questions regarding the situation there and possible reputational risk to Wolseley from Nicholls appointment.
“In addition, having these questions circling at the beginning of a new stage would be an unhelpful distraction. It is also a brave, decisive step by John Martin, which is encouraging at the start of his time as chief executive,” it said.
In a separate note Cannaccord Genuity said: “Clearly, this is slightly inconvenient for Wolseley and prevents as smooth a transition as was previously expected. However, operationally we do not see any big risk for Wolseley. David Keltner the interim chief financial officer is currently responsible for the largest part of the business; the US business accounts for over two-thirds of the group. Clearly, despite the near-term inconvenience, it is more important that the group appoints a suitable permanent CFO.”
In Janiary, Cobham chairman Gareth Davis said he was pleased to have attracted someone of Nicholls’ “calibre and expertise”.
“I am confident Simon’s operational skills and experience will make a significant contribution to the future development of Wolseley,” Davis said.
At Cobham Nicholls helped drive a strategy aimed at taking FTSE 250 company away from its historical reliance on military markets. Cobham’s nascent plans to steer away from relying too heavily on government defence budgets is clearly a bold move given that about 60% of its current income stream is derived from defence – a third of which comes from the US military – and the remainder is commercial,
“The day after I joined in May 2013, the chief executive Bob Murphy brought in a new head of strategy and over the next few months we went through a redesign of the whole strategic planning process,” he told Financial Director in October last year.
A spokesman for Cobham said Nicholls remains at the business and is fully focused on successfully completing the rights issue.