You don’t necessarily have to have an entrepreneurial mindset to be an effective finance CFO of a dynamic, growing business, but you do need to understand entrepreneurs, says David Bower.
As CFO of FTSE-250 listed HomeServe, the home repairs and improvements specialist, he has worked closely with the CEO and founder Richard Harpin for 15 years, after the former joint venture was spun off from South Staffordshire Water and listed in 2004.
In that time, he has been able to finesse his skill set to support Harpin. “I’m not a natural entrepreneur, but I am very commercial and strategic, I understand the entrepreneurial mindset.
“I’ve now worked alongside Richard for 15 years, I’ve been very close to him over those years so I know how he works and the way his entrepreneurial mind thinks. So sitting as his right hand man, as CFO, I know what I need to do to provide that counter, that balance,” he adds.
Bower says that having been so long in the group has enabled him to play a key role in the value creation story at HomeServe, that has seen international spread and a share price that has grown exponentially, giving it a market value approaching £4.5bn.
“Longevity in the business is really valuable. I think if I just sat in the group finance function for the 12 years before I became CFO then I wouldn’t be as confident, but over the years I spent a lot of time working with each of the overseas businesses, alongside their management team. “It took me from being a group person with a little g to a group person with a capital G understanding how the group works,” says Bower.
That was key, as HomeServe operates a federated structure across operating businesses in the UK, France, Spain, North America and more recently Japan, says Bower. “They have a high degree of autonomy to make decisions, we allow them to make those decisions but ensure we understand what they’re doing and why and how it fits into the strategy, and to provide a framework around it in which they can operate,” he adds.
Bower is instinctively a competitor, but also a team player. Born and brought up near Leeds, he studied economics at Loughborough University, known for its sporting excellence, which he says he chose because he played hockey to “a pretty high standard.”
Still keen on the sport, he was due to play the day after our interview, with his son in the same team. “It’s the first time we will play in the same side together, a landmark moment,” he adds.
After graduating, Bower was hired by Arthur Andersen, having undertaken summer internships at KPMG. “I’d heard lots about the firm, everyone saying it’s a bit different, in terms of culture to everywhere else, and I thought that sounds quite interesting.”
Bower moved to the Birmingham office of Andersen in 1996, and was there when it folded following the collapse of US energy giant Enron, moving then to Deloitte, staying until he joined HomeServe in February 2005.
“At Andersen, broadly half your work was audit and the other half was a combination of sell side and buy side M&A, forensic, fraud investigation, very mixed and very international in its outlook. Deloitte in Birmingham was a lot more UK-focused at that time, and I became more audit focused than I had been with Andersen.
“Whereas my work in Andersen was a lot of manufacturing and services businesses and more international, in Deloitte I did a lot more financial services, including high street bank Alliance & Leicester, on which I was audit director. The great thing about the training at those firms was the breadth of experience from relatively small subsidiaries of multinational conglomerates to big stand-alone FTSE 100 companies,” he adds.
Between 1997-2001, Bower also undertook an executive MBA programme sponsored by Andersen, an experience he really now appreciates as a CFO, with a remit that includes as well as finance, legal, people, engagement , M&A, company secretarial, internal audit. “The broader breadth of the MBA that brings in strategy, operations, marketing and other business disciplines, helps you understand where the leaders of those functions are coming from, you can talk their language, which means you add more value,” says Bower.
His first year at HomeServe was focused on building out a central reporting capability and a group finance function, to deliver what a quoted company needs in an international environment. “As we got more comfortable with those, I started to move more into treasury because that became more in focus as the business got bigger, and tax, making sure we understood everything that was going on, both UK and internationally,” says Bower.
As his role as finance director developed, Bower spent more time automating processes, developing standard consolidation tools, new treasury systems have gone in and also bringing in more specialised finance staff. “When I first joined HomeServe for a number of years we had very good capable accountants doing tax, treasury, Investor relations (IR), but over time we’ve brought in specialists to bring in the right skills to lead those functional areas,” he reveals.
A key area of personal development for Bower has been involving himself in more external relationships. “By having the tax and treasury agenda for the last 10 years, I got much more exposure to our lending banks and the institutions. I then did a lot of work leading the IR function meeting all our shareholders, institutions, brokers, advisers, so incrementally over the years I’ve had roles that have taken me into more of an external public facing position,” he says.
But Bower says there’s no real preparation for the first annual results meeting, “when you’re stood in front of a room of around 40 analysts and investors and banks, having to be ready to answer pretty much any question they ask you on any part of the business, knowing the answer will be transcribed and broadcast for posterity. I love doing it, it’s a great experience, but the first time you do it is daunting, so it’s about preparing all those years beforehand,” he explains.
Developing resilience is critical “to keep leading even when the business isn’t doing well or facing challenges, is really important,” says Bower. “The way I try to do that is focus on what’s really important, the facts versus the noise and understanding what you can control. It helps you pick yourself up and keep going,” he says.
There have been incidents that have required a resilient approach, given the huge public airing of issues that resulted in regulatory action. In April 2012 Ofcom imposed a fine of £750,000 on HomeServe for silent and abandoned calls to prospective customers and in January 2014 the group received a £34m penalty for mis-selling practices.
How has that affected the approach to different stakeholders? “I think if you go back over some of the challenges we’ve had over the years, our investors have followed in many ways the same sentiment and perspective as media have at the time. But with an investor you probably have a bit more of a two-way conversation, whereas newspapers write their stories and we then respond.
“My role is about making sure that what we report, what we talk about externally is always factually correct, its supportable, its justifiable and verifiable, because ultimately that’s what will stand the test of time. You’re got to be clear and up front,” Bower insists.
When it comes to communicating to the outside world, Bower says rapid changes in technology has resulted in greater newsflow and opinion, than when he started talking to the market. “You need to be able to provide clear, verifiable, substantive guidance and viewpoints for the future, because there’s so many ways in which the stakeholders want to engage.
“If we talk about our marketing strategy through the web, they can all go online and look at Google analytics, and various other sites to see what our web traffic looks like, so you can’t hide. You have to be clear and upfront with what’s going on,” he says.
The group’s sustained share value growth, up over 500% since 2012, reflects the fact HomeServe has a business model the market understands and likes, says Bower. “We have been very clear in our guidance where our strategy is, where we’re heading, what we want to achieve, and we’ve been delivering each year against that strategy.
In the last full year results, HomeServe delivered profit before tax of £139.5m, up 13% o the previous year, on revenue of £1bn that increased from £899.7m.
The next big leap forward is building out in the North American market. “It is a huge opportunity, there’s a lot of white space where people haven’t seen our product, they haven’t been offered our product by a business like ours ever, so there’s real expectation we can move into that space, and take a leading position.
“The challenge is, can we move into that white space as quickly as people hope and expect us to? To date we have done that- under-promising and overdelivering on expectations,” he adds.
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