John Maguire was a bit of a financial whizz-kid in his early 20s. While most young accountants are making their first move into business, Maguire was wandering the world in a variety of finance roles with Cable & Wireless. After 10 years or so with the telecoms group, Maguire had risen to regional finance director of C&W Singapore and, latterly, vice president of finance of its Japan and Asia operations.
By the time he had reached his early 30s, he had a wife and two children and was looking to settle down into a nice, quiet UK-based plc. “Every two years, I had lived in a different country. I was just looking for a bit of stability really,” he says.
But instead of finding a business in a defensive sector with a comfortable office, in 2000 Maguire took the job of group FD of Scottish telecoms company Thus, after he had asked its chief executive William Allen for a reference. “Bill said that if I was in the job market I might as well work for Thus. The pull factor was the opportunity of working for a quoted company, which for an FD is very attractive,” Maguire says.
Thus had been going through what Maguire describes with classic FD understatement as “a very interesting time”. The company had listed in November 1999 at about £3 a share, quickly rocketing to over £8, and the company acquired FTSE-100 status and was valued in the billions. Within a single quarter, Thus was trading as a small cap company at a fraction of its post-IPO value. “Thus was the first telco in the UK to be affected by the bursting dotcom bubble,” says Maguire. “I joined four or five months after it had issued a profits warning and, although Thus generally has a sense of mission and a real feeling of purpose, people were feeling a little bruised at the time.”
Maguire’s mission was to revisit Thus’s business plan, ensure that long-term financing was in place, and get a clearer picture of what the company’s 50% shareholder Scottish Power wanted to do with it after the markets crashed. “Scottish Power was rethinking its multi-utility strategy at the time the bubble burst. Thus didn’t really fit with the Scottish Power portfolio and they were rethinking their options.” It soon became clear that a demerger was on the cards and Maguire worked closely with Scottish Power group FD David Nish to ensure a smooth separation in March 2002.
Since then, Thus has re-entered the FTSE-250 and is gunning for as much of BT’s corporate fixed-line telecoms business as it can get its hands on. Maguire is proud that City commentators are starting to appreciate that Thus isn’t just another overvalued tech stock, but a viable business with strong finances to support it. “The Financial Times called us a ‘good house in a bad neighbourhood’ and another paper said we have met our financial targets with ‘metronomic consistency’,” he says. And Thus’s profile in the City was given a boost when it became cash-flow positive for the first time in the six months to 31 March 2004, a quarter earlier than analysts’ expectations. Maguire expects the group to start turning an operating profit in 2005 and will address return on capital after that.
Part of Thus’s success is down to Maguire’s insistence on clear metrics and transparency. He has categorised financial metrics as a series of six ‘levers’, such as cost of capital, turnover and gross margin, which are aligned to management strategy and can be ‘pulled’ at different rates.
These levers are communicated to the senior managers in the business so they can make more strategic business decisions. “It’s not that what had gone on previously (in the finance function) in Thus was wrong, but we have found a clearer way of articulating it,” Maguire says. “These levers help deliver a holistic view, so instead of concentrating on a single metric like earnings per share – what I call ‘single metric myopia’ – you start to see the interconnectivity between the balance sheet, cash flow, and profit and loss accounts so you can really add value.”
Having more stable finances and a clearly articulated strategy has also meant that Maguire no longer has to act as a company salesman, persuading customers that Thus is financially viable. Instead, much of his time is spent helping shape financial and operational strategy, as well as communicating Thus’s progress to the City and the 300,000 retail shareholders Thus inherited from the Scottish Power demerger.
Internal harmony and clarity of purpose – things he says are not too common in telecoms companies – are also high on Maguire’s agenda. “You have to get everyone aligned. I’ve seen too many companies where people have good intentions but work in opposite directions. It’s mainly because of a lack of transparency,” he says. “I see history repeating itself in the sector where some of the lessons from the dotcom bust haven’t sunk in with many.”
But Maguire says the desire to avoid the pitfalls of the late 1990s doesn’t mean eliminating risk altogether. Thus is in a volatile sector, where competition is tough. It has to keep innovating and taking risks if it is to deliver strong profits. “Trying to set up a framework to eliminate failure in corporate entities isn’t going to work. It’s the nature of capitalism that some businesses will go bankrupt,” he says. “So as FD you need to make sure that when decisions are made, people go in with their eyes open and they understand the level of risk they’re taking, and compare that level of risk with the level of reward. So FDs don’t always have to say ‘no’.”
REGULATION AND REPORTING
Under Scottish Power’s ownership, Thus had to report quarterly as its parent was listed in the US as well as UK. Maguire moved the group to half-yearly reporting after the demerger but isn’t relishing the move back if the EU Transparency Directive forces European companies to adopt quarterly reporting. “As far as I understand it, the directive will only force companies to publish headline figures quarterly, but there will be an interesting interaction between it and international accounting standards. A move to IFRS will create a lot of volatility and these headline figures might move more than in the past. That will force companies to do full quarterly reporting,” he says.
Regulation – IFRS in particular – is eating into Maguire’s time, but he says there is no point ranting about it. “You have to step back and ask why you are here – well, it’s to create wealth. And with a lot of things like standards, the devil is in the detail. You can debate the philosophy of IFRS until the cows come home but the reality is that we just have to get on with it,” he says. “But one unintended thing to come out of IFRS will be that the volatility of the numbers will force people to focus on cash, and that will only be for the good.”
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