VideoAs in every turnaround, speed and quick gains are of the essence. In the first six months of the turnaround, the division saved some £500m. Headcount was reduced to 6,000, from 18,500, and investment plans were curtailed. "We went from a £2 billion capex spend a year down to £200m, one year to the next."
But a CFO can't do all this alone and, as Muir learned, the speed of a turnaround depends on staff, and they may not always agree with the plan of action. "If I get someone who's blocking the process, I don't hesitate," he says. "I take them out quickly and decisively. I don't mess around."
By the time he left C&W Global in 2003, the division had achieved most of its savings targets, although it was a hollow victory for Muir. The company's troubles became so severe — including a write-down of fixed assets — that it underwent a major restructuring, resulting in a withdrawal from the US market.
Unpopularity Contest
Another of the many lessons that chief restructuring officers, like Muir, have learned is the importance of leadership. If a CFO is struggling during a turnaround, it's usually because of a "lack of strength of character," asserts KPMG's Darlington. And a CFO's strength of character will be tested every step of the way, even by the very people who appointed them. "I've had a lot of experience of being in hostile territory, where you've been appointed and the company doesn't actually want you to do anything — they think just taking the appointment is sufficient," he says. "But I'm not the retiring kind, so I tend not to let that persist."
It wasn't so much hostile territory as fast-sinking morale that Darlington faced during a brief assignment in 2003 to help with the turnaround of MyTravel. When Darlington handed over the group finance director reins to John Allkins in December 2003, the UK travel company had just announced a £911m loss, after earning £73m the previous year, and was smarting from two profit warnings. With the company vowing to turn a profit by 2005, Allkins got to work with Darlington on a restructuring plan based on a refinancing, the sale of some of its aircraft fleet and getting a sorely needed integration programme off the ground after several years of acquisitions. Among other things, this involved outsourcing a shared service centre that was "broken."
It was an unusual situation for Allkins. Having been CFO of various tech companies previously, he had already been involved in major deal-making and efficiency plans, even setting up a global shared service centre at one company. He had the "experience and confidence that I would be able to make a contribution" to the turnaround. But MyTravel was different — it wasn't in growth mode, for one thing, and he was joining a finance team that "had three years, including 2003, of restatements, so obviously the accounting policies and practices had been questioned and found wanting," Allkins recalls. "They were pretty demoralised."
He quickly realised every step he took was going to be under heavy scrutiny, and with good reason. Allkins explains that a big change between being in the executive suite at a growing company and a company in need of rescuing is that at the former "you have lots more decisions to make and each decision leads to other decisions and you're not going to get all the decisions right." But at the latter fewer options mean fewer decisions, but with a lot riding on each one. "If you screw up, then it's game over," he says. "If we had made a mess of it, there were 20,000 people who would have been unemployed. That, to some extent, is why you have to be even more careful in your decision-making. But you can't let that paralyse you."
There were two critical, albeit controversial, decisions that MyTravel's executives made during the turnaround. The first was to pursue a £800m debt-for-equity swap in early 2004, a move challenged in court by irate bondholders. The two sides reached an agreement only hours before the final court case was due, with the bondholders accepting the stake in the restructured company originally offered. As Allkins remembers, it added a "whole other sub-strand" to an already complex turnaround.
The other major move was to make a bid for rival Thomas Cook's UK business in the spring of 2006. Before reaching that decision, Allkins recalls thinking how the turnaround would lose momentum if MyTravel continued with the classic rescue measures, focused on cash and cost control. It needed something bolder. "We were taking huge amounts of cost out of the business — some £500m — but we still weren't getting the traction we needed in the consumer marketplace," he explains. "Our brands were pretty shot, our product wasn't very good."
MyTravel's first bid was rejected, but the companies continued to talk even while each had designs on rival First Choice's package-holiday business. Eventually, MyTravel and Thomas Cook agreed to a merger in 2007, with the new board insisting that it achieve £215m in synergy savings by 2010. But the merged entity isn't out of the woods yet. In the year to October 1st 2008, the new £8.8 billion Thomas Cook Group turned a pro-forma profit of £64m, down 11% from a year before.
Never-ending Story
After the merger, Allkins left MyTravel and today has a portfolio of non-executive directorships in the UK, which keep his turnaround skills sharpened. Like him, other finance executives who complete a successful turnaround get hooked, sometimes beginning a new career which moves from one turnaround to another. That's been the case with Richard Pennycook, group finance director of Morrisons, a £14.5 billion UK supermarket chain. Before joining a floundering Morrisons in 2005, he had already guided turnarounds at fashion group Laura Ashley and motorway service station company Welcome Break, as well as at HP Bulmer, picking up where KPMG's Darlington had left off. "By the time you've done a few, I suppose you've got a tool kit that you feel works," he says.
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