At Morrisons, Pennycook used his tools to repair a company groaning under the weight of a £3 billion acquisition of much larger rival Safeway in 2004, leading to several profit warnings. Pennycook first secured Morrisons' survival for the short term, and then mapped out what he calls an optimisation plan, covering everything from cutting costs and increasing sales densities in underperforming stores to refreshing the company's brand.
After a £250m loss in the year to February 2006, the company's profits increased steadily, rising 13% to £636m in fiscal 2008. Morrisons has also been able to give cash back to shareholders, with the board deciding in March last year that surplus capital of £1 billion should be returned in 2008 and 2009.
Pennycook no longer sees Morrisons as a turnaround case, but he points out that managing growth once a business has stabilised is part of the larger process. "It's a continuum," he explains when asked how he knows a turnaround has succeeded. "When you're in the peak of distress, there are lots of fires blazing, the adrenaline is running, you have to move very fast to get the business stable and to get the turnaround happening. Then you move through to slightly calmer waters and you get the optimisation plan kicking in...But I don't think there's a point at which you wake up one morning and say, 'It's done.'"
Turnaround CFOs all agree a turnaround is always gruelling and daunting — particularly if it's their first. But finance chiefs such as Pennycook are encouraging, noting that completing a turnaround can be an important rite of passage for a CFO. "What we're going through now is a situation where a generation of managers who haven't been through real financial stress before are going to come out the other side and have the benefit of that for the rest of their careers," he asserts.
That said, not all CFOs will have the satisfaction of seeing their companies through to the other side of a turnaround. At JJB, finance director David Madeley resigned in March, with Peter Williams, a former finance director and CEO of department store Selfridges, now handling the role until a successor is found. Whoever takes on the job next could still face major challenges, given the downbeat outlook for the retail industry. Here's hoping that person is well prepared.
Tim Burke is senior editor at CFO Europe.
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