The Role of Finance in Business GrowthChas Howes – 24th November 2015

Agenda

•How I got to Superdry and what I found•Aligning finance with culture, brand ethos, and managerial style •The relationship between CEO and CFO - how did finance support the business•What that meant members of the team

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Cad

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Ples

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Gra

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Bur

Dia

geo

Alli

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Fost

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La S

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Supe

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1

3

5

7

9

11

1

3 3 2 2

8

4 5

1

5

Length of Time Spent in Each Company

Average 2.1 Years

Average 4.6 Years

FMCG and retail experience and recruited to manage a PE deal

Clear intention for

an exit so the business

had to be geared up to satisfy

demands of a large

external investor

……. but what did I find when I got there

Why do I need a Finance Director, I know how much I have sold and what is in the bank – what other financial information is there?

Julian Dunkerton – October 2007Owner-manager - Cult Retail LLP

4

What the CEO said prior to me joining

5

The sample room

First Question:-How much cash is there in the bank?

Operating from 1st Class Facilities

Global HQ

My Office

The warehouse

£25m in sales,

generating £1.9m

operating profit

6

Clearly a successful business with accelerating growth

2003 A 2004 A 2005 A 2006 A 2007 A 2008 F/C -

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Sales Revenue Number of Stores

SuperGroup Revenue (£m) & Store NumbersActuals 2003-2007 / Forecast 2008

7

Julian DunkertonCFO / Retail

Senior management team

The Retreat, Cheltenham

Theo KarpathiosWholesale

James HolderBrand Design

Diane Savory

Corp Gov

Chas HowesFinance &

Ops

Typical employees:-• Part-time

actors• Musicians• Artists• ‘Free

spirits’

8

Finance Function – not difficult to see that the function needed development if the business was to grow

Initial View• No published management accounts• No financial planning• Decision making information consisted of

sales data and bank balance• Poor controls – just the authority of the

CEO and no set way of doing things• Finance team with little credibility or

standing in the organisation• No robust link between wholesale

despatch and invoicing - invoicing being done by person who went to jail

Chas HowesCFO

Financial Controlle

r

Accounts

(FT)

Expenses / Cash

(PT)

AR / AP(FT)

Payroll / HR (FT)

1 qualified, 1 part-

qualified, 2 clerical,

1 part time, 3 dogs!

The Finance Office

9

IT Systems not fit for Purpose

Pegasus Accounting

StoreWIN EPOS

Till Software

WIN RMS Sales,

Stock ,GP

EurostopRetail (Cult Clothing LLP)

StylemanWholesale Stock

and Sales Management

Factory

Warehouse

(Belgium) Customer

Wholesale (Laundry Athletics LLP)

HSBC

Fortis(Factorin

g)

Banking

Entrepreneurial management only interested if it affects / improves either retail or product

Finance must fit with both business culture & ethos which in turn comes from the brand and management style“Superdry, a casual lifestyle brand operating predominantly in the branded fashion sector.

It targets younger men and women aged between 15-25 with affordable, premium

quality clothing”

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Implement structure, process and controls without compromising creativity

11

# £40 / week

# £2,000 Loan

1983

So, where did the brand come fromEarly Beginnings ....... from a market stall in Cheltenham

Julian DunkertonArguably one of the best retailers in the

country

James HolderProbably the best

casual clothing designer in the world

2015

Learn your trade and never forget your roots

Learn from Superdry’s market positioning to establish a Finance function to balance cost effectiveness & quality

High Price

Low Fashion Content

Low Price

High Fashion Content

USC

HoFTed BakerAll SaintsReiss

DieselAbercrombieJack Wills

West WorldEnvyJD Sports

Urban OutfittersFrench Connection

Branded Retailers# Design rather than price focused# Although not “cool” necessarily impacted by latest fashion trends/fads

Mainstream High-street# Some differentiated offerings# Increasingly fast-fashion focused# Under pressure from low-end players

Value Fashion# Price focused# Historically basic designs# Increasingly contain higher fashion content

New LookMatalan

PrimarkSainsburyTesco

OasisGAP

Next

M&S

Debenhams

H&M

ZaraTop ShopTop ManRiver Island

Multi-brand

Dorothy Perkins

Non-Branded

Specialist Brand

GRAVITY

FRICTION

12

Establish an appropriate function particularly in regard to technology

Assess the competitor’s strengths and weaknesses to see what can be learnt from them

• Lifestyle Brand• Authentic, quality

product • Premium pricing

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Don’t be afraid to copy what others are doing

A range of everyday products that never goes out of fashionJumpe

rs

Hoodies

Shirts

Sweats

Shorts

Polos Deni

m

Leather

Boxers

Jackets

14

Stick to the basics and do them well

Don’t be afraid to take inspiration from outside the industry and/or function

15

Look beyond the obvious and be innovative

New York

Tokyo

London

16

Chose a price point and stick to it against all market forces – balance inflationary and economic pressure

with economies of scale and negotiating power

Garment 2006 2014

Men’s T Shirt £24.99 £54.99

Men’s Hoodie £24.99 £65.99

Have the strength of your convictions

95% of all Superdry sold at full price

Differentiate by a passionate attention to detail

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Gain strength for the function by paying attention to the detail - go where other functions might struggle

Make sure everything you do ends up with customers describing the brand as you want

• Super-soft hand feel cotton• Authentic washes• Premium bespoke fabric• Vintage detailing• World leading hand-drawn graphics• Impeccable tailored fits• Diverse styling• Lifestyle brand

How will your customers describe finance in your business ……. how do you want them to describe

you1818

1919

Key Takeaways• Finance must fit the organisation’s culture to be

successful• Don’t be afraid to take inspiration from unusual sources• Use technology as much as possible but make sure it is

appropriate to your organisation• Pay attention to the detail• Keep it simple and stick to the basics• Define how finance should be described and deliver it

But there has to be a clear business strategy to guide functional development into the future

2020

Keep the brand fresh and relevant

Continually review to make sure everything fits with the business

Best-sellersCategory T ShirtsRange

6 to 600+ T Shirts

2121

Grow retail, accelerate when critical mass is achieved & create theatre in store to enhance shopping experience,

Don’t over-extend – manage the risk of change

10 1118

25

42

60

7985

0 0 2 6

39

80

130

162

0

20

40

60

80

100

120

140

160

180

2006 2007 2008 2009 2010 2011 2012 2013

UK Overseas

Number of Stores in the Estate

4,600

4,800

5,000

5,200

5,400

5,600

5,800

6,000

-

100,000

200,000

300,000

400,000

500,000

600,000

2009 2010 2011 2012 2013

Total UK Retail Space Average Store Size

Total UK Retail Space and Average Store Size (Sq Ft)

Create theatre

to enhance

the shopping experience - which

would you

rather shop in?

2222

Choose the right partner overseas that is most appropriate for a market’s stage of development

Export Low

In-market office Med / High

Licensee Med

Agency Low / Med

Distributor Med

Subsidiary High

Franchise Med

Risk ProfileWorldwide partners55 countries sold to in 2012 (2011: 45)

Relationships with key stakeholders and business partners change as the business grows

2323

Build the infrastructure or it will cause significant problems later on

•Warehouses and supply chain• Information technology•Business processes and controls•People

So, there was definitely something special in the business, perhaps with a touch of genius ……….

… but the management style of entrepreneurs can be a challenge to finance (and a source of learning)

2424

25

Functional Organisation Chart

Finance, HR & IT

Firstly recognise Finance as a support function as it will affect how it operates

BuyingSupply Chain

Wholesale

DesignFranch

ise Stores

Board of Directors

UK Retail

Brand

Merch Range QCProper

tyProd’n

Recognise the role the finance team have to play to support the CEO

Be as one with the CEO and the business2626

Grow by finding experts where there is little knowledge and develop strong partnerships

HamburgShopping

Centre(Owned store)

Independent

Franchise

Franchise

Franchise

Franchise

Independent

Do the same where there are gaps in Finance

812

1520

31

47

65

92

0

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010 2011 2012 2013

Number of suppliers

Superdry Supply Base40

30

20

8

20

5

10

15

20

25

30

35

40

45

Turkey China India Peru OtherSupply proportion

Supply by Country of Origin (%)

2727

Entrepreneurs are commercially astute, lightening quick, intuitive and don’t take risks

2006 2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

70

80

90

100

22

40

7885

8992 94

78

60

2215

118 6

Own Brands Third Party Brand

Proportion of total Products (%)

3rd Party Brands Margin – 50%

Own Brands Margin – 75%

Do your analysis/thinking and be sure of your facts (or you will be found out!) - be the guardian of risk management

-1.3

4.7

7.6

15.2

19.8

37.7

17.8

- - -

3.5

11.2 9.7

7.7

3.0

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2006 2007 2008 2009 2010 2011 2012 2013

Capital Expenditure Landlord's contribution

Landlord's Contributions to Fit-out (£m)

£35m received between 2009 and 2013Cardiff

Total Fit-out cost - £1.2mStock cost - £0.4m

Landlord contribution - £2.0m

2828

2929

Key Takeaways• Keep challenging and reviewing what you do to

convince yourself it is still relevant• Recognise weaknesses and fill the gaps with experts• Chose partners carefully and build strong

relationships• Raise infrastructure up the agenda but always look for

better, more cost effective ways of doing things• Understand how the CEO thinks and operates

recognising your role of supporting in areas of weakness• But above all know the detail and be sure of your

analysis and factsSo how did the finance team actually develop

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Flat structures and matrix management provide opportunities for the finance team

Mgt Account

s

HO FP&A

Group FP&A

Planning &

Analysis

Corporate

Co Sec

Group Consol

Investor Relation

s

Chris Sweet

Chas HowesCFO

Accounts

Payable

Financial Controlle

r

Expenses / Cash

Cash Mgt

FD Retail

FD Wholesa

le

Planning &

AnalysisMgt

Accounts

Stock Account

s

Accounts

Receivable

People fit in to a pre-defined structure - not vice : versa

How did the finance function transform itself, aligning with the business, bearing in mind we were set for an exit

Successes• Established Board meetings every month with a standard agenda• Reorganised the finance team

• Recruited a Wholesale FD and internally appointed a Retail FD• Expanded the finance team to fill the gaps left by poor IT system

architecture• Relocated the finance teams to sit close to the commercial teams of both

divisions

• Enhanced and developed reporting• Published management accounts• Introduced variance analysis and commentary

31313131

How did the finance function transform itself, aligning with the business, bearing in mind we were set for an exit

Successes• Introduced a set of management tools

• Store Capex approval tool and process with hurdle rates for decision making

• Developed a financial model to frame strategic decision making• Expenses and Travel forms / processes

• Focused on slow moving stock• Stock cover by product, size and colour and impact on cash• Facilitated decision making for disposal• Led to establishing outlet stores

32323232

How did the finance function transform itself, aligning with the business, bearing in mind we were set for an exit

Successes• During the economic downturn of 2008

• negotiated an overdraft facility supplemented by structured trade finance

• supported by a daily cash management• developed relationships with key suppliers to manage cash over year

end

• Corporate• Appointed a second bank (Barclays) alongside HSBC• Changed Auditors from a regional organisation (HCW) to PwC• Moved warehouse with room to expand• Appointed a corporate lawyer

3333

But it won’t always go perfectlyFailures• Risk Mgt / Corporate Governance• £10m upgrade to the IT architecture• New WMS • Footfall counters - £0.3m• Foreign exchange

Date US$ m Exch Rate £m

1st Week April 2008 30.0 1.60 18.8

3rd Week April 2008 30.0 1.40 21.4

PBT Loss 2.6

% Group PBT 34%

Foreign Exchange

Hedging US$ Denominated

Purchases

3434

Get involved early and lead the initiative

What next?Options• Private equity x2• Trade sale• AIM listing

• Main market listing

It depends on the owner’s objectives:-• Release equity for

personal wealth• De-risk exposure to own

company• Secure access to capital

markets• Attract management talent

3535

Entrepreneurs are not good at stakeholder

management – get out from behind the desk Global Headquarters

Entrepreneurs are loyal and take people along the journey with them but can be exceptionally demanding

Valuation Spectrum

£400m £650m

10% given away to 60 employees

Day 0 9 – 12 months

Normal Timetable

Christmas

Day 0 5.3 months

Target 4.5 months

SuperGroup Timetable

To succeed, demonstrate the same values and be fair

3636

We soon realised what we had was simply not enough to satisfy the regulatory requirements of a Plc and we

couldn’t do it on our own

• Board of Directors• Business / financial controls• Effective and robust IT• Corporate governance • Timely, accurate reporting• Legal contracts with suppliers

• Profitable, growing, clear, strategy, opportunities Category Oct

2009Mar2010

Advisors 4 13

External Stakeholders

0 12

3737

Finance has a great opportunity to lead and “orchestrate”

Flat structure & wide span of control in a very cost conscious organisation

3838

A stretched CFO necessitates a certain management style

CFO SuperGroup Plc.Financial Planning

and Forecastin

g

Group Management Accounts

“Looking Back” - efficiency, cost-effectiveness, timeliness accuracy

‘Looking Forward’Insight, analysis, fact based persuasion

Supply

Chain

Compliance / Risk

Legal

ITHRTax /

Treasury

Advisers

External Stakehold

ers

My expectations of the team

3939

• Open, honest , challenging, supportive, no compromise on standards

• Move outside your comfort zone, be resilient & tenacious – ‘sink not drown’

• Freedom within the boundaries of the role to act as a ‘mini-CFO’ – tell me the effect

• Decision support - fact based insight, analysis, interpretation & persuasion - don’t just report

• Go the extra mileRepresent me and be my ‘eyes & ears’

What does this mean for you• Acquire a deep knowledge of the business beyond the function• Be an ambassador for the finance team – create a brand for

yourself• Set yourself apart by objective, fact based challenge and

support• Build mutiually beneficial relationships with key stakeholders

and work hard to make them stronger• Take advantage of technology / IT to do the ‘heavy lifting’ but

there is no substitute for brain power

4040

An organisation can create the framework (70%) but the majority of effort is up to the individual (30%)

The Role of Finance in Business GrowthChas Howes – 24th November 2015