Getting out of the kitchen when it gets too hot is not an option for Galiform
FD MArk Robson. Tasked with recovering the fortunes of what remained of the MFI
group, its’ been a tempestuous period. but, as he tells David Jetuah, he’s now
ready for anything that’s thrown at him, including the kitchen sink
When Mark Robson joined furniture retailer MFI in the spring of 2005 little
did he know that the rough patch the company had been going through was about to
turn into a quagmire. In the ensuing corporate bloodbath, which saw key
executives culled and the City reveal its claws, the then newly appointed FD
found himself stuck between a sideboard and kitchen cabinet with only one way
out – to successfully raise the Galiform phoenix out of the MFI flames.
In October 2006, the challenges he faced were to rescue the group by putting
the MFI Retail division up for sale, while funding expansion to develop the
Howden Joinery business, the jewel in the crown of the newly named company,
Reputation at stake
Robson, who describes himself as someone who likes to make money, rather than
an accountant, joined with quite different expectations. ‘I remember board
members apologising to me for getting involved in it. I never thought my job was
under threat, but it might have been a relief if it had been,’ he says. ‘The
alternative would have been to say “I had no idea this was the situation and I’m
off,” but that’s no good for your reputation.’
A key systems implementation had gone wrong just before Robson joined. MFI
was presented as having a robust and workable business model, but the rot had
set in well before. ‘The business model was already flawed before the system
problems. There were two challenges: the property portfolio was oversized at
high rent; and the very complex execution of the home delivery of kitchens.’
Each kitchen has about 200 separate pieces with repeat delivery necessary if
parts are missing, which raises costs and adds an extra layer of complication.
MFI was also the appointed kitchen fitter, so it was essentially involved in a
product from start to finish.
The problems started to manifest themselves within weeks of Robson joining.
‘We started to run out of cash,’ he recalls. Everything came to a head in the
middle of 2005 and a new management team was appointed at the end of October
that year. It then embarked on the slow path towards recovery by selling off its
Hygena business, the French kitchen retail arm in February 2006 and MFI Retail
later that year.
Now Galiform’s Howden Joinery business, backed up by the Howden Kitchens
sourcing and design arm, is the company’s ‘engine room’, which principally
supplies small builders with kitchen ranges, bedrooms and joinery products. With
that in mind, Galiform has embarked on a highly ambitious expansion programme,
which is currently on course to meet its target of opening 60 new joinery depots
‘It’s fantastic that we have the ability to open that number of depots and
we’ve got a business model that allows us to do that. It’s ambitious, but, so
far, we’re on target.’
The cost of the leasehold for each depot comes in at around £5 per square
foot and each factory is about 10,000sq ft. According to Robson it doesn’t cost
much in terms of capital. There’s usually £150,000 of racking and warehousing
equipment and lease liabilities to build in.
He describes his management style as one founded firmly on trust. ‘I like to
give people a lot of latitude once I know them and trust them, because that’s
how I like my bosses to be with me. Having established trust on both sides it
gives me a lot of freedom to produce the results. I like to be clear on the
deliverables, but I give lots of latitude on how they are achieved and most
people perform well given the right encouragement, the right environment and
Including credit control, the finance function employs around 300 people, but
Robson’s central finance team is made up of 15 people.
It’s no secret that Galiform has had to ring in the changes, but one of the
most significant developments has been made in its credit facility. It now has
an asset-backed facility as opposed to unsecured revolving credit arrangement,
which bankers enforced as MFI’s position became more precarious. ‘Because of the
risk involved and the chances of not getting through it, a different sort of
lending was needed,’ Robson explains.
After appeasing the bankers, the pension fund also negotiated a deal, and
both camps now have claims over some of the assets of the company. The pension
fund got the security it wanted and the process was beneficial in the long term
because of the company’s engagement with trustees and the pensions regulators.
Galiform is also ending its supply contract with MEP, the buyers of MFI
Retail, three months early on 21 December 2007. ‘It’s always been in our
interests to stop supplying MEP. In an ideal world, as soon as we sold the
business we wouldn’t have supplied them anything.
‘Galiform’s future was based on concentrating on Howden Joinery group, but it
recognised that, to sell the business, it would need to continue to supply the
new owners because they would not have been able to source products overnight.
‘In terms of normal operating profits, it’s going to be neutral. While we can
advance the restructuring we want to do, we do lose the contribution to fixed
costs that we were getting from the supply.’
Regulation has also added significant costs to Galiform’s balance sheet. Its
accounts showed a £900,000 hit to its income and expense statement in 2005 due
to IAS39, which the group subsequently decided not to adopt. ‘We looked at it
carefully, particularly the hedging element, because we source a lot from
overseas and we believed that to get what we do classified as a hedge would be
too onerous. We have fairly small-scale hedging activities, but at our level of
net debt, we decided not to treat them as hedges and let them flow through.’
The company enjoyed some deserved good fortune as it had an extra year to
adopt IFRS because of its year-end. And because it operates on a weekly
accounting basis, Galiform’s year-end moves annually. In 2005, it avoided being
caught in the IFRS net. ‘We had longer to do it and we could also see how
everyone else was doing.’
Overall, Galiform is not negatively affected by the demands of IFRS, except
for some revenue recognition issues. ‘There was a lot of work involved for us
and the auditors. The net effect was small, but it was a lot of work to find
that out and to track all the differences and reconcile the different
The past couple of years have been tempestuous for Robson and Galiform. ‘It
was very intense for our advisers. They’ve got to think about their reputations
as well. We were the most shortened stock on the stock exchange for a long
period and advisers must think if this goes smelly our name’s on this as well,
but Deloitte were terrific.’
For the moment, one of the more interesting debates for the FD is whether or
not to reappoint current auditors Deloitte. ‘We would consider a mid-tier
auditor,’ he admits. ‘The situation is getting complex in the big firms because
of audit versus non-audit work, so we wouldn’t rule it out.’
Spun out of MFI
Robson has what some would describe as a devil-may-care approach to his work.
‘I’m somebody who gets up every day and does their best. And if my best is
not good enough, I don’t lie awake worrying about it no matter how intense the
situation is. I do mull things over, but whatever’s going to happen is going to
happen,’ he says.
His view may seem surprisingly cavalier, but any judgement must be based on
performance, and his handling of the Galiform spin out embodies his attitude to
In an extremely intense period under the pessimistic gaze of the City, Robso
n was left with the financial responsibility for finding an escape route. ‘There
was an analyst’s note, which said the City expected the MFI group to go bust.
And, to be honest, it was in a lot of people’s interests that we did go bust,’
Coupled with the additional millstones of anxious shareholders, banks,
pension fund trustees, suppliers and trade credit insurers, the magnitude of the
task comes into sharp relief. ‘A lot of people, if not panicking, then were
quite close to it. There was enormous pressure to keep the business afloat. When
Galiform sold the French retail division as part of the rescue plan Robson
describes the restructuring process as a real test of an FD’s resolve. ‘It was
intense – not for the faint-hearted.’
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