THE NEXT TIME you access your mobile phone’s posh map function or wirelessly stream music from your PC to a set of speakers, just pause to consider that a bit of your hard-earned cash will go towards supporting a Cambridge-based technology company.
The company is called CSR and its efforts to produce, among other things, GPS, Bluetooth and wireless technology have seen it propelled into the FTSE 250 after forming just over a decade ago in 1999.
CFO Will Gardiner says modestly that “some” devices don’t use CSR’s kit, but it has just produced its two billionth chip, which suggests that number could be small.
An effusive and enthusiastic character, the Harvard-educated investment banker will require all his nous from ten years in JPMorgan’s telco division and his role as CFO of Easynet for the challenges ahead.
While the market for all-singing and dancing semiconductor chips continues to grow, particularly in the smartphone arena, competition is still fierce.
CSR is currently swapping patent litigation claims with US giant Broadcom. Plus, the fast-growing market for combination chips that bring together Bluetooth, FM radio and GPS onto a single unit sees CSR in a “weaker position” than its competitors, according to analysts Canaccord Genuity. But it is sitting on a $400m cash pile, and Gardiner isn’t afraid to use it.
Bluetooth and beyond
The company originally focused on Bluetooth – a market in which it still excels – working with Nokia. Due to the risk of being a “one technology company”, it grew and refined its risk profile.
“We needed multiple technologies to broaden that base. When I joined [in June 2008] that strategy was in place, but using M&A as a tool.”
His experience in M&A from the bankers’ perspective, plus transactions as CFO of Easynet, will be key to the future of the business. As the analysts state, acquisitions could improve CSR’s growth outlook dramatically.
On M&A, “problem-solving is fun”, says Gardiner. “There are umpteen companies you could buy, but it’s figuring out which could work. Then you’re into the deal junkie phase which is exciting… and then ‘what will we tell the market?’”
The headwind facing the business has seen its share price fall over the last year from 436p to 345p. But CSR won’t rush an acquisition.
“We have a significant level of prudence, but capital there for acquisitions.” Gardiner’s confidence in the business, and expectation of share price growth, saw him purchase a cool £100,000 of shares in August.
And it wasn’t just him. CSR purchased $50m worth of shares due to confidence in its ability to create shareholder value.
Despite not being an accountant, strong financial discipline is core to Gardiner’s efforts at CSR. Capital allocation is crucial, so it runs a detailed model around weekly cash forecasts.
He is supported by a team of accounting experts to manage the technical details.
“I’m not an accountant but I do understand the fundamental concepts well,” says Gardiner. We’ve moved to IFRS from GAAP [during my time at CSR]. My role is not so much the execution but to question and direct the team. I think its very important [financial reporting] reflects reality, we take a very straight bat.”
CSR “could be more aggressive” around its tax strategy, Gardiner adds, but that didn’t stop the company reviewing whether it should move its tax base outside the UK.
“We looked at it but it was complex and had limited tax benefits,” he says.
The tax issue is, to an extent, about value for companies such as CSR, but considering a move becomes more of an imperative when its competitiveness is at stake, he explains.
“Our competitors in the US have extremely low tax rates, between zero and 10%. In the UK it’s nearer to 25%.”
But the UK government understands it’s not as attractive, says Gardiner, hence the plan for a “patent box”.
The patent box is a tax relief plan originally introduced by the Labour government and has been maintained by the coalition. Income from patents will be taxed at a 10% corporation tax rate from April 2013, and will only apply to income from patents granted after legislation is introduced. The new law is expected to be introduced in next year’s Finance Bill.
“We’re involved and working with the government on that,” says Gardiner.
Another area of concern, in an accounting sense, is how the standards setters ask companies to present ongoing litigation in their financial statements.
UK companies use IAS 37, where they disclose a potential liability associated with a court action if there is a more than 50% chance they will have to pay damages. The value recorded in the financial statement represents the company’s “best estimate” of this liability.
But standards setters want companies to record a weighted average of all potential outcomes. Under the new model, companies would assign a probability to each situation and combine these to arrive at a value.
Gardiner is not a fan of what he describes as a “probabilistic approach”. Users of accounts won’t understand that these judgment calls are not actually hard numbers.
Publishing a figure in financial statements based on an aggregated set of probabilities fails to remove judgment from the system.
Standard setters believe they are removing judgment through mathematical estimates, but judgment persists.
What would be published instead would be a series of judgments which, when they turn out differently to the estimate, could surprise investors.
“You’d have an aggregated set of probabilities but a different outcome would surprise people.”
And for analysts, accuracy is everything.
It’s a good discipline for Gardiner to explain the business’ position to the investor community, even though quarterly reporting is a lot of work.
“They make and lose on what you do, so it’s personal for them. But you learn where your views are relative to the market – they have a good feel.
“It’s a good way of learning but the risk is you make decisions to keep them happy.”
With CSR scattered across the globe, US to Europe – plus Taiwan for its semiconductor manufacturers (see box above) – Gardiner’s rangy physique is kept in check through exercise.
“It reduces stress and when you travel it gives you uniformity, a routine.”
But it isn’t just a run around the block. He is currently training for the New York marathon – London he achieved in 2005.
He also goes to watch football when he can, although it could be cheekily argued that watching his beloved Tottenham Hotspur is more stressful than relaxing.
“US [sports] fans have a similar passion, but not for just regular matches like in the UK.”
And on the subject of passion, Gardiner sees no end to his own love-in with the technology industry.
“Tech businesses are interesting for finance – they are led by passionate people – and the role for finance to help them make sound business decisions is perhaps bigger than in other industries.”
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