The Financial Director Interview - Keeping a straight Bhatt at Vita

Kanak Bhatt is well-known among sailing colleagues at speciality chemicals group British Vita for his ability to come through storms without feeling under the weather. A useful trait in an industry which has suffered its fair share of ups and downs, peaks and troughs over the years.

In his 30 years at Vita, Bhatt has seen three trade cycles come and go, battering the company but not deflecting it from its course as it grew from a small provincial firm to a major multinational group with a turnover of #900m and 10,000 employees worldwide. Most recently, since Bhatt became financial director in 1991, the company has seen severe recession in Western Europe, where 50% of its operations are located. And, as that depression began to ease somewhat, Vita faced another onslaught on its margins from a different quarter: massive rises in raw materials costs, all the more difficult to recover because of the sluggish markets in which it was operating.

Of Indian extraction, Bhatt was born and brought up in Kenya, the third of 11 children. Always a bit of a rebel, he left school at 16 with no very clear idea of what he wanted to do, and joined Shell East Africa as a management trainee. But his employment with the company didn’t last long. “You had to commit yourself to serving Shell anywhere in the world,” he recalls. Unfortunately, his posting was less than glamorous: a very small African village near Nairobi with no electricity. Bhatt broke his contract.

Three hours later he walked into the Nakuru branch of the Standard Bank of South Africa and asked for a job. He got one. The bank manager knew his father who worked for the East African Railways and Harbours Authority.

Bhatt stayed with the bank for about a year and felt more and more inclined to pursue a career in commerce. However, this was not viewed with approbation by his family. “Traditionally, Indians want their children to become doctors or lawyers, sometimes accountants,” says Bhatt, “but never consider business or economics qualifications.”

So, when he went to the University of Poona in India in 1958, he started studying for a science degree. But an unfortunate encounter with a frog he was trying to dissect, and to which he had given too little chloroform, convinced him that he was too squeamish to make a doctor. “I thought: that’s it,” recalls Bhatt, “I understand commerce and finance and that’s what I’m going to do.”

Switching subjects, he graduated with an honours degree in commerce, specialising in advanced accounting and economics in 1962.

By this time Kenya had achieved independence and his parents had left the country. Bhatt decided that it was best not to return there and joined a sister and brother studying in Manchester instead.

Thinking the best way to get into commerce was via accountancy, he looked about him for a suitable job. Within a week he was working for a small Manchester firm, Trotter, Davis and Yearsley.

He was with the firm for nearly four years. “I trained as an accountant but I didn’t want to be one,” he says. Then, through one of the firm’s audit clients he came into contact with British Vita, at that stage a private company called Vitafoam. “It was ironic really,” says Bhatt. “They recruited me to become a manager in a foam operation with a lot of businesses in the old colonies. I think they thought they could post me to Nigeria or one of those territories.”

But, as luck would have it, he joined as a management trainee in the finance department. Bhatt views this department as the nerve centre of the business. “What the business does – manufacturing, marketing, production, management – all ends up in the finance department: someone has to put values on them and that’s where my involvement came in.”

He found that the finance function in the company was at a very rudimentary stage. “There was a lot more that could be done in terms of systems, costing, management accounting and providing information to management about how the business was doing,” recalls Bhatt. In something of a role reversal, he began to train the people around him.

Bhatt started to become noticed by the management once he took charge of the internal audit function. This enabled him to go to all the UK plants and discuss the business environment and how to improve performance and manage resources with the management.

By 1968 the company had gone public and was breaking its activities into three divisions. Bhatt became financial controller for the textiles and fibres division, working with the main board director on the businesses within it. The following year he moved to the industrial polymer side.

The company had been growing at a very fast pace but in the early 70s the UK economy started going through a recession. Bhatt’s role became more central as the company began significant restructuring, rationalisation and cost reduction programmes.

In 1973 he became deputy group accountant under Rod Sellers who had joined the company in 1971, focusing on management accounting and management accounting information. Three years later he took over as chief group accountant when Sellers became FD. The two worked closely together throughout the recession of the 80s, with Bhatt becoming group treasurer in 1986.

“As head of accounting functions, I was working on treasury procedures, finance and banking relations,” says Bhatt. Those were all the more important because of Vita’s involvement in European businesses.

“At that time we had operations in almost every significant European market,” says Bhatt. He points out that Vita’s major product, block foam for the upholstery and bedding market, is bulky and not easily exportable and has to be made where its markets are. Bolt-on acquisitions and the establishment of plants to service local demand play a large part in Vita’s growth strategy alongside organic developments.

Bhatt slipped easily into the role of FD when Sellers succeeded Bob McGee (now chairman) as chief executive in 1991. But the years which followed were anything but easy for Vita itself.

Conditions were particularly severe in the important German and French markets and, although Vita had no trouble keeping its head above water, its margins suffered. Pre-tax profits during 1993, for example, dropped by 35.6% to #33.7m. And the withdrawal from two ailing Spanish concerns, engineered by Bhatt, proved a costly operation at #10m.

Yet, according to Lucas Herrmann, an analyst with NatWest Securities, the escape from Spain could have been much more expensive for the company.

“Kanak managed to do some good deals with the Spanish authorities, renegotiating reductions in debt, and ultimately managed to sell the business with heavy debt, avoiding what could have been some horrendous costs.”

Alasdair Nisbet, an analyst at UBS Limited, sees the Spanish divestment as a good example of Bhatt’s determination and courage in grasping issues which the company has been slow to face up to. “It was a difficult decision for him to make and it has ultimately stood the company in good stead,” he says.

Bhatt himself thinks that the Spanish experience was one of his most difficult assignments. “When you’ve done your best and find that everything has turned against you, then you’ve really got to say ‘come on, we’re not going anywhere, we’ve got to do something’,” he says. “Then you become involved in divestments and finding the best way to deal with the problem.”

He thinks that recognising mistakes and dealing with them quickly or drawing them to the attention of people who can influence change is an important part of his role.

More difficult decisions were to follow for Bhatt and Vita as the 90s progressed. In 1995, as the recession eased in the US and the UK, the price of raw materials for the foams and fabrics side of the business started to soar, rising by as much as 50% in six months. Vita struggled to cope through a combination of efficiencies, product re-engineering and selling price increases, but static markets delayed the recovery of the rising raw material costs.

In addition, a change was taking place in the furniture industry, to which Vita was a supplier, as its focus shifted to the burgeoning markets of Eastern Europe, attracted by low labour costs.

As Vita’s new Polish plant thrived at the expense of its German plants, a restructuring and rationalisation programme was put into place. It involved a reduction in the number of German plants, a divestment of non-core businesses and expansion in Eastern Europe.

Vita was also looking to expand its foam operations in the US where it already had a small presence, and acquired the Olympic Products division of Cone Mills Corporation.

Bhatt was very much involved in fronting the review process of Olympic.

It is a role he enjoys and one which increasing numbers of FDs are having to embrace. “Negotiating is challenging,” he says, “but I really feel satisfaction once the acquisition becomes a fully integrated part of the group and delivers the results that you predicted for it when the acquisition was made: that is the time to take pride in it. It is that challenge which keeps me ticking over.”

Bhatt thinks an FD must have an intuitive approach. “You’ve got to be able to foresee the effect of what is happening in six months time. The FD is not a messiah, but part of the team who focuses attention on issues.

The role is critical in terms of the evaluation of a situation and the financial implications of any action on the well-being of the group.”

He also takes a particular interest in taxation and feels that FDs should have a good understanding of the subject. While the expertise of accountancy firms has its part to play, he believes many companies can and should handle routine tax tasks internally.

Colin Gillespie who works in the corporate finance department at Barclays de Zoete Wedd, was group audit senior for Vita at accountants Arthur Andersen during the 80s. “Most of our audit clients couldn’t get their simple UK tax computation right, but Bhatt was doing it for a group with 60-70 operations throughout the world with lots of different tax regimes and double tax treaties. But in all the years we did the audit we never once had to adjust the tax charge – he always got it right.”

Vita’s chairman, Bob McGee, obviously has considerable affection for Bhatt, with whom he has worked for 30 years. “He is fair, absolutely dead honest and very discerning,” he says. “He is one of the most instinctive people I know. You can’t buy that and it’s not the sort of thing you can train.”

McGee recounts a story about Bhatt, who on a sailing trip with a number of others was caught in a gale at night. “Kanak was the guy who held it all together,” he recalls. “All the others turned green and there they were stuck in the ocean with liners passing by. Kanak is not a good navigator but his instincts took over and he managed to get the boat back into Southampton with all the others on the floor.”

This also illustrates a second point that McGee makes about Bhatt’s contribution to Vita. “His sheer energy and determination to carry through whatever is asked of him against all odds is one of his strengths,” says McGee.

“He is a complete workaholic. Everything comes second to work. He’ll work all hours and do whatever is necessary to achieve his goal.”

The flip side of this, though, is that Bhatt does expect the same dedication from his staff. “He is a hard taskmaster,” says one colleague. “There’s an automatic assumption that if he wants to work until 2am, his staff will be there beside him, not necessarily actually working but just there in case he needs something – and if they don’t want to do it he voices his displeasure in no uncertain terms.”

If Bhatt has a weakness, says McGee, it is that he is a poor delegator.

“In the early years he found it very difficult,” he says, “but now he has seen the error of his ways, and is becoming better at it.”

Bhatt himself says he doesn’t give up easily and has a lot of stamina.

“I give the job whatever it needs and whatever it takes,” he says. “I am often accused of not allowing people to do their own thing, but you can only delegate so much. I believe in delegation not abdication. If I have to impose my will I will do so, because that’s what I’m responsible for.”

In the City Bhatt is viewed as being very competent. Andrew Benson, an analyst with Barclays de Zoete Wedd, thinks Bhatt is a very solid FD.

“He comes across as being intelligent, focused, capable and hard-working,” he says.

However, Bhatt is not a natural says Herrmann, and had a hard act to follow when he took over from Sellers as FD. “Kanak doesn’t have the same presentational skills,” he says, “but people don’t question him in terms of substance.” Nisbet agrees, adding: “On a one-to-one basis he is certainly one of the best we have. He has always given me a very straight bat.”

Sellers confirms that this side of the FD’s role is not Bhatt’s first love: “Standing up in front of 30 to 40 people and giving a very slick, American-style performance wouldn’t be Kanak’s way, but he’ll come over in a very personal and strong way in smaller groups. The glitzy, razzmatazz approach often covers up a lot of inadequacies. Kanak will be very truthful and honest almost to a fault,” he says. “You’ve got to be consistent with the City through good and bad times and Kanak understands that.”

Bhatt thinks that meaningful communication with the City is very important.

“It is not a cat and mouse game,” he says. “The analyst is trying to do his job and you should not build expectations when you don’t need to or over-indulge in creating hype. Financial statements are becoming more and more transparent – the disclosures are there. It is the interpretation that is key. Your role is to give information so that analysts can interpret it in a balanced way.”

As far as his chairman is concerned, this is an area in which Bhatt is well up to scratch. McGee points out: “We are not actors or politicians but hard-nosed businessmen who have to stand up and convince others that what we are doing is right and we have to be reasonably good at it. Kanak has been good at it but not in too polished a way. Of late, though, his overall performance has improved dramatically – and people have given him credit for working quite hard on it.”

It is in the mergers and acquisitions side of his role that Bhatt has really shone. He is very good at negotiating, whether it be on professional fees or potential purchases, but it is the latter that really interests him. “He has a highly developed financial perception and astuteness,” says Sellers, “backed up by an ability to do exhaustive analysis in a very short space of time.”

He continues: “He enjoys getting stuck into a company and delving around, finding out a lot about it, and then creating something from that in conjunction with the guy who is going to be operating it thereafter.”

According to McGee, Bhatt has an instinct for the use and value of money, what should and shouldn’t be done with it, how it’s wasted and how it should be conserved. But, he adds, he has never been just a beancounter.

“He has been out travelling the world, involved in all our big acquisitions, disposals and major movements. He is very much the travelling man and has negotiated some wonderful deals for us over the years.”

Bhatt has never wanted to move on: “My job has never been routine. The review process is there but you are reviewing something living and you are part of a team bringing change about: that’s exciting.”

Later this year, though, he is to make way for a younger man. But at 57 he is by no means ready to abandon ship. In fact, new horizons are opening up for him: as chairman of Vita’s international holding companies he is to utilise his proven abilities in the exploration and development of international opportunities for the group. His ports of call will include South-East Asia, the US, Latin America, India and Eastern Europe.

“I still have plenty of ambitions left,” says Bhatt. But, although he thinks he is capable of handling an MD’s role, he has never wanted to take the helm at British Vita. “I think that’s the strength of our group,” he says. “There is no absolute person who says ‘from now on you will all come in and drink from this cup’. We don’t work like that; we work as a team. And I would rather be a good team player than the captain.”

Mary Huntingdon is a freelance journalist.