So what does Abbey National have in common with a condom?

When James Tyrrell was headhunted for the finance boss’ job at London International Group (LIG) four years ago, he rejected the prospect immediately.

Like a RADA alumnus, Tyrrell launches into a dramatic re-enactment of approach: “This woman rang me up and said: “We’ve got just the job for you at London International Group.'”

“What do they do?” he asked.

“Well … they make condoms,” the headhunter told him.

“You really don’t have to bring me condoms,” he replied. “I can do better than that.” He shakes his head and grins at the memory.

For Tyrrell, who was Abbey National’s FD at the time, the leap from the financial world to a “thin film barrier technology” company was inconceivable.

He had been at Abbey National for 11 years and was part of the eclectic team that transformed the building society into a bank. Prior to that he was the eccentric managing director who resembled a Rolling Stones groupie and hoisted HMV out of a slump in the mid-1970s. A move to LIG didn’t exactly appear to fit the pattern.

A few months later another phone call from a headhunter changed that.

“This guy,” Tyrrell recalls, sweeping his arms in emphasis, “who I didn’t know from a bar of soap, rings me up out of the blue and says: ‘Tyrrell, I’ve got just the job for you.'”

“Oh, what’s that?”

“Packaged goods company. In accordance with your spec it’s multinational with strong brands. It’s just what you’re looking for.”

When Tyrrell asked for the company’s name, the headhunter cleverly refused to reveal it. “Think about it,” he taunted.

There is no packaged goods sector so eventually Tyrrell’s curiosity got the better of him. This time he rang the headhunter. “You’ve absolutely thrown me. What company is this you’re talking about?”

“It’s London International Group.”

“Oohhh no, not again,” Tyrrell said.

The headhunter simply replied: “Well, it’s exactly what you wanted.”

Tyrrell thought about it and decided the headhunter was absolutely right.

At the LIG interview he was promised regular hours. “I’d worked my proverbials off with Abbey National,” says Tyrrell. “We privatised it, we built up a treasury operation. I brought it out of the Ice Age. So, I was looking forward to a bit of a rest. Working nine-to-five was very appealing. LIG just wanted me to shake a few paws around the world. It was just a dream and so I joined.”

In July 1993, he signed on the dotted line. Tyrrell began by digging around LIG’s accounts and found that things were not as they appeared to be. On the last day of his handover period, Tyrrell’s predecessor, David Harbut, said: “Oh James, you better watch the distributable reserves.”

“Why?”

“There aren’t any.”

“What’s the significance of that?”

“Don’t be such a silly sop. You pay dividends out of distributable reserves.”

“Oh yes, yes. So you do. What happens if you don’t?”

“You go to jail.”

“Everybody knew there was something about LIG that wasn’t right. I then realised the accounting wasn’t quite hunky dory. It wasn’t fraudulent, but in terms of a scale of aggressive accounting, there was no reserve.”

Remembering the conversation that must have sent his blood pressure skyrocketing at the time, Tyrrell just laughs. He went home to his wife and said: “Darling, I’m not quite sure about things. We’re paying a 9.45p dividend and we’ve got no money to pay it out of and it’s interims in three months.”

Then, another bomb was dropped. Two months after his appointment the Group was forced to issue a profits warning, after the 1994 figures showed loses of #175m, negative shareholder funds of #10.5m and net borrowings of #168.5m.

ColourCare, LIG’s photoprocessing business was haemorrhaging money. For the year ended 31 March 1993, the business reported an operating loss of #6.4m on sales of #122.2m. “Photoprocessing – which had been a successful business in the late 1980s – had become a bit of a problem.”

At the same time, increasing competition from Kodak and Fuji was cutting into ColourCare’s market share. “We didn’t have a brand,” says Tyrrell.

“Kodak and the others could cross-subsidise; they were in cameras, making film … the whole lot. We weren’t. We had no brand, other than the level of service. Of course, the retailers saw us coming,” he says, referring to Boots’ move into photoprocessing.

After three consecutive rainy summers (during which the punters didn’t take many photographs), things were beginning to look like a washout, in more ways than one.

So what had looked quite a good business suddenly became an extremely bad one. LIG had traditionally banked on making 15% per annum growth in earnings compound. Of LIG’s #400m turnover, about #120m was accounted for by photoprocessing. The rest of the business, which had stretched itself to cover ColourCare’s losses, prayed for a new development in thin film barrier technology to save the company.

“We had this polyurethane condom, which was little more than a twinkle in the scientific affairs director’s eye. Everyone was hoping this was going to be our salvation, but it was too early,” Tyrrell explains. “The management didn’t know the trouble we were in – I think they knew things were tight, but they didn’t know the holocaust was coming.”

This was the state of play at LIG when the chief executive, Tony Butterworth, decided to move on, followed closely by the chairman, Alan Woltz. Nick Hodges, formerly of Johnson & Johnson, came to the helm. “Nick came in and we were shot together by circumstance,” says Tyrrell. “We had to try and save the company. We had to do a strategic review and the banks were pressing.”

Just two months after Tyrrell joined LIG, it was clear that LIG had to put out a profits warning. “Suddenly, friends that I had at Abbey National – I could have gone to Wimbledon every day of the fortnight, opera every night of the season because we (at Abbey) had one of the strongest capital ratios – were keeping their distance and the hobnail boot boys rolled in. I was having to sing for my supper every six weeks in front of loads of baying bankers with huge teeth – it takes the blood out of you. It was very humiliating, but good for me,” says Tyrrell.

Top priority was to dump photoprocessing. “I very nearly got rid of it to an American outfit and then they got cold feet because they’d acquired part of the Boots order. And, of course, Boots,” he explains with a tinge of bitterness, “had its own plans. Who blames them, they’re in business to be commercial.”

Eventually, management buyout was clinched. LIG “gave” ColourCare away (in fact, the company leant the buyout #6m to take it of its hands) in May 1994. Right behind that Tyrrell’s team was preparing for a rights issue to be announced in June, together with the year end results.

In 1994, LIG lost #175m and scrapped the dividend payout. “We really had to clear it out,” says Tyrrell. “It wasn’t as if we had the opportunity to write everything off – we’ve used all of it. There’s been no cushion in that.” Then, like a fresh blood infusion, #115m flowed in on 29 July 1994 from the rights issue, priced at one-for-one at 70p. Tyrrell had bought his shares at 229p – an indication of the slide that had taken place since he joined.

“The really good thing was that Nick and I were able to persuade the City that we were worth saving,” says Tyrrell. “We had a net worth deficit of #10m. We had to write off that capital and ask for second helpings.

And the banks backed us.”

It was Tyrrell’s Abbey National days, when he built up City kudos and public company experience, that helped him convince investors to give LIG another chance. “I had a reputation in the City so the healthcare analysts could go speak to the bank analysts. Basically, they gave me good cred,” he boasts.

In fact, Tyrrell’s tumultuous LIG experience was not altogether an unfamiliar one. When he arrived at Abbey National, there were no annual accounts.

Three-year planning didn’t exist and there was no monthly reporting. Tyrrell’s first task was to introduce financial controls and reporting structures.

He explains: “We didn’t have a clue where we were. Until we did the final numbers, we didn’t know what profit we were going to make. It didn’t matter when we were a mutual. I knew we had #12bn in assets and #14bn at the end of year one. But mutuality died in the 19th Century, so we then had to set about preparing ourselves for conversion which was a massive job.”

The Board’s decision to go public with an inadequate accounting system, was a mad one to Tyrrell. He then had 18 months to get a system in. At the same time, Abbey National was trying to build up a treasury operation, had just joined APACS and was becoming a clearing bank in its own right.

“I was possibly a dud – against the horse,” admits Tyrrell. “I was concerned that we weren’t ready, but most probably I was wrong. With the benefit of hindsight, I think it was the right thing to do.”

As a result of his experience, Tyrrell is a big fan of building robustness into the financial reporting process. He says every finance director ought to be concentrating on robust earnings because steering the City is like trying to dock a ferry at Le Havre.

“At the end of the day, analysts get upset if you’re #1m out. Crazy,” he says. “How can you do that? LIG is in 130 countries, four different product businesses (condoms, surgical gloves, industrial gloves, and exam gloves) and you’re trying to dock it to within financial equivalent of inches. The City has now got us at #41m to #43m. At Abbey National I had to get within #5m. That’s kind of difficult with all the things that can hit you. Therefore the more you can lock into position, the better.”

“My epitaph here at LIG will be: ‘James is the one who introduced the word robust.’ This means that whatever the elements throw at you – strong pound, weak pound, competition, technological innovation – your operation can go on. That is the secret.” It’s not surprising he’s earned the nickname of “Squirrel Tyrrell” because of his conservative accounting policies.

But Tyrrell’s real talent is that of a corporate chameleon; his ability to blend into different company cultures and adapt to different industry environments is well proven. For example, it is a rare FD who could have coped with the transition from running a chain of record shops to a setting up a bank and understanding derivatives and treasury issues. Tyrrell attributes his success to being commercial-minded.

“It comes from my days at HMV, when I had to make a profit. Income had to exceed expenditure. I was on the bread line,” he says. “We had a totally unprofitable business, other than the old 363 Oxford Street branch. I value my experience at HMV because there I was the lonely man. I was fighting for my bloody survival. To Thorn it wouldn’t have mattered if we’d dropped off the end of the map. It’s different now; they’ve got a business which makes them a fortune.”

At the end of LIG’s rights issue, the directors had three years to revive the company and produce healthy figures. They set the operating ratios targets for the next three years and had to promise the City they would meet them. In the year ended 31 March 1995, pre-tax profits were #15m; last year they topped #26m and this year they they just missed #30m.

Tyrrell is now facing retirement with just one regret – that he isn’t retiring from the top. He is, by his own admission, a frustrated general manager. When he left Abbey National after 11 years there was press speculation that ageism was to blame for his failure to make chief executive.

“When I left HMV to go Abbey National, I thought the guy (chief executive, Peter Birch) had six years to go – that went wrong,” he laughs. He remains plagued with continuous enthusiasm, he doesn’t seem ready to let go. “The job at LIG is still only half done,” he says. “Still lots of things to go for.”

LONDON INTERNATIONAL GROUP TARGETS

London International Group’s financial director James Tyrrell has helped yank the company from the brink of bankruptcy in four short years.

Two months after his appointment in the summer of 1993, the Group was forced to issue a profits warning. The 1994 figures were heading for loses of #175m, negative shareholder funds of #10.5m and net borrowings of #168.5m.

From virtually his first day on the job, Tyrrell (along with newly appointed chief executive Nick Hodges) embarked on designing and implementing a vital three-year restructuring and recovery plan. LIG promised to meet targets such as 15% operating margins, gearing of 50%-70%, interest cover of fives times, and the re-introduction of dividends.

The targets were achieved through the disposal of non-core businesses including the loss-making photoprocessing businesses, ColourCare, a rights issue which raised #115m and the slashing of the workforce by 1,000.

It now appears that the thin film barrier manufacturer has turned the corner, having achieved five of their six targets (they just missed with operating margins of 13.1%). In fact, this year the directors shut the book on the recovery period and have set new objectives. The share price now stands at around 170p and LIG now has 22% of the international condom market.

Tyrrell reacts like a proud father when he looks back on the role he has played in turning around LIG from near bankruptcy. “It is very exciting to look back and say these are the things we’ve cracked; we’ve got clean accounts, a much stronger balance sheet, we’ve achieved the globalisation of Durex and have instituted organisational structure changes.”