Consulting » THE FINANCIAL MILLENNIUM INTERVIEW – Millennium man’s countdown.

THE FINANCIAL MILLENNIUM INTERVIEW - Millennium man's countdown.

Most financial directors face a series of deadlines throughout their working lives. But few have to meet one quite as unbreakable as that facing Neil Spence, the FD at the New Millennium Experience Company.Richard Young interviews him for this special edition of Financial Director magazine.

Neil Spence sits in the visitors’ centre at the Millennium Dome, in south east London, surrounded by wellington boots, and says: “There are very few projects where you can say this is the end date and it’s not moveable. Most dates are flexible to a degree. But this one isn’t.” And the wellies around him are testament to the fact that, with 70 days to go, the centrepiece of the nation’s year 2000 celebrations isn’t likely to come in significantly ahead of time.

To the untrained eye, the fact that the Dome still has all the attributes of a building site suggests that the only way to save the project might be to rename some sections: “The Construction Zone”, “The JCB Zone”, “The Scaffolding Zone”. So it is remarkable that one of Spence’s main jobs at the moment is selling the thing. The government has decreed that a new owner shall take over on 1 January 2001, leaving the New Millennium Experience Company (NMEC) just 12 months to administer – and profit from – the 14 zones which are now nearing completion.

“We’re in a bid process at the moment, and we’re shortlisting later on this year,” explains Spence. “The government has set five or six criteria for the new owner. One of them – probably the main one – is that it has to be a world class development within the Dome.” NMEC has already received interest from potential bidders including First Leisure (a controversial pitch, given that Michael Grade was on the boards of both seller and potential buyer when the suggestion was mooted). But the level of public scrutiny and the need for the government to be seen to be doing the “right thing” complicates what should be straightforward financial matters.

“We are, of course, interested in cash, but we’re interested in what the land is going to be used for afterwards,” Spence says. “There’s no doubt that our intention is not to recover £758m – I don’t think anybody will be giving us that kind of money. We haven’t even said what the minimum price is. It’s not, ‘what’s the highest bid and we’ll take that’.” Instead, the future owner’s developmental credentials will be a factor.

That £758m – the total cost of the Experience – has been the subject of much of the adverse publicity that NMEC has received. Indeed, up until the point when the Dome was topped out and the public and media could actually grasp its undoubtedly impressive impact on the former wasteland of the Greenwich peninsula, it was practically impossible to find anyone who thought the Dome was either a good idea or an effective use of funds. (It’s still not that easy, depending on who you talk to.)

But Spence certainly understands why there has been hostility to the spending of the best part of a billion pounds by NMEC. “It isn’t taxpayers’ money,” the FD stresses, “and this is a distinction we try and make because some people – quite rightly – have said, ‘Well, shouldn’t this money have been spent on hospitals, education, whatever?’ But those are funded from taxpayers’ money, not by Lottery money.”

NMEC actually received £399m from the National Lottery Millennium Fund, leaving Spence with £359m to find from other sources: £150m of that has come in from zone sponsors, companies such as Boots, BSkyB, Manpower and Marks & Spencer. That still leaves a rather frightening shortfall. “In round terms it’s £200m that we have to get basically from visitors – and we’re looking at around £150m-plus from ticket income,” says Spence. The remainder – a rather chunky £59m – will come from NMEC’s share of catering and retail earnings.

Naturally, the bad publicity extended to the ticket prices as well as the overall cost of the Dome. But Spence is still unfazed, and his “softly, softly” style is perfectly suited to handling the outpourings of the tabloid media. “People have views as to whether £57 for a family ticket is too much or not,” he says, “but when you bear in mind that that’s for five people, that works out at £11.40 per person, not a bad price for a day out.” It also compares reasonably favourably with attractions such as Alton Towers and Disneyland Paris.

But unlike a conventional theme park operator, NMEC’s finances suffer from huge complications. When Disney is planning a new park, the capital expenditure can be assessed against a cash-flow model that extends indefinitely into the future. In other words, the ongoing cost of the capital plus the running and renovation costs can be offset against takings. But Spence has only 12 months – and that’s it.

“We do have a short window,” Spence concedes. “But at the end of the day we set a budget of £758m two-and-a-half years ago, and we took into account what we believed the public would pay to come to the Dome – and our operating costs are significantly less than our ticketing income. So we are making a significant contribution to the actual capital cost.

But there’s no way of recovering our capital costs. You can see that from the figures: £200m in terms of total income by way of tickets or retail and our capital cost for the Dome itself is £290m. So we can’t match it against the capital, let alone the cost of the exhibits on top of that. We’re not a conventional leisure operator in that respect.”

That also means that performance measurement is rather different. “There aren’t any key performance indicators,” Spence points out. “The actual expenditure simply cannot exceed £758m – it’s make or break, all or nothing.” So while NMEC has been able award subcontractors bonuses for early completion of various projects, or bringing them in under budget, as far as its own management are concerned, it’s really very simple: do or die.

Where money has been saved, it’s simply ploughed back into the Dome – so that the original 11 Zones are now 14 thanks to savings. “We’re giving a better product for the same price,” confirms Spence. “Having said that, if we do have additional value at the end, the Millennium Commission gets the money back to be redistributed through the Lottery for the benefit of the country.” That may be a big “if”.

Spence is confident that operating income will exceed operating expenses, and that is a crucial metric. If the Dome doesn’t break-even on its day-to-day activities, the headlines aren’t worth thinking about. Yet, as if to compound the pressures on NMEC’s FD, just days after our interview the Financial Times revealed that ticket sales are poor and that a £50m loan has been awarded by the government to keep the project on track.

According to the PR flacks at NMEC, this loan is all above board – it was planned several months ago and mentioned in the annual report. But the ongoing flow of bad publicity won’t encourage people to consider the Dome as a leisure destination. And, apart from the financial and ticketing revelations, the Jubilee Line Extension – a beautiful construction project which quite simply puts the rest of the Underground to shame – has run into signalling problems (which are ascribed to the supplier, Westinghouse) with less than two months to go.

In fact, the FT seemed to be rather disingenuous in some aspects of its research. For example, asking outlets in Newcastle, Manchester and Edinburgh about their sales of Dome tickets might have been an attempt to challenge NMEC’s assertion that the Dome is a nationwide project. But the reality is that inhabitants of London and the South East are the most likely to buy early. Having said all that, there are reports that the revelation that not even 1 January 2000 has sold out has actually given a boost to ticket sales.

Spence is aware that all this makes his job a tall order. “We’re looking for 12 million people coming next year, and that’s a significant number, more than double any other tourist attraction in the UK,” he admits. That’s not to say the FD isn’t cautious. “That 12 million is broken down into 2.4 million foreign tourists and 9.6 million from the UK. We’ll wait and see what we achieve, and who knows. But undoubtedly, if we don’t achieve those targets, we’ve got contingency so we can still balance our books.”

Perhaps one reason for Spence’s coolness under fire is his CV. Prior to the NMEC job, he was FD then joint chief executive of the London Docklands Development Corporation (LDDC). This also involved a non-executive directorship of the oft-troubled Docklands Light Railway (DLR), which became the property of John Prescott’s DETR after the LDDC was wound up in 1998.

“There was no automatic transfer from LDDC to here; it was just pure coincidence that I’ve stayed in East London effectively on another redevelopment scheme,” Spence explains. But whilst there are some similarities between the two roles – both involved large construction projects, for example – he is keen to draw distinctions. “The Millennium Dome is really one project, full-stop. At LDDC, you had 4,000 projects, ranging from small thousands of pounds up to £300m each – so the breadth of projects was totally different. And the issues were different, because you didn’t have to worry about sponsors, you didn’t have to worry about ticket income.”

One thing his time at the LDDC did teach Spence was that there are vast differences between the running of a plc and what is still, effectively, a state-owned company. NMEC has one shareholder, Lord Falconer, who “owns” the single NMEC share on behalf of HM Government.

“You’d try and build up a good relationship with your bankers as a private sector organisation, and it just happens that our bankers are politicians and civil servants,” Spence says. That also means the finance function must operate on a different plane. “We have to be aware of government rules and regulations and make sure that not just the finance function, but the whole company adheres to those rules.”

Spence’s time at LDDC was a steep learning curve. “I can remember receiving a letter very early on in my days at LDDC where I thought, ‘Fine, well they’re chastising us a bit, but not too bad’,” he recalls. “But I was told it was horrific. It was just the words that they use mean much more to a civil servant than they might mean to a member of the public. Key people within the finance function have to be able to decipher letters like that.”

There are other differences compared to a plc finance operation. “You don’t have to have a significant treasury function, for the simple reason that you can only draw down grants when you need to, so you never have any significant cash balance,” Spence says.

“The finance function in other respects is quite similar to a plc: they get involved in all aspects, and I certainly try and make sure that even my financial controller and his immediate reporting line are involved in all aspects of the company. The only way we can do our jobs properly is to ensure that we have a good network and know what’s going on in all aspects of the organisation.”

The general management experience that Spence has from his time as joint chief executive at LDDC helps, but he has always sought out roles which allow him to operate outside finance. After seven years at Touche Ross, in 1982 he took the finance job at a computer services company, the unfortunately-named DDT, to which he had been an adviser. The attraction there was the prospect of a flotation on the Unlisted Securities Market, and Spence was then able to become MD of the company’s Irish subsidiary, as well as taking it onto the full market. Then a hostile takeover by Apricot in 1989 meant he was forced out, and the job market beckoned.

“I always made it clear, even when I joined DDT back in 1982, that I wasn’t interested purely in finance because I don’t believe that as finance director you can do your job properly unless you’re involved in other aspects, unless you’re involved in general management,” Spence insists.

And while his next position, at the LDDC, was financial, it had other attractions. “Being in the public sector, it was not something I’d actually thought about,” he recalls. “So it was a decision that one mulled over for a while, but what LDDC offered me – which I hadn’t had before – was a large organisation, both in terms of money and in terms of people.”

Spence seems to have enjoyed his time at the LDDC. But while the pressures of public scrutiny were evident there, the Dome is a different beast.

“It’s unique,” he says. “You’ve got the time pressures on you; you’ve got all the normal issues of cost control; and it’s not just your shareholders watching you, effectively it’s the whole of the UK looking at you. So, significant pressures, but that’s part of the reward and the challenge.” It’s tempting to assume from this sort of comment that Spence has been taking lessons from the Dome’s own spin guru, Peter Mandelson. But then, with all the hostile press, it’s unsurprising that Spence remains defiantly upbeat.

Even at NMEC Spence has a non-financial role. His department is officially known as “finance and corporate services”, and it encompasses legal and HR functions. HR is a real challenge. “Up until the beginning of this year we had 160 to 170 people working for NMEC,” he calculates. “By the end of this year, we’ll have somewhere in the region of 1,500-plus, for the simple reason that we have to employ all the hosts to help the public within the Dome. Manpower, which is one of our sponsors, is helping us recruit those people.” Again, the deadline looms large: without trained hosts, early visitors will have a bad experience, and word of mouth is crucial to the success of the Dome.

The other side of having a fixed deadline for the whole company is that there is a highly visible point in the near future when unemployment beckons – in the FD’s case, March 2001. But, as with almost every other aspect of the Dome’s seemingly nightmarish birth pains, Spence takes this in his stride. “I’ve had that situation once already, because we wound up LDDC last year, so I was more or less switching out the lights on 30 June.” He smiles at the memory. “In the months leading up to that date, one didn’t know what was going to happen next, and I think you just have to have your own strength of conviction knowing that something will come up.

“I’m not a person who’s sat down and plotted out my career for the next 20 years or whatever,” Spence continues. “Perhaps that’s the wrong way to go about it, but I haven’t done that, so I will start looking in the marketplace towards the end of 2000 as to what’s available and what’s coming up. But I’ll just wait and see. I don’t know what’s coming up in two years’ time.”

Well, maybe 2001 is too far off to gauge. But, closer to the present, we can but hope that Spence knows exactly what’s coming up on 31 December 1999.


Name: Neil Spence Age: 46 Qualification: FCA Career: 1998-2001 Finance director, NMEC 1997-98 Joint CEO and FD, LDDC 1991-97 Assistant CEO and FD, LDDC 1989-91 Director of finance and administration, London Docklands Development Corporation 1987-89 Managing director, DDT (Ireland) 1984-89 Finance director, DDT 1982-84 Financial controller, DDT Group 1975-82 Touche Ross Other posts Non-executive director of Docklands Light Railway; Audit Committee member at the National Maritime Museum in Greenwich; Governor of Bacon’s City Technology College

Spence on Dome cynics:

“We try and nurture the press. This time last year there were no exhibits, it was just an empty shell with a few core buildings and nothing else, so it wasn’t very exciting. Now that they can actually see what’s being developed, and we’re telling the public what they will experience within the zones, people’s views are changing, and there is no doubt that whoever comes down on site, no matter how cynical they are, when they leave here they say, ‘We’ll come next year.'”

Spence on estimates:

“We’d be naive if we didn’t have a contingency against the (projected visitor) income of £200m – and we have a sizeable contingency against that. But the reality is that most people you speak to actually say that 12 million (visitors) is an underestimate rather than overestimate.” Spence on the Dome’s function:

“This is a regeneration scheme for Greenwich. The local authority, when they’re looking at the planning application for the after-use of the Dome, will be interested in what employment there is.”

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