Coats CFO on making a big call

Simon Boddie, CFO of threadmaker Coats Group, took a calculated risk before agreeing to take up the top finance job at the FTSE 250 constituent.

At the time the group was faced with a huge pension deficit and was locked in a lengthy negotiation with The Pension Regulator– but it was by no means clear in early 2016 that any deal could be reached.

“Coats was a really good business but there were a whole load of clouds sitting around, mainly related to the pension,” says Boddie, who had been at electrical products distributor Electrocomponents for over a decade at that point. “I felt if those got resolved you would be able to see through the clouds and what a great business it is.” Failure to do so would have had profound consequences- as witnessed in unresolved corporate pension situations.

Boddie says he felt there were two compelling reasons why a deal would get done. “I felt the Coats board was a strong team that would try and get it done with the cash it had available and I felt the regulator didn’t want to hang around forever, so it was a matter of time before the money was put in.”

In the event, Boddie made a judgement call that he had to stand by. “I felt it was significantly more likely to happen than not.” Six months after he joined in July that year Coats reached a £255m pension upfront settlement with The Pensions Regulator plus £14.5m annual payments with .

The deal has effectively begun a new lease of life for Coats, formerly known as Guinness Peat Group- which has been around in some form since the 1750s. The deal by one of the world’s largest manufacturers of thread yarn and zip not only safeguarded pension payments for 24,000 scheme members- it was able to restart dividend payments to shareholders.

Taking the challenge

The willingness of Boddie to take on a new role “where he could go up the learning curve again” reveals something of his character- given the high-profile nature of Coats’ pension wrangle with the regulator.

His career to date had appeared as fairly plain sailing. After graduating from Cambridge University he joined accountants Price Waterhouse before being hired by investment bank Hill Samuel bank soon after Big Bang.

A move into business development at Guinness-owned United Distillers, where his dealmaking skills came in, led to finance roles including FD of Guinness Great Britain, where the passion for the brand impressed him. “You felt that if you cut their arms in half there’d be this black Guinness flowing through their veins,” he says.

When Guinness and rival Grand Metropolitan merged in 1997 to form Diageo, Boddie continued in various finance roles before the lure of becoming the finance director of a quoted company saw him move to Electrocomponents.

The role offered the chance to run finance at another international group- but Boddie says the electronic products distributor wasn’t as stable as he had anticipated from the outside. “We had a profit warning in week three of my job and we had an SAP implementation that was pretty bumpy. So it was probably a bigger challenge when I got into it than perhaps I could have seen from the outside, but we weathered the storm.”

In his decade there, Electrocomponents undertook a drive to become more international from its UK base, aided by a foray into a big online operation. “E-commerce was about 15% of the business when I joined and was two about thirds of the business when I left. It was a huge change.”

“There were some challenges because it exposed your pricing, in terms of what your pricing was like versus the competition, some of the smaller players. But I would say dealing with that over the ten years was a fascinating piece and I left the business much stronger in the end, with a strong international business,” he adds.

Being market leader in many of the sectors it was operating in necessitated being an early adopter of digital, says Boddie. “One of the things that enables you to stay ahead is ease of doing business. People who were starting to order things at home in a personal capacity wanted as good an experience when they got to the office, and that’s actually quite a challenge to deliver,” he reveals.

With more effective technology, Boddie was able to ensure the finance function could exert greater control across the group. “You could see much more in real time what was going on. You weren’t waiting for the danger, the danger was coming, you could see some of those leading indicators much earlier,” he says.

Half way through the Electrocomponents FD role, Boddie became a Non-Executive Director of recruitment giant Page Group, stepping up to chair  its audit committee months later. “It helped me in my day job to understand where NEDs were coming from,” he says.

Moving things forward

All these experiences have helped Boddie in his role at Coats which he describes as having elements of B2B and B2C, “which I’ve had in my career at Electros and Diageo, it brought those back together again.

“There are other similarities. It’s a very global business with a lot of tradition, founded in the same decade as Guinness- 1750s, I like that sort of heritage. I felt all the businesses I’ve worked for have been market leaders, they’ve had good, attractive financials as a result of that,” he says.

Boddie says the impact of lifting the pension burden and paying a dividend again “was quite a powerful cocktail” that drove the share price forward. “The business kept on moving and people started to see other strings on the bow at Coats as we started to acquire businesses, and they started to perform better than anticipated- so the whole story came together,” he says.

Now the focus is on organic growth in areas such as apparel, footwear, with a few bolt-on acquisitions in performance materials. “Acquisitions are always risky. But we are aware of those risks and we try to mitigate that with those we’ve done, and its been so far so good. We’ve developed a muscle we probably had decades ago but redeveloped in the last few years,” adds Boddie.

Clearing up the pension also allowed the group to consider more strategic financing, tapping the US private placement market- which offered longer maturities than previously available, “We’ve got debt money now out to 10 years- whereas it used to be over four years,” he explains.

In terms of finessing Coats’ finance function, Boddie has led the group’s Connecting for Growth programme, an initiative across the group that joins up support functions- HR, finance, technology in global functions. “They used to be embedded in the business and now we’ve set up as a global function, so 500-odd people right across the globe focus on those three areas,” says Boddie.

Another key area is developing business partnering across the group- getting dedicated people to support management make better decisions. “It’s really building on what I’d done in other parts of my career. So that’s what we’re doing in lots of functions- not just finance, but in marketing for example. How can we up our market share?

“Business partnering helps make good decisions fast- which is vital in an industry that is moving faster than ever. Finance needs to adapt to that and help make those decisions quicker, through providing insights from data. I think that’s where we can add more value,” says Boddie.

All of this ensures that the group’s business model can be more adaptable and dynamic to respond quickly to the changing market. He says this needs to be the case “because we are the global leader we have production pretty much everywhere, so for the big production, low cost runs you’ve got Asia.

“In Europe there are rapid fashion changes, but because we’ve got operations in North Africa and Eastern Europe, we can respond to that even quicker. Our ability to be able to respond to those needs is what customers are really looking for, and we need to do that,” he says.

Boddie is mindful that Coats needs to address the move to greater transparency and commitment to sustainability and corporate responsibility. “We recently got into the FTSE4Good index which is a reflection of what Coats has done for a long time, of how it is operating in a socially responsible way.

“If you’re a brand owner the last thing you want to find out is that you’ve got a problem with part of your supply chain. So we spend nearly half our capex on environmental health and safety aspects- reducing our water use, making sure we have a safe environment,” he says.

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