Halma CFO on the industrial giant's model driving growth

It may not be a household name, but Halma has been delivering a performance to raise eyebrows in recent years developing a wide range of safety products such as smoke detectors.

At the industrial giant’s heart is a model providing autonomy to each of the 45 businesses in the group, a formula that has seen Halma’s share price rise by over 10 times over the last decade giving it a market value of more than £7bn. “We talk about autonomy, but the real word is agility, because what it gives you..we’ve got 45 boards of directors all operating relatively small companies but totally empowered to make whatever decision they need in their business,” says CFO Marc Ronchetti.

It’s an approach that has great resonance for Ronchetti, who was a champion swimmer when he was growing up, a sport that nurtured his instincts to think big.

In many respects the model is unusual. “We buy companies that are already performing with high returns. We don’t integrate them or look for synergies, we invest in them to maintain that growth for decades into the future.

“Because they’re low capital intensive, and they generate cash, you can then use that cash to buy other similar companies without becoming leveraged,” says Ronchetti, who joined the group as financial controller in 2016 and was appointed CFO last year.

The group is split into four divisions: process safety, infrastructure safety, medical and environmental & analysis. It can trace its routes back over a century to Ceylon’s Nahalma Tea Estate Company which switched to rubber production in the 1930s before its rubber estates were nationalised in the country 20 years later.

The business Ronchetti is playing a key role in developing, made a series of acquisitions in the mechanical, electrical and electronic engineering sectors in the 1970s when it was named Halma, going public in 1981. Three years later it acquired Apollo Fire Detectors, the UK’s largest manufacturer of smoke detectors.

Ronchetti arrived from FTSE-100 builders merchants Wolseley (now re-named Ferguson), where he was UK finance director, he says: “I firstly got attracted to the track record, the success. When you see many years of growth, many years of record revenue and dividend return, you start to wonder why it’s possible and why its sustainable,” he says.

One reason Ronchetti believes Halma has consistently produced strong returns- the group’s 2018 adjusted pre-tax profit rose 15% on revenue up 13%- is a sense of purpose instilled in its leaders. “Everything starts with our purpose of creating a safer, cleaner, healthier future for everyone every day, and that really does drive everything that we do- whether that’s an acquisition or a decision on the individual, whether that’s a new market. If it doesn’t meet our purpose then we don’t do it,” he adds.

But despite a strong recent track record, he says felt he could improve it further. “When I came in, I thought there is more we can do on the performance management side, we could start collecting data and really adding data insight, thinking about giving value back into the organisation.

“I also saw the opportunity of moving away from siloed finance directors who were largely book keepers, policemen and women and the yes-no people into a finance function that had its own vision and strategy, and could be seen by the organisation as something that really added value,” says Ronchetti.

Entrepreneurial instincts

Born into a working-class family in Somerset, from an early age Ronchetti often helped his father, a self-employed painter and decorator, on building sites. He says he built a string work ethic, seeing how hard his father worked. Times were tough. “Unfortunately through the recession, we pretty much lost everything,” he says.

Arriving at Loughborough University to study economics and accountancy, Ronchetti continued his passion for competitive swimming, winning many awards and being a UK top ten contender in the 200m backstroke category.

A heavy training schedule didn’t stop him gaining a first for his degree and the economics prize before he left to join accountancy firm PwC, having undertaken work experience with a local accountancy firm who he approached after being impressed by the owner’s Alfa Romeo sports car.

The dedication needed to be a champion swimmer saw Ronchetti strive hard in the corporate space, having recognised the real danger of serious injury was too great and giving up on full time swimming. “PwC deferred the job offer for 12 months while I went off to swim, but then I was injured, so I joined the firm, getting access to some large corporates,” he says.

Car dealership giant Inchcape, one of Ronchetti’s clients, had an opening in FP&A that his mentor at PwC stressed he should go for. “He said: ‘It’s whether you see yourself as an audit partner or whether you see yourself working in industry.’ That was a big decision for me at that time,” he says.

“I didn’t see myself in accounting and wanted to get closer to the action. I wanted to be involved in operations and I wanted to be beyond checking and auditing and actually influence strategy and the way of thinking, and that’s when I made the move across to Inchcape.”

He stayed at Inchcape for 12 years in all, moving into roles such as divisional financial controller, integration and divestment programme manager, director of retail finance and then FD of Inchcape Retail UK. For the last two years he was at performance management at Inchcape Advantage, the group’s customer development programme.

“I was asked by the Board to sit in a group role and try and define an Inchcape way of doing business, both from a customer service point of view, but also from a managing performance point of view. That then started to give me that global expertise, and really got me thinking about something I’m very passionate about now, which is driving business performance through leading an activity indicator, as opposed to the output,” he says. “That meant not thinking about selling cars but thinking about the lifetime value of a customer. That was the big change we made.”

The move to become Wolseley’s UK finance director came from challenging himself. “We had to service everyone from a man in a van to a major UK building firm, out of the same facility, how do you add value?

“Again it came back to those basics of performance management. Whilst it was tough, it was really rewarding in terms of that strategic view that we did, we kind of shifted them much more to multi-channel, plus moving to bigger hubs with smaller branches, and as opposed to doing the one size fits all, it was real segmentation of the customer base,” says Ronchetti.

New approach

At Halma, Ronchetti is focused on growing at 15% per annum, through 7.5% organically increasing and 7.5% through M&A. Key is having the right talent on board. “We are reviewing permanently the top 300 talent in the organisation, not in terms of have they got the capability to deliver what they’ve just delivered next year, but have they got the capability to deliver what’s required in the next three or four years,” he says.

“We’ve got people joining us in roles that are divisional CEOs, and they’re chairs on our board, or even CFOs of individual operating companies, that are coming from much larger organisations, where they’ve got either a regional or divisional responsibility, into one of our operating companies. It may be a smaller job on paper, but the bit that pulls them is that they will have the autonomy to set the strategy of this business, and take it to where it needs to go,” he says.

What has Ronchetti learned from being the group CFO of Halma? “You have to surround yourself with good people. It started to hit me when I stepped into the CFO role because I needed people I could trust, I needed people to think in the right way and I needed to empower those people to make decisions.

“I created the finance leadership team, I have my director of group finance, two sector CFOs, and an innovation digital CFO and a head of audit, I have brought them together as a team to deliver against strategic objectives,” says Ronchetti.

Being able to make the complex simple, is another major priority. “Too Many people in finance find themselves trying to show their worth by telling everyone the depth of their knowledge, and actually the real skill comes when you understand all of that but you can articulate it in such a way that people really get it.

“Risk and control is a great example- I could have talked about Brexit for hours but I needed to talk about the key challenges, what we are doing about it and the way forward,” he says.

Ronchetti says a lot of his career success can be put down to the discipline he learned as a swimmer. “To train as hard as I trained, to get a first in my degree and get the economics prize, is about maximising potential- by expanding your mindset to what can be achievable,” he adds.

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