Testing times for Spirent's chief financial officer
Spirent CFO Eric Hutchinson
There isn’t much in the world of business that Eric Hutchinson hasn’t experienced – boom, near-bust and critical banker negotiations are all in a day’s work for the finance chief. Hutchinson has ridden all the economic cycles and most of them as a FTSE 100 chief financial officer.
Today, however, with the years of turmoil behind him he is the calm and grounded CFO of Spirent Communications, now a scaled-down FTSE 250 company with an operating profit of £69.2 million on turnover of £296.8 million, up 30 percent, but more of than later. Clearly, unlike many chief finance officers, Hutchinson and Spirent, which produces communications and network testing equipment, have “had a good recession”.
“Profitability went up, cash generation went up, sales revenue only went down by about 10 per cent,” Hutchinson explains.
“In 2010 it was all about growing the company. The expectations in the market are a continuation of the growth rates we saw in the first three quarters. Full-year results showed very solid revenue growth. And the good thing about our model is that profits come through as cash on the balance sheet. We have a very high cash conversion rate. We are in a very solid position.”
This is no overstatement. In the com-pany’s November 2010 trading update, performance for the period between July and November 2010 exceeded the board’s expectations. Order intake was up 27 percent for the first nine months of 2010, revenue rose 13 percent and operating profit grew 35 percent.
Analysts didn’t expect disappointment from the group’s March preliminary figures. And they didn’t get it either (see 'profits soar at Spirent', below).
A 10-year struggle
Today, the landscape may appear rosy for the group – which tests equipment for communications giants AT&T, Cisco and Verizon Communications – but Hutchinson and the board have had a 10-year struggle on their hands to prevent Spirent turning into just another Marconi, the British telecommunications colossus whose share price collapsed in 2001 in the dotcom crash, revealing some of the worst losses in UK corporate history.
With some serious restructuring and tough lender negotiation, Spirent has emerged leaner, fitter and stronger. Hutchinson is one of the few board members to have survived the dotcom purge and it was left to the CFO to haul the company out of potential oblivion.
He considers the experience of refinancing and putting the company back on its feet between 2002 and 2004 to be among his greatest achievements. “Finance comes to the fore when you’re in trouble. We came out of that really very well. After the Armageddon that we’d been through – with a lot of people saying we would be like Marconi – it became a matter of pride,” he says.
With bankers, lenders and other stakeholders breathing down his neck, Hutchinson took a calculated risk. What he did was force his bankers to enter the fray by drawing down their facility and placing them in the same position as the company’s lenders. It worked and Spirent survived.
“They hated me but it got them to the table,” he says of the experience.
“CEOs tend to be bullish, growth builders but when it’s a shrinking market those guys aren’t best placed to deal with the strains and to have a clear head to negotiate.”
So it was good for Spirent that shareholders could count on Hutchinson to deal with those that circled when it looked like the company might be the next victim to succumb to the crash.
“If anyone wants some advice on refinancing and lenders then I’m happy to give it but I’d rather not live through that whole experience again,” he admits.
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