Mike Hannant - e2v
Thursday, 4th October 2007 by RealFD.net
Mike Hannant, group FD of e2v, can genuinely claim to be driving international growth. But expanding into new territories can bring its own headaches.
Today I'm in sunny Chelmsford to meet Mike Hannant, group FD of component company e2v. The company designs, develops and manufactures electronic tubes and sensors as well as semiconductors – the chip at the heart of most electronic devices – and, judging by the case of awards in the lobby, it’s been a success story so far.
While I’m waiting for Hannant, I watch the presentation screen of e2v’s history. The company has been around, in various forms, since 1947. Hannant, who became FD in 1998, was part of the management team that completed an MBO from parent company Marconi in 2002, with 3i as backers, before floating in 2004. Prior to joining e2v, Hannant, a chartered accountant, had stints in other electronics firms, coming to e2v as assistant FD in 1991.
As Hannant comes to meet me he points out: “We do most of our manufacturing in the UK and we’re successful throughout the world. There are not many manufacturing businesses that could say that these days, unfortunately.” Indeed.
e2v has about 1,800 employees – around 1,100 are based here at head office. There are also two smaller sites in Lincoln and High Wycombe, and one in Grenoble, France. e2v has sales offices in the UK, US, Germany, France and Hong Kong, and a network of distributors and representatives.
So Hannant has taken on the responsibility for a growing international player. “The structure is efficient from a front-end point of view because we have customers and market areas that overlap. It allows our salesmen breadth – instead of just an electronic tube or an imaging device, they can now sell a variety of products.”
Hannant tells me he’s currently looking into expanding the sales base, particularly in the Far East – although for a company such as e2v, protecting its precious patents could well turn out to be a full time job for the FD.
10AM First on the agenda for today is a budget update from Stuart Simpson, the FD who reports to Hannant at group level. Because e2v had a major reorganisation last year it has delayed the budget for the year by a month until the final changes have taken place.
Hannant has overall control of the finance, commercial and IT departments. “I would say that most of my time is spent on finance – although I’d like it to be less – about 20 per cent is M&A and investor relations, mainly M&A.” And ten per cent of his time, the FD estimates, is spent driving the commercial side of the business. It’s a quick meeting - eight minutes by my count - but it gives Simpson the chance to brief Hannant on the way the figures are looking ahead of the trading update that will be going out in a few days.
The 2007 Budget has had some effect on e2v’s finances – although as a large, established company it hasn’t had the impact some smaller companies might have experienced, as Hannant explains. “Gordon Brown’s new tax credits have been very helpful to the business,” he says. “So that means we’ll be doing a little more R&D – but as usual, it’s purely about having the resources.”
How much research and development does e2v do? “We’re fairly active in R&D, but although we’re called a technologies company, some of our technologies are mature and so don’t need as much R&D support as other technology companies.” The company’s self-funded R&D is currently running at six per cent of turnover. Half as much again is paid for by customers, mainly defence and aerospace organisations keen to have the latest technology.
10.30AM The day is picking up pace, so the next task is to meet a company which may form part of e2v’s M&A drive. The potential deal is at an early stage and therefore a bit sensitive, so I leave them to it. Afterwards, the FD explains e2v’s M&A strategy. “We want to acquire businesses with complementary technologies to ours,” he says.
“While we make a range of components, we’re looking to extend that range of supply.”
Where will that supply come from? “It’s difficult to have a target for M&A. At the moment, we’re either looking at, or talking to, more than 20 businesses at various stages.”
These range from companies that have a technology lead in a particular area, to larger organisations akin to the Grenoble acquisition e2v completed in August 2006. This was no small buy – the other company, formerly Atmel Grenoble SAS, was two-thirds the size of e2v. At the time of the purchase, e2v had negotiated an increased facility of £150m for the general growth of the company, with four separate banks. He says the company used around half of that for the acquisition, as well as increasing the share capital by ten per cent using a cashbox placing.
Hannant adds: “There was very little overlap with the original company in the Grenoble acquisition. Most of it was complementary technologies and products.”
11.30AM Simpson returns with FC Sarah Nash, for a more detailed brief on the year-end budget allocation. They also discuss the allocation of bonuses for the people who have worked on the new acquisition in the UK and France. The numbers must add up and reflect the amount of work people have put into working across both countries. Later, Hannant explains why that’s important. “Obviously when we set up the bonus scheme, we had to take the work people were doing in France into consideration as well. We couldn’t just say: ‘Oh well, you haven’t reached your bonus target in the UK, so tough luck’ – we had to be fair.” They tie up a few loose ends, before Hannant sits down to put together his comments for the next meeting.
12PM It’s time for the team briefing. e2v operates a system whereby the chief executive, Keith Attwood, sends out a message through the whole company via a cascade system. The group FD receives Attwood’s message once a month, before talking through the issues of the month with the FD, CIO, head of M&A and the head of the commercial team.
They work their way through the five-page document, covering issues such as setting up a business systems steering group to take some pressure off the IT department. They look through the figures for the month – scrap costs are up, and there’s a reminder to be on the lookout for non-compliance with export controls (all that international growth brings its own paperwork). Hannant warns the department heads about a company that fell foul of the regulations and was landed with a not-insignificant fine. He adds that the meetings aren’t about the company patting itself on the back. “These meetings aren’t just about getting across areas where things are marvellous, but also where they’re not.”
As well as export licensing, e2v’s involvement with the Department for Trade & Industry includes funding for development. “The funding is case by case”, Hannant tells me. “Five years ago we were part of a bigger group so we didn’t get much funding at all. We get a few hundred thousand pounds a year – you have to make an application and you either win or you don’t.”
The team whizzes though the rest of the agenda, noting which information to disseminate down the chain of command and which to hold back from the employees until later. The heads of department then go off to spread the information through their teams while Hannant checks his email.
1PM The FD and I stroll over to the listed building that houses the canteen for lunch. Once we’ve got our ham sandwiches, Hannant takes me through the expansion plans.
As well as organic growth and “a continued focus on costs and efficiencies within the business”, there are also planned changes to e2v’s role in the supply chain. “Part of the growth is going to come by increasing our scope of supply – that’s where, for example, in a customer’s equivalent part of the market where we only supply one device, in the future we’ll supply either two or three, ” he explains. “What we’re finding is that if you look at the top-down of the systems companies, they want to focus more on software and service, and that’s happening all the way through. So there’s sort of a
pull from the top, if you like.”
What does that mean for e2v? “As a components company we want to move into that space of supplying sub-assemblies, and supplying more of the end product. We have long-standing relationships with a lot of our customers and we try to develop relationships at every level. Our CEO will almost certainly know their CEO, and all the way down to the engineering level. That’s how you build long-standing customer relationships.”
2PM Hannant has a meeting arranged with a potential hire for the Paris office, so we go to the conference room for the video call, made tricky by the poor line quality. He mulls over whether the potential employee is right for the role – this meeting is not just about rubber-stamping the hire. As he explains, “It’s quite an important role, so it’s important to get the senior appointments right. I think part of my role is not just to say ‘yep, she’s fine’, it’s to challenge it.” After all, e2v is the biggest non-government employer in Chelmsford, so it has a strong presence in this area, even before the other sites are taken into consideration.
3PM Hannant and Attwood meet to discuss the wording for the trading update due to come out after the weekend, to give a flavour of the impact the Grenoble acquisition has had on the business. Since the acquisition, the proportions of different components sold has changed – sales of semiconductors and sensors are now outstripping the other main output, electronic tubes. Hannant says the diverse range of products, as is typical for a component company, has its upsides and downsides.
“We don’t have any direct competitors across all our product ranges, but in our product ranges we have competitors. You won’t find another group that does what we do,” he says. “The advantage is you do end up with a portfolio effect. If you have a sector that’s not going very well, it is balanced off by a sector that is going well, therefore we can manage the business with a steady profile.” And the downside? “The disadvantage is that obviously you are never going to get all those areas going in the same direction at the same time in a business of this nature.”
4PM Niggles in the wording ironed out, Hannant and Attwood take part in a video conference with the team in France, to run through an investor presentation. They have invited some of their major investors and potential analysts to a meeting in Grenoble.
Hannant explains: “We’ll talk about our products and the markets we supply, and give them a tour of the site. What we can’t do, because we’re in a closed period, is talk about any financials. So I actually won’t be saying a lot. It’s to give them a better understanding of the market size, the products that we make and the market that we serve.” Hannant also hopes to reinforce how complementary the acquisition has been to the existing business. And no doubt he’ll drop in how the acquisition has reduced the company’s exposure to the euro.
The British and French teams work through the PowerPoint presentation page by page, ironing out any inconsistencies. Later, Hannant tells me how he’s gone for the softly-softly approach on inter-office relations: “We didn’t roll up on day one and say ‘this is how you should do things’. If we thought their method was better than ours we said ‘we’ll do that’. It did take time though.”
Meeting over, it’s time for me to take my leave. Hannant will be here for a while longer, preparing for next week’s trading update and the investor presentation. As I leave, I ask if there are any particular challenges to being group FD of a £270m company. He says that apart from the specific challenges he’s already talked about, it’s all a question of scale. “Our problems are similar to SMEs, it’s just the numbers that are bigger.”
