Group Finance Director, Ricardo
Bell, Paula, Financial Management (UK)
As an engineering business supplying the car industry, Ricardo must be having a hard time, surely?
At one time the impact of General Motors' insolvency would have been catastrophic for us, but in fact we have weathered the economic storm better than many companies in our industry because we started to diversify and tighten our cash management well before the crisis began. We have had orders cancelled, of course, but the recession has had far less impact on Ricardo than it might have had.
What prompted your timely precautions?
Five years ago we relied on a few key contracts in the automotive industry. When a couple of these were cancelled we realised that we didn't want to depend on so few clients. A new chief executive joined and he introduced a policy of not relying on any one sector, region or client for more than ten per cent of revenue. The change was partly about risk management, but it also made us realise the value of our engineering consulting skills to other markets.
Which new markets did you enter?
We've diversified into sectors including clean energy, marine, rail and the military. After all, if you strengthen a car it becomes a tank and if you take its wheels off it's more like a train. There's plenty of growth potential here.
We've focused a lot of our R&D investment on wind power because that's a huge market in Denmark, Germany and Spain. Clean energy is also important in the car industry. All European car makers must meet emissions targets and the US recently got tougher on this, too. We estimate that meeting emissions targets will cost the top 14 car producers [euro]35bn by 2015. They need people like us to help them achieve their targets.
Another important opportunity is health and safety--cars are becoming so automated that there are plenty of things we can offer here. We also work in peacekeeping with the US and other military forces, providing technology for their vehicles. The diversification has been good for our workforce, because engineers are motivated by varied and complex projects.
You make it sound easy, but you were changing the direction of a 100-year-old company. It couldn't have been that straightforward, could it?
There were challenges. The finance side was, interesting, because taking on new clients meant we had to focus more on our credit management and due diligence, and decide new terms. We had to be sure we weren't creating new problems. For example, in some countries we insist on cash up front.
We also had to explain the diversification to our shareholders, so we embarked on a massive investor relations programme to tell them how it reduces risk. Some changes seem small, but they underline a major shift in focus--for instance, our annual reports used to have pictures of cars but now they show green energy elements such as wind power as well. The current shareholders understand this now, but new ones often need to have it explained. It's easy to have a knee-jerk reaction and panic when you see the word "automotive" at the moment.
What other big changes have you been involved in since joining Ricardo in 2006?
Finance wasn't at the heart of the business when I arrived. It was more of a back-office function and needed to enter the 21st century, so I had to refresh and restructure it. I wanted it to focus on business performance and I had to bring in people with the commercial background to achieve this.
In 2006 our growth was on a good trajectory, but cash management wasn't a big priority, so we tackled some key aspects of that. Clamping down on outstanding debts was obvious, but we also asked our sales people to consider how cash flowed through the business throughout a contract's term. We introduced a cash flow curve to the tender process so that they'd understand the cash flow for a project before signing the deal. We also aimed to bring in some money up front--too many existing contracts allowed all of it to come in at the end. …