McCarthy & Stone: Crisis management among the Christmas turkeys
It’s been almost a year since Rowan Baker, CFO at Bournemouth, UK-headquartered McCarthy & Stone, found herself in a Marks & Spencer car park answering investor calls as she waited to collect her Christmas turkey.
That crisis – triggered by a somewhat anticipated government decision to crack down on bad practice in the housebuilding industry that really had nothing to do with McCarthy & Stone but nevertheless had a big impact – set off the beginning of a challenging 10 months or so.
‘In July 2017, the government said that it was potentially considering what it would do about ground rents, because there have been some really unfair practices going on in the industry,’ explains Baker. ‘So we knew it was something the government was thinking about, but we didn’t know when it was going to issue anything further on the topic.’
In the end, the government made the announcement on December 21 – the Thursday before Christmas and a time when many of McCarthy & Stone’s big investors, as well as then-CEO Clive Fenton, had already signed off for the holidays.
It was a logistical nightmare, says Baker. While her aim was to at least speak to the top 10 or 20 shareholders, it just wasn’t possible to speak to them all, she says, though she does note the ‘massive support’ she received from brokers and consultancy Powerscourt over that period.
To say Baker has had an exciting year is probably a bit of an understatement. That first, externally driven crisis marked the start of a series of challenges – and opportunities – that McCarthy & Stone faced during 2018.
This year has seen the appointment of a new chairman in Paul Lester and a new CEO in John Tonkiss. Along with its announcement of Fenton’s retirement, McCarthy & Stone issued a profit warning following weak spring sales. The retirement housing specialist, which relies on potential buyers to sell their existing homes before moving into their new properties, is particularly exposed to the secondary housing market, which had been disappointing. It saw shares drop 13 percent on the June announcement.
Tonkiss took over on September 1, 2018 as interim CEO, cementing his position on September 25 – the same day the firm revealed its new, ‘transformational’ strategy, which sees it target cost savings of more than £40 mn ($50.5 mn) per year by 2021, while maintaining its dividend for 2018.
When it published its full-year results in November, revealing a 37 percent drop in pre-tax profits year on year, the share price remained stable. No doubt the work that went into messaging the new company strategy had been effective.
‘When we listed the business in 2015, we were on a clear growth path but external circumstances haven’t allowed the level of growth we had anticipated,’ explains Baker. ‘With the new strategy, we’ve rebased all of that and we’re going with much more of a steady-state focus: improving margins and improving returns, but on the basis of a steady state, rather than growth.’
All this has also resulted in a new outlook for IR, moving from what Baker describes as a ‘reactive rather than proactive’ approach. At the time of that first, external crisis, Baker and Fenton managed the IR workload. In January 2018, McCarthy & Stone appointed Lester, who brought with him a very different view of IR. Until then, Baker says the company’s non-executives ‘were housebuilder-experienced and housebuilder-focused and, in the main, there wasn’t really a justifiable need for an IR function at that time.’
But Lester was of the opinion that IR was a necessary function for the firm, and Baker says ‘the series of external events’ also helped cement the view that ‘actually it was a substantial job trying to ensure we were getting our messaging right in the face of changing government legislation, challenges in the secondary market, Brexit, and so on – and not only trying to explain all that to shareholders but also to influence certain decisions.’
Conversations with London and Dublin-based Powerscourt coincided with the firm’s decision to build a full-service IR team, bringing on board Marina Calero, an experienced IR professional. Such was the intensity in the build-up to the strategy day that Calero was seconded to McCarthy & Stone initially for two days per week – essentially as the internal IR function.
Corporates often say having a consultant on board simply isn’t the same as having in-house IR. So how did it work for Baker having Calero come in at a time when the company was managing a number of issues at the same time as developing a new strategy?
‘It was an intense time that involved a considerable time investment on Marina’s part, too,’ says Baker. But this intensity and clear commitment from an outsider willing to really work as an insider helped to build trust, she adds.
‘Part of the confidence I have in Marina now was built off the back of working intensely with her for a period of time to develop the new strategy and get the messaging right,’ Baker continues. ‘There was considerable time investment on her part to get that right and get that deep understanding of where we wanted to be.’
Calero really was part of the team, stresses Baker, who says the consultant was involved in meetings with Baker and Tonkiss on how the messaging would work, ‘almost as we were developing our own thinking as well.’
Both Baker and Calero agree that another element that helped make the pairing work was the fact that until then, there hadn’t been a huge focus on IR. There wasn’t a mentality of ‘this is how it’s always been done,’ notes Calero. Quite the opposite – there was a real sense of starting fresh, with a new CEO, a new chairman, a new strategy and a new way of doing IR.
So now that Baker says she’d ‘like to think the firefighting aspect is behind us’, what words of wisdom does she have to share? Essentially, it’s about sticking to good IR.
‘Sometimes these things just happen,’ she says. ‘You just need to communicate really well, communicate with shareholders as best you possibly can. They will want direct access to you anyway, and more so when things are really important. So you just have to make the time and ensure investors feel they’ve had their chance to ask questions and get their own understanding – even in the M&S car park while queuing for the turkey.’