Verimark’s Sagacious FD
Responsible for quadrupling Verimark’s share price over a three-year period, Bryan Groome also achieved a substantial tax saving for the company within his first three months on the job. He is committed to active involvement in all business operations to ensure business efficiency and profitability.
CIARAN RYAN: Today’s podcast is sponsored by Draftworx, which provides automated drafting and working paper financial software to more than 8000 accounting and auditing firms and corporations. CFO Talks is a brand of the South African Institute of Business Accountants. It’s a great pleasure today to welcome Bryan Groome, who is Financial Director at Verimark, which is one of the best-known brands in South Africa, and I was surprised to learn that it’s the largest buyer of television airtime of any direct response marketing company. Bryan joined Verimark in 2015 and has been its Financial Director since 2016. At that time, Verimark was listed on the Johannesburg Stock Exchange, having delisted in 2019, and Bryan was instrumental in more than quadrupling the share price over a three-year period through a sustained improvement in top and bottom-line performance.
There were many milestones along the way, he achieved the tax saving of R2.4 million in the first three months on the job, and he grew profit by 25.1% in 2018 as a result of cost reductions and the elimination of wasteful expenses, to name a few. I’m sure there were other people involved in that, Bryan, we’ll get into that in a minute. Now, Bryan has been intimately involved in the strategic direction of the company at all levels. First of all, Bryan, welcome to CFO Talks. It’s the first time we’ve spoken to you and it’s an absolute pleasure. Where are you talking to us from?
BRYAN GROOME: Yes, thanks very much. I’m talking to you from the Verimark head office in Randburg.
CIARAN RYAN: Okay, you’re back in the office?
BRYAN GROOME: Yes, we’re back in office almost full-time, obviously with all Covid protocols being followed. It’s good to be back and have some purpose in coming to work every morning.
CIARAN RYAN: Is that a full-time thing, are you back in the office five days a week or is it like every odd day? How does that work?
BRYAN GROOME: We are back in the office every day, five days a week. Obviously, when lockdown originally hit, we all worked from home for quite a while, and then we went onto rotation and obviously as the levels reduced down to level two, now level one, we are operating from our offices full-time. We’ve got quite a big office space here and we also run the main distribution centre from the head office. So a lot of our guys are required to be at work.
CIARAN RYAN: So you’re talking to us from Randburg in Johannesburg, for people outside of South Africa. For those who don’t know Verimark, give us a bit of background to the company and its growth. It’s a very well-known brand in this part of the world, but just give us the helicopter view.
BRYAN GROOME: Verimark was founded 42 years ago, we’ve been in business for a very long time, I’ve only been here for six years though. It was founded by our CEO, Mike van Straaten, and his brother. As you mentioned, one of the biggest spenders on television, we are a DRTV company, and we bring the best innovation of any new products into South Africa. We’re pretty well known, we distribute through about 1,300 retail stores, we currently own about 82 of our own Verimark Direct stores, with about nine franchise stores. We’re quite well distributed throughout South Africa. We have a distribution centre in Johannesburg, which is the biggest in the country. We also have warehousing in Durban, Cape Town, and Bloemfontein but again, much smaller offices. We’ve brought some of the best brands into South Africa, including Genesis, Floorwiz and Bauer. I’m sure a lot of families and households in South Africa have a lot of our products. We pride ourselves in bringing in the best innovation, being the most competitive in the market and bringing the best to our consumers. So that’s a bit of a high-level overview of Verimark. We’re obviously going strong and I think that we’ve built a brand that everyone can be proud of.
‘Product selection is obviously very critical within the business.’
CIARAN RYAN: Two questions arise from what you’ve just mentioned there, I wanted to talk to you about your product selection. You are in the homeware space, you always have a fairly unique edge in the types of products that you’re marketing. But before we answer that one, just tell us about the growth. So 43 years, what kind of growth have you seen? You delisted from the stock exchange in 2019, obviously there were some fairly important strategic reasons behind that. Maybe just give us a bit of background on that.
BRYAN GROOME: Product selection is obviously very critical within the business. We run a marketing department, run by our CEO, Mike van Straaten, obviously with his experience, he’s been in the company for over 35 years, so he’s got a very big role to play in bringing in the products. Our marketing department team members travel quite a lot overseas, they’re travelling every two months, at least. Obviously, Covid put a bit of a restriction on that but prior to that it was a lot of travel, a lot of fairs that we attend, and we have obviously developed very good relationships with a lot of our suppliers over the last 43 years that we’ve been in business. We’ve obviously got established categories and established brands that we like to work on but we have, over time, diversified our product range and entered into new categories. For example, we’ve looked quite hard into the fitness category since the [unclear] is doing quite well. It comes down to what is the best innovation, a lot of [unclear] from our side to make sure we’re bringing in the best product. We go through a very, very stringent test methodology to make sure that we bring in the best of the best. When we test our products, we are quite successful. If you look at comparatively, in America and overseas a lot of the DRTV companies, their test rate is generally 5%, we’ve managed to get ours above 60% just because of the manner in which we test…
CIARAN RYAN: Just pause there, your test result, I don’t quite understand what that means?
BRYAN GROOME: Before we bring in any product, we need to test the quality of the product. With our own Verimark Direct stores we bring in samples of the products and we would then test it out, we test that in the stores to see how the product performs, as well as just to ensure that the quality of the product is great because obviously, we don’t want to bring in a product and we roll it out into retail and we get mass returns. Hence, why our returns are great and our customers service is pretty good. So that’s the test methodology and it takes quite a while because you’ve got to bring in a sample and the majority of products come from overseas. We test the products in the stores, once we’re happy with the test, we’re happy with the quality and we’re happy that the product is right, we shoot the TV commercials, we write our own scripts, we then air the commercial on television and then obviously test it in our stores. Following from that we can then identify whether or not this test proves that the product is of the right quality and that it’s fit for the market. Then we will proceed to roll out certain products into retail once it’s passed the test.
CIARAN RYAN: A follow-up question on that is the response that you get from your marketing. Clearly you have a fairly good idea when you launch a new campaign that the kind of marketing campaign that you’ve got to build around a product, do you have a fairly good sense of what your return on that investment is going to be from the get-go?
BRYAN GROOME: Sometimes but it is quite tricky because it’s obviously dependent on how deep the campaign runs with the within the retail market. We supply quite a few retailers and the number of stores that we distribute to is quite large. So it depends how deep the penetration of the campaign is and is it being run for selected retail groups or is it being run across the board. Generally, over the last 43 years we’ve managed to get a fairly good feel of what works and what doesn’t, and what can drive a good ROI. However, it’s not an exact science, if it was we would know exactly how to do it when we want to do it to achieve exact results. I think there is a calculation to it but, as I said, it’s not an exact science, part of the campaign you’re running is around promoting the products and promoting the brands as well. Obviously, Genesis from a floorcare perspective is a very well-established brand, so sometimes the campaigns are around brand awareness and not just revenue drivers.
CIARAN RYAN: Now, you do operate through direct marketing, direct response. You advertise on TV, people will phone in or they’ll email or something, but then you also have this network, I think you said it’s about 1300 stores and franchises. Which part of that is the bigger part of the business? Where do you get most of your sales?
BRYAN GROOME: Retail definitely, through the likes of Massmart, Pick n Pay, Checkers, that is definitely the bigger part of our business.
‘Verimark has been around for quite a while, we’ve got an established brand, people trust the product.’
CIARAN RYAN: How did the business do during the Covid lockdown? It’s been a tough year.
BRYAN GROOME: Obviously during the month of April it was quite tough. A lot of the retail stores weren’t operating, our own Verimark retail stores weren’t operating. Post-lockdown we got quite a nice kick because, as I said, Verimark has been around for quite a while, we’ve got an established brand, people trust the product, and I think with everyone being locked in at home, the state of cleanliness picked up. So everyone wanted to make sure that everything was clean, obviously also being at home when you’re usually at work, you now take notice of mopping your floors and making sure that you vacuum every time, and just the general cleanliness. You’re obviously cooking more meals in a day, so you want to make sure that you’ve got the best appliances and cookware. So we found that across most of our categories, our fitness category did extremely well because no gyms were open during that period, so fitness obviously picked up. Just in general I think most retailers saw an increase in the [unclear] categories that involved any houseware product. So we did fairly okay post-Covid and again, it comes down to having strong brands that can carry the business.
So it’s a bit of a change in your mind frame from when you’ve been at home 24/7 and you don’t have the ability to go out, your spending patterns also change, you no longer have those entertainment expenses, which you would have previously, so you’ve got a bit of additional income, so now families would go and spend that to ensure there’s more comfortable living at home, rather than saving up that money to go on holiday because no one was too sure what was going to happen, how long this lockdown was going to last.
CIARAN RYAN: Were sales up or down for the year as a whole?
BRYAN GROOME: As a whole, they were up, we were happy with our performance, we didn’t shoot the lights out but it was a good performance considering the factors that we’re dealing with. Covid across South Africa, the general economy took quite a massive dip, we saw the rand/dollar shooting to R19, so it wasn’t favourable conditions across all industries. Obviously, we played on the better side of Covid, so yes, we were happy with the results, given the circumstances.
CIARAN RYAN: Let’s talk to your role as a CFO and a finance executive, and one of the questions I want to ask you, what’s the most challenging task you’ve ever had to face? Being a CFO is never a routine thing, there sometimes are some pretty demanding things that land on your desk. What was one of those that you could mention?
BRYAN GROOME: There have been quite a few tasks that have come across my desk, I’ve got quite a diverse portfolio that I look after here. However, I would say the delisting was probably the trickiest, back in 2019. It wasn’t a short process that took place, it had been quite a few months of build-up, a lot of meetings, there are a lot of committees that you’ve got to be part of. Obviously from an independence perspective, there’s a lot of compliance that you need to meet. It was probably the trickiest part because a lot of time and effort had to be taken away from the general business and out towards the delisting. You’re dealing with a lot of third parties and consultants in making sure that everyone is happy and that we are doing this right. Ultimately, the end goal is to make sure that the delisting happened correctly. We were very successful with the delisting and I think obviously, my involvement in it was quite instrumental to make sure that we got it over the line, and we sat with a very competent board that backed us and backed the decisions. We went about it in a very thorough manner. So I suppose one of the most difficult tasks was just to get this over the line, it was a lot of time and effort, a lot of reviewing documentation, a lot of numbers and paperwork to make sure that the decision was correct. So that was probably the most complicated and the most interesting task that has been brought to me in the last five to six years.
‘We’re a very tightly held company with our CEO owning the majority of the shares.’
CIARAN RYAN: What was the reason for the delisting? What was the motivation?
BRYAN GROOME: There were a number of different factors but obviously we’re a very tightly held company with our CEO owning the majority of the shares. Our shares weren’t really actively traded, so it wasn’t really a liquid share, as a result if the company performed really well, the fluctuation of the share price didn’t really represent the true nature of the performance of the company. So the shares were very liquid and it got to a point where it wasn’t really being actively traded, so it didn’t serve a major point to it. The second one is that the cost to list is quite high, depending on what company you have, it range from anything between R2 million to R3.5 million a year just to maintain the listing [unclear] all your board meetings, to your investor presentations, to your [unclear] and everything like that, it comes at quite a steep fee. So for us it really didn’t make sense, with the shares being so tightly held, it didn’t make sense to continue trading and incurring those costs. As a result I think also our time and effort in being a listed company, it takes a lot of time for an executive team to focus on the compliance elements, rather than the trading. I think it was a good decision that we made and we’ve obviously freed up a lot of time for us to make a lot more strategic decisions in the company. Ultimately, to make the company grow you want to make sure the company is as profitable as possible.
CIARAN RYAN: I notice that your role is finance director that covers a lot of areas that might not typically be associated with this position. For example, you’re involved in lease negotiations, product planning and other things like that. Does this give you a better grasp of the nuts and bolts of the business so you can translate that into improved financial performance?
BRYAN GROOME: Yes, definitely. Luckily, the lease negotiations have moved from me to our COO, so she’s handling that and there’s a little bit less reading that I have to do on a regular basis. I think generally with managing of the warehouse and with management of IT and finance as a whole, you get to understand the different cost drivers that impact the business. You need to understand, for example, even with involvement with retailers and how do certain promotions affect your top line, how to calculate the ROI on that. Also, with warehousing there are certain costs to distribute your products, what’s working, what’s not working. I think it definitely helped to understand the bigger picture because every single line item, more from a financial perspective, every single line item on your income statement and your balance sheet is driven by some movement. So if you understand what drives that cost, you know how to manipulate that cost to either increase or decrease where you need to. Obviously, every business wants to increase revenue and decrease cost but there’s a point where you can only decrease your cost so much until it starts cutting into the core business. So you’ve got to be very careful about trying to decrease costs too significantly, too quickly, without understanding what is the impact of it. The number one that we would obviously look at is that from an advertising perspective you can’t start cutting off advertising with the expectation that you’re going to decrease costs and increase profitability because ultimately advertising has an effect on increasing revenue or it should be. If you are advertising correctly, you should be seeing an increase in revenue. So there are different drivers that affect the business. I think being in my position, you get to understand how the business works as a whole and understand all the different elements. For example, how many products that come through in a year and how that will impact your revenue in the next 12 months. Also, bringing in stock, you understand the time period, so when you’re importing, there’s a lot that you need to take into account, certain products that you bring in now might only produce revenue in seven or eight months’ time. So you’ve got to do a lot of forward planning and you’ve got to understand how each of those are going to affect your budget and impact your cost. I’d say just from a general cost analysis, it definitely helps. However, from and overall business perspective, you can understand how each of the different drivers impact the business and I think you’re almost more well adapted to predict how the company is going to do, given certain strategic developments that you’ve made during the year.
CIARAN RYAN: Tell us a bit about your career path. Where did you grow up? Where did you go to school and how you ended up here?
BRYAN GROOME: I originally went to school in a small south coast town, Scottburgh, I loved it there, I had a great time, it was a great school. Then from there I went to UKZN Pietermaritzburg, I did BCom accounting, I did the usual four years, honours, and at that point in time I wasn’t too sure or not if CA was the exact route. So I wasn’t one of those who realised from standard eight that I wanted to become a CA. So I went through university, got the marks and everything worked out. In my second year I got contracted to Deloitte, I did my articles with Deloitte in Umhlanga, Durban. Again, a great three years, a good company to work with. Following that I went to America for seven or eight months, did a bit of travelling there and when I came back from America I decided to get into the corporate world because I had realised that auditing wasn’t for me. I enjoyed business, for example, seeing how if you push one, you know how to fix two. From there I came up to Johannesburg, I was originally from Durban, I made the really tough decision to move from Durban to Johannesburg. I did a bit of consulting work and then I joined a company called Car City Holdings, where I worked as a financial manager for two years. It’s a very interesting company that has a franchise background. Following that I came to Verimark as the financial manager, I was here for about two or three months and our financial director left, and I got thrown into the deep end, it was a bit of a sink or swim situation. So I took full advantage of the opportunity that I got given. It was quite a tough time and a lot to take in but I had a really good support structure to get through it, and I managed to make the right waves in the right places because this opportunity only comes around once in a lifetime. I just focused on that and gave it my all, luckily enough I seem to have done a decent enough job to get appointed as the financial director within the six months, and I have been here ever since. It’s been a very interesting five, six years. As I said, the company is extremely interesting, and every day is a different task and it’s a great working environment.
‘I think data is becoming more valuable now than it ever was before.’
CIARAN RYAN: Talk about the role of the CFO or just finance executives in general, and how that’s changed over the years. We’ve already discussed the types of things that you’re involved with ease negotiations and the product planning and so on. Is the role becoming more challenging than the past? And if so, why is that?
BRYAN GROOME: I talk from pretty much a limited base, from a time perspective. However, I am part of the CFO community and it’s a good networking opportunity to meet different people from different career paths. What I have noticed with a lot of discussion that have taken place is that things are changing very drastically. I think where I was lucky enough is that I went into the role with a bit of a different mindset, I was part of a younger generation that came in with an IT background, quite analytical. Whereas a lot of the information that I got from the past is that the CFO dealt with only the finances, they relied on everyone else to do their own part and then they’ll see the numbers at the end of the day and report up to head office according to that. I think this is changing because your dynamics of involvement of IT and analytics is becoming extremely critical. I think data is becoming more valuable now than it ever was before and understanding how the data works. Your role as a CFO is definitely merging with strategic movements within the company because if you understand the numbers, you should understand the strategy, whether it’s from a revenue perspective, whether it’s from a cost perspective, whether it’s going into new regions, whether it’s export, import, there are definitely numbers that drive…I think that the CFO role has definitely evolved from what I would have assumed it to be ten or 15 years ago. I think the younger generation is coming in with adapted mindsets already. I think it’s becoming more analytical than just reporting and compliance, and it’s becoming more strategic. So I think you’ve got the ability, you’ve got the know-how and how the numbers work, you can see how the numbers turn into profitability, and I just think that your general sense of how a business works is great. I think your CFO, CEO and COO are definitely having to work a lot closer together because if the three are aligned, and you can take whichever other executive you need, but as long as they’re all aligned in terms of what they need to get to, I think there’s going to be a much bigger change in how businesses work because if you look at the general hiring nowadays, not every CFO comes from a CA background, there are a lot of CFOs who have come from a marketing background, there are some CFOs who came from an engineering background. I think the dynamic of it is definitely changing, I think it’s no longer how well do you understand IFRS, it’s now about how are you turning these numbers into profit, do you understand what drives these numbers and can you use the tools to make a difference, obviously the ultimate goal of business is to drive the bottom line. If you find ways to analyse this and to do a better job, then it becomes critical. So definitely for me it seems to be an adapted mindset change, so I think it’s probably moving in a good direction.
CIARAN RYAN: It’s interesting that you mention some of these points, there’s a study that’s been done in Canada, I have mentioned this before on CFOs Talks, and it’s called from CA to CFO. Basically, what they do is they’ve identified about 34 different competencies that are required by the modern CFO. It’s no longer just the number cruncher, you have to be a team leader, you have to know how to communicate, you have to be able to get involved in strategic planning and all these other kinds of disciplines. The South African Institute of Business Accountants launched a designation called CFO SA, Certified Financial Officer, basically in recognition of that, and this leads me onto my question, some of these things that we’re talking about, you’re not going to be learning in the accounting schools or in doing your CA or your articles. This comes around through experience and hard knocks and being challenged in ways that you haven’t been challenged before. Would you agree with that?
BRYAN GROOME: Yes, definitely, 100%. I think going through your degree, your honours and articles gives you a great base in terms of understanding how things should work. However, I think how things should work and how they actually do work in a real environment is a little bit different. I think that there are definitely elements that you’ll take forward, but you can’t really substitute experience, you get met with different problems that no textbook is really going to define. The thing about most textbooks and most case scenarios are based on situations that have never occurred before. I definitely think that there are a lot of things that occur in the real environment that you’re never going to learn about in a book. Hence, why I think that especially in the CA route they promote on the job learning, where kids can have practical experience because often when you’re on the job you actually get to see what happens, how do CFOs conduct business on a daily basis. It’s not all board rooms and meetings, there is a lot of getting your hands dirty, going into the warehouse and make sure that the controls are working, and that people are signing the correct documentation. I would definitely say that there are a lot of lessons that you learn by doing the job, rather than just the textbook. There are certain things that you’ll never be able to be taught, certain situations when you’re in negotiations and you don’t really expect the negotiations to go that way, and if it gets turned on it’s head, how do you turn that back in favour for you. I think there are a lot of skills that you get to experience in a leadership position that can never be taught, it’s very difficult to teach someone to be a leader, they’ve got to be a position to see how they manage themselves and how they manage situations, and that’s something where I think having the right mentors in the right places, it’s obviously critical to get that. You learn from other people, in certain negotiations you learn how those negotiations take place and I think those are some of the most valuable lessons that anyone can learn is watching how other people conduct themselves and watching how people can do business and negotiate.
CIARAN RYAN: Okay, a couple of quick questions, what do you do in your downtime?
BRYAN GROOME: I enjoy playing golf and a bit of training, I’m looking to do the half iron man in June if Covid allows. So I spend time on the road running, cycling and swimming. That pretty much takes up the majority of my spare time.
CIARAN RYAN: Are you married? Do you have children?
BRYAN GROOME: Married, no children yet.
CIARAN RYAN: Are there any books that you’d recommend, something that really grabbed you as inspirational or a must-read?
BRYAN GROOME: From my side from a downtime perspective, I prefer to not get involved in business books. The one book I enjoyed recently was The Stellenbosch Mafia: Inside the Billionaire’s Club by Pieter Du Toit. I think it’s a very interesting book because it’s home-based, it’s things that you can relate to, stories that people in board rooms talk about, you can almost identify with individuals and how things worked. I think for most South Africans, not just from a business perspective, but I think for most South Africans just to understand how certain things work, and the different dynamics within South Africa and the South African economy and certain decisions that are made. Also, just to understand the different players in the game and how it came about that they did what they did. I think it’s a very interesting book and I highly recommend it.
CIARAN RYAN: I have read that as well. For people who are outside of South Africa, Stellenbosch is a fairly small town down in the southern part of South Africa, where there’s a large grouping of very successful businesspeople and they call it the Stellenbosch Mafia. I think that’s more of a joke title than anything else. But I think the book does explain that it was a network of people who really managed to do some incredible things in business over the years. What was your takeaway from that book? Did you learn something from it?
BRYAN GROOME: Perception is key in life, although those individuals may not have thought that they were controlling certain parts of the country or influencing certain decisions, obviously it’s not based on wat they’re actually doing, it’s around a perception that people have of them. I think it’s quite interesting to see how people get grouped and branded into certain classes and certain types of individuals based on where they came from and who they associate with.
CIARAN RYAN: It’s been a fascinating discussion, Bryan. Thank you so much for coming on and sharing your insights, all very, very valuable. What a great story as well, coming from Scottburgh, I can imagine it was a wonderful place to grow up, ending up in Johannesburg, which is the seat of commerce in Africa and, and some of the achievements that you’ve been able to accomplish over that period of time. Great story. Thanks so much for coming on and please stay in touch. We’d like to get you back on again so that we can find out how things go in the course of the year.
BRYAN GROOME: Thanks so much for having me, it was great to chat.
CIARAN RYAN: That was Bryan Groome, who is Financial Director at Verimark.
