Partner at SS Consulting Services
Jithan Bridgmohan reflects back on a life spent in senior finance positions. The role of the CFO has been radically altered by the Covid-induced economic downturn.
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Ciaran Ryan: My name is Ciaran Ryan, and this is CFO talks today, I’m going to be talking to Jithan Bridgmohan, who is a chartered accountant with 24 years’ experience working in a variety of different industries, including fast moving consumer goods, fuel, pharmaceuticals, and so on. We’re going to talk about that in a minute, but Jithan first of all, welcome to CFO talks. How are you?
Jithan Bridgmohan: Thank you very much, Ciaran. I’m very well thanks I’m very glad to be on your show.
Ciaran Ryan: And you based in Durban, right? Have you been working at Durban most of your life?
Jithan Bridgmohan: Practically most of my life, correct. I did a stint in Cape town for, a number of years, but back in Durban, that’s my home,
Ciaran Ryan: Back in home turf and loving it?
Jithan Bridgmohan: Very much so, I love the weather out here in Durban subtropical perfect. It’s like paradise.
Ciaran Ryan: Right. Funnily enough, I was just talking to somebody earlier this morning, apparently it’s, you know, this is the middle of winter here in South Africa, but it’s 23 degrees in Durban today or something like that sounds wonderful.
Jithan Bridgmohan: Ciaran, yeah. I mean, Durban I always say we have a hot summer and a slightly cooler summer, which we call winter.
Textiles a fairly unprofitable business
Ciaran Ryan: Right. Tell us a little bit about yourself, you know, your journey as a finance executive, because you’ve worked in companies like Tongaat Hulett, and Aspen, Mondi, Total, so where did it start and what are you doing now? You’re kind of a CFO or a financial executive gun for hire. If I can call it that way so, tell us how you got there.
Jithan Bridgmohan: Thank you very much Ciaran. So, qualified, as you mentioned as a chartered accountant, some 24 years back. Did my traineeship with PWC at that stage and really as a young accountant, didn’t quite enjoy the auditing profession, wanted to try industry out. And I was fortunate to, as a young accountant to be employed at Tongaat Hulett, which is a listed company in South Africa and there it was a fantastic training ground for a newly qualified chartered accountant. I worked, at that stage, Tongaat Hulett was a diversified, industrial conglomerate, and it owned interest in textiles and, Hulamin, which is now a separately listed the aluminum producer was part of the group at that stage. So it’s fairly diversified and I was in the textiles division at that stage in the late 1990s the government, reduced import tariffs in line with the world trade organization’s requirements and that made textiles a fairly unprofitable business within South Africa. We just couldn’t compete with the East in terms of their labor costs and so forth. So the textiles division that I joined in the late 1990s was in financial trouble and I’ve always believed that you learn most when a business is in trouble rather than when it’s operating well, because when it’s in trouble, there’s no Holy grail, there’s no stone unturned. You look at everything with a critical eye. Fortunately at Tongaat Hulett, being a young accountant, I used to attend the formal board meetings then at the head office with some of the Tongaat main board directors and I attended merely as a scribe as a company secretary but there, I there had my first entree into strategic thinking and, and as young accountant I believed, I listened and I learned how these seasoned executives thought and was a fantastic training ground for me. Thereafter, I moved to a few companies in diversified and varied industries, and it was in the chemicals division of the petrochemical giant Total in South Africa where I progressed to an executive level within that division. I was involved in a few M & A transactions, mergers and acquisitions and I thoroughly enjoyed the thrill and adrenaline of, deal making and deal closing. After Total I worked as a finance exec in a few large companies, as you’ve mentioned Mondi and Aspen being one of them and then I was the group CFO on the main board of a small cap listed business in South Africa. Also held the role of a non executive chairman of an FMCG contract manufacturer a few years ago. I certainly do enjoy being involved in a broad spectrum of business. And as a finance executive, one tends to get exposed to all facets of the business because really one reviews business performance. It requires one to gain an understanding of all the moving parts in an organization and every project Ciaran requires a strategy, it requires as a model to prove its financial viability and that’s where finance executive gets involved in the broader aspect of a business and certainly I was and very fortunate to do so.
Ciaran Ryan: Right. Okay, so you’ve talked about a couple of things there, which I want to pick up on. And one of them is you really start to learn when times are toughest. We’re in one of those times, right now, this is the Corona virus. You just got to look at the results that are coming through from companies on the stock exchange. They’re withholding dividends, they’re building up war chests, their main focus seems to be on liquidity and how they’re going to make it through the month or the next few months. Now you’ve been through some of these experiences yourself, and you’ve talked about textiles. I mean the textile industry in South Africa, it was decimated, I think, by imports from China. Talk about that and what does one learn as a finance executive? Because you’ve got to really integrate the whole finance operation into the strategy of the company, and you know, you can’t be taking a, you can’t be a scribe as you word you used. You have to be really in the, in the steering, you know, at the steering wheel, correct?
There’s a profit motive to be in business
Jithan Bridgmohan: Absolutely, really we’re in business to make a profit, there’s a profit motive to be in business. It all contributes to the rands and cents. So yeah, so finance is involving literally everything. I think my, experience in the textiles division in the late 1990s, and you rightfully said with it was decimated and I think South Africa particularly lost hundreds of thousands of jobs in that industry. And that industry has now evolved into what was initially mainstream, mainstream, textile manufacturing in the country to not only niche. So the volumes are less than 10% of what they were 30 years ago. The key takeaways I’ve had from that experience was that there’s that the business must be agile and responsive to changes and I’ve mentioned it before. I’ve used the term, there’s no, Holy grail. And what business executives have to do in times of severe difficulty is relook at the business model. I think where we failed, particularly the textiles manufacturers in South Africa, is that they fail to understand that with our current labor costs and textiles is a fairly labor intensive industry with our labor costs in the country at what it is it’s a regulated as in terms of minimum wages and sectorial determination of wages that we could never, ever compete against the Chinese, the people from India, Indonesia, Vietnam never could. They work 16 hours a day at a 50% of the hourly rate of what workers in South Africa would be paid. What they should have done is changed the business model and the business model may have been that relocate your manufacturing facility to low cost regions in the world. It could not necessarily mean going to the East and into Asia, but it could have been to Malawi or another African country where costs are in fact a lot lower that’s what business didn’t do in the late 1990s and their inability to change and them holding onto past business models is really what contributed to the demise of the textiles industry in the country.
Ciaran Ryan: Right. It’s just interesting. I was reading a book by a theologian and American theologian Michael Jones called Baron metal. And he’s talking about Africa one of the bedrock industries in Africa is textiles and he says every country that ever progressed up the economic ladder started with textiles. Even at the village level, you’ve got a sewing machine and you’ve got cloth. One of the big mistakes he says that was made in Africa was that we didn’t impose tariffs on these imports. And we allowed these cheap imports from the East to basically kill that industry across the continent and having done that, you’ve already mentioned a couple of hundred thousand jobs lost in South Africa. Well, there’s all the downstream benefits from that that was lost as well and you also lose your forward and backward linkages that you have in a business like that. So, I mean, at a company level, what you’re saying is, yeah, they should have relocated to environments or, you know, perhaps Ethiopia and places like that where labor costs are lower but of course there was a big debate at that time in South Africa, whether we should impose tariffs on these imports and we didn’t, and therefore that industry is lost. But I think if we just move forward from that and just talk about some of the other businesses that you’ve been in, like fast moving consumer goods.
Give us a sense of the difference as a finance executive, where you’re dealing on the one hand with a Tongaat Hulett, which is involved mainly in sugar production and land, land sales. Tongaat Hulett, for those who don’t know has been through a very rough time and they’ve had to restate their financial statements for the last year. I’m sure that you weren’t around at that time, but different kinds of businesses, different kinds of challenges. Can you talk about that?
Jithan Bridgmohan: Yeah, sure. I mean, I was at Tongaat Hulett about 30 odd years ago, sorry, 20 odd years ago. Yeah, it was well before unfortunately what’s transpired in the last 18 months. With Tongaat was not there at that stage, I was in a divisional capacity other than at the head office. Yes, as you rightly pointed out, I’ve worked in a number of industries, chemical, paper, textiles from FMCG manufacturing, which FMCG manufacturer might I add is probably one of the most complex types of businesses one can ever be in, your life. Ciaran, I find that really although the acronyms and the terminology that one uses in businesses, in different industries, they vary quite widely. In my experience, the broad principles of running a successful business remains the same. There is a theme and a trait that all successful businesses have, and that is irrespective of the type of industry that you trade in. And for me, what I found quite helpful in my experience working in different businesses is really when one starts in an industry where one has little insight into, is spend some time understanding the business. As a finance executive doesn’t only have to understand the debits and the credits and how to properly account for a transaction. It’s a really, he’s really part and parcel of the business itself. So understand the operations and really the financial numbers tell a story. If you can glean the story out of the financial numbers, there’s an entree into understanding the business, that’s the first port of call. Then round that knowledge by consultation with functional specialists, heads of departments, even people working there for years at the coalface. One can never discount the amount of information, valuable information you get from people that are working down at coalface and have been there for 10 years.
The essence of running a successful business is the same across industries
But really as I say the essence of running a successful business is the same across industries and this has been my experience. That one has to ensure that one has fantastic customer service, that’s one’s product or service offering to the market places is of quality and so something that the consumer values. That one’s branding is strong in the marketplace, because branding is what through, competitors undercutting you branding and quality sees you through those risks. Market positioning and obviously the price points, those are so important in maximizing revenue. And then the cost structure that drives profits and returns is really through efficiencies and efficiencies, take a number of different terminology in different industries, but it’s still the same principle.
So if, if one is producing a shampoo in an FMCG manufacturing type of plant, it’s really the minutes, the output power one produces this particular product through various stages of manufacturing, the warehousing costs, the costs of double handling is very similar to a service based business. I’ve worked in an international call center where the time, it takes you to resolve a customer’s query that calls in and has a problem with their account or service or whatever the time to resolution is important because if your time to resolution is a lot quicker, you can field more calls per hour than somebody else. So those sort of principles at a broad high level is the same across businesses and that’s been my experience. And if you don’t get too bogged down in the detail and step back and look at the principles, it’s much easier and I find it much easier then to manage the transition from varied and diverse industries.
Ciaran Ryan: Right. One would have thoughts that, the big talk these days with data analytics as a finance executive, you would be expected to know where the main profit drivers are you in your business are, you know, if we are making, you know, 60% of our profits from this particular line, that’s kind of where we should be focusing, but it just draws to mind an example would be Sasol and their Lake Charles project, which has gone vastly over budget vastly over time and has really been a, it begins to look like a bit of a disastrous investment for them. One would have thought that this is kind of, you know, part and parcel of what a finance executive should be doing is planning all the risks in a project like that. But you often find that is not the case, finance executives they get married to a project that is really costing them money and they should have cut their losses earlier on and they don’t. Is this one of the things that you found happening, is something that’s fairly obvious that should be stopped or another area that should be improved or invested more heavily in that kind of gets overlooked. Is this something that’s happening?
Jithan Bridgmohan: Yes. I mean, I’ve had it in my experience as well as the suboptimal decisions are being made for various reasons, a variety of reasons. If you look at the Sasol example that you mentioned it was a great idea when it was first touted, speed of getting that Greenfield’s project going, be to market was not there and I can understand that the Sasol executives their attention is diluted across various facets of their very large busines. But effectively with something as critical as this to the future success of your business requires a dedicated attention. So, I think where businesses failed to understand the risks and the rewards, and really both are part and parcel one another, if you manage the risk, the rewards are phenomenal.
And I think perhaps with Sasol’s plant, in the U S, if they had got it right, got it so the costings of that plant occurred as per their initial plan, their overruns weren’t so tragic and the speed at which they brought it up onto production it would have allowed that business then to flourish, that required dedicated skills and you can’t expect a board and the existing executive team to manage both. I think that’s where businesses fail to realize what is the risk of this project or this strategy not really panning out. That is the risk, what is our reward if it does, that is the reward. So what do we have to invest in this business in terms of people and other resources to mitigate the risk. I think that’s where businesses sometimes tend to lose visibility is that we’re always measured on short term targets meeting this years or this quarter’s profit targets or the half year reporting into the JSE and because of that, you’re unwilling to invest in tasks that will mitigate future risks. And I think that’s where Sasol went a bit pear shaped in their project.
Ciaran Ryan: Which is of course it’s a very good case for not being listed on the stock exchange, where you’re not held to this very short term reporting standard where you can actually invest over a longer period of time. You are prepared to take a two-year knock on earnings for the reward, which will come at the end of that. Does that make sense?
Jithan Bridgmohan: Perhaps and perhaps not, I believe that communication with investors is key so if you’re a listed business and you’ve told your shareholders, look, this is what we invest in, this is the business case this is the potential rewards, it’s going to take us two years. They are willing to wait, but if you’re telling your shareholders, that it’s two years and it’s going to cost me X, billions of Rand and then it takes longer than two years substantially longer than two years and you have overrun your initial costings by 40% then you’re going to be punished. And I think that will be no different to an unlisted business either although the linkage and the link and the causality of both areas is a lot more predominant in a listed business, than in an unlisted business.
Corona virus and the impact on business
Ciaran Ryan: Right, talk about the Corona virus, this of course is nobody’s talking about anything else right now and the impact it’s having on businesses. So as a finance executive, yourself going into companies that are in distress, their revenue is down, they really have all their attention on liquidity. How would you tackle a project like that? I mean, I know it’s a difficult question because every company will have different circumstances, but there would be some general rules would there not that you would go into a company, this is how we’re going to tackle the situation this crisis
Jithan Bridgmohan: Yeah. I mean, cash is king, I know that’s an overused cliche, but it is King. Ensure that your cash flow is maximized your inflow is maximized, your outflow is minimized as far as possible. What I would recommend and this is the businesses that I’m currently consulting with is really, is to look at the various avenues that the businesses have to do those two things, maximizing revenue and your inflow of cash and minimizing the outflow, minimizing the bleed. Typically, and we’re finding it, unfortunately because it’s a pandemic everybody knows that we’re in it, the whole world knows we’re in it, I’m finding that banks and suppliers are more willing to talk. As I’ve mentioned, I’ve, I’ve done turnarounds on struggling businesses in the past and at that stage, obviously there wasn’t a pandemic there wasn’t all these, economic ramifications of that and I found that was a lot more difficult to negotiate with suppliers and banks. But now it’s a well-known fact, I’m finding that banks and supplies are more willing to discuss payment holidays. Banks are happy to chat about consolidating debt, having a moratorium on repayments for a period of up to six months, which they are all expecting that. I doubt we’ll reach normal levels in six months, but we’ll start turning to some level of normality and then there’s a number of government initiatives out there that’s assisting businesses, whether they’re small or large. Try to tap into those and the UIF Ters fund, which is the employer, employee relief scheme that’s been, implemented by the South African government.
Those benefits one must take into account, there is the South African revenue service in terms of moratoriums on tax collection, make use of those. And then also the government particularly have a Covid relief plan where they’re part of securing debt, that companies will be applying to private financial institutions for additional working capital lines and I would recommend highly that businesses take advantage of that. Really the key is to streamline your overhead structure, reduce the bleed, come out of this pandemic liquid as a viable business, one can make money and maximize returns post COVID but at this time it’s really survival.
Ciaran Ryan: Right and okay, just moving on to the evolving role of the chief financial officer, you have kind of touched on that, but, I would imagine right now at this particular time, the CFO is going to be called on as never before. I mean, he is really going to have to take a leadership role in any organization. Would you agree with that?
The CFO has to evolve into a new role.
Jithan Bridgmohan: Absolutely. I mean, the CFO of all, that was the number cruncher the bean counter, the guy that ensured that regulatory requirements and governance was adhered to by the business he’s long gone. He has to evolve into his new role. His new role really is being a proper business partner to the CEO and the executive team that’s his role. Everything as I’ve mentioned before, involves financial numbers so everything that the numbers go through the CFO’s hands and he’s then the arbiter. So his he’s role is not only to analyze numbers and narate the story that he tells, his role goes further than that, he needs to be a key contributor to the solution rather than the town crier that highlights the issues. He can’t stand on the sideline tt’s got to be part and parcel in the mix of things. I believe that the role of the CFO have evolved that he now needs to be deeply embedded in the decision making and the strategy formulation of the business. So really sticking your neck out and that’s very difficult for some accountants, because one is trained to be risk averse and hence one ventures and opinion with a whole lot of caveats, but he has to be in the thick of things now. He has to have an intimate understanding of the business it’s operations, and that is the evolving role of the CFO. He has to be a sounding board to the CEO, it must be somebody who is capable of original thought out of the box thinking, guide the CFO, the CEO rather, and the executive team.
Ciaran Ryan: It also seems that CFOs you mentioned the, you know, having to tell a story, CFOs have to be quite good communicators, do they not? They really have to be able to explain the risks, the possibilities, but then they have to be good communicators both with their team, but also with the board.
Jithan Bridgmohan: Absolutely, absolutely you know numbers are quite foreign to many business executives and particularly when one goes into the real technical detail of the financial accounting and not everybody understands it. So a CFO must have the ability to crystallize the story, but narrate it in a way that is understandable and he’s got a broad audience, some are finance professionals and some have a reasonable understanding of finance. And yet there’ll be others that have absolutely no clue and you must be able to be legible and understandable so that the story is then understood by everybody, because if it’s not, then one runs the risk of not engaging with all these skills and talent within the organization and not being able to garner the best out of them.
Ciaran Ryan: Right. There’ve been a few stories written of late about the potential for accounting fraud at this time. It’s very easy in a good time to be able to hide, you know, bad things happening in the company but at times like this, uh, things are going to be exposed a lot more easily I would imagine. Do you see that as a problem, and is this basically now, how does one solve that? Is it a question of just reinforcing, you know, the ethical responsibility of finance executives? How does one sort that out?
Jithan Bridgmohan: Yeah, look, this increasing pressure on businesses to perform, to generate the returns that shareholders and investors require is business executives are increasingly incentivized on better results unfortunately, the positive side is that it, it generates the most wealth for shareholders, it allows a business to be lean and as responsive as it can, but that’s the positive reading. Unfortunately, negative side of it is that it also spawns the potential is to be devious and we’ve seen that now, well documented in the press in terms of all the accounting scandals itself. Some of the blue chip listed businesses that’s been around in South Africa and internationally and unfortunately and I say this unfortunately, but there’s two sides to that as well, is that the accounting rules and the accounting standards have become more complicated.
And the reason why they become complicated is that they’ve had to respond to novel ways that businesses have used to interpret financial results and to report financial results and in some instances, misstating financial results to make it look better than what it really is. This has made the CFO’s role quite difficult because I think with the new accounting standards and the standards as they are now, as they’ve evolved over the last 10 or 15 years has spawned a new industry, which is IFRS technical advice. In the past a business only had a tax advisor because we tax legislation was so complex for many, many years, but now unfortunately, accounting rules and accounting standards have become so technical, it becomes so subjective, that interpreting and implementing them have become extremely difficult for a CFO.
That’s why you now need an IFRS technical advisor, somebody from outside, who does this as a job and then consults with you. But I think what the industry has now done in this various and there are various official bodies, the South African institute of chartered accountants is one of them that regulates chartered accountants and qualified accountants within South Africa. They’ve now become and have started highlighting, keeping the membership of the body abreast of ethical violations amongst its members. And I think that’s very, very important because I think the South African revenue service did this very, very well in the early two thousands is that in South Africa, at that stage emerging out of apartheid, there were many businesses that were violating tax laws and what they did was they went after high profile, big businesses, it made front page news, and then all it did was it scared all the other guys that were perhaps flouting the rules to become compliant. And I think once we publicly come out with these ethical violations of accountants, accounting scandals and organizations be they accounting firms or businesses within South Africa. It just serves as a reminder, of people at the implications of unethical conduct, it keeps it front of mind and I think the press on the public naming and shaming of people and organizations, it’s forced the fence sitters from falling on the wrong side of the fence. I think there’s also been a study it’s been well known that good governance rewards companies with better share prices and better shareholder returns and if you look at the listed companies that have been involved in accounting scandals in South Africa, which is Steinhoff and Tongaat Hulett their share prices were decimated it serves as a reminder that ethics and good governance is good business and short term gains by flouting governance is now very bad business.
Ciaran Ryan: Sorry, we went offline there. Sorry. So, we’re just running out of time here. Just two quick questions, any books that you would recommend that people read?
Jithan Bridgmohan: Yeah I don’t really recommend leadership books. I don’t read them myself. I think it’s good to identify good leaders in the organization that you work in, people that you respect and admire and ask them to be a mentor or choose a leadership coach who will coach you to the process, identify what you’re doing well, and it’s difficult to identify what you’re doing bad so an independent person who can do so. Well, that would be fantastic and then emulate the good leaders that you work with. Observe them, study them, emulate them.
Ciaran Ryan: Right. Good. I kind of agree with you on leadership books I’m with you on that, last question, before we sign off, what are your career plans from here or your business plans from here?
Jithan Bridgmohan: So I’ve had a wealth of experience in business, gained a lot of skills and I have now come to the stage where I’d like to use that skillset to assist other businesses become better at what they do. So I look at various businesses, see how I can assist them in honing their strategy, mentor the leadership ensure that they’re successful in their implementation of strategies from a tactical perspective on the ground is efficient and effective. And through that, my belief is that a successful business will create wealth, generate employment in the country, and through generating wealth and employment, people are allowed to grow and add value in society. And if people are allowed to grow and organizations are allowed to grow they get a sense of identity of belonging, of pride, and I think most important of dignity.
Ciaran Ryan: Very good note to end off of that. If anybody wants to reach out to you, how can they reach you?
Jithan Bridgmohan: My email address, well I’m on LinkedIn so you can, you can search me on LinkedIn Jithan.Bridgmohan, my email address is email@example.com and my cell number is the South African code 27 082 8836614.
Ciaran Ryan: Okay. And so you have website?
Jithan Bridgmohan: I don’t have a website as yet.
Ciaran Ryan: Sorry, so give the email address again, then.
Jithan Bridgmohan: firstname.lastname@example.org
Ciaran Ryan: Jithan thanks very much for talking to us. It’s, uh, you had some fascinating views there, particularly on turnaround strategies and how these best should be managed and I think your vast experience in this area provides a lot of useful insight into people. And as you say, it is a cliche, cash is King but, you know, isn’t it an old truth and these old truths they never rust they’re always going to be there.
Jithan Bridgmohan: I agree. Absolutely Ciaran
Ciaran Ryan: Jithan thanks very much. Check in with us again. We’ll, I’d love to catch up with you a little bit later in the year and just see how your various projects are going and if companies are coming out of this, maybe we’ll have some, some positive news to, to discuss then.
Jithan Bridgmohan: Thanks very much. Ciaran, it’s been a pleasure chatting to you today.
Ciaran Ryan: Okay, have a good day, Jithan.
Jithan Bridgmohan: Thank you and you.
Ciaran Ryan: Bye bye.