Group Chief Financial Officer – Tarsus Technology Group
Joanne Tanner, group chief financial officer at Tarsus Technology Group, talks about her love-hate relationship with IFRS and the new risks introduced to technology businesses such as Tarsus.
CIARAN RYAN: Today I am talking to Joanne Tanner, who is the group chief financial officer at Tarsus Technology Group. Tarsus is one of the leading ICT distributors, it distributes hardware and software right across South Africa and into the region, it’s predominantly South African based but with representation in countries like Botswana and other neighbouring countries. First of all, welcome Joanne Tanner, how are you today?
JOANNE TANNER: Thanks so much Ciaran, I’m doing very well, thank you. Thanks for having me.
CIARAN RYAN: You’re based in Johannesburg, so are you operating out of your office or are you operating from home?
JOANNE TANNER: At the moment right now, I’ve actually come into the office to do this, but we are predominantly working from home. We do have a big warehouse component to our building, which is fully operational at the moment but the admin and support staff are generally working from home still.
CIARAN RYAN: Right, tell us a little bit about Tarsus Technology Group, who owns it and how did it start and how did you end up there?
JOANNE TANNER: The Tarsus Technology Group is owned by Investec Bank and the Entrepreneurship Development Trust, it’s one of the leading ICT distributors in South Africa. It was started about 35 years ago, a little bit more than that, and it’s always distributed the leading tier one brands such as HP, Dell and Lenovo, those would be our top three brands from a hardware perspective. We are also now very closely aligned with Microsoft and we have the Microsoft CSP distribution rights, which is Office 365 distribution rights. So that’s very exciting. I have actually been at Tarsus now for almost ten years, I started initially with the group as the group treasury and risk manager, I then worked my way up to the group finance executive position and I know hold the position of group CFO. It’s been a very interesting journey that I have been on with the group, being a technology business it’s obviously had to evolve and transform over time and it’s been an incredibly exciting journey. It was a bit of a different step in my career, previously holding head of finance or financial controlling and manufacturing controlling roles but when I met the people from Tarsus I knew that there was something special about this business and I decided to give it a shot and I am very, very happy that I did.
CIARAN RYAN: What was that special quality that attracted you?
JOANNE TANNER: I think it’s just the way people are with each other, we are a very, very supportive business, everybody is very encouraging of learning and support. We work collaboratively together, so from that perspective one always feels welcome at Tarsus. It’s definitely what’s kept me around, it’s the people and everybody who I have had the pleasure of working with.
Business performance during lockdown
CIARAN RYAN: I guess a fairly obvious question is how has the business been performing during this three-month lockdown, we’re at the start of July 2020, it’s almost like a lifetime ago when we could travel freely, how has business been performing?
JOANNE TANNER: It most definitely has been a challenge and it has tested our resilience, as an ICT distributor we were able to trade through our reseller base with essential services companies in level five and we were also able to trade our software and security products where we physically didn’t have to deliver those goods. But despite this our volumes through the five weeks of level five lockdown were significantly down and the focus really shifted to how are we going to manage our cash flows and how are we going to recover from this. I suppose our approach as an executive has always been to lead Tarsus, as opposed to being a victim of circumstance. So we took the time during the level five lockdown to really engage more with our customers and with our vendors, to better understand our customers’ needs, how we could align our business strategies and then how we could work with our vendors to ensure that when we came out of the lockdown that we were able to service our customers. We were then able to start trading at the beginning of level four, so we have been trading fully for two months now to the extent that businesses are obviously able to trade in level four and now in level three. We saw a massive decrease in demand across all our go-to-markets through May, we had an unbelievable trading month. Some of it was pent up demand because we weren’t able to fully trade during the level five lockdown but I think a lot of people also realise now that this work from home thing is going to be a little bit more permanent for a little bit longer than we thought, so we need to equip ourselves adequately and we need to equip our children adequately because we’re now not only working from home, we’re also home schooling. So about a quarter of our revenue comes from the retail segment and that has seen very high volumes over the last couple of months. So the position we find ourselves in today is facing the challenge of when is this demand going to taper off. In the revised budget speech, the economic contraction that’s expected is 7.2%, that is significant. Our challenge now is going to be to understand when that demand is going to drop off and then what do we have to bring in from overseas to meet that demand, when do we have to turn off the taps or slow down the taps while still working with our customers and our vendors to ensure that we adequately service them. We definitely haven’t felt that yet. We are still anticipating quite a good July and a fairly healthy August, and we think that probably from September is when we will see the demand starting to decline but there are still large levels of uncertainty that we are having to work with at the moment.
CIARAN RYAN: If you are projecting your revenue for the year, what kind of a percentage, you’ve mentioned GDP, the expectation is a 7% drop this year, is that sort of the order of revenue drop that you are expecting yourselves?
JOANNE TANNER: I think we would probably have between 7% to 10% drop. Although it’s very difficult to tell at this stage. But I think so, the latter half of the year, our financial year end is February, so I think the latter half of the year from September, especially as we head into quarter four over December, it is going to be challenging, although we have also heard that businesses will be staying open for longer in December. So we might have a better December. I think it’s very difficult to forecast at the moment but the one thing we have to remember from a Tarsus perspective is that we are bringing in dollar-based product, so our rand revenue is impacted by the exchange rate. I saw that our exchange rate for our financial year is averaging at about R17.50, which is significantly higher than last year, it was about R14.36, somewhere around there, and this will bolster our rand revenue. So we have to be careful as a business if we take this back down into dollar terms and we actually have a look at our volumes and we manage the business on that basis. But from a South African company perspective you budget in rands, your cash is in rands and you only have so much rands to spend. So what we anticipate seeing is that businesses are actually going to be buying down in terms of product, so if you need a laptop you wouldn’t maybe buy the more expensive powerful machine, you’re going to be buying the cheaper machine or the same machine, which is now more expensive because of the exchange rate. So it’s going to be interesting to see what happens but these are all metrics that we monitor very, very closely on a daily basis.
Main focus of the CFO at the moment
CIARAN RYAN: What has been your focus as the chief financial officer at Tarsus, are you trying to cut expenses wherever you can, has there been any layoff of staff, how are you handling that?
JOANNE TANNER: My biggest focus over this period has actually been on managing our cash flows and managing our vendor relationships, managing our banking relationships, all our credit providers and ensuring that we are able to service our customers and our vendors from that perspective. That’s been my biggest focus. We already a couple of years ago had started on our digital journey and through that journey we have managed to simplify the business and already start to take out expenses. We started a while a ago with a focus on how do we become more profitable and focus on our most profitable brands, sub-categories within those brands, our most profitable customers, and that project has just been expedited by Covid-19. So we had a plan that we had already started implementing, like I said, it was almost 18 months ago already and that’s actually just been expedited. We have undergone a round of restructuring within the business, this was planned, we have been reshaping the business over a number of years now. We were very segregated from a company perspective, we had lots of legal entities, we were located in different areas in Johannesburg. In 2014 we all moved into our Woodmead building, all the companies came together and I have been restructuring the group ever since. As a result of that restructuring, we have let some staff go over this period and, as I said, that’s expedited by Covid-19.
CIARAN RYAN: Yes, I understand that and it’s a predicament that a lot of companies are facing right now, as to what staff can we hang onto, I think it’s just pure survival and necessity that companies are having to make these very, very tough decisions. If you were to look at what Finance Minister Tito Mboweni was saying recently, we might now have to start introducing zero-based budgeting, is this something that you have looked at internally as a company? In other words, forget the historical budgets and every year we apply a percentage increase to whatever expenditure item we have, now we’ve got a blank piece of paper in front of us and that’s where we start. Is that something that you’ve considered?
JOANNE TANNER: Yes, that’s kind of how we do our budgets every year anyway, definitely from a revenue perspective, we have always built our budgets from zero from a product perspective and from a customer perspective, and then worked out the rest of the budget from there. We are a very working capital intense business, so our business is easy to understand from that perspective. What we have done now – I am having a chuckle – because we had just finished our budget in February and in March we threw it out, it was quite entertaining actually. We did a full reforecast for the financial year, we did a financial forecast in April based on the feedback we were getting as best we could at that time, not trading. Now when we are comparing our monthly results we’re actually comparing to that forecast but we’re doing it on a weekly basis, we actually are forecasting out our cash flows for 15 weeks every single week, and as part of that process we reforecast our expected demand, again from a product and a customer perspective and that we keep forecasting to the end of February. So we’re actually now looking at it on a weekly basis, we’re tracking it that closely. Our challenge at Tarsus is that we have to buy our stock six to eight weeks in advance, so we have to stay on top of our expected demand and our understanding of what the market requires. So that takes some forward planning.
IFRS 16 and the accounting of leases
CIARAN RYAN: Okay, so you’ve got a couple of fairly interesting challenges or risks, if one can put it that way. The is the currency, the currency is probably 10% or 12% weaker than it was a year ago, so you’ve got to account for that but that, no doubt, is a fairly routine thing. What about IFRS 16 and the accounting of leases, has that impacted your reporting? I’m sure it has.
JOANNE TANNER: I’m going to backtrack a little bit, the currency is a fairly routine thing but it’s definitely one of our biggest challenges and we do focus on the currency maybe two or three times a day every single day, especially when it depreciates so quickly and that’s always a difficult thing to manage for us but we have brought it back in and we are managing that successfully. IFRS, I have a love-hate relationship with IFRS, as I suppose most CFOs do. IFRS 16 does impact on our business and it will change our numbers, we are implementing now for the first time. But it adds, from my perspective, it hasn’t enhanced our financial reporting in any way shape or form. We are a trading business, we’re working-capital-intense, we’re not fixed-asset-intense, so we do have some leases and we are impacted but I wouldn’t say that if I was a credit provider providing credit to Tarsus that that would be something I would necessarily focus on.
CIARAN RYAN: Just as a general comment do you find IFRS 16 to be useful, that it will improve the level of reporting so that credit providers and shareholders and other stakeholders can get a better sense of the business, do you find that would be the case?
JOANNE TANNER: No, not for Tarsus. Just generally due to the nature of our business, as I have mentioned, we are a working capital business, not a fixed-asset-intensive business. So for me it’s just been an exercise in compliance.
CIARAN RYAN: But generally speaking, if you were to look at somebody else’s reports would you find it useful, IFRS 16?
JOANNE TANNER: IFRS 16, ah, sho, I suppose it would depend on the nature of the business. When I look at financial statements I am interested in the trading results of the business, I’m not necessarily interested in the accounting adjustments, so if that business was involved in the trade of assets or something more along those lines, then maybe. But I would want to really understand what the drivers are of the business when I’m looking at its financial statements. I’m not sure whether IFRS 16 is going to enhance that information, it might detract from it.
CIARAN RYAN: There’s a big debate, of course, about that in the accounting community.
JOANNE TANNER: There’s massive debate.
‘They say that revenue is vanity’
CIARAN RYAN: I’m also a little bit uncertain myself as to whether it gives me any clearer picture of what’s going on. You just raised a point there, which is quite interesting, you obviously look at your competitors and if you were to look at their financials and you want to know the drivers of the business, maybe just talk about that, when you are looking at a company that is a trading business what are the areas that you would investigate?
JOANNE TANNER: I would definitely start with their cash flow, they say that revenue is vanity, so I would definitely get down to understanding what the drivers are in their cash flow because that really speaks to the health of the business and what is the debt profile of the business. Those would be the two areas that I would start with first and then I would build my way out through the financial statements, understanding their expense base, what portion are employee costs, what are their major cost items in their business and I would work my way backwards that way.
CIARAN RYAN: Do you find that you do a fair amount of reconstruction of accounts when you’re doing that?
JOANNE TANNER: I think you do, especially because our competitors are listed, so when you are looking at listed numbers there can be a lot more in them than what you really need. So I think you do and you do have to have a very firm understanding of how the income statement, the balance sheet and the cash flow statement interact with each other.
CIARAN RYAN: Just going back to a point you made earlier about what you’ve been doing during this lockdown and you mentioned that you’re having to interact quite a lot with your credit providers and with your various different stakeholders. So there’s a level of engagement, I imagine, which is quite unprecedented in the role of any CFO at the moment is you really are having to say we’re going through a rough time Mr Bank and, therefore, we’re going to need a little bit of love from you. Tell us how you are handling that because I am sure you are dealing a lot with different credit providers and various different stakeholders.
JOANNE TANNER: The function of my role has largely been interacting with them on a regular basis. We were always in the habit of speaking to the credit departments of our major vendors at least twice annually, presenting our results on an annual basis and then giving them an update closer to the end of the financial year. So we have always had very strong healthy relationships with all of our credit providers and our shareholder is our banker as well, which has ensured that we are very close to our banker. So in my role I have worked with them quite closely over the years. It’s been interesting because I have had to engage with them a lot more frequently, though, over this period. But what’s been really nice is that via these online platforms I’ve been able to connect with them and see them in person and some of them for the first time. So that’s been quite cool, I’ve really enjoyed getting to know them a lot better and what’s been really nice is to understand that we are actually all in this together, this is a global pandemic, this is not just something that has hit South Africa and if we work together we can face it together. Having to present Tarsus and take our credit providers and our vendors and our credit insurers along this journey with us it’s been a pleasure, and it’s been a pleasure to gain their insight into our business. I have appreciated any of the support and the guidance that they have also shown towards us, there’s been a real sense of community. I must say, I thoroughly enjoyed almost all of my interaction with them.
CIARAN RYAN: I’m just curious as to why Investec would buy into a company like Tarsus, it seems to be a little bit outside of their core business, why is that?
JOANNE TANNER: It is outside of their core business and Investec has been involved with the group for about ten years now. They became involved and then I joined shortly afterwards. This was a business whereby it was owned by one particular individual and Investec converted their debt into equity.
CIARAN RYAN: I see, so was it a rescue situation?
JOANNE TANNER: It wasn’t a rescue situation, this induvial became medically unable to continue. So the business itself wasn’t in distress, no.
The role of finance executives during lockdown
CIARAN RYAN: Okay, just talk for a minute about the role of finance executives in this time of lockdown and Covid and so on. In my discussions with CFOs over the months, long before the lockdown, the real question was the evolving role of the CFO seems to be much more of a strategic role and it’s much more of a people management role than box-ticking and compliance and that kind of issue. What is your experience?
JOANNE TANNER: I would completely agree with that, most of my role is people management and collaboration if one wants to be effective. I think that as a finance executive we sit at the very centre of the business, we have to support the business commercially, as I keep mentioning, we have to manage its cash flows and report on its results. We possess a unique skill set I think if you look at us across the business and it enables us to blow the whistle early in certain areas of the business. I think there’s a lot more reliance now on coming up with solutions and implementing business solutions, there’s a lot more reliance on the CFO and the finance team to get involved. I think what we have to do is we’re working with so much complexity at the moment, we’re working with so much uncertainty and ambiguity, in our role we really have to simplify things for the business so that we can set the business up for success, so that we can give them the information that they need, that the sales guys need or the product guys need to go forward and be successful. I think that it really has evolved over the time, if you just look at the digitisation of finance, a lot of the month-end, routine work and so on can all become digitised and the real value that we have to add is how can we support the business commercially and strategically, what is it that we can bring to the party and how do we walk alongside with the business. I think that it’s actually quite fun, I’m really enjoying that I am getting to do a lot more strategic and commercial work with the business and I think that a team needs a lot of different skills and a lot of different approaches to be successful. So being able to contribute where I can has been something that I have really enjoyed doing.
CIARAN RYAN: I guess that means that there’s a lot of data, there’s a lot of processing data and data analytics. So you’ve got to segment your markets and say hang on, we’re spending a hell of a lot of time on this low-margin business, maybe we should focus somewhere else, is that the kind of thing going on?
JOANNE TANNER: Agreed, agreed, we are definitely analysing our data. We have something that I think every business has, they call it the cube and we use it to continually monitor the profitability of our customers and our products and highlight risk areas to the business. The finance function at Tarsus also works very closely with the IT function to enable the business intelligence and the data analytics. We had to challenge what we report and why we report it, so we’re sending out 20 reports a day, right, what are these reports telling us, are we getting any value from this report, is it an old report, is there something else we should rather be looking at, and that’s really also taken up quite a chunk of my time over these past few weeks, as we’ve had to transform even faster than we were anticipating.
CIARAN RYAN: We’re just running out of time here but a couple of quick questions, if you don’t mind, Joanne. Tell us a little bit about yourself, are you from Johannesburg, where did you go to school and what was your career path, how did you get into accounting?
JOANNE TANNER: Oh wow, okay, so yes, I am from Johannesburg, I am one of four children, I went to St Theresa’s Convent junior school and then to St Andrews School for Girls for high school. I did my BAcc and BAcc honours at the University of Stellenbosch, which I absolutely loved. I come from a family of chartered accountants, so I grew up with it around the dinner table at night, I think I maybe learnt to audit before I left school. So it was always something. I’ve always loved culture and languages and history and science, I have always loved learning. The one thing about becoming a chartered accountant is that it’s given me such a diverse skillset that I can be creative with it and so I have really enjoyed my role. I started out by working for entrepreneur services at Deloitte, I did my articles through them, I was really interested in how to start and grow a business and we looked at different businesses with unusual revenue streams and at that stage I was beginning to interact with the MD of the business because they were smaller businesses, which was great. I then went on two secondments, I did one to the States and one to Canada with Deloitte, and then travelled through the year, it was really, really nice. I came home and I didn’t quite know what I wanted to do and one of my old mentors reached out to me and I took a job through WesBank, contracting out to one of their subsidiaries, Motor One, I started in the middle of a forensic audit, it was quite the experience. But there I learnt a lot about implanting internal control and how to stabilise a business financially and how to report and support the executive of a business. It was a very nice transition into business for me. I then moved on to work for Gemalto, the French multinational, that’s in the security technology business predominantly, I took this role as I knew they were about to make a big acquisition and I wanted to understand how to make an acquisition on the ground and how to make it successful. I’ve always been very interested in that, how do you grow a business and how do you make a business successful. So this I definitely experienced and it was eye-opening as to how much more one actually has to do to ensure that you do get the synergies that are planned for. I also learnt there – because they are a big global business – I learnt how big global business worked and I learnt how important systems and platforms were for connecting people and sharing data, and this is already now more than ten years that I worked there. So it was an eye-opening experience for me. I then decided that I wanted to learn a little bit more about the treasury and risk side of the business and I wanted a bit more mentorship from experienced local chartered accountants and other business executives. I saw the role at Tarsus and, as I said earlier, I went for the interview, I really liked the people, I liked the culture and I just went for it, and I have been very, very happy.
CIARAN RYAN: This is your tenth year you said at Tarsus?
JOANNE TANNER: Yes, it’s my tenth year and in between that, most importantly, I suppose, I am married and I am the mom to two boys.
CIARAN RYAN: Okay and you are managing all of this, your career, motherhood and lockdown.
JOANNE TANNER: Yes, and lockdown, the first five weeks were incredibly challenging but when my nanny could come back at the beginning of level four that was life changing for me [laughing].
CIARAN RYAN: A question that we routinely ask on CFO Talks is are there any books that you are really fond of and that you’d recommend?
JOANNE TANNER: Yes, I was thinking about this, there’s a book and there’s an author, especially relevant in these times, the book is called The Hard Thing About Hard Things by Ben Horowitz. He writes just exactly about that, so how do you take on tackling hard things, so I think what we have been through in lockdown and facing Covid, a lot of us have had to step outside of our comfort zones and we’ve had to do harder things than we’ve ever had to do before. He very elegantly takes you through it, he’s quite humorous, he started out in IT hardware, he worked in one of the first cloud computing businesses and then went into venture capital. So it’s a very, very interesting read and I would recommend it to all execs.
CIARAN RYAN: What would you learn from that as a finance executive?
JOANNE TANNER: Just that you have to face your problems head on, you can’t run away from them. You see that there’s a problem, you have to address it and you need to ask for help when you need to ask for help. I think what’s really important as a finance executive is our job is about reporting the results factually and that is it. We have to remember that. Sometimes we are going to be reporting good results and we’re going to have good news, other times we’re going to be reporting not so good results and we’re going to have bad news but it’s the way we do it and it’s how we address the issues and how we take the business through that that’s so important. I suppose it’s nice to read about other people’s struggles and to know that…my grandmother always used to say this too shall pass and we will get through this.
CIARAN RYAN: I think that’s from the Bible too, this too shall pass…
JOANNE TANNER: [Laughing] It was her favourite saying to all of us.
CIARAN RYAN: Right, when things look really bleak, just realise that the sun will come up tomorrow.
JOANNE TANNER: That’s right.
CIARAN RYAN: I think people during this lockdown need to be reminded of that almost daily. Any other book?
JOANNE TANNER: There’s an author who I follow, his name is Tim Ferriss, I don’t know if you have heard of him?
CIARAN RYAN: Yes, The 4-Hour Workweek, that’s right, I did read it.
JOANNE TANNER: He’s all about maximising output as efficiently as possible. He does a number of podcasts as well and he writes articles. I really enjoy him because he thinks about the status quo differently and he’ll test the facts. I think if you want to remain relevant you have to keep thinking differently and you have to keep challenging what you believe to be true, and he does that. He is fascinating, he addresses topics across the spectrum.
CIARAN RYAN: He’s a very unusual guy, I quite enjoyed that book, I was actually in the United States at the time that I read it, I just found it, I was staying with a friend and I read through the book, a very quick read, you can read it in a day or two. But I thought wow, this is really radical kind of thinking, I like this guy and he’s done so many interesting things, he has lived and worked around the world.
JOANNE TANNER: He’s very fascinating, so I quite like his insights and whatever the topic may be he always makes me think about things a little bit differently.
CIARAN RYAN: I had a similar interview yesterday with an old friend of mine, a Brazilian, Victor Salinas, and he runs Victor Salinas Consulting based in Latin America. Also a terribly interesting guy, I met him and he invited me to Brazil but now he is based in Mexico and in the space of three years he has built up a fairly reasonable restaurant chain, in addition to his consulting and running a marketing company, he’s just all over the place, how do people do this.
JOANNE TANNER: Yes, they just keep reinventing themselves.
CIARAN RYAN: Yes, he’s super high energy, now one of the other things he’s doing for his consulting busines is webinars and he speaks Portuguese, Spanish and English very well, so he can cover pretty much 60% of the planet. It’s just astonishing what some people are doing during this lockdown and how they are prospering during the lockdown. I always find that fascinating.
JOANNE TANNER: We were chatting about it earlier, this lockdown has definitely brought a whole lot of positives and because we’re not sitting in traffic we do have a little bit more time and with that you can do and think a little bit more, which has been great and we also find it easier to connect, oddly enough.
CIARAN RYAN: That is interesting, it is a virtual connection but I’m sure that you are finding that you are attending more of these virtual meetings, right?
JOANNE TANNER: I am and where before it was so difficult to get us all together if somebody was at a client visit or with a vendor, now it’s easy just to hop onto a meeting for ten minutes and hop off or quickly connect and get something done. I think it’s definitely enabled collaboration. I’ve missed seeing everyone in person, obviously, I think we are human and we like contact like that but it definitely has made it much easier for us to connect, and it’s just dropped these invisible borders that I think we put up somehow. So there’s been a lot of good that has come out of this, it really has just expedited the digital journey, there is no question.
CIARAN RYAN: I think the other thing that I have noticed happening is that you realise that these national borders are quite artificial because you’re jumping onto a podcast with somebody in Los Angeles or Canada or the United Kingdom just as we’re doing but we’re both in Johannesburg.
JOANNE TANNER: Yes, definitely.
CIARAN RYAN: Joanne, I think we are going to leave it there but just before we go I just want to give a plug to the Certified Financial Officer of South Africa designation, which is offered by the South African Institute of Business Accountants, so that is the CFO designation and it really is the Formula 1 of accounting designations. It’s available only from the South African Institute of Business Accountants. The CFO designation is internationally recognised and validates the years of toil and ingenuity that it takes to reach the top of your field. So you’ll be part of an exclusive and powerful network of CFOs and finance executives. As a CFO, which is the Certified Financial Officer of South Africa, you get to share in a wide range of benefits and you gain status as an international finance executive and achieve your listing in the official CFO directory. So Joanne Tanner, group chief financial officer at Tarsus Technology Group, thanks so much for joining us today, your story is fascinating, inspiring and I think we all learnt quite a lot. I just wish you the very, very best during this period of lockdown and I hope to God it doesn’t go on for very much longer.
JOANNE TANNER: Me too, thanks Ciaran, it’s been an absolute pleasure talking to you today. Thank you so much for having me.