• Strategy
  • CFO Europe Magazine

Growing Pains

Companies in fast-growth mode have to beware of getting over-stretched.

On December 11th last year, a huge explosion ripped through the Buncefield fuel depot in Hertfordshire, 56 kilometres northeast of London. The local fire chief described the blast at the depot, the main fuel hub for Heathrow and other airports around the city, as the largest of its kind in peacetime Europe. Among the rubble were the remains of a brand new 6,300 square metre distribution centre belonging to ASOS.com, a young internet clothing retailing company.

“We had to shut the warehouse for five weeks and lost our most profitable trading period,” recalls Jon Kamaluddin, ASOS finance chief.

ASOS, an acronym for As Seen On Screen, had grown exponentially since it was founded in 2000 on a marketing concept—to retail via the internet brand-name clothing based on ensembles that celebrities had been photographed wearing. The company, which is chaired by Lord Waheed Alli, a media entrepreneur best known for producing the UK version of reality TV show Survivor, went public in 2001. Since Kamaluddin joined in 2004, sales have doubled each year and they are forecast to reach £40m (€60m) this year.

The Buncefield incident threatened to slam on the brakes just after ASOS had made a substantial investment in expansion. In the event, as Kamaluddin says, “we were lucky. We were fully insured and our PR company did a great job getting out stories about ASOS and the damage done to the warehouse, so customers understood.” However, the incident underlined a major vulnerability for the company and led to an overhaul of its risk management strategy. ASOS has since outsourced its warehousing, as well as back-up for its websites and order processing, to logistics company Unipart, and put in place a detailed disaster recovery plan, Kamaluddin says.

The ASOS experience was a particularly stark illustration of a fact of life for CFOs of fast-growing companies: while they’re trying to ensure their company stays on a fast-growth path, they must also have systems that anticipate what might blow it off course.

As Mark Keatley, CFO of Actavis, a Reykjavik-based generic drugs maker that has tripled sales to €1.4 billion in the past year, puts it: “We will double our company in the next five years even without acquisitions. The biggest challenge for me and my team is to build the capacity and organisational systems to make sure that finance is ahead of the game.”

A survey of 1,400 managers of fast-growing, mid-sized European companies earlier this year by the Economist Intelligent Unit, a sister company of CFO Europe, bears out this dilemma. They identified their top concerns as controlling costs and maximising operating efficiency, while also trying to diversify the customer base and the product offering. (See chart below.)

Disaster Radar

Though less dramatic than an explosion taking out an entire distribution system, failure to anticipate the risks resulting from an over-reliance on one product line or customer base also invites disaster, as Peter Krumhoff knows. When he arrived as CFO at Basler Vision Technologies in 2001, the €50m Hamburg-based maker of industrial optics equipment was teetering on the brink of bankruptcy.

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