Bootmaker Dr. Martens’ treasury transformation

Dr. Martens Group Treasurer Mark Hirst discusses the challenge ahead following the iconic bootmakers FTSE 250 listing.

Mark Hirst

Group Treasurer

Dr. Martens is a British clothing and footwear brand headquartered in Northamptonshire. The footwear is distinguished by its air-cushioned sole and yellow stitching. Dr. Martens’ design studio is in Camden Town, London, the manufacturing is in the UK and Asia and the company listed on the London Stock Exchange last year.

One of the most compelling motivations behind Mark Hirst’s decision to take the job as new Group Treasurer at Dr. Martens, the brand renowned for its chunky lace up boots and yellow stitching, was the challenge inherent in building a new treasury function. “It is a build, not a rebuild,” he enthuses in an interview from the company’s London headquarters in Camden, reflecting on the basic set-up of the existing treasury function at the bootmakers when he joined last June, tasked with driving and supporting the newly listed company’s pursuit of revenue and profit. “There is a lot to do.”

His first priority is to recruit a six to seven-strong treasury team with relevant skills and experience, a process he says has proved slower than he’d like in a reflection of the tighter employment market. With no systems or processes in place, his next is to build out treasury technology and transform a system currently run off spreadsheets. “Our ERP system is Microsoft Dynamics 365. Getting the technology up to speed and recruiting the right experience and skills are foundation enablers for the transformation of treasury here at Dr. Martens.”

TMS vendors are bombarding him with offerings, but he wants a clear understanding of the treasury stack before he takes the plunge. He is also mindful of treasury competing for resources with other parts of the business also hunting new technology capability and programmes. “We can use spread sheets for another few months yet,” he says.

Dr. Martens’ need for a new treasury comes despite the company being around for years. The original shoemaker, owned by the Griggs family, was founded in 1901 in the small town of Wollaston, Northamptonshire. It wasn’t until the 1960s that the company began manufacturing the unique boots designed by Dr Klaus Maertens, a German soldier who’d shaped the shoe to aid his recovery from an injury.

It is Dr. Martens’ more recent history that stripped out much of the treasury function needed for a listed business. Private equity group Permira paid £300m for Dr. Martens seven years ago when it bought a majority stake off the Griggs family. In January 2021, Permira exited most of its shareholding when the company listed on the FTSE 250. Today, Premeria is still the biggest shareholder and has a board seat, but all decisions from the capital structure and balance sheet; how much debt the company has and what that should cost, fall under Hirst and his CFO Jon Mortimore’s remit. “How we take the business forward is purely now a company decision.”

Direct-to-consumer

Another urgent priority is putting in place a treasury system to support the company’s fast growing direct-to-consumer business currently spanning over 60 countries. Although Dr. Martens’ different channels to market span shops, wholesalers, distributors, and some franchise agreements via hubs in London, Portland, Oregon and Hong Kong, the group’s own e-commerce platform offers the most exciting growth and revenue trajectory, accelerated by trends emerging from the pandemic. “Customers who hadn’t shopped with Dr. Martens before, are now buying direct from the website.”

DM has rolled out new, country-specific payment methods for on-line customers wanting alternatives to Visa, Mastercard or PayPal that include national providers like the Netherland’s iDEAL. “Customers in some of our key markets want local payment methods. We’ve also had to expand our offering with a gift card and BNPL solutions,” he says.

As global sales grow, Hirst also wants to expand treasury’s ability to manage the growing number of currencies used to transact and the different currency revenue coming into the business, much of which is converted daily for liquidity. It has exposed an urgent need for a hedging programme, something he is exploring via an extensive currency mapping exercise across the whole group designed to understand the company’s net exposures and natural offsets. “We weren’t on top of it and didn’t have the right risk management approach,” he says.

The main currency exposures are cable, sterling euro and euro dollar but he is increasingly aware of the need to look more closely at hedging the renminbi in line with the company’s growth in China. In its first annual report last June, Dr. Martens registered overall sales growth of 15% led by demand from China which soared by 46% – the company has just appointed a managing director in China. “We are developing a new strategy for China, so renminbi is potentially another material currency exposure treasury will have to manage,” he says.

Developing the hedging programme requires working closely with colleagues to identify the exposures as they are created. The key is to make sure the company’s forecasts are granular enough to flush out the correct exposures, he explains. “We rely heavily on regions to provide accurate numbers to ensure we don’t end up over or under-hedged or have a material exposure that is not hedged at all.” He is also exploring a multi-bank platform as part of a technology project that would allow the group to price-tension its FX contracts.

Cash on hand

Elsewhere on his list is the need to maintain a sensible level of cash on the balance sheet. Although Hirst is not planning to hold “ridiculous amounts of cash,” he wants the business to operate with reduced leverage in the next 12 months from which point a decision will need to be made about what to do with surplus cash.

Current debt on the balance sheet comprises a euro-term loan drawn shortly after the company listed. “Our net leverage is very low and will continue to go lower as we go through the next couple of years.” The company tracks and monitors net leverage because it is the only financial covenant in its facilities, due to expire in February. He adds that for now the company has significant headroom. “The last thing we want is another lockdown, but we have ample headroom on our covenant.”

Banking partners

Hirst spent a fair proportion of his first three months meeting the company’s banking partners to understand their different roles. “It was a question of working out who is doing what and who needs what as a result of being our lender,” he says. In a reflection of how Permira had structured the financing, he unearthed a surprisingly long list of banks including some he’d never dealt with before; a handful outside the UK and one private equity-owned lender. HSBC, the house bank grounded in a long-standing relationship with the Griggs family, is an important seam of continuity.

Supply chain finance and sustainability

At some point in the first half of FY22 up he’d like to introduce a supply chain finance programme with the company’s key Asian contract manufacturers. “A supply chain finance programme would be a win-win for us and our suppliers,” he says. It would also be a good way to nurture and cajole ESG integration in Dr. Martens supplier base in line with the company’s new commitments to sustainability that include a target of zero waste in its value chain going to landfill by 2028; net zero emissions by the end of the decade and all shoes made from ‘sustainable materials’ by 2040.

He says treasury is still in the process of carefully considering all the ESG finance and opportunities out there. “Over the past couple of years, the banks have become increasingly keen to burnish their ESG credentials. Credit ratings agencies are also getting in on the act and are looking at ways of giving ‘credit’ to companies which embrace green initiatives.” He also notes that the hard financial savings are often fairly minimal – usually about 5bps. “We don’t want to rush into something that later turns out be an onerous exercise in collecting and monitoring a multitude of KPIs.”

Hirst’s enthusiasm for Dr. Martens’ treasury transformation speaks of his appetite to learn and push himself that has run throughout his career. First seen when he swapped consulting after a graduate trainee position on PwC’s coveted management consultant programme and brief stints at Deloitte’s and KPMG, for hands-on proximity to the sharp end of business and industry. “I wanted a proper job,” he jokes.

That came when he joined Tesco, initially as an internal auditor in 2005 before progressing to group treasury where he focused on the international side of the business. “It was a high profile, interesting introduction to all things treasury,” he recalls. His time at Tesco included a three-year stint in Asia, based in Bangkok, from where he covered the retailer’s markets in Japan, South Korea, Thailand and Malaysia. The role was particularly centred on working with Tesco’s bank partners in an experience that has shaped his thinking on banks relationships with their corporate clients. Back in the UK, he took another role managing cash and banking across the group before leaving in 2015 to join ill-fated travel and airline group Thomas Cook as UK Treasurer.

The same ambition to put his stamp on treasury and oversee new processes and systems that inspires him at Dr. Martens, drew him to Thomas Cook. The company was coming out of a prolonged rough patch, and Hirst was tasked with leading and shaping a new treasury to support the business in its recovery. As it was, the job turned progressively tough as the company failed to win back its foothold in the competitive package holiday business renowned for wafer thin margins. “It was a tough experience,” he says.

Hirst left three-and-a-half years in and a year before Thomas Cook finally folded. Still, it was long enough for a front row seat on corporate trauma. Drowning in debt, Hirst describes a financial strategy that applied sticky plasters over gaping wounds. “It was hard. We could see it coming but couldn’t do enough; the business couldn’t turn itself around quickly enough.”

One of his poignant learnings was the different relationship a small, ailing company has with its banking partners clamouring for a return on capital, compared to a large corporate with the muscle to draw concessions. “Banks are more willing to help big companies. It’s a different ballgame when small companies are facing challenges.”

Coping with the hard lessons of corporate failure bought his own guiding treasury mantra to the fore. Hirst concludes with a note on the importance of learning, pushing oneself and being able to adapt. There is no such thing as a typical day in treasury, especially at Dr. Martens. “I have a long list of things I want to do,” he says.