This glorious son of York.
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Six months after the management buyout, York's Jim Davies has designs on Europe.
• Given the traditional volatility of the UK trailer market, and the fact that there are already signs that the current sales boom is slowing down, buying a trailer company is probably not the safest business move anyone could make. According to Jim Davies, the man who led the management buyout at the York Group last summer (CM 9 June): "Trailer manufacturing isn't a business where security-motivated people choose to ply their trade".
The likelihood of failure, however, has not phased Davies. He is already talking about a major profits jump for last year. And he says York is well on the way to becoming: "a pan-European trailer builder by 1990."
Performance
If financial performance alone is anything to go on, then the buyout appears to be working. "During our last full year with Bunzl we had sales of just less than £60 million, and a profit of 23.9 million", says Davies. "Our annual sales rate is now running at £110 million, and we expect profits for the year (1988) before tax and management buyout interest to be close to 26 million".
Despite seeing a slowing down in the UK trailer market (which last year reached around 16,000) Davies is bullishly forecasting profits of £10.3 million (before MBO interest) for 1989, based on a business plan with an annual sales income of £150 million.
While confident that York is heading in the right direction, Davies is keenly aware of how easily the market can turn sour. Back in 1979, York employed over 2,000, and had sales of £39.4 million in an overall UK market of around 18,000 new trailers.
Within two years, the company was facing losses approaching £4 million and had embarked on a cost-cutting programme which ultimately saw its workforce slashed to 600.
Davies asserts that York "has been to hell and back — at that time we very nearly went under". While the restructuring programme helped the company stay afloat, its bankers were adamant that "certain adjustments in thinking were required", and that meant the company had to be sold.
In the middle of 1985 it was bought by United Parcels — yet no sooner had the ink dried on the contract, than UP was itself bought by the giant Bunzl Corporation in October 1985. At the time, Bunzl was better known for its pulp, paper and plastics interests, although it was keen to branch out into road transport. Among the other transport companies Bunzl later acquired were Robsons Distribution Services and Thompson Jewitt.
By the start of 1988, however, Bunzl began to look seriously at its acquisitions, coming to the conclusion that they did not work together as well as it wanted. The purchases had also cost a great deal of money. The best way to rationalise the business, and raise some cash along the way, was to sell something off and by the end of 1987 Bunzl had targeted York.
"They took a little while to get used to the notion of us going by a management buyout, but the dialogue began in earnest early in March '88. We didn't choose the timing of our exit — but we certainly chose the way to go," says Davies.
While the negotiations were helped by a sympathetic attitude within Bunzl the buyout path wasn't always smooth. "We went through a bit of a tense period around late March when both sides said `no deal'," Davies remembers.
Time, however, proved a strong spur for both sides, not least for Bunzl, which was keen to see the sale of assets appearing within its first-half results for 1988. "They said 'if you don't get it done by June 30, your window of opportunity will be lost', so June 30 was very much D-Day for us, although it was more to do with Bunzl's needs than ours".
In the event, a deal was struck within the deadline. "We came out for £60.5 million, with an amount of that money put aside to pay preferential share holders and to fuel business expansion — Bunzl itself got £26 million".
Short ownership
Davies has no doubts that Bunzl got its money's worth from York during its relatively short ownership. While with Bunzl, York enjoyed an investment programme which included the purchase of bodybuilders Neville Charrold and Glover Webb, and an upgrading of York's assembly and manufacturing facilities. Davies, however, insists that "During that period we were a consistent profit earner. They got more profit from us than they injected into us."
Whatever the final reckoning there was no shortage of outside help to back the buyout, according to Davies. "They beat a path to our door."
Not one to labour a point when an understatement is more effective, Davies sums up the buyout thus: "We consider the price to be really quite reasonable." Having gained a personal stake in the business he is keen to see others have a similar chance by way of a worker share option plan, which is expected to be set up before the end of the first quarter of 1989.
It is now six months since the buyout went through and Davies has already set a clear target for York. "Our plan is to be floated as a pan-European company, as a plc with sales of £160 million a year, sometime during the back half of 1990, or the first half of 1991, depending on the financial markets and our results".
The company has already taken positive steps towards that goal with the setting up of an assembly plant in Holland and a sales company in Denmark, and more recently the purchase of the Italian bulk trailer builder Piacenza (CM 21 July). The process is by no means over, however, for there are three more acquisitions planned for 1989.
For Davies the best way for York to progress is to grow geographically, rather than laterally and that means looking beyond the UK. Spreading York's roots into Europe also serves as a defense against any home market downturn. "We are bumping along with around a 30% share of the UK trailer market. It's quite good now but we have some concerns over its medium-term wellbeing. Realistically, we feel our potential is never going to be more than a third of the market. If the market shrinks, and you have no 'potential' to grow into, then you'll suffer in direct proportion to any shrinkage. So our quest for growth is also to protect the business we already have."
CI by Brian Weatherley.