Irish

Friday 11 July 2014

All set for the upturn, but no need for a big shake-up

Grafton has made its Irish operations fitter and leaner to meet the slump. With up to 75pc of its sales in the UK market, it will weather the storm. By John Mulligan

Published 13/12/2012|05:00

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Gavin Slark looks like he could handle himself in a scrap. That's just as well. As chief executive of Grafton Group – whose presence in Ireland is best personified by its Woodies and Atlantic Homecare DIY chains – he's fighting a wave of austerity measures, a depressed economy and a virtually non-existent new-homes market.

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Consumers aren't spending and the impact is acutely felt at Grafton's businesses here.

It would make you wonder how the effervescent Sunderland native was ever persuaded to take over the helm at Grafton, especially when he'd be stepping into the shoes of Michael Chadwick, the low-key executive chairman who'd run the business for about 25 years and is now non-executive chairman.

"I'm a glass half-full kind of guy," says a crisply presented Slark at Grafton's very understated headquarters in a south Dublin business park – it might take a bit of detective work to find out if you're in the right place. Even the tiny lift inside is knackered.

It's Slark's first interview since taking on the CEO job in April last year.

He was headhunted from the top role at plumbing and heating group BSS, which in 2010 was acquired by the UK's biggest builders' merchants group – and Grafton rival – Travis Perkins.

"Michael and I had crossed paths within the industry and we knew each other to pass five minutes over a coffee," he says.

"Michael had his own unique style and I've got mine. I think the one thing that Michael and I share is that we have a passion for getting the results. And I think that even though we have a different style of management, we are driven by this desire to make sure the business is successful."

Grafton had an annual turnover of slightly over €2bn last year and posted an operating profit of €22.2m (in 2007, turnover hit €3.2bn and operating profits were €263m).

But surely Slark would concede that people might have thought he was nuts to get on board at a time when the business is facing what is probably without doubt it's most challenging period ever?

Ireland accounts for just 25pc or so of Grafton sales, but in the UK, where most of the remainder are generated, the economy has been struggling too.

"I just didn't see it that way," he says. "If you strip everything else away and look at the Grafton Group, what you've got is €2bn in revenue, as a group it's profitable and cash generative, the balance sheet is in very good shape and the banks and shareholders are all on side.

"So as a prospective CEO, when you're looking at the characteristics of a business that you want to be involved in for the long term, those are very good characteristics to build on." He's certainly enthusiastic about the role, even though the business itself is hardly sexy.

"If you just want to talk about it in terms of bricks, blocks, timber, sand and cement, sure, who would argue that it's not the most sexy industry in the world?" he says. "But I think there are so many dimensions to what we've got as our business. I love it. I absolutely love it."

He argues that while there are "specific challenges" in the Irish market, the opportunities outweigh the downside.

The Woodies and Atlantic Homecare businesses account for just about 10pc of group annual revenue – and that slice has been getting smaller as consumers here rein in spending.

Turnover

In the 10 months to the end of October, turnover at the DIY chains fell by 10.1pc. Last year it declined 4.7pc to just under €220m and operating profit dipped to €2.1m from €2.4m.

Grafton also operates the Heiton Buckley and Chadwicks builders merchanting outlets in Ireland, where revenue fell last year by 6.4pc to nearly €307m but operating profit rose by 12.5pc to €4.1m as cost savings helped the bottom line.

During the summer, a number of Atlantic Homecare businesses were placed in examinership to enable them to negotiate softer lease agreements.

And while prior to that Grafton management had indicated that some of their DIY stores might never make a profit, it raises the question why the group doesn't just pull the shutters down on them.

"Inevitably there will be an upturn in Ireland. What we're trying to do is get our Irish business positioned so that when we do get an upturn here that we're in a very strong position to take advantage," he explains.

"Woodies is a very significant part of what we do here. With the examinership process during the year, our retail business now is financially much more stable than it was before. We still see Woodies as being an integral part of our business for the foreseeable future."

Mortgage approvals are key to kick-starting the business – both retail and merchanting – in Ireland, claims Slark.

"One of the things that would have a beneficial impact on our business would be if we saw an improvement in the flow of mortgage finance coming into the Irish market," he says. "There are significant hurdles for the free flow of mortgage finance but it's a really important catalyst for getting people to move, not just to new builds."

Slark has had a somewhat twisting route to his current role. Growing up in Sunderland (he's a dedicated supporter of the city's 'Black Cats' football club, but now lives further south, in Leamington Spa), he got a job at 16 in car part sales, relieved to get out of the school environment.

"My father was an accountant, my mother was a bookkeeper, my sister is a chartered accountant, my son is studying to be a chartered accountant," he says. "I wanted to do anything except stay on at school. By the time I was 16 or 17 I was living in the midlands, didn't have a clear view of what I wanted to do and went into retail. I was far happier being at work than I ever was being at school."

"Subsequently, I did part-time study for a diploma in business studies and I've been to London Business School, so once I started work I was much happier to carry on studying. When I was at school I was just focused on getting to the end of it."

Main focus

Grafton has some outlets in Belgium and Poland, but the UK is the main focus. It operates a swathe of merchanting businesses there such as Buildbase, Plumbase and Jackson and has a 10pc market share, but no DIY chains like it has in Ireland.

Slark spends most of his time traversing sites around Ireland and the UK and further afield. There are only about 17 people knocking around head office – not bad when the company as a whole employs about 9,000 people.

"We are a service-driven business. I think the only way you get a real feel for how we're doing is by visiting the locations that we have," he says.

"Even going out to Poland when the other way to get there is to fly to Warsaw and then do a four-hour drive north to this place called Bydgoszcz – you have to do it.

"In some respects it's more important for a CEO to be seen in places that they don't expect to see you. It's more important for me to be seen in branches in Poland, in Scotland, in the south-west of England because those are the ones that could easily get missed."

"If I'm in Dublin on an evening or of a weekend I'll quite often just slip out in a pair of jeans and into a Woodies store and just see what's happening," he adds, pointing out that he's not the type to arrive at a business and feel the need to put his immediate stamp on it.

"I don't think you can walk in on day one and say I demand respect because I'm the boss. You have to earn it."

And while Grafton generates the majority of its sales in the UK, the economy there has been far from rosy. There were concerns last week that it could be headed for recession again.

"In the UK, the whole construction market is relatively flat," says Slark.

"I think the difference between Ireland and the UK, is that in the UK it's generally accepted that the market is bouncing along the bottom. In Ireland, we still have to have confidence yet that we are at the bottom."

There's little doubt that Slark is a polar opposite to his predecessor, at least in terms of personality. But Slark still insists that no great fundamental shake-up is required at Grafton. Analysts are largely impressed with its focus on cost containment and self-help during the downturn.

"I don't think there's any need to be radical," he says. "If you look at the fundamental pillars of the business, we've got a very strong base from which to grow."

But surely there must be something that keeps him up at night?

"The business is in good health. There are things that we'd like to do better, but there isn't anything that keeps me awake at night."

Nothing?

"Whether Sunderland will get relegated," he laughs. "It's looking more likely."

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