Saturday 23 September 2017

It's life after debt for the buyout group One51

A commercial comeback of Lazarus-like proportions has given the IAWS spinout a new lease of life, says its upbeat chief executive Alan Walsh

One51 chief executive Alan Walsh
One51 chief executive Alan Walsh
Larry Goodman
Michael Fingleton. Photo: Frank McGrath
Nick Webb

Nick Webb

Beef baron Larry Goodman, former Irish Nationwide boss Michael Fingleton, ex-Bank of Ireland head Mike Soden and former Aer Lingus chairman Tom Mulcahy were among the high rollers that invested up to €300m in One51, the buyout group that spun out of IAWS.

It went catastrophically wrong. Car-crash stuff. But new chief executive Alan Walsh has led one of the most extraordinary turnarounds of an Irish company in recent years. It's been driven by the development of a simple but headsmackingly smart plastic lid and some ruthless cost cutting. But growth is now very definitely back on the agenda, as Walsh prepares to face his shareholders next week.

"When I took over in mid-2011, for the previous two years we'd been in the newspapers almost every week for all the wrong reasons. We had a lot of problems. Self-inflicted problems," Walsh told me last week."

"The core of the problem was that we were overleveraged. Businesses had been bought – the metal recycling business – on which the organisation was heavily dependent on from an earnings perspective.

"Historically that business would have represented 80 per cent of group earnings. Today it's 20 per cent. When you are carrying a big debt dependent on these earnings and it implodes you get left with a pretty difficult debt situation," he said, sitting in an icy meeting room on the ground floor of One51's corporate HQ on Dublin's Thomas Street.

"The other issue was strategy. There were businesses bought in totally disparate areas," he admits. One51 was a mish-mash of investments and businesses ranging from brown bread to nuclear waste to solar power and metal recycling.

Bang in the middle of all this was the decision to launch a €561m takeover battle for ferry group ICG in 2007. This deal frenzy was funded by the banks and lots and lots of debt.

"It was a real rollercoaster ride. It all went wrong when the earnings profile imploded and we ended up in a very difficult banking situation," Walsh said. "They were the cards that we were dealt. It wasn't easy.

"The banking situation in particular was really difficult. We went from bank extension to bank extension to bank extension for three years in a row," he said.

This was squeaky bum time for One51, its management and its backers. Insiders believe that on at least one occasion the banks were close to pulling the plug.

"In reality it probably shouldn't still be around but for the monumental efforts of a couple of people to keep it on the road. We've come through it all and it's recovered. There is an opportunity to grow the organisation and that's the strategy now," he said.

They also had to fight off a US presidential contender. "We ended up with one of these hedge funds in our debt syndicate last year," he said. Sankaty Advisors, part of US presidential candidate Mitt Romney's Bain Capital, had bought out the Bank of Scotland (Ireland) exposure to One51 and it started throwing its weight around.

"This represented challenges. They had their own ideas of what they would do with us. That was interesting," Walsh says. Which is quite an understatement.

"We didn't give them the time to be difficult. They came in with the full intention of doing something, trying to get control. But we got the debt to a position which enabled us to refinance and we retained control and the support of our three core banks."

A boardroom coup saw Walsh brought in to save the company, which seemed to be wheezing its last. "The plan was simple. There was no rocket science to this. We had to reduce the debt significantly. There were a number of businesses that were loss-making or didn't fit. There were investments that were non-core or minority investments that just didn't fit," he added. "We said we'd reduce debt, costs were reduced significantly and we've given the organisation a strategic focus that it didn't have before."

Around €100m in debt was paid down in just two years. This was done from a mixture of selling assets – such as the ICG stake – and the massive cash generating machine of its businesses. In January, One51 signed a deal with its bankers giving it new facilities for the next four to five years. "That's the external sign that the banks believed in the organisation again," Walsh suggests.

One51 is now built around its Clearcircle environmental business – which is involved in recycling and hazardous materials, its specialist plastics business, which makes everything from wheelie bins to paint cans, and an investment portfolio, which owns valuable stakes in NTR, Open Hydro and a solar power business. Far less clunky.

"Our star performer has been the plastics business and it has been for the last couple of years. It continues to grow strongly and we're in a unique position in markets that will allow us to expand, according to Walsh. "Our stated aim with that business is to double it over the next couple of years."

One of One51's hottest products is a natty new baby milk container lid. It has a holder for a spoon inside. Traditionally the spoon for scooping out the gack lies buried in the formula and you have to rummage around to find it. This leads to increased likelihood of contamination and germs.

Following some high profile health scares, the Chinese milk formula market is rigid with fear that another contaminated milk scare may erupt. This has seen the One51 bottle top really take off. "We developed it," Walsh says as he demonstrates how the blue lid works. Sometimes the smartest things are the simplest.

"It's all about China and processed milk exports to China are really growing. We're in a good position with a large multinational there," according to Walsh. "Our shareholder base sees us about 50 per cent owned by co-ops. They are all focused on exports to China. That's a whole area for us to tap into."

But the most lucrative tie-in is with data centre giant EMC, which sees One51 design, manufacture and deliver all of the plastic casings for its vast server farms and storage business.

"The development of big data and cloud computing has allowed us to grow our business there in the last couple of years," he said. One51 has a giant manufacturing plant in Shanghai and is looking to expand it to meet demand.

A buyout approach for listed plastic firm Strait plc is just one of the buyouts Walsh is chasing in pursuit of growth. But he's going to need money. While the banks have agreed a major new five- to six-year lending deal in January, the company is wary of racking up too much leverage again. The "near-debt experience" has made them far more conservative when it comes to financing.

"We do need to raise equity to get where we want to go, so were looking at that now. We're talking to our shareholders about it at the moment and we're running a process that we'd hope to complete over the summer," he says. Davy Stockbrokers is running the fund-raising process. It is likely that One51 will raise more than the €20m previously suggested.

"Whatever we do, we have to look after our current shareholder base," he said. "Would we like an element of third-party funding? I think it'd be good for the organisation in terms of the ambitions and what we are looking at down the road," he said.

"There are a number of parties who are interested in investing in the organisation. There is an appeal there. We've had approaches from a number of people. External professional investors."

There are also far more ambitious plans to float on stock markets, possibly as early as 2016. "Is that something that we have at the back of our minds. It is. It's certainly an option," Walsh says. One51 is traded on the grey market already. Shares have risen from 15c in January 2013 to €1.08 last week. That makes it the best performer on the markets bar none.

But moving to a full listing won't happen until Walsh has sorted out some loose ends. Big ones. "I think for us to move on that we'd need the investment portfolio to be tidied up before doing anything." The biggest chunk of this is One51's stake in Tom Roche's NTR. It's carried at about €32m on its balance sheet. "We want to get out. It's not core for us ... it's a medium- term investment, so it could be a while."

"We could float today. We have turnover of €250m and it'll go up to €300m. There are lots of companies listed that are way smaller than we are. Could we do it today? Yes. But I think that resolving the investment portfolio and bulking up the other bits of the business comes first."

Moving from begging for money to survive to beating off potential investors seeking to fund growth is the clearest signal that One51 has emerged from the carnage in far better shape.

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