Wednesday 26 July 2017

More than just a paper fortune: Dermot Smurfit on business and investing

Dermot Smurfit is helping to grow Scottish firm Menzies Aviation after a life in paper, packaging and turning around businesses

Dermot Smurfit
Dermot Smurfit

John Reynolds

Dermot Smurfit - younger brother of fellow entrepreneur Michael, and father of Hollywood actress Victoria - had an early introduction to the world of business.

"Dad walked us through the factory floor when I was just two- or three-years-old. He wanted us four brothers to all work in the business because he had seen poverty in his life and he didn't want us to experience that. We were brought up through the factory and introduced to the staff at that very young age. It was a given that I would go into business. I simply never contemplated anything else."

We're chatting and getting through several pots of tea in a corner of a hotel bar in London's Kensington, close to where he lives.

Smurfit left school at 17 and came up through the ranks of the family business that would eventually became Jefferson Smurfit - amassing a fortune on the way estimated in our Rich List earlier this year at €90m (on which he declines to comment) - he's just banked about €47m from selling his 15pc stake in Finnish paper company Powerflute to US private-equity firm Madison Dearborn.

Smurfit built up the company since buying a paper mill in 2005 that was about to be closed, saving most of the 268 workers' jobs in the process, and then combining it with two other businesses. In the following two years he did two separate private deals involving paper mills. It's almost as if he can't help being tempted by businesses that need turning around.

Supposed retirement in 2002 couldn't keep him from helping two companies - European retail payment firm Anker and US financial services firm Peach Holdings - prepare to float on London's AIM. Both were sold, and in the latter's case, they timed a sale in 2004 very well, selling it for $720m. Several years later, the economic Crash destroyed swathes of its business and in 2013 it was sold for just $40m.

Enjoying such challenges, Smurfit is chairman of Scottish-headquartered, London-listed John Menzies Plc, which has a newspaper- and magazine-distribution division as well as an aviation-services business. The 72-year-old twice-married father of seven and grandfather of six is just back from Denver in the US ahead of an acquisition that he's helping to oversee in a bid to grow the business.

"I also recently turned down an approach to chair a big UK infrastructure firm. It was going to take up too much time. It's also owned by several private-equity firms, who sometimes actually believe they're managers, and that they know better than you who is actively involved in running the business. But because they control the equity they call the shots.

"Menzies has a £700m turnover in ground-handling services in 38 countries, with 23,000 employees, while the distribution side is the second-largest distributor of magazines and newspapers in the UK and here, with a £1.3bn turnover and 3,000 employees. Menzies Aviation has been seen as an underperformer, so the plan is to improve its performance over the next few years. As part of that, it's buying Florida-based ASIG, the largest refueller of commercial aircraft in the US, with 8,000 employees and £300m in sales.

"It's the biggest deal Menzies has ever done and we'll see where we go from there."

If all goes to plan, he'll benefit handsomely too, having put £2m into a recent Menzies rights issue.

Business, and an appetite for such challenges is in his genes. His father, a master tailor from Lancashire in England (married to his mother, whose family owned a Belfast and Newry clothing business) had started a corrugated packaging business in 1936 and moved the family over to pre-war Dublin, buying into a Rathmines printworks.

"I was good cheap labour for my father when I joined his firm in 1961, earning £2 and 10 shillings a week. I started off doing various jobs on the corrugated-box factory floor, cutting samples and running machines, going on to run small departments before becoming the assistant manager of a paper mill in Clonskeagh when I was 20."

Along the way, his father had to first build a corrugator machine for making boxes, and then "a real Heath-Robinson-type paper mill" when his suppliers stopped supplying him because they thought he was a threat to them.

Dermot and Michael weren't short of such a mindset themselves. "I took up smoking when I was just eight. And at the Christian Brothers' school, Oaklands College, that I attended where I grew up in south Dublin, the Gaelic football team I played for later found out about my smoking and took me off the team, so I refused to play for them ever again. Even then, I was a stubborn little bugger," he says with a smile.

Was there any rivalry in the Smurfit boardroom between himself and Michael? "Certainly. The arguments between us were legendary. At one time I reported to him, and we'd have a meeting every quarter - the group executives and my executives from the paper mill, so perhaps 10 of us in the room. Michael would say: "You've done this and that badly," and I'd roar back: "If you think you can do any better, you come and do it," he says with a laugh. It was all forgotten a few minutes later though.

Despite the arguments, the business established by his father - and built up by him and Michael and their other two brothers Alan and the late Jeff - achieved monumental success. They each ended up with their own empire within the business. Michael was "the big boss" in Dublin, Dermot was chairman and chief executive of Smurfit Europe and Alan ran the Latin American operation from Miami.

It went public in 1964 as the third-smallest listed firm here, with sales of IR£1m and producing 10,000 tonnes of paper a year. However, by 2002 it was churning out 13 million tonnes in 32 countries, with gross sales of $20bn (€18.8bn) and compound annual growth of about 26pc.

"My role meant I learned about managing people, spotting the right ones to run things, the day-to-day running of it, how to look at a business and figure out what elements to keep and what were surplus to requirements. My father used to say that businessmen are made, not taught. I think perhaps all that experience reinforced something I instinctively had. Michael had a great nose for a business deal and knowing instinctively the right thing to do in a particular situation. I think I inherited that as well," says the avid sports fan and self-confessed poor golfer.

The part of his work that he found the most difficult was laying people off, he says.

He was the ceo of TMG Group, a group of engineering companies later sold to Jefferson Smurfit that his brother Michael and Maurice Buckley had developed. "I had to liquidate some of them so that others could survive, and you can't really train for that. Seeing companies close is extraordinarily sad, obviously much more so for the people laid off, but sadly sometimes it's necessary. Later in my career, I was proud to save three large companies and 1,200 jobs. I hope it made up for the jobs lost earlier in my career.

"But we're only as good as the people we surround ourselves with. I don't claim to have the world's best business brain. When I had first visited the Savon Sellu paper mill in Finland that became part of Powerflute, I wrote a business plan for it with all the improvements I thought I could make. Then when two former Smurfit cohorts of mine, Ian Halliday and Tony Smith looked at it, they said it was terrible and they could help me do it much better, which we did.

"I love going into factories and seeing how other industries work. With Menzies, it's a completely new business for me. The day-to-day operations are different. But a lot of the skills required in the business are the same. You've got to know where your problems are, and sometimes to help find them. You need to know where your strengths are, and to make the right judgements about management and efficiencies.

"In the Smurfit Group, the adage we had was: If it isn't difficult, it's easy. If it's easy, everybody's doing it. And if everybody's doing it, there's no point doing it, because there won't be any money or financial advantage in it. Fewer people are doing things that are difficult, so that's where there's more profit to be gained. So you need to embrace difficult.

"Underpinning this philosophy was that we insisted on drilling down into every detail about every aspect of the business, in a much deeper way than we believed our competitors did. It wasn't enough to know something's cost, you needed to know every factor that contributed to that, and in turn what contributed to those factors. We liked to believe that we could control a company as long as there wasn't anyone in the world who thought they could run it better."

Sticking by these rules hasn't always paid off when it comes to private investments he's made, however. Some of his fortune is tied up in funds, although Smurfit is not a fan of fund managers. "You're better investing in an index and avoiding management fee costs," he adds.

He and Michael avoided investing in property. He owns a small house in Ballsbridge and a villa in Cannes that was renovated some years ago. "Michael used to say we never partied, so we never ended up with a hangover in terms of property investments during the boom." There are other private investments too. "I'd prefer not to detail every single one. But I've invested in all kinds of different businesses: oil and gas, an addiction clinic, a viscose-pulp business and a helicopter-medivac firm in the US, bedding in China, biomass in Romania.

"I'd love to say they were all a success. Some of them did very well. A couple were complete disasters, all of which had a common thread: management and I couldn't necessarily influence who the managers were. In one case, private-equity guys totally screwed it up. When you're investing outside your own area of expertise, you have to hope you win more than you lose. The losses have been less than €10m. The successes have been greater."

Another time he "lost his shirt" was when he backed a Russian movie some years ago that aimed to capitalise on the popularity of the The Silence of the Lambs. The film was about a Russian policeman who caught its worst serial killer, who'd killed over 100 people - but it never got made.

With the popularity of Scandinavian crime dramas on TV, perhaps it's worth digging it out again, I venture. "And I guess my daughter Victoria could star in it," Smurfit says with a laugh.

One significant opportunity he did miss out on involved online betting firm Betfair, after his son Dermot Junior recommended investing in the company in the early 2000s.

"I turned to a contact who knew the industry for advice and they advised against it, adding that the firm would probably not survive for very long, so I didn't go ahead with it. Today, the £250,000 stake I would've had would be worth about £60m."

 

'My brother Michael was my role model'

The last book I read was...

"Conclave by Robert Harris. I also enjoy Michael Connelly's Harry Bosch series, and The Lincoln Lawyer."

In my spare time...

"I'm addicted to sports on TV, particularly American Football - I follow the New England Patriots. I also help organise the Robert Sangster golf tournament in Barbados every year and support the Royal National Institute for the Blind and Great Ormond Street Hospital and Crumlin Children's Hospital in London and Dublin.

The best holiday I ever had was...

"I enjoy visiting Barbados every January."

My worst experience in business was...

"Putting up large personal guarantees to keep Pankaboard afloat during its first two difficult years."

My role models in my early business career were...

"My brother Michael and Howard Kilroy, who worked for us and later chaired Bank of Ireland and CRH."

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