Blueprint for the next rainy day pays dividends for Brooks in building sector
Accountant Mark Lohan has one eye on the next slump even as the builders' merchants yard hums
When the chairman asked Mark Lohan for a five-year plan he was somewhat shocked. "Really?" said Lohan, the managing director of timber and builders' merchant Brooks. "A five-year plan? Is that necessary?"
A five-year plan is at the very heart of Lohan's strategy at Brooks. But the hurling enthusiast and Galway native was initially surprised it was a requirement after becoming head coach of Kilmacud Crokes' under-six hurling team in Dublin.
"All age groups need a five-year plan," insisted the club chairman. So, Lohan, fresh from drawing up a very different plan for his workplace, duly complied. The strategy was evidently successful: he is now vice-chairman of hurling at the huge south Dublin GAA club.
Lohan's other five-year plan - one he launched in 2015 for Brooks - had been drawn up after a difficult post-recession survival plan that he had implemented to save the builders' providers. The plan is now the bible on which is based the remarkable recovery of one of Ireland's oldest brands, with roots going all the way back to 1754. Lohan's blueprint has caution baked into its stark title: Brooks 2020 - Preparing for the Next Recession'
"We were just out of recession and I was saying that we needed to prepare for the next one. I genuinely believe that," he says. "That is the nature of our country. Boom and bust. We can change our country little by little but, as a business, we still need to prepare ourselves."
So far, the approach has worked. Brooks, with seven branches, is projecting turnover of €74m in 2018, up 20pc on last year. In 2011 turnover had fallen to just €15m from the €170m it had posted at the peak of the boom when it had 17 branches.
Profit too has risen steadily, with €4.3m expected this year, up from €3m last year.
Some of that growth has come from the return of the housebuilding sector but a lot of it, says Lohan, has been driven by the diversification of Brooks' offering into new areas.
"I'm not saying I am expecting a recession in 2020. But, if there is one, we're ready and if there isn't, well, we're still ready. It's about always being light on our feet."
Lohan, a chartered accountant, stands in the busy yard of Brooks' large retailing site in Dublin's Bluebell watching vans, trucks and cars coming and going. "That's a builder," says Lohan, pointing at a van coming into the yard. "That's an insulation guy. There is a landscaper inside."
He can spot the different types of customers - each with their own distinct needs - from a mile away. "I enjoy their company," he says. "They give it to you honestly, the good and the bad."
When builders drive into the yard they turn left, pulling up close to a huge shed with towering piles of insulation, plasterboard, blocks, and lengths of pale pine wood for the construction sector.
A more specialised clientele of high-end carpenters, joiners and furniture-makers turn right and heads into another large shed that smells like a tropical forest. Brooks began life in the 18th century as a wood importer and retains that at the heart of the business. Huge stacks of rich, impressive-looking hardwood timber from the US and the tropics - walnut, oak, maple and iroko - are stacked in soaring but neat piles.
"The wood connoisseurs come in to this shed and could spend two hours here, turning the timber over and over. When they look at a piece of timber like this," he says, lifting up an impressive but rough-hewn length of walnut, "they are imagining the piece of furniture they are going to make from it. They all have their own preferences and peculiar requirements for different species."
One of the requirements that has become a key issue for customers - and therefore the business - is environmental sustainability. Brooks now only stocks wood that is accredited by a number of standards authorities, including the independent Forestry Stewardship Council (FSC).
"Ten years ago that was not an issue. Now we get a very strict audit once a year to ensure we are only sourcing wood from sustainable sources and that has changed our product profile quite a bit.
"For us this is important from a thought leadership point of view. I'd love to say that what we sell is different to anyone else. I'd love to say it is but it really isn't. But what is different is the value that we add in terms of how our products fit into overall solutions for our customers.
"We don't just offer products. We offer advice. As a sector we - meaning ourselves and our competitors - have to keep thinking about how we stay alive as distributors, as the guys in the middle between the users and the manufacturers.
"If all we are is just a big warehouse that manufacturers throw stuff into and customers pull stuff out of then we are toast."
But, he says, the raft of new regulations that has come into the construction sector in recent years has provided a key role for distributors like Brooks. For example, he says, instead of just selling a range of individual heating and plumbing products, it combines 15 individual products into an overall package that allows architects and builders to meet complex new requirements.
"We invite all of our customers in on Thursday mornings by email to see new products and how they are used. You would be surprised how many customers come in off sites. There is a huge appetite to learn in the construction sector."
This, he says, is what will sustain the business when the so-called "faceless trading" that is now such a game-changer across other retail sectors hits with full force, as he expects it will.
"At some stage I am going to be competing with Amazon," he says. "I was in New York meeting people in the sector there and their biggest competitor is Amazon. Over there, Amazon can deliver in two hours - not the heavy stuff - but the tools, etc. It's something similar in the UK. It hasn't happened here yet, but will it? Of course it will."
Inside the store he leans across and points to a lady who is perusing a display of DIY products. "That is a regular retail customer," he says, whispering, like David Attenborough. "We would never have had her in here in the past. It was always about the builder. But we now have to be broader than that. We've been building that market for four or five years since we emerged from the recession."
The seven Brooks sites, from a footfall point of view, are busier now than they ever were in the boom. "We reshaped our business so that we are not overly reliant on the big, big builder," he says.
"The mainstay of our business is the repairs, maintenance and improvement (RMI) sector, in other words the smaller builder. We do service the big construction sector but they are not as material a part of our business as they once were.
"The upside of that is we are not overly reliant on too few customers. The business is now more labour intensive with higher footfall and our yard is busier then it ever was. We have all sorts of people coming in now and the typical RMI guy is in twice a day, morning and afternoon. Our customer base is much more varied than it was."
Lohan has intentionally worked to reposition Brooks into a general merchant with a DIY slant, where a trade or retail customer can go to get whatever they need to build or renovate their house. "It's a more well-rounded business," he says.
The ghosts of the past
Upstairs is the Brooks boardroom, where branch managers and directors gather once a month to discuss performance and strategy, hang old black-and-white pictures of serious-looking men who led the company at various stages through its more than 200 year history.
"I call them the ghosts that I invoke and ignore in equal measure," says Lohan.
Lohan originally come in as something of an outsider to the business. From Galway, he is a PwC-trained chartered accountant with previous experience in the FMCG and retail sectors. He arrived at a crucial moment in the company's history. Over many years Brooks had acquired various other businesses around the country until it too was bought out for an estimated €200m in 2004 by Wolseley, a large British PLC, that had bought up other Irish brands in the sector.
"Things were flying when they bought into the company," he says. But that was not to last. By March 2007 Brooks was looking for help to restructure and consolidate. Lohan was drafted in.
"I came in and began working on margins but as quick as I was cutting cost the market was shrinking faster than we could keep up. There were still people talking about soft landings long after we knew that the market had hit the floor."
The speed and severity of the decline was incredible over a period of six to eight months as property adverts disappeared from newspapers, banks withdrew funding and insurance companies almost overnight stopped covering credit arrangements offered to clients. By 2009, Wolseley was on its way out of Ireland, selling a range of assets including Heat Merchants, Tubs and Tiles, Encon Ireland and Brooks for just €26m to private equity buyers. Ultimately, the brands ended up in an examinership process, enduring painful cuts, and by 2012 there seemed little hope for Brooks. It was then that Lohan travelled to Wales to talk to Premier Forest Product Group.
"At the time nobody wanted to know anything about construction. I had gone through a long list of potential investors and come up with nothing. I had been to Austria, the UK... everywhere. Premier was one of the last on my list. Thankfully they turned out to be culturally the right fit as well as having the background, knowledge and expertise to take on this business.
"Over a period of time the business had been declining so we needed to get back up and running quickly. They had access to and knowledge of the products we needed so we got timber in quickly, at the right price and were able to quickly broaden our product base. Once we did that the customers came back quickly.
"We knew the brand had a chance because it was so well known and that if we right-sized the business that we had a more than good chance of succeeding. The six branches we reopened and filled with stock were the ones that had made money even during the worst of the recession."
Other branches around the company had not made money even during the boom times and were shut. The Grafton Group had retained its place as the biggest player in the market through the recession but, says Lohan, the new Welsh investors bought into the idea that "the market needs a strong number two".
"For them it was a leap of faith. They didn't know me. But they had heard of Brooks because it had, for so long, been synonymous with the Irish construction business."
By 2013 the mood had changed. Banks were backing the industry, and the insurance industry was once again willing to underwrite the creditworthiness of large customers.
"We all have to learn our lessons. Every company has to be responsible about how it manages its own business. You have to be comfortable with your working capital and it should drive how much cash you have in the bank and how much profit you make. Profit should never drive your working capital and that is the lesson we had to learn."
Lohan has a simple yardstick for expansion of the business: any new branch must be able to make money during the next recession. Brooks acquired the Glasnevin-based DPV business, opening a seventh Brooks branch on that site.
"Do I want to buy more? Of course. But only if it makes sense in a recession. If the right opportunity, at the right price, in the right place comes along great. But apart from DPV that hasn't happened."
The key to a good business is not so much learning from what has gone wrong in the past - any number of things can go wrong - but to learn from the things that go right, he says.
"What are the fundamentals that went right? Protect them with everything you have got. We don't concentrate on everything that went wrong. We got plenty wrong, as did the industry. For us, for example, it was a case of protecting the six profitable branches. We had a lot of protecting to do. And if we can't replicate that model somewhere else we don't try to. We still have room on all of our sites to up capacity so I am in no major hurry to go off buying new sites."
He did discuss with the Welsh owners the idea of bringing the Brooks brand to the UK, which, he says, "would be interesting". But, at the moment, it would be difficult to replicate the successful Irish model, he says. "It would be a different model, stretched in terms of overhead, and, I think, when the recession came it would struggle. That is the question we always ask: when the next recession comes would that leave us in better shape then the last time? I don't think so.
"This industry is great at talking about history but it is not great at learning from it. As a small, open economy it is very difficult for us to avoid the boom-and-bust cycle. The only way that we as a business can withstand that is to have as sensible and divergent a set of products as we can."
Lohan says that he is seeing clear evidence in the different Brooks branches that housebuilding has taken off both in Dublin and beyond.
"We think that is welcome. But it is a difficult low margin market and, believe it or not, our sector does not make huge money out of housebuilding. It is very different to the RMI market. It's all about volume and sending out truckloads of material. We have to be careful of that because our working capital is crucial to us. If we are giving credit then there is less to spend on other parts of the business that need investment."
During the last boom period the Brooks business learned the downside of becoming overly reliant on a number of very big customers: "As a sector I hope we have learned that lesson."
But, says Lohan, increased housebuilding also drives up the numbers moving house, which, in turn, drives up demand for renovations and improvements. Nevertheless, Lohan believes there are still fundamental issues to be tackled in the sector. A shortage of tradespeople is apparent, illustrated, he says, by the older age profile of the builders and subcontractors that visit the yards.
"There's a lack of apprentices. Guys used to send their apprentices to us for four months to show them the timber. We are trying to encourage that again. We love having them here but we haven't had that interest in a long time. If that is an indication of the number of apprentices out there then I'd be worried. There is a shortage of people in the industry, that's the bottom line. We need to ensure we can satisfy the demand for trades that is out there but I wonder if we can."
But, despite his caution, Lohan says he feels good about where the business is at: "If I were to do it all again I'd do it the very same way if I knew it would turn out like this," he says, gesturing across the busy yard. "The people in this business - customers, suppliers, staff - have been through absolute hell. There is a collective memory of that and a collective determination that we'll be ready.
"When you have everybody in the company thinking the same thing, almost finishing my sentences for me, it makes strategy much easier. It's easy to get people's attention. It was so difficult to get people's attention back in the boom. It was all about the next pay rise, the next job."
Now it is different, he says: "We've been through what we've been through. We will mind each other now. It is a mutual thing."
What is the best advice that you have picked up over your career?
Dishonesty gets you into a whole heap of trouble. Honesty might not get you to where you need to get to but you will have made friends along the way. And, more often than not, you will get to where you need to get to. Sometimes it is difficult. But if the guys here can trust me to be honest than they have an expectation that I am fair and that becomes a self-fulfilling prophecy.
What do you say to the Kilmacud Crokes under-16 hurling team that you now coach if they are losing at half time?
Well, what you tell them if they are losing by 20 points is very different to what you tell them if they are losing by two points. If it is 20 points then you say 'right guys, this is about pride, go out there and win the second half'. If they are losing by two points then you are looking at one or two weak spots and you are saying 'you have five minutes, if you don't do it you are off'. Sometimes it's about the small changes.
Does that apply in business too?
It probably does!
Sunday Indo Business