A Simple Matter Of Black And White
“If you want the fame and the gain then you have to take the pain.” Worthy of a sporting motivational quote, this is the simple leadership wisdom of one of aggregates’ most colourful characters, former pro-am cricketer and Ennstone Group chairman Vaughan McLeod. After the group snapped up Mansfield Asphalt for £7.1million in February, he chatted to MQR about the reasons for the purchase, why he thinks in monochrome, and why we should keep our eyes peeled for further acquisitions.
For Australian leg-spin uber-bowler Shane Warne the antipodean’s success at cricket is simple: “With just about every player in Australia, his whole goal and ambition is to play for Australia. It’s just a different attitude,” he says. It is an opinion the former pro-am cricketer Vaughan McLeod can relate to.
For the chairman of the acquisitively minded Ennstone group, attitude is all. A quick chat about the ashes debacle down-under this year and you realize that a love of sport is not the only thing he has taken from his time playing in three-week cricket tours of South Africa and the West Indies in the 1980s. It has also informed his business philosophy.
“It was a matter of management. Flintoff was never in the dressing room. Also he is a charge in as fast as you can, bowl the ball as hard as you can sort of player. When Michael Vaughan took over for the 20/20 games the atmosphere changed.
“Firstly he is clearly clever and moves fielders around. He also brought the fight back and even though he was injured was always in the dressing room, which is where captains need to be. Although, he hasn’t fared so well lately,” he told MQR.
As with his England cricket team namesake, Ennstone’s Vaughan also puts in his time in the dressing room. Up at 6.30 every day, managers can expect to be called from 7.00 in the morning. “If they don’t answer they can expect to be moaned at,” he says. For McLeod his role is a seven-day-a-week hands-on commitment.
“I’ll motor around our operations in Scotland on a Sunday afternoon for example and visit the quarry manager and weighbridge manager and go to the chief executive’s office and ask ‘why are we doing this?’ and ‘why are we doing that?’ From a structured management point of view I am a complete nightmare.
“I think about things on a Sunday evening and then phone up the managers to sound them out. But we only have about 13 people at head office running things, so the accountability and responsibility is transferred down the line to the subsidiary businesses. I am very strong on ownership and I am in contact with managers daily,” he says.
It may sound an onerous environment to some – and managers have certainly buckled under the strain. But as McLeod states: “If you want the fame and the gain then you have to take the pain”. And while sportspeople have gold medals as motivation, Ennstone has bonuses.
“We say here is your target. If you produce -2.5% of target you get some bonus, if you deliver -5% you get no bonus. It is very much success loaded in order to rout out failure.
“These are people earning 25-30% of their salary as bonus. It makes them want to win. In return we don’t quibble too much about the type of car they want to drive, for example. It is a case of enjoy the success but feel the pain,” he says.
Whatever your view of his methods it can’t be argued they are not working. Ennstone’s English business alone was turning over around £20million three years ago. This year expectations are for a rise to £90million. City analysts are quoting Ennstone as good value. “They are asset rich and undervalued. Invest!” one financial expert told MQR.
The business model is simple. In fact it is black and white. It calls for a concrete plant wherever there is an asphalt operation, McLeod explains.
“We have aggregates and want to sell them to the total market place. If it goes from the processing plant into black then we are getting our slice of the public sector market and if it goes to the white we are getting a private slice. It is a business model that works for us.
“Three-quarters of all aggregates from our quarries in the UK are fed into our value-added. It is a matter of building value,” he says.
The latest asphalt acquisition for its English operation Ennstone Johnston helping it to build value has been Mansfield Asphalt. Snapped up for £7.1million including stock in late February, it has a capacity of 135,000tonnes a year and sits in its Derbyshire Cloud Hill Quarry’s regional supply area. And it is all part of the black and white plan.
“It is for us a strategic acquisition as much as an operational one. When we started making the investment in Cloud Hill (see picture left) we knew we needed value-added products to make it work. The single size aggregate that goes into asphalt gives the maximum value.
“Our sites at Corby, Ling Hall and now Mansfield give us an ideal ring around Cloud Hill to market our single size asphalt products. We got land with the Mansfield deal and so this will allow us to sell the slightly lower quality aggregates as single size through the concrete arm as we do in these other locations. We will be building the new plant soon,” he explains.
He admits that when he sat down to strategically plan the growth of the young Ennstone in 1998 after investing £750,000 through a rescue rights issue in small quarrying firm Albrighton after a contract disagreement at the House of Commons, it was a dream to put Johnston and Breedon together as a single force in the Midlands. One he was not sure would become reality.
Ennstone bought Breedon for £50million in 2000 but during the £48million takeover of Johnston in 2004, a group of dissident shareholders led by Christopher Mills of JO Hambro tried to shatter the dream. Knowing how crucial the deal was to his black and white plans after successfully trialling the model in Scotland after buying Bruntcliffe Aggregates in 1997, he won his way.
The company is now second in size only to Hanson in terms of UK listed independent aggregates firms. So given Hanson takeover chatter, does he fancy making an offer? “Yes, we’ll always have a look to see if we want to buy them,” he chuckles. “For the record, in case Alan Murray’s reading, that’s a joke,” he adds.
As far as Ennstone takeover is concerned he doesn’t see it as an immediate possibility but has a “never say never attitude”. What level of offer would prompt him to sell he doesn’t say but maintains that no one is sniffing around the firm at present.
“I’m sure in global boardrooms they are viewing over us either for investment or as a pain in the neck for what we are trying to do. And I’m sure they regularly change their views on this depending on if we happen to have upset them that particular week.
“But if you look at expectation levels today they are huge. We have created value in the business…but there is a long way to go in terms of what Ennstone can do for delivering better asset value and performance growth. I don’t see us throwing the towel in just yet,” he says.
But added-value products need customers and public sector demand for the black stuff is flat. Ennstone saw a drop in 2006 and McLeod is not optimistic about the immediate future either, at least not in England.
“To be fair to the Scottish Executive it is ensuring the road network is kept up to date. In England it is capital projects that make up the business and they are slow to come through the system.
“My fear is that you will not see much more spend until the Olympics has gone. The budget was way wrong and now they are raiding the likes of the lottery. As usual it is a lot of rhetoric from politicians with little meat around the bone,” he says.
McLeod believes it is up to the industry to “pin the politicians against the wall” and get them to act on investing in infrastructure. In the meantime, to increase its capacity in its chosen markets will require acquisitions.
“A flat market means winning market share equals destabilisation of price. No one wants to return to 1991-1992 when this happened before. In fact I’ve been through the ’76s, ’82s and the ’92s so I know what I’m talking about. We will continue to make acquisitions where we can get synergy and cost savings and it fits into our structure,” he says.
Future acquisitions in England will probably be small in number. Management structures are groaning a little under the weight of the new additions and need time to bed down – a consequence of McLeod’s empowering responsibility and accountability philosophy.
This can’t be said of the Scottish operations, which are mature. In early March Ennstone Thistle bought five concrete plants from Cemex in addition to two bought from Tarmac the previous month.
Given its Polish operations already has 75% of aggregates going into value added, the chances are that any purchases will be either in concrete or asphalt. But it is a different story in the US.
Across the pond only 42% of Ennstone’s quarried aggregates are going into its value-added products. Doubtless we will be hearing of a few quarrying purchases as the year unfolds.
McLeod has a vision of his organisation being filled with aggregates’ version of Australian cricketers, all with the desire to play at the top of their game, and all having a different attitude, to use Warne’s words.
Of course, there are no Hawk-eyes for business predictions and extrapolating the future line of McLeod’s bowling is far from simple. Ennstone will doubtless face its googlies but with a strong batting order, it is difficult to see it not growing further.
Ennstone: 01332 694444
