UK: Nat Puri's bargain buys. (4 of 4)

UK: Nat Puri's bargain buys. (4 of 4) - In good times and bad, Melton Medes has made a point of buying secondhand plant and equipment. At present, with manufacturers going under every week, there is no shortage of opportunities. By this means the paperma

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Last Updated: 31 Aug 2010

In good times and bad, Melton Medes has made a point of buying secondhand plant and equipment. At present, with manufacturers going under every week, there is no shortage of opportunities. By this means the papermaking subsidiary, Robert Fletcher (Stoneclough), has acquired one of the most modern machines, which would have cost £10-15 million new, for around £4 million, which included an extension to house it. This investment is just beginning to show through. The papermaking and packaging division took over from carpets and textiles this year as the biggest profits producer.

Despite Puri's success in building Melton Medes, the operating businesses have had to face up to the recession of the past two years like anyone else. Key markets have been hit and Puri admits that the past 18 months have been "painful". While paper and packaging are reaping the benefits of investment, carpets and textiles have done less well as the fall in consumer spending has taken its toll. Engineering, says Philpotts, has been strong.

It is in plastics, the largest division by turnover, at £59 million, that performance has been the most "variable". The sector is heavily dependent on the electronics and car industries. With the registration of new cars due to fall from 1.89 million units to 1.71 million this year, the outlook remains gloomy. Melton Medes is sole supplier to several big car-makers, including Ford, BMW, Mercedes-Benz and VW-Audi. More encouraging, given Japanese high standards, are contracts to supply Toyota's new Derby plant.

Nevertheless, the economic climate his hit the bottom line. Profits, which grew strikingly up to 1988, have risen only slightly since, to just under £5 million for the 18 months to December 1990. Puri is conscious of the need to cut costs yet further and generate cash to reduce borrowings. As a private company, Melton Medes has paid cash for its acquisitions and the banks have to be paid. Philpotts points out that "every 1% fall in interest rates saves us half a million pounds".

Despite the high cost of money, Puri is not thinking of a flotation at present, though it was on the cards a few years back. "Now is the time for managing businesses, not for thinking about going public," he says. Despite high interest rates, he does not understand the "compulsion to go public. If you have a good business and a good idea, there is money available in the banks - provided the deal is right. Whether it is shareholders or banks who support you, the criteria are always the same. The business has got to be right."

Puri's direct experience of public companies has been gathered through his strategic holdings in three quoted companies, some held by Melton Medes. While he refers to the holdings collectively as "valuable" (they cost him some £25 million), one in particular has caused him trouble. He first bought into Delaney, a smallish building products/furniture/shopfitters group, in 1988 when he took a 25% stake and became non-executive chairman. Boardroom unrest followed as he apparently tried to take more control than was expected of him and he was ousted.

Six months later he became chairman again, but was said to have been trying to sell his stake. It emerged that Delaney was more highly geared than Puri knew and that its businesses were turning down. Now saddled with 64% of the company, he prefers to think of the episode as a learning experience rather than a mistake. "By the year end we will have got the base right," he adds doggedly.

Apart from the trials at Delaney, Puri's record is good. But with manufacturing industry in Britain gradually disappearing, it is hard to see many bright spots on the horizon for a mini-conglomerate like Melton Medes. For his part, Puri intends to soldier on under the stop-go conditions imposed on him by Government economic policies. They, in the end, will decide his company's future.

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