UK: HEYWOOD WILLIAMS' SIDEWAYS SHUFFLE. - The Huddersfield-based holding company's recent acquisitions have boosted its bottom line but dramatically shifted the focus of its business to the United States.

by Matthew Lynn Lynn.
Last Updated: 31 Aug 2010

The Huddersfield-based holding company's recent acquisitions have boosted its bottom line but dramatically shifted the focus of its business to the United States.

In a small, low-slung building in an industrial site on the outskirts of Chesterfield, a group of 20 young men peer with obedient interest up at an instructor kitted out in regulation blue. The instructor has the stern, unforgiving look of a sergeant-major. In another time, he might have been drilling them in mundane military skills. These days he is teaching them how to fix car windows, and how to be unfailingly polite, courteous and attentive as they do so.

After two weeks' drill, these trainees will have the technical ability to fit a car window combined with the subtler skills required to provide high-quality customer service. Auto Windscreens' new insistence on people skills shows the progress this business has made in inventing a service culture.

Auto Windscreens repairs windscreens shattered either by flying debris on the road or, more often, by the casual attention of vandals and car thieves. Set up in 1971, it now has 800 fitters, located at 150 offices around the country. When a windscreen is broken, they promise to be by the car within a couple of hours, carrying a replacement which will be fitted within minutes. After the broken glass has been cleaned up by the fitter, the car looks as good as new.

Auto Windscreens, which shares about half the UK market with rival Autoglass, is a rugged gem of a business, buried in an unlikely and little-known holding company Heywood Williams. The windscreen fitter was purchased for £13.5 million from its entrepreneurial founder in 1986 when it had about 40 depots around the country. Today, having tripled in size, it is possibly worth some £100 million. Companies such as Pilkington and Kwik-Fit are now sounding it out to see if it is for sale. 'It would be quite an auction,' reflects Ralph Hinchliffe, chairman and managing director of Heywood Williams.

Hinchliffe, a stocky, square-jawed Yorkshireman with a gruff manner and an easy sense of humour, began his career as a semi-professional footballer, playing for Huddersfield and Stockport. Later he became an accountant, a profession which bought him to Heywood in 1969. In the past 26 years at the company he has seen many changes. Many of them, unfortunately, have not been good.

Heywood Williams is based in a suburban Victorian mansion on the outskirts of Huddersfield. It has the traditional, country-house decor favoured by a particular type of English, usually financially driven, listed company, and houses 25 employees including the gardener/chauffeur - remarkably few for a company with sales of more than £500 million, and a market capitalisation of £270 million. The building encourages quiet reflection - and there has been much to reflect on.

The company began as a Huddersfield-based building products group. In the 1970s, under its last chairman, it embarked on a wild and dangerous adventure as a mini-conglomerate; an adventure that embraced escapades such as buying hotel and restaurant businesses in the US and leisure parks in the UK. Like many similar spending sprees in other organisations, the results proved disastrous. The US businesses, located in Chicago and New York, came with mafia involvement, and, partly as a result, did not make any significant profits. By the turn of the new decade the end of Heywood Williams seemed nigh. It was losing money and had a market value of £1.5 million. In these unhappy circumstances, the chairman sloped off, leaving his former finance director Hinchliffe to sort out the mess. Hinchliffe was assisted by Michael Broadhead, a younger man, who had joined the company in 1975 as group financial controller, and who is now the deputy managing director. Together they stripped out the former chairman's wackier acquisitions, a process that took them the best part of three years. That left them with a company restored to financial sanity, but smaller and with fewer businesses. After studying the market they decided to take Heywood into the glass distribution business, an industry that was still very fragmented.In September 1986 they announced the acquisition of the glass businesses of HAT Group and UBM Glass (the major glass distribution companies in the UK): overnight, this made them the largest distributor of glass in the country.

Fast-forwarding to 1990, this decision had produced mixed results. The glass business prospered through the mid-to late-'80s and took the company along interesting and later profitable byways such as the acquisition of Auto Windscreens (a tenuous, but far from entirely illogical partner for a glass business). Then in 1990 two things happened. First, a fierce and savage recession ripped through the UK, with the building industry at the centre of the storm, damaging any industry dependent on new buildings for the bulk of its sales. At the same time the French float-glass giant St Gobain used its considerable financial firepower to pepper the UK industry. After buying Solaglas, Heywood's main competitor in the UK, the French company embarked on a long and bitter price war. 'They were determined to win market share, and they would do it by losing money if necessary,' says Hinchliffe.

That price war soon devastated Heywood's balance sheet. In 1990, it had made pre-tax profits of £23.1 million, on sales of £331 million, with earnings per share of 21.2p. The following year profits slipped to £19.2 million. By 1992 profitability was in full-scale retreat: pre-tax, the company made just £5.5 million, on sales which had advanced to £389.5 million. Earnings per share had shrunk to 1.6p. Despite all the efforts over the past decade, Hinchliffe and Broadhead were back in a situation similar to that of the early '80s Sensing they were in a hole, they chose to stop digging. They decided against trying to deflect the firepower of St Gobain. Instead, they would attempt a discreet and painless exit from the business. Fortunately, they still held one key card. As the largest distributor in the UK, their unprofitable glass business at least commanded an important strategic position. With St Gobain already controlling one of the largest distributors, and so locking up its share of the market, it was clear that whichever glass manufacturer took over Heywood's division would also grab an important part of the UK market. Hinchliffe sounded out some of the major manufacturers around the world, and detected solid interest. He and Broadhead then went to Pilkington and made the St Helens glass manufacturer an offer that it could scarcely refuse: Pilkington could buy the Heywood distributor at a fancy price, or watch it fall into the hands of a foreign competitor, and risk losing its grip on the British market. It was not much of a negotiation: Pilkington agreed to pay £95 million for a company which at that stage was struggling to break even. 'They felt we were twisting their arms,' said Broadhead with a sly smile. 'But I think it was a transaction that worked out very well for both companies.' Hinchliffe and Broadhead had pulled off a neat escape, but Heywood was no further forward. Again there was plenty of cash in the bank, but they were running a much smaller business as the glass distributor had accounted for almost 40% of the group's sales of £400 million. The remaining businesses, then as now, consisted of an aluminium and plastic business in the UK, supplying windows and door parts to the building trade in Britain; Auto Windscreens, also in the UK; and in Continental Europe, a 70% stake in HWS Holdings, and a 49% stake in Scheuten Beheer, specialists in manufacturing and distributing window products. It was decision time again for Hinchliffe and Broadhead. They could have returned the money to shareholders, but, as they had done a decade earlier, decided they could invest the money just as well, if not better. 'There was no reason to change our basic strategy of concentrating on building material and automotive parts,' insists Hinchliffe. The search began all over again.

Despite the disposal to Pilkington, Heywood had retained as a minor part of its portfolio a small American company called Creation Group, which was bought in 1986. Creation, like Auto Windscreens, was a leftover from the glass business, and it occupied a very specialised niche of manufacturing windows for trucks and vans, and also for motor homes and caravans. In the US, motor homes have always been popular both for travelling through the vast continent and, among blue-collar workers, as permanent low-cost housing. By the early '90s, the motor-home market was booming and developing into the market for pre-manufactured housing. Constructors had found a growing market and were putting houses together in two or three sections in a factory, then dumping them on a plot of land. The average, three-bedroom, fully furnished bungalow cost $40,000 to $45,000 (excluding the land), with top-of-the-range houses retailing at about $65,000. Inspiration was at hand. 'We had a huge list of things to look at, but this was the one that appealed to us,' says Broadhead.

Soon after the glass disposal, its merchant bankers Morgan Grenfell alerted Heywood to the availability of a company called Lasalle-Deitch, a company specialising in manufacturing and distributing building products and soft furnishings for manufactured homes and recreational vehicles. It was based near Creation, in Indiana, and the managers there sent back glowing reports. Heywood tabled a bid of $65 million for the business, enough to see off the competition, and took control within months of selling the glass business.

One of the companies it beat to the acquisition was Bristol Corporation, also based in Indiana. Bristol specialised in a related niche - manufacturing and distributing plumbing products to the manufactured housing and recreational vehicle industry - and had hoped to combine its business with that of Lasalle. Thwarted in that ambition, it promptly offered itself to Heywood. The company always intended to expand in its chosen new market, and after waiting a few months to digest Lasalle it opened negotiations with Bristol. By January 1994, Bristol was acquired for $85 million. That took Heywood's expenditure on the new sector to $150 million in less than a year. The money pocketed from Pilkington had been spent.

'They were good, opportunistic acquisitions,' said Kevin Cammack, an analyst with Smith New Court, the stockbroker. 'But it is all a very long way from Huddersfield. At the moment, the market is growing so it all looks fine, but when the market turns down it might prove more difficult to manage from that distance.' The acquisitions made in the US have shifted the balance of the company. It now has more than 50% of its sales in America, and is crucially dependent on the success of its new subsidiaries. So far the subsidiary companies have been left much as they were. The same management is in place and no attempt has yet been made to integrate the three businesses into one large supplier to the manufactured housing and recreational vehicle market. Admittedly, synergies exist but have yet to be grasped. 'Both businesses have been very busy in the last couple of years just keeping up with demand, so we have postponed integration,' said Hinchliffe.

The new US subsidiaries are controlled on the basis of believing in the local managers, regular trips out to the plants, and looking at the numbers reported back to head office every week. 'With all our companies, we try to support them and steer them and control the excesses,' said Hinchliffe. 'We do visit them, but we like to let the local managers get on with running the businesses.' Heywood has a hands-off managerial philosophy. It's a very simple way of running a conglomerate: putting faith in the people. If that faith is rewarded, no doubt it will reap rich rewards; if not, however, it could be very dangerous.

To date, the two US deals have restored a glow to the bottom line. In 1994, Heywood reported pre-tax profits of £33 million, on sales of just over £500 million, and analysts are predicting a rise to £47 million for next year. The company has around £50 million to spend on acquisitions, and plans to use it. Auto Windscreens has targeted Continental Europe as ripe for exploitation; the same kind of services do not exist there, although its key British competitor, Autoglass, has set up in France and Germany.

Heywood is also targeting a European acquisition to add to its UK building materials companies, preferably in Germany, as a way of launching itself into the East European market, which is likely to be a key growth area for building over the next decade. The company has been searching for the right deal for about a year, but so far without success. 'The geographic profile of the company now prevents us from making a major acquisition in the US,' said Broadhead. 'The next deal should be in Europe.' Asked where they would like to see the company in the next five to 10 years, both Hinchliffe and Broadhead seem slightly baffled, as though it was something they had never asked themselves. Larger, and better balanced, they explain, before saying they do not have five-year plans. Both men seem too concerned with tactics to worry much about strategy and, like many English companies, Heywood is a vehicle for traders, shuffling assets around rather than building businesses. Sometimes the trades work, such as at Auto Windscreens, other times they come unstuck, as in the glass business. Trading, however, is a tough way to make a living. At Heywood, earnings per share were 15p in 1984; by 1994 that figure had risen to 20.1p. It is not much to show for 10 years' effort.

Matthew Lynn is business correspondent on the Sunday Times

HEYWOOD WILLIAMS: Financial facts

Turnover/profit by product(£m)

Turnover Profit

Building products 354.3 19.9

Automotive components 165.3 11.9

Other - 1.3

Total 519.6 33.1

Shareholders' funds (£m) 107.1

Number of employees 6,154

for year to 31 December 1994

Major Acquisitions and Disposals

Date Acquisitions / Disposals Price £m

Dec 1984 City Glass Works (Liverpool) 6.9

June 1985 Planet Group (including Creation Group) 11.0

Sept 1986 Glass business of HAT Group 10.0

Sept 1986 Glass business of UBM Glass 13.5

April 1988 Auto Windscreens (Chesterfield) 13.8

Sept 1988 48.83% of Scheuten Beheer BV 7.1

Sept 1988 Nine European acquisitions, made through

to Nov 94 70%-owned HWS Holdings BV 17.0

April 1989 80% of Vinylex Window Systems

(Remaining 20% acquired July 1992) 10.0

Aug 1991 Thurgar Bardex Group 9.8

April 1993 Glass Division to Pilkington 95.0

June 1993 US acquisitions, inc. La Salle-Deitch Co;

to Aug 94 Bristol Products LP; Barrier Enterprises &

Kemberley; HVAC Supply Company 105.0

Oct 1993 UK interest of TCG International

inc. Bridgewater Windscreens 10.7

Dec 1994 35% of share capital of Coldseal 3.3

Feb 1995 Thermax 16.5

Solaglas Trade Supplies 3.5.

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