Graham Menzies has every right to be pleased with himself. On 19 March 1996 he announced that Adwest Group was to embark on a massive disposal programme. Twelve months, nine disposals and one acquisition later, he has done exactly what he said he would.
The group has been transformed from a diverse manufacturer, with interests in defence engineering, electrical engineering, electronics, automotive components and property, into two clearly focused businesses: automotive components and US electronics.
The change has been driven by Menzies, a 48 year-old Scot from Lanarkshire. He took over as chief executive of Adwest Group in 1994, having joined the company in 1985 as a divisional head. `I saw my chance to make my mark and I have taken it,’ he says proudly.
Last week Adwest reported a 52% increase to £7.6m, in interim operating profits for the six months to 31 December. Operating margins have been improved in automotive from 6.8% to 8.5% and in electronics from 9.1% to 10.3%. The disposals raised £42m, some of which went towards the acquisition of Rearsby in June for £29.3m, UK manufacturer of pedal boxes, gearshifters, handbrakes and suspension links.
Menzies, a keep fit enthusiast and keen skier, will need to maintain his stamina. The group is now ready to invest in its newly refocused businesses and to hit the acquisition trail, particularly in the US. `We are not in a rush however,’ he insists, `and will wait for the right opportunities.’ A keen angler, he knows how to be patient. Adwest had to wait five years before Rearsby’s owners finally decided to sell.
Menzies admits he would be disappointed if Adwest had not acquired anything by this time next year though. `Opportunities are like buses. You can wait for ages and then three come along at once.’
The past year has been a bit of a whirlwind. `We have only just begun to have space in our brains to turn our minds to taking the business forward. The amount of energy that everyone in our organisation has put into the disposal programme has been remarkable. But we have done what we said we would do.’
The disposal programme followed a strategic review last year in which the board quickly realised that in terms of technology some of its businesses – such as power systems – were behind the times.
`Both our existing automotive components and US electronics businesses however, had good regional market positions, decent margins, and provided a decent platform to go forward.’
Although covering different sectors, there is commonality between the remaining businesses, says Menzies. `Our products are designed by our own engineers and sold to international original equipment manufacturers. These global, blue chip companies, then take our products and have us adapt them to theirs.’
Menzies is keen `to chase market share’, especially in the automotive business, `in order to escape the ups and downs of the vehicle market’. On a global basis car production is fairly static.
The US electronics business, which accounts for 15% of group turnover, also acts as a buffer against the vagaries of the car market.
`It is a market which is ripe for growth,’ he says. Adwest’s portfolio comprises three companies – Conversion Devices, Boston; Modular Devices, Tijuana; and Abbott Electronics, Los Angeles – which make electronic power supply products for computerised equipment, telecoms and aerospace customers. The business has a 3% market share.
Ripe for growth
`The industry is about 10 years behind the automotive sector,’ says Menzies, in terms of supplier rationalisation. `It is dominated by hundreds of small independent players. The OEMs want fewer suppliers, with bigger ticket items who can undertake more and more of the design work.’ The market is ready for growth by investment and in particular by acquisition.
The automotive components arm accounts for 85% of Adwest’s turnover and has three divisions: drivers controls, engine controls and steering. In the UK there are four businesses with five manufacturing sites: Adwest Bowden TSK; Adwest Rearsby; Adwest Steering; and Adwest Western Thomson, with a turnover of £75m. In France there are three businesses with five factories – Adwest Bowden France; Adwest Dauphinoise Thomson; and Adwest OCI – with a turnover of £72m.
There is also one business in the US, Adwest Western Automotive, which makes precision tubular components and engine thermostats.
`The engine controls division has the greatest potential,’ he says. It has a 35% share of the European market and access to the 13.5 million new car market in North America through Adwest Western Automotive.
The drivers controls business, which claims a 30% share of the European market, needs to increase its market share at home before looking to the US, says Menzies.
Rearsby, which provided half of Adwest’s profits growth, with sales of £15.7m in the six months to 31 December, also has strong growth potential. On the shopfloor Adwest has introduced advanced quality planning – entailing the analysis of pre-production engineering and management – and trackside visits by staff to customer lines.
Menzies, who studied mechanical engineering at Sterling University and has an MSc in machine tool technology, is on the lookout for a new engineering director for Rearsby. He wants £40m of sales from the firm by 2000.
Across the automotive sector, says Menzies, there is still some rationalisation to do. It needs to offer its customers packages by division rather than by company – that is to go for bigger ticket items than in the past, and to move towards system supply.
Menzies clearly enjoys being in the driving seat. However, with acquisition and capital investment now at the top of the business agenda, it may be some time before he and his wife can slip behind the wheel of his other true love – a 1959 Karmen ghia Volkswagen Beetle convertible.