Business comebacks and turnarounds

Bringing a business back from the brink is a black art that requires ingenuity, guile, commercial courage and nerves of steel. GrowthBusiness highlights four of the best British business fightbacks of the past year.

1. Corporate Mailing Matters

Founder returns to rescue mailing house

Businesses in distress frequently turn to white knights to help them out of difficulty, but few expect that saviour to be the company’s original founder. Rescuing the business she had spent ten years building up with her brother Alastair Maclean was also the last thing Yolanda Noble had in mind when she sold the thriving financial mail house in August 1999.

‘We set up City Financial Mailing very much as a family business: my brother helped me and both our parents worked for the business,’ she recalls. This structure seemed to work well. ‘By the time we sold the company to a buy-in management buyout (BIMBO) team backed by Barclays Bank, the business was turning over £17 million and making a £1.8 million pre-tax profit. This had all been achieved without any outside financing.’

Noble gladly accepted the offer. ‘My parents wanted to retire. I agreed to remain as group managing director for six months before taking a year’s gardening leave.’ However, this period of inactivity didn’t last long at all. ‘On my first day after the gardening leave finished I was bored and decided to start up a small business in the same sector again, called Corporate Mailing this time.’

After a year in business the group had won £2 million of turnover through directly competing against Noble’s old business. This was obviously hurting the original operation because just before Christmas 2003 Noble received a phone call from accountants Numerica, acting on behalf of Barclays, offering her the chance to buy back the business she sold only four years previously.

‘At this stage the business was nearly in receivership after notching up two consecutive years of £500,000 losses. We spent £2.5 million on buying it back using our own funds and an invoice discounting facility,’ says Noble. Essentially, her second business had now acquired her first one!

Reality bites

‘The business turned out to be in a worse state than we thought,’ she admits. ‘The equipment had not been maintained and creditors were not being paid for as long as 130 days. We shut down the Heathrow facility almost immediately and relocated that operation to our Docklands site. This brought some redundancies but we have also taken on people to cope with the growth in the business.’

Indeed, turnover has increased to £18.5 million and the company now boasts more than 200 clients, showing that the rescue wasn’t all about cost-cutting. ‘The business is now better organised and we have persuaded clients [banks, solicitors, brokers, fund managers and large quoted companies] to come back to us,’ she points out.

The turnaround was so successful that Noble managed to pay back the debts incurred from the acquisition after just eight months. Now, 20 months after the buy-back, the business is stable and has just recorded a £1.2 million pre-tax profit.

Looking forward, Noble now has a taste for acquisitions and is eyeing up two new targets. She hopes to finance them using bank facilities. She says her second exit is also going to be planned ‘very carefully’!

She advises entrepreneurs faced with difficulties in their business to get the support of their bank and other key advisers, and to keep staff and major suppliers informed. ‘We now pay creditors within 45 days,’ she adds, ‘and this helps us renegotiate better deals.’

2. Cain’s Brewery

Brothers relaunch Liverpool beer

Brothers Ajmail and Sudarghara Dusanj have made their entrepreneurial mark in some classic British industries. ‘Our first business was a chain of fish and chip shops, built up around Chatham in Kent where we were born,’ says Sudarghara. The duo acquired their first chippy in 1983. Nine years later the brothers turned their attention to Gardener Shaw, a West Midlands-based soft drinks maker, which they picked up from the administrators. They developed the business by widening the range of drinks made and then started to supply beers to retailers

Expanding knowledge of the drinks trade set the brothers up for their next foray, turning around archetypal English brewer Cain’s. ‘In 2002 we saw a story in The Times that Cain’s Brewery was being sold by the Danish Brewery Group after they had endured ten years of losses at the business.’ Sudarghara and Ajmail immediately offered £3.4 million for the company and took on the task of reviving the fortunes of Liverpool’s historic brewery.

‘We had to raise a further £3 million from banks for immediate working capital,’ remembers Sudarghara. At the time of purchase, Cain’s, which owned ten pubs, was losing £2 million on declining turnover of £20 million. ‘In addition, the company was losing contracts left and right.’

However, he and his brother could see strong potential in the group’s beer. ‘It is a fantastic product with a great reputation,’ he enthuses. ‘Also, the operational people on the shop floor in Liverpool were passionate about producing the beer. We just had to focus on developing the brand.’

Big changes

‘Cuts had to be made to make the operation more efficient,’ recalls Sudarghara. ‘We made 20 employees redundant, mainly middle management, and stopped one shift. This meant turnover dropped to £14 million.’

But this action paid off. ‘In the second year [2003] we won more contracts and started to invest in the brand,’ says Sudarghara. The brothers dubbed their beer ‘Liverpool in a pint’, allowing them ‘to market the product locally and around the world.’ Camra (the Campaign for Real Ale) awarded the main brew a prize and this also helped the Dusanjs’ efforts, as did winning a beer challenge run by Tesco.

Another key strategy plank was the decision to introduce contract canning and packaging for other brewers at the Liverpool brewery. This was a logical development, since Cain’s previous Danish owners had primarily used the site as a centre for distribution of their continental products. ‘We obtained an ISO 9001 2000 quality standard two months after taking over and have built up the business rapidly since then,’ says Sudarghara.

This is primarily responsible for putting Cain’s back on an even and profitable footing, within just three years. In the past year, the group has hit £27 million turnover, roughly half of which comes from selling beer. ‘Next year we expect to increase sales to £33 million,’ says Sudarghara, who has high hopes for the group’s latest product – a premium draught lager, that has just been launched to great acclaim.

3. XN Checkout

Electronic till provider snapped up

Ed Dayan has revived XN Checkout in spectacular fashion over the past year. In fact, his company’s turnaround has been so successful that the group has now attracted a generous offer from rival Torex Retail.

Dayan founded the business in 1982 as an electronic point-of-sale (EPOS) systems supplier to the leisure sector. He built up the firm steadily by focusing on supplying bars and pubs with its suitably rugged technology to withstand such harsh environments. Revenues grew consistently for 18 years, culminating in a £25.6 million turnover in 2000, at which point the company was profitable.

Problems appeared in 2001 though when fresh management raised £5 million on OFEX to embark on overseas expansion – principally a project to supply leading hamburger chain McDonald’s with a global EPOS network. However, at the eleventh hour this major deal fell through. Sales plunged by over a third and a £5.7 million loss was made.

Turnaround champion

Dayan, who at this time was occupying a non-executive role with a shareholding of 29 per cent, was recalled as chief executive to patch up the company’s core UK business, which had been badly neglected. The industry as a whole was also suffering as many of the major pubs and bars operators were being taken over, so spending on EPOS was delayed.

Over the past two years, Dayan has readjusted the group and its products to appeal to the new players in the sector with a great degree of success. New contracts were won with major pub lessor Punch Taverns to provide their tenants with EPOS capability, and with Tragus, the UK’s largest independently-owned restaurant operator, which boasts Café Rouge in its portfolio. Other restaurants were also targeted.

Significantly, Dayan adapted the EPOS technology to appeal to operators in related sectors, such as hoteliers and gaming groups. All this helped the company, which joined AIM during the year, break back into profit during 2004, reporting a £1.7 million pre-tax surplus on sales ahead 29 per cent to £18.5 million.

This strong growth flushed out AIM rival Torex Retail as a bidder and, only a year after floating at 98p a share, XN Checkout agreed to an all-share takeover at three times that price, valuing the company at a healthy £80 million.

4. Premier Direct

Moat puts sales back on track

Premier Direct is a unique retailer, using an army of travelling salespeople to deliver a dozen or so bargain-priced items such as books, toys or cosmetics to offices, hospitals, schools and other workplaces. After an initial visit the sales rep returns to fulfil orders and collect the payments. The rep retains roughly 30 per cent of the money and passes the rest on to head office.

The outfit was set up in the 1990s by Geordie duo Barry Moat and Russell Stubbs, and initially grew at a rapid rate. The group came to AIM at 180p in 1998 and saw sales rocket after linking up with Canadian outfit DS-MAX to become the exclusive UK distributor of DS’ Far East-sourced consumer goods. The shares hit 470p in the spring of 2000 as the business expanded and more distributors were signed up.

But the pace of expansion led to management problems, which culminated in the departure of Stubbs in 2002. Premier made a £300,000 loss in the year to end-July 2002 and the shares touched a low of 50p. However, Stubbs’ replacement Eric McClenaghan, who used to head up sales at door-to-door retailer Betterware, joined the company and, aided by Moat, has turned the company around. Shares have now risen twelvefold to more than 600p each.

How they did it

The company got back on track through the acquisition of major competitor, modestly-named The Wonderful Book Company, bought from Kleeneze for a knock-down price of £3.8 million in July 2003. This increased the sales force by nearly two-thirds. Moat managed to incentivise this team and cut costs by shutting down the Nottingham distribution centre that came with the deal, relocating everything to South Shields. ‘Sometimes the key to changing your fortunes is to make tough decisions,’ says Moat.

Sales jumped 79 per cent to £35 million in 2004, with pre-tax profits rising from £700,000 to £4 million, and Moat believes Premier is now on an even keel again.

See also: Company turnaround tricks – In most cases, companies that have successfully surmounted crises have done it either with the help of new management or outside specialists, or both.

Leslie Copeland

Leslie Copeland

Leslie was made Editor for Growth Company Investor magazine in 2000, then headed up the launch of Business XL magazine, and then became Editorial Director in 2007 for the online and print publication portfolio...