Following a period of consolidation at Grays Timber Products, the purchase of Huntly’s Builders Merchants earlier this year appears to have excited the Aberdeen-based company’s taste for acquisition. Indeed, Grays’ chairman John Nicholson has confirmed that, while it has no specific purchase targets in mind at present, ‘we are determined to expand our coverage’.
The Huntly business officially became Grays’ sixth branch on May 1, joining an existing list comprising Aberdeen, Fraserburgh, Forfar, Inverness and Stonehaven. Mr Nicholson noted that all these bases are located in north-east Scotland, but added: ‘We would seek to expand where suitable opportunities present themselves – we are not restricted by our existing area.’
Developing existing structures
Grays became the subject of a management buy-in nine years ago and has concentrated for the bulk of the intervening period on developing its existing business structure. More recent moves had included, for example, the formalisation of a five-year distribution arrangement with Jutlandia Dore A/S of Denmark, a major manufacturer of doorsets. Grays has also invested heavily in a 26,500ft² head office and depot complex at Bridge of Don on the northern outskirts of Aberdeen – a development which includes an extensive showroom and trade counter.
This latter investment reflects a principal element of Grays’ business philosophy. The showroom and trade counter promote what Mr Nicholson described as ‘assisted self-selection’ in that they offer a wide range of timber, joinery and building materials, as well as ‘add-on’ items ranging from adhesives, stains and treatments to flooring battens and loft ladders.
He went on to explain: ‘The north-east of Scotland is a large area with a small population, and so we have to find ways of getting near to our customers. We have therefore gone for multiple sites which are based on the idea that they must attract customers.’ Although customer deliveries would continue to be a key facet of the Grays operation, ‘some customers do prefer to collect from us and so that gives us the opportunity to offer them all the add-on items’, he said.
Six months after becoming part of the Grays set-up, the operation in Huntly already strongly reflects this philosophy and is said to be trading well. The new branch has not only ‘filled a big geographical gap in our coverage between Aberdeen and Inverness’, said Mr Nicholson, it has also provided the company with an opportunity to offer its range of Scandinavian doors and windows into the area for the first time.
The management team has embraced the need to modify the direction of the company in the light of changing local circumstances. When William Gray founded the company at Fraserburgh, 50 miles north of Aberdeen, between the two world wars, the focus was on timber merchanting and home-grown supplies. By the 1970s, the Aberdeen area had become a magnet for commercial and industrial activity following the discovery of the North Sea oil.
Oil-related activities
Mr Nicholson explained: ‘Oil-related activity was an extensive influence over the industry which we supply, but oil is not providing as good a source of activity at the moment. The best period for companies like ours is always the oil exploration stage when there is a need for infrastructure.’
The oil boom had already passed its peak in 1992 when Stewart Chisholm, the man who developed Grays for more than a decade after purchasing it from Burt Boulton, relinquished the business to a management buy-in team headed by Michael Ferrier. John Nicholson joined the MBI team as managing director and in May 1992 became the majority shareholder in the business. Mr Ferrier has retained his links with the company as a non-executive director while venture capital specialist 3i, which backed the original MBI, was itself bought out of the business in April 1994.
Mr Nicholson already had strong links not only with the Aberdeen area, but with Grays itself, having worked for the company for four years in the early 1970s at its Aberdeen and Inverness bases. His previous affiliations had also included Elgin City Sawmills and John Fleming & Co Ltd, the importer and merchant located only a few hundred metres from Grays’ headquarters at Bridge of Don.
At the time of the MBI, Grays had a sawmilling base in central Aberdeen, as well as premises in Fraserburgh and a small branch at Forfar. The company emphasis was on timber sheet materials, with building materials and joinery accounting for a relatively small proportion of its business.
Different from the pack
Having first boosted the management structure at branch level, the MBI team then set about the process of ‘differentiating ourselves from our competitors,’ according to Mr Nicholson. ‘We felt that joinery products offered us a route to this differentiation, especially in the north of Scotland where there is a need for high performance joinery products – mainly because of the weather.’
The company turned to Scandinavia for the solution. It became a joint Scottish distributor of doorsets from Jutlandia, with external doors supplied by Hemse of Sweden under the Jutlandia name. By the mid-1990s, Grays had marketing agreements covering fully finished Norwegian and Finnish timber products, including tilt and turn and fully reversible windows as well as balcony and patio doors.
The distribution arrangement with Jutlandia Dore has been particularly useful to Grays in achieving its goal of ‘differentiation’. A first order from a nearby exhibition centre hotel for doors worth around £50,000 had ‘started the ball rolling’, recalled Mr Nicholson, and has been followed by a steady flow of orders from the apartment, flat, nursing home and hospital sectors, among others. Grays is now negotiating a large hospital contract involving Jutlandia doors worth ‘several hundred thousand pounds,’ according to Mr Nicholson.
The links between Grays and Jutlandia were formalised two years ago when the Aberdeen-based firm became exclusive distributor for the Danish firm’s products in Scotland. At that time, Grays had anticipated developing a network of Jutlandia sub-distributors north of the border but has travelled down a different route. ‘We have decided instead to develop the product through specification and major user. Most of our sales are now coming through major customers rather than individual merchants,’ explained Mr Nicholson.
This change of direction at Grays highlights the difficulty in finding the right people to use as distributors or, indeed, the ‘right people for any of our activities’, according to Mr Nicholson. He suggested this dearth of quality people was limiting the company’s options for business growth.
Joinery has emerged from its minor league status at Grays to claim a 30% share of the total business turnover. Active in project joinery work as well as standard joinery, the company is ‘more involved in improvements – high performance upgrades – to local properties rather than large new schemes,’ pointed out Mr Nicholson.
Sawmill developments
Post-MBI developments at Grays have extended well beyond the joinery side of the business. Notably, the management team opted to sell the company’s long-time sawmill site – located close to Aberdeen city centre – to a housing association. A new sawmill, as well as a bulk storage and distribution point, was built on the Spurryhillock industrial estate in Stonehaven 15 miles further down Scotland’s east coast.
Comprising two re-saws, two moulders, a cross-cut and a treatment plant, the Stonehaven sawmill handles some of the company’s branch customer requirements as well as some of its larger customers. However, a sizeable part of the company’s stock is bought from outside the company with branch managers given considerable autonomy in sourcing their supplies.
Having sold its central Aberdeen base, the company established its new headquarters in the north of the city a little over four years ago. The Grays branch at Forfar had been extended two years earlier while, in 1995, the company opened a base at Inverness – its most recent expansion before the acquisition of Huntly’s earlier this year. All company branches have their own distinctive product mix that reflects local requirements; the Bridge of Don outlet, for example, leans more heavily towards joinery because of the large number of potential end users.
Grays’ turnover is expected to reach £12m in the current financial year. While joinery products command around 30% of business, timber product sales mainly into the housing and RMI markets account for a further 40%. The remainder is split relatively evenly between sheet materials – predominantly for builders, shopfitters and still to some extent the North Sea oil business – and building materials, comprising the likes of stains and adhesives. ‘We concentrate on the "light" side of building materials,’ said Mr Nicholson, ‘with a lot of the products sold out of the trade centre shops.’
Business development at Grays has been boosted by the installation of a computer system using software developed from an existing accounting package by a specialist Aberdeen-based firm. ‘It has given us control of our stock and a known cost,’ Mr Nicholson explained.
With assistance from the same specialist operating systems company, Grays hopes to launch a website before the end of this year.
Grays also appointed a new managing director around a year ago. Alex Gibson, a former branch director with Sheffield Insulations, brought with him a broad base of contacts within the local construction industry and was handed the responsibility of accelerating the company’s growth.
Mr Nicholson, who became Grays chairman, explained: ‘The company had been through some sticky times, but had returned to profitability around 1998. With our performance improving, we felt that we needed to expand the business more quickly than had been the case previously. A key part of his [Mr Gibson’s] remit was to go for growth and develop the company.’
The acquisition of Huntly’s was the first sign of a steepening of the development curve. Mr Nicholson said it had already helped push Grays ‘well ahead of last year in terms of sales and performance’. And he added: ‘Each branch has improved its sales and profitability in the last 12 months. The main difference is that we are a lot more effective than we were a few years ago.’
