Building on a strong foundation

FRIDAY INTERVIEW:Liam McCaffrey, Quinn Group

LIAM McCAFFREY isn’t a man prone to overstated emotion but it’s hard to miss that he’s feeling a little bit cross. In fact, he’s very cross indeed, probably seething if truth be told. But he’s way too polite to show it, preferring instead to proclaim himself to be “disappointed” any time he gets the chance. The source of his upset isn’t hard to guess. Since last summer, any public mention of his company, his boss, or his boss’s family, has been accompanied by a reference to the downfall of Anglo Irish Bank.

For McCaffrey, Quinn Group chief executive, it’s high time we all moved on.

The public obsession with all things Quinn is understandable, however, given the outrage attached to Anglo’s demise and Seán Quinn’s involvement in the bank at the time (see box). The position, in McCaffrey’s words, is that “Seán’s family lost money on Anglo, but there was absolutely no wrongdoing, no impropriety”.

Beyond that he will not go, aside from saying it is a “source of disappointment” that the Anglo investigations can’t be expedited and that it is “disappointing” that all the group’s 5,500 Irish employees see in the papers is so focused on Anglo and the associated Quinn losses. The continuing debt owed by the Quinns to Anglo, said to be in excess of €2 billion, is not a matter he will discuss.

“We need to keep the focus on running this group, not on this constant looking backwards,” says McCaffrey, Quinn’s top henchman and associate of 20 years’ standing.

His position is that if there is any “impropriety” (evidently a favourite word in these parts), the multitude of investigations into Anglo will find it.

In the meantime, he has a “sense of frustration” about the process. Incidentally, according to McCaffrey, nobody in Quinn has so far been contacted as part of any investigation.

“Seán has accepted that mistakes were made,” he says, observing that few mistakes have been as public as this.

He says it’s easy with the benefit of hindsight to see that Irish bank shares weren’t the best investment in the world. “Seán is an entrepreneur. Entrepreneurs take risks.”

In fairness to Quinn, there is no arguing against this. The group’s headquarters in Derrylin, Co Fermanagh, is surrounded by physical evidence of the prosperity brought to a reasonably forgotten area by one individual.

McCaffrey, practically sparkling in a fine business suit, stands in contrast to the grimy, clunky, loud Quinn industrial plants that dot the neighbourhood landscape.

He offers a tour in his BMW, doing a fine job of explaining the intricacies of cement production and the benefits of making butter cartons.

At his heart though, he is a numbers man, happier in the office than in the muck of a glass factory on a damp October afternoon. An accountant by trade, McCaffrey initially became involved with Quinn as an auditor from a Belfast accountancy firm.

The top man liked what he saw and poached him, probably knowing that the native of nearby Belcoo might be happier than most young accountants to relocate to rural Fermanagh.

The ride through the two decades since then has been punctuated by growth and more growth, as a modest gravel production business has grown into a €3.8 billion group spanning every imaginable building product – glass, radiators, property, hospitality, plastics, packaging, environmental and financial services.

Insurance, both of the healthcare and other varieties, is the business that brings Irish consumers most into contact with Quinn Group, a family-owned company.

It is also probably the main reason why McCaffrey is so keen to paint the picture of a profitable, solid and professional organisation – insurance customers can be a fickle bunch and trust is crucial.

The media comes in for some criticism in this light for all the attention focused on Quinn, when other parties seem to get off lightly. McCaffrey points to the volume of comment when Quinn Insurance was fined €3.25 million for lending money to the Quinn family to buy Anglo shares. A comparable fine on a financial services group more recently, by contrast, barely raised eyebrows in McCaffrey’s view. He says there’s a “huge discrepancy” in this but acknowledges that, when a company is so associated with one man, it can lead to unwanted attention.

Whatever the perceived “degree of unfairness”, he realises “Seán Quinn is a big boy” and says there remains “a degree of trust in the group”, particularly from the staff perspective.

“They know the underlying businesses are doing well,” says McCaffrey. And indeed they are – figures just finalised for last year show the firm recorded a pretax profit of €83 million on sales of €2.3 billion, compared to a loss of €425 million in the previous year.

Last year’s result came after taking a writedown of €126 million in relation to loans made by the company to the Quinn family for the Anglo investment, as well as absorbing a number of other exceptionals such as foreign exchange losses. In 2007, the Anglo writedown was €762 million, bringing to €888 million the total negative impact on Quinn Group from the Quinn family’s personal investment.

The more relevant figure, McCaffrey would argue, is what he calls last year’s “cash profit” of €466 million, a hybrid measure more akin to operating profit. He isn’t giving forecasts for this year, aside from saying that turnover could be broadly flat, while profits should be “comfortable”.

“There’s a machine here producing between €400 and €500 million in cash profit in any given year.”

The group’s philosophy, says McCaffrey, is to be well invested and to get the cost base down. In this vein, Quinn Group has spent €1.5 billion over the past five years, and plans to invest millions more.

Some of these investment projects, such as a glass plant in Cheshire (which this week saw the lifting of a planning cloud) and a radiator plant in Newport, Wales, have yet to show their benefits. Plastics and packaging are also growth targets, while McCaffrey says the company sees particular potential in the environmental sector. Plastics recycling and the production of fuel from refuse are now areas of interest for the group, with new plants likely to be on the way for Fermanagh or Cavan.

“We’ve found that the best stuff we have in the organisation internationally is the Irish stuff. We would intend to bear that in mind when focusing future investment,” says McCaffrey.

In the meantime, there’s a recession to address and the company has cut its cloth to deal with new conditions. Cement production has been curtailed, while staff hours have on occasion been reduced. No redundancies have been recorded to date and McCaffrey says the group has started hiring again in certain divisions.

Container glass (bottles and jars to you and me) has been a highlight, while anything related purely to Irish construction, such as readymix concrete, has suffered badly. Perhaps surprisingly, other building materials are holding their own, mostly because of an increasing focus on exports. Hundreds of lorries leave Derrylin for the ferry each week, each one packed with everything from roof tiles to cement to insulation.

McCaffrey, says there is no business within the overall portfolio that isn’t making money at the moment or, in his words, there are “no bleeding sores”.

Even property investments have been “resilient”, he says, while noting that many of the property or hospitality assets associated with the group are in fact owned by individual members of the Quinn family.

The Belfry golf resort in England, for example, is owned by Seán Quinn’s son Seán jnr, while developments in far-flung locations such as the Indian city of Mumbai and the Russian republic of Tatarstan are also strictly within the family.

In an address accompanying last year’s accounts, company chairman Quinn ranked some of these investments among the best ever made by the family, even claiming they would “go a long way” towards recovering stock market losses. The inclusion of the statement illustrated the occasionally blurred lines between the Quinn family and Quinn Group, lines which McCaffrey says are now strictly clear.

Quinn’s five adult children, who own Quinn Group, shared a €200 million payout from the company last year, a move designed to enhance their financial independence as the company ultimately moves away from family hands. How much of this went towards servicing Anglo debt, however, is unknown.

McCaffrey says all involved accept that in the long run, majority family ownership is probably “not a great idea”. Whatever the break-up mechanism, McCaffrey says it is probably a long way off. “It is hard to predict anything after the last two or three years,” he says, adding that his preferred option would be to spin financial services, including Quinn Healthcare, away from the rest.

In the meantime, the new ideas keep coming, with a lot of them sourced from Quinn himself.

McCaffrey, clearly happy to operate in his master’s shadow, pays tribute to the boss mans “ability to think laterally” and then get the job done. “We found ourselves going into wind farms simply because Seán felt he was paying too much for electricity,” he says.

Whatever the next move may be, McCaffrey says new industries will be key to the group’s future development. Not adopting this strategy in the past would have left the company “burst”, he says.

It is also fairly safe to say that any substantial new investments will be within driving distance of the Quinn headquarters, a modest building on a modest roadside in an exceedingly modest part of the country. McCaffrey says up to 800 people could be added to the local payroll within the next three years.

“Everything around here works,” he says, surveying a group whose businesses, grimy as they are, are a world away from Anglo Irish and contracts for difference.

On The Record

Name: Liam McCaffrey

Position: Chief executive, Quinn Group

Family: Married with four children, aged between 15 and four.

Hobbies: GAA and very occasional golf.

Something you might expect:He knows how to make a bag of cement, or at least can identify the machines that do it.

Something that might surprise:He shuns the high life that usually comes with the top job in a €3.8 billion company, preferring a mobile home in Rossnowlagh to foreign travel and a pint at the local GAA club to fancy functions.

The Anglo Irish connection: how Quinn got involved

SEÁN QUINN and his family accumulated a stake of at least 25 per cent in Anglo Irish Bank over a period in the run-up to the summer of 2008. Unfortunately for the businessman, and ultimately for the taxpayer, the bank was in difficulty at the time, in part due to turmoil in the international financial markets.

The shareholding was built up in secret by way of contracts for difference (CFDs), structures that do not require investors to pay for the entirety of the stock up-front.

CFDs carry risks, however, notably when the value of the underlying shares fall below particular levels. As occurred in the Quinn case, this can lead to a requirement for the investor to come up with additional cash to satisfy their stockbroker.

The Quinns ultimately decided to unwind their CFD position, converting 15 per cent of the bank into conventional stock while drawing on Anglo loans.

The remaining 10 per cent was controversially sold to 10 long-standing Anglo clients in an effort to avoid a collapse in the bank’s shares. The effort was fruitless and Anglo was nationalised at the start of this year.

The circumstances surrounding the failure of Anglo have been under investigation by the Financial Regulator and the Office of the Director of Corporate Enforcement. One aspect of these investigations is the funding provided to the Quinns while they were holding the CFDs.

The family’s loan exposure to the bank is thought to be at least €2 billion. A spokesman for the group has said the family has, over 36 years, always repaid its borrowings and “will continue to do so”.

Quinn Group, established in 1973, is owned by Seán Quinn’s children – Colette, Seán jnr, Ciara, Aoife and Brenda.

The group is divided into nine divisions: financial services (insurance), building products, container glass, environmental, plastics, packaging, radiators, hospitality and property.