Chadwick keeps Grafton sailing down easy street

Latest figures for the building materials group show that the unflashy chairman hasn't lost his golden touch, writes Una McCaffrey

If Michael Chadwick were to offer lessons on how to get ahead in business, the queues would stretch out the door, down the street and as far as his canny eyes could see.

Half the crowd would be there to learn something of the man's business acumen, hoping to tap into the talent that has allowed him to build a €2 billion company out of modest roots.

The other half would be drawn in by the sheer improbability of Chadwick, executive chairman of Grafton, addressing a public gathering at all.

While no stranger to being the centre of attention - an unavoidable consequence of heading a public company - he is not a man to seek the limelight.

Happily, Grafton's consistently strong performance over the years has allowed the firm to do most of its talking through profits and turnover growth rather than through rousing oratory from its unshowy chairman.

This week, the firm unveiled its 14th consecutive set of record interim numbers and the first to be released since it completed its €338 million acquisition of smaller rival Heiton in January.

The deal pushed sales up by 42 per cent to €1.3 billion, with operating profits rising 37 per cent to €96.5 million. In the Republic, where most of Heiton's business is based, group sales and profits more than doubled.

Although the impressive numbers do not completely reflect a mixed performance on the ground, the market will have little to complain about. Chadwick's Grafton has rarely failed investors before and, based on form, is unlikely to do so now.

The man himself was content with the numbers, acknowledging that short-term factors such as higher interest rates in the UK had slowed things down in places.

Having seen it all before, Chadwick is not about to get worried when he knows his long-term plans are well in place.

One key aspect of these is the balance that the firm has tried to maintain in its development expenditure. This year has been unusual because of the Heiton deal, but in a more average period, Grafton spends more than €100 million per annum on a mixture of acquisitions and organic investments.

The idea is to lay the foundations for future growth now, while building on what has already been spent. This strategy has worked well, helped by Grafton's established name and strong reputation.

The company has its roots in Chadwick's family, and was founded in 1902 by the current chairman's grandfather, William. It started as a wholesale supplier of cement and plaster, developing over the years to take in blocks, roof tiles and other building supplies.

The breakthrough came in 1965 when Concrete Products of Ireland, a firm acquired by William in 1930, became a public company and bought Chadwicks from the Chadwick family.

Michael Chadwick took the helm in 1985, two years before the company opened its first DIY outlet.

In 1998, the company changed its name to Grafton and made its first small UK acquisition - a sign of Chadwick's intention to diversify its operations.

For the next five years, a number of UK acquisitions followed, as Grafton slowly took the shape that Chadwick and his team were aiming for.

The transforming deal came in 2003, with the €131 million acquisition of Jackson's in Britain. It catapulted Grafton to fourth place in British merchanting and allowed the company to pass the €1 billion sales mark for the first time.

UK expansion did not distract Chadwick from building on operations at home. Although the company did not necessarily have the time or capacity for a big Irish deal, it found another way of making its presence felt.

In 1999, Grafton started to build a stake in Heiton. The strategy, which effectively kept anybody else from buying Heiton, was the source of much market speculation at the outset, until everybody realised nothing was going to happen quickly.

"At that time, we were growing the UK business very rapidly. We had £100 million (€147 million) in UK sales, so we had a lot on our plate. The best way to keep Heiton independent and to keep our options open was to buy shares," says Chadwick.

He rejects the suggestion that Heiton could have been bought for much less if Grafton had moved sooner, pointing out that the deal would always have involved some Grafton paper.

Between 1999 and 2004, the value of Grafton shares skyrocketed as the company's strategy became more and more palatable to investors.

So, while Grafton may have lost out on the cash element of the deal by waiting, it probably won on the share side.

In general, says Chadwick, acquisitions must fulfil two criteria before they will be completed by the company. First, they must provide a strategic fit - often by filling a gap on the map - and second, they must deliver a financial return.

At the moment, the firm completes about one smallish acquisition every month, but probably considers about 200 each year.

Of these, it might follow up on about 60 before whittling them down to the current average of a dozen a year.

Chadwick says that most potential deals arise because the company has been approached, either by a business's owner or by corporate finance advisers. In general, he is not a fan of taking counsel from such quarters, but he recognises that they can play an important role.

More often than not, he will turn to his non-executive directors for advice, thus keeping strategy well within the Grafton family.

One gets the impression, however, that Chadwick knows his business so well at this stage that it is a rare occasion when he will need advice. His experience shows particularly in the way he views Grafton's markets. For example, he can hardly believe it has taken 11 years for the firm to experience its first slight downturn in the UK.

Equally, he acknowledges that developments such as timber-framed housing are bad for merchants, but says they are a "fact of life", as is increased competition in the UK mortar market. "If you look back, builders' merchanting has always been a changing business. It needs to be flexible."

Thus, the stepping up of UK competitor Wolseley's presence in the Irish market (through last year's purchase of Brooks) is simply grist to the mill. Similarly, B&Q's arrival has provided no surprises for Grafton's DIY brand, Woodies, at least from Chadwick's point of view.

He has seen it all before. One sector of the economy that continues to fascinate him, however, is property development. He reckons that if you want to get a measure of a country, the first group to look at is the property developers.

Considering the ongoing saga at Jurys Doyle and the various power plays that will dictate the result, it seems he might have a point.

He also has some personal experience of the sector through his shareholding in Real Estate Opportunities, the listed property company that has been the source of considerable intrigue.

Outside of Grafton, Chadwick's interests are diverse, but the one in which he shows particular pride is the Dún Laoghaire Marina Company, where he is a director.

Business is booming as the country's growing wealth means more pleasure boating, and he is happy to claim some credit for the company's sound management of this growth.

One shouldn't be fooled into thinking he has an emotional attachment to boating however - this is a "purely financial" arrangement. A non-sailor investing in a marina for financial reasons? It seems to sum Chadwick up.

Just as a matter of interest, what would be the lesson Chadwick might put forward if he ever decided to share his commercial wisdom with the masses? "I haven't a clue," he replies, seemingly shocked that anybody would even be interested.