Heat is on as Glen Dimplex’s CEO gets ready to hit the acquisitions trail

Naughton family-owned company eyeing growth in sustainable heating solutions

Fergal Leamy, group chief executive of industrials giant Glen Dimplex, springs up from behind his desk at its headquarters near Dublin Airport and offers a welcome blast from the past: a hearty handshake. After two years of the pandemic, it still has no adequate substitute.

He is immaculately coiffed in the gleaming mould of a typical senior executive, wearing a shirt and tie so sharp they should be sheathed. Business patter rolls effortlessly from his tongue. But don’t be fooled. Leamy is no corporate clone riding the travelator of executive progression ever deeper into C-suite. His on-message veneer conceals a degree of quiet calculation and a thirst for new experiences. This is evident in his varied and occasionally risky career choices to date.

The Tramore man has packed a lot into his 44 years so far on this planet. His career started out in orthodox-enough fashion: he rolled straight from business and legal studies at UCD onto McKinsey’s assembly line of corporate consultants. But before he turned 30 he had left to establish Greencore’s US operations. The division he started was later sold by the sandwich maker for $1 billion in 2018, seven years after Leamy left.

The inner workings of Glen Dimplex are almost as much of a mystery to the outside world as the correct way to operate one of its old storage heaters

He was then briefly, and somewhat bafflingly, a Government apparatchik as a special adviser to Simon Coveney, who was Minister for Agriculture at the height of the financial crisis in 2011. After that unlikely sojourn, Leamy was a jet-setting private equity dealmaker and Australia's second-largest cattle farmer, running an agribusiness for Guy Hands's Terra Firma. From 2015, as chief executive of the State-owned forestry group Coillte, he ran Ireland's biggest landowner.

Now, as the top executive at the sprawling heating and appliances group founded by billionaire Louth entrepreneur and philanthropist Martin Naughton, Leamy is a self-confessed "outsider" at the heart of one of Ireland's biggest-ever, and most secretive, family companies. The inner workings of Glen Dimplex are almost as much of a mystery to the outside world as the correct way to operate one of its old storage heaters: it gets so confusing that eventually you give up trying to figure it out and leave it to its own devices.

Electric heating solutions

The company is focused on becoming a leader of the “transition to a sustainable world”, through selling electric heating solutions to replace fossil fuel-burning systems. Leamy says it has invested €150 million in recent years in “repositioning for the long term” and it is shaping up to go on the acquisitions trail.

He has led its management team since last summer, two years after he joined as chief operating officer. The team also includes Naughton's two sons: the company's executive chairman, Fergal Naughton, and its president, Neil Naughton. The 82-year old founder has stepped back from the business but still chairs its supervisory board, which also includes his daughter, Fiona Naughton. It employs close to 8,000 and has annual revenues not too far off €1.5 billion.

What is it like for Leamy working for one of Ireland’s wealthiest and most media-shy families?

“I’ve worked for a number of different types of shareholder and they all have a different lens on things. There are different idiosyncrasies involved in each,” Leamy says.

My job as chief executive is to try and use every asset available, and I'd be foolish not to use the founder when it makes sense. He knows how to unpick a deal

“This is different to my other jobs, but not dramatically different. I work for the shareholders and you’ve just got to understand what they want and drive a return for them. As a management team, we just get on with running the business. The big benefit is they genuinely think long-term when making decisions.”

Does it matter at all that he is not a Naughton?

“Look at some family businesses and you might wonder what it is like, for want of a better word, for an outsider coming in. It doesn’t feel like that here. It feels like a company that is professionally run. It is governed like a large international organisation and the way we make decisions is similar,” he says.

Day-to-day involvement

Naughton snr may have moved back from any day-to-day involvement in the business more than six years ago, but he still "has a hell of an eye for a deal", according to Leamy. About 18 months ago, Glen Dimplex bought Australian outside heating company Thermofilm, a deal that has gone "incredibly well". He says it was Naughton who spotted the business a few years ago.

“My job as chief executive is to try and use every asset available, and the truth is I’d be foolish not to use the founder when it makes sense. He knows how to unpick a deal. I’ve worked for many shareholders in the past who might be interventionist to a greater or lesser degree,” says the former Coillte boss, somewhat knowingly. “This isn’t on that level.”

He was approached for the Glen Dimplex job in late 2018, more than six months before he formally took up the role. The opportunity came about, in part, because he already knew Fergal Naughton, who had been the chief executive since 2016.

Leamy says his accession from chief operating officer to the top job was part of a "planned succession" by the Naughtons. Weeks after Leamy's appointment as chief executive was announced last July, Glen Dimplex's chief financial officer, the former ESB and Airtricity finance chief Donal Flynn, decided to leave.

Glen Dimplex, which was founded by Martin Naughton in Newry before later becoming a cross-Border enterprise, celebrates its 50th birthday next year. It comprises an array of manufacturing and commercial divisions covering a gamut of industrial products.

Tighter group

It used to be a “flotilla of ships”, 32 different companies operating in 64 different locations in about 50 markets globally. In recent years, however, it has undergone “transformation” via a restructuring to make it a tighter group.

“Historically each unit was independently run, with a strong holding presence and capital allocation controlled here from Ireland. It was very effective. When I came on board three years ago it was to help with the heavy lifting to pull the 30-odd businesses into four divisions: heating/ventilation, flame products, precision cooling and consumer appliances.”

The consumer side of the business is responsible for much of Glen Dimplex's public profile, through brands such as kitchen appliances manufacturer Morphy Richards, Belling cookers and Roberts radios. It is the second-smallest division in the company, however, ahead of the precision cooling division that makes products such as cooling mechanisms for medical MRI scanners.

As people transition to more sustainable heating, they will be looking for solutions. The electrification of heat used to be niche but it is now moving centre stage

The second-largest part of Glen Dimplex is its flame division, which specialises in the kind of electric fires that flicker spuriously in hearths beneath long-ago blocked-up chimneys. Often they are just decorative and the company spies growth in this sector as coal and gas fires are phased out. People retain an “emotional connection” to seeing a flame, says Leamy.

The “biggest by far” part of the company is its heating and ventilation division, which makes products such as electric heat pumps, hot water cylinders and electric heating panels. It is pencilled in for much of the company’s growth in coming years, as Glen Dimplex seeks to capitalise on the pivot away from the burning of oil and gas for fuel.

‘Centre stage’

“As people transition to more sustainable heating, they will be looking for solutions. The electrification of heat used to be niche but it is now moving centre stage, and there is a huge opportunity for us there,” says Leamy.

He bats away most questions about the company’s finances, in keeping with the trend set by its founders.

Leamy says its revenues are “between €1 billion and €2 billion” globally, although the Wikipedia entry that says it is €1.5 billion “is not a million miles away”. However, that has been Glen Dimplex’s estimated annual turnover for at least 15 years. It employs 1,000 in Ireland, with more than half of those employed in the North.

The group’s global performance is not collated onto a single publicly-filed profit-and-loss account or balance sheet. Accounts for a Dublin-registered company that is a major cog in the operation, Glen Dimplex Europe Holdings, show sales of €793 million for the 12 months to the end of September 2020, down by more than 10 per cent. It posted an operating loss of €10.2 million. After restructuring costs, its net loss was €42.9 million for the period, which captured the first six months of the pandemic.

Leamy insists, however, that Glen Dimplex as a global group has “always” been profitable since its inception. Although sales slipped 15-20 per cent for a period early in the pandemic, it has recovered, he says. Leamy says it is now experiencing underlying revenue growth of about 15-20 per cent and is profitable.

Debt free

Glen Dimplex is also entirely debt free, while the European division alone also has cash on its balance sheet of €230 million. Leamy says the company recently added to its financial muscle with a major new debt facility from the European Investment Bank. Together with the headroom on its balance sheet, this will give it the firepower to take on larger acquisitions in coming years as it concentrates on growing its heating and ventilation and flame divisions, especially in Europe.

“I personally think we will be looking at significant acquisitions over the next period of time and so we are teeing up external financing to be able to do that. We have a target list of companies we would like to buy. We did a robust piece of strategic work a year ago: Where is heating going? Where are there gaps? What companies have operations in those gaps? We would like to buy some of them to plug the gaps. Deals have always been in the Glen Dimplex DNA.”

The biggest challenge it faces currently are shortages and inflation in its supply chain. The pandemic has caused havoc. Leamy says that the cost of shipping a container of its goods from China, where some of its appliance manufacturing is outsourced, to Europe rose from $1,500 to $19,000 after the pandemic hit.

In North America, every wage demand we see is double digits. In Europe it is not as bad, but still twice what it used to be. We can't cover it all so we do have to pass it on

“Today it is settling at $15,000. So imagine bringing large, bulky items across – barbecues, fridges etc. Small items don’t matter as much, because you can get a lot of them onto a container. But with anything of bulk brought from China, there is significant in-built inflation. Prices inevitably will go up at retail level.”

The company, which invests more than €30 million each year on research and development, also tasked its engineers with refining some its products to reduce where possible the need for certain components, such as microchips. A global shortage of them has been brewing for years, exacerbated by factory closures in Asia at the start of the coronavirus outbreak.

Labour costs

Leamy says that about a year ago energy prices started to become a problem. Now it is labour costs. Staff at its plant in Portadown went on strike last November in pursuit of a pay claim.

“In North America, every wage demand we see is double digits. In Europe it is not as bad, but still twice what it used to be. We can’t cover it all so we do have to pass it on. In the last 12-18 months we have put through more price increases than we may have done in the last five years and there is probably another series of them to come,” he warns.

Leamy adds that prices of its products at a retail level inevitably will rise, despite its efforts to control costs. Some of the problems in its supply chain may have levelled off, he suggests, but costs remain elevated. The company is planning for it to remain an issue for the next “one to two years”.

The supply chain issues mean Glen Dimplex is struggling to keep up with demand for its products in regions such as Germany, where the market for heat pumps is growing at 43 per cent. Ireland, meanwhile, wants to grow from fewer than 30,000 heat pumps to more than 600,000 in pursuit of climate goals.

“The demand would allow us to grow at a much stronger pace than we are, if it wasn’t for the supply issues,” says Leamy.

By pulling its 32 units and its previously regionally-focused international management structure into just four product divisions, Leamy hopes the pooling of R&D efforts and the tying together of its back-end operations will make Glen Dimplex leaner, more coherent and better able to grow.

He has form restructuring large organisations. After 4½ years at Coillte, he boosted its earnings by almost 60 per cent, cut 200 jobs and turned it into a dividend machine for the State. As soon as he rose to the top job last summer at Glen Dimplex, he was joined at the company by his former human resources chief from Coillte, Tara Flynn, who helped him to restructure there.

He says the “repositioning” of Glen Dimplex began under Fergal Naughton’s tenure as chief executive. But it is clear that Leamy has been put at the helm to deepen the process. He says he jokes with the shareholders who believe the restructuring is “80 per cent done, while I tell them it is 60 per cent”.

Either way, the heat is on as Glen Dimplex looks to gain new ground in the electrification of heat and also fully recover from all the effects of the pandemic.

“It’s fast-paced but that is the way I like it. I like the dynamism. This business has an energy to it.”

CV

Name Fergal Leamy
Role Group chief executive of Glen Dimplex
Home Dublin
Family Married with three children
Something we might expect He wants to install a heat pump in his own home
Something that might surprise This success-driven corporate executive supports Tottenham Hotspur football club. "Oh God . . . they're just abysmal at the moment."