Sky's the Limit
In less than a decade Clive Snowdon has turned Umeco from an obscure group into a global aerospace player. But, he tells Kurt Jacobs, there are still frontiers to be breached.
Mid-conversation Clive Snowdon makes his apologies to answer a call.
However when he is later forthcoming as to the specific details of his casual chat on his mobile with his broker, it turns out that the subject matter is actually more significant than first seemed.
For the caller has been enthusing to Snowdon that the fifth, and biggest, rights issue Umeco has carried out in eight years is going well, very well.
In fact those issues have now raised, in total, more than £3124m.
With a sigh of relief he adds: "We wanted to raise about £350m from this issue and the take up has been 96.8 per cent.
I think that's a great endorsement of our strategy - it was a big ask." Those "big asks" have funded an aggressive acquisition policy that has seen Leamington Spa-headquartered Umeco acquire a string of firms across Europe and North America and China.
And the "big yeses" from shareholders have paid for an equally strong organic growth drive.
It's a dual strategy that has transformed Umeco from a small, traditional manufacturer into Europe's biggest supplier of small aerospace components and chemicals, with a market value of well over £3200m.
Next time you fly, chances are Umeco's products helped get the plane airborne and are keeping it there.
Snowdon, who trained as an accountant but soon decided he wanted to work "on the other side", first became involved in Umeco in 1998 with his chairman Brian McGowan.
Both had been working for Birmingham-based Burnfield but left just weeks after a hostile takeover by electronic controls group Spectris, and began looking for another outlet for their talents.
Snowdon, who previously held senior positions with aerospace groups Hawker Siddley and BTR, says McGowan came across Hungerford-based Umeco, then an obscure £320m-a-year group run by a pair of owners seeking retirement.
The business, a small distributor of aerospace components and chemicals, was one in which Snowdon and his partners saw real opportunities to build something far greater.
They put in £32.5m, while the banks arranged a £310m placing to complete the acquisition.
The group's first real break came in 1999 when it was hired by Rolls-Royce to handle a pilot project in Derby, initially worth £32m, but which quickly expanded into a pan-European contract worth some £340m.
The contract was so large that Umeco created a subsidiary to stop it overwhelming the rest of the group.
Snowdon adds: "Rolls-Royce was important, not just for its size, but as proof that we could do it.
If we were trustworthy enough for Rolls-Royce to put so much faith in us, we could handle other businesses' logistics. "However we wanted to be more than a glorified warehouse.
We wanted instead to be a complete supply chain for the aerospace industry, not just holding stock but ordering it, inspecting it for quality and distributing it. "There's been a major consolidation of first tier suppliers, and we're part of that process.
Rolls-Royce doesn't want to deal with 200 suppliers.
It wasn't just tidying up the supply chain, there were financial incentives, such as reducing the price of components by aggregating demand." Snowdon says, traditionally, aerospace manufacturers have not had a good record managing their supply chains: "They deal with hundreds of suppliers with poor reputations for delivering to time or quality.
It means keeping huge inventories. "But they don't want to do that - they want to make engines and planes.
They want someone to take logistics away, which is where we come in.
We supply something like 18,000 separate types of components to Rolls-Royce alone, or about 80 per cent of the parts in an engine. "At its simplest we ensure a fitter only has to put his hand into a bin and know, without looking, that it contains the right components, in the right quantities, of the right quality, so that he can do his job." Wherever Umeco is spending the money raised from rights issues, it certainly is not on statement making headquarters.
Although the company employs some 1,400 people worldwide, its main offices are in a pleasant but unremarkable building on the outskirts of Leamington where I meet Snowdon for our lunch date.
We walk - although it feels more like a run with Snowdon's giant strides - to his local Italian Casa Valle, five minutes away.
Snowdon admits: "I don't like lots of admin staff, they don't help the business grow.
We set this business up with the intention of keeping it tight." Instead much of the money raised has covered the cost of eight acquisitions, ranging from the £3600,000 spent last May to purchase Scandinavian composites firm Ashland, to £344m spent a year earlier to secure Derbyshire-based components group Advanced Composites (ACG).
In a more recent deal, in November last year, Umeco spent £314m buying Italian Provest, which supplies aerospace fasteners.
A flick through Umeco's press releases and statements reveals a common theme: sudden acquisitive bursts closely tied to rights issues to cover the costs of purchase and subsequent investments.
Says Snowdon: "Acquisitions are like buses: nothing happens then a rush of them come together.
But half our growth is organic.
Buying turnover is easy: the hard bit is building on what we've acquired." Much of the most recent rights issue was to fund a major extension of ACG's facility in Heanor near Derby, which should be ready this summer, and to pay for a planned new site in Derby. "We'll need that to house our growing business with Rolls-Royce, but also to facilitate a larger contract we hope to win.
And Provest in Italy probably needs about £315m of investment to help it grow." Meanwhile what about the general aviation market? How does Snowdon view it today? "We're seeing a recovery in the market, a complete turnaround since 9/11. "But for every £31 of extra sales we make we need to invest 20p of capital.
At the moment we are expecting the business to grow at an accelerated rate - underlying sales growth is 17 per cent.
If it's to carry on expanding we need extra cash from the rights issue just to keep up.
There's no point starving a business of funds.
If it's to remain profitable you have to feed it cash." Umeco's growth policy is also geographically motivated.
Aerospace is worldwide and Umeco needs to be a globe-spanner, hence the Provest and Ashland acquisitions, the £324m purchase of US-based Richmond Aircraft, and last year's launch of a Montreal subsidiary to handle work for business jet group Bombardier.
Says Snowdon: "Aerospace is global.
Unless our main customers see us in the same light growth is going to be restricted. "It's not just growth in turnover that we have to achieve but geographical spread as well.
Europe and North America account for 90 per cent of the industry.
We've good links in Europe because of our base here and the acquisition of Provest. "Now we need to seriously break into North America: we've two large operations there and, although we're nowhere near being market leader, they've given us toeholds that'll allow us to climb." The expansion programme has also seen Umeco breaking into new manufacturing sectors.
The ACG deal has let the group start operating in the composites sector - including hi-performance cars - while its Ulogistics subsidiary has allowed the firm to break into aircraft repair and maintenance.
Snowdon says expansion was also necessary to "rebalance" the business and offset the huge influence Rolls-Royce has on Umeco's turnover figures.
For instance just before Christmas the company won a contract from French group Thales, worth £3280m over ten years.
However a still larger contract, "the big one" as Snowdon tantalisingly remarks, is in the offing.
Umeco's rise is all the more remarkable given that, along with most firms aerospatial, it had to deal with 9/11.
However it may be one of the few that came out of the crisis stronger than when it entered.
Says Snowdon: "After three to four months it began to hurt, badly, particularly because we'd just made a number of acquisitions, so our debt was high. "We cut back on procurements because we knew our customers were about to do the same, and then hunkered down, reduced our costs as much as possible, handling the cash flow carefully. "Between 9/11 and August 2004, when others were folding or cutting drastically, we reduced our debts from £360m to £320m. "We weren't making huge profits but we were surviving.
We knew if we could get through that period we would survive long term.
And we're still here."
