For building products giant Royal Group Technologies Ltd., the end of 2003 means colossal changes, including the retirement of Vic De Zen, its iconoclastic founder, and a repositioning of its strategy.
It's a highly significant transformation for the profile extruder, as the De Zen name fades from day-to-day involvement and a realigned management team takes the helm.
Officials even explored a possible sale, but they now say that process has ended.
``As far as I'm concerned, that has been abandoned,'' President Doug Dunsmuir told analysts and shareholders during the firm's Nov. 19 conference call announcing fourth-quarter results.
``It's difficult to really say whether or not it was generated externally or internally. It was just something that happened.''
While the company said there was a lot of interest expressed in a sale, the four-month process resulted in no formal offer.
Royal Group officials announced De Zen's retirement Nov. 17. Now in his 60s, De Zen still will be involved as a nonexecutive chairman. He will maintain his ownership of 80 percent of the voting shares.
``After 33 years, it's hard for me to say I'm going to retire,'' De Zen said during the conference call. ``Doug is now your chief executive officer.''
De Zen said in a statement that he is looking forward to spending more time with his family and friends, but days of rest and relaxation seem unlikely for a man who has built a reputation for being a workaholic, highly involved in the operations of his company.
Under De Zen, Royal became a vertically integrated, international force in polymer-related building and construction products, ranking No. 1 for 10 consecutive years in Plastics News' sales-based survey of pipe, profile and tubing makers.
But 2003 has been less than favorable for Royal, which struggled under substantial losses in its window coverings operations; low capacity-utilization rates that hovered just above 60 percent; and high raw material prices.
Under pressure from shareholders, the firm in July announced changes to Dunsmuir and De Zen's 2002 bonuses. Royal's directors revised the salary structure and replaced the bonus program with one based on return on invested capital.
Like other Canadian manufacturers, Royal has been hurt by the surge in the Canadian dollar.
``I don't know how retired he'll really be, but he's likely to give them more free rein now,'' said Jay McKinnell, an industrial products analyst with Raymond James Ltd. in Toronto.
Under Dunsmuir's leadership, the company will develop core businesses while emphasizing aggressive sales and marketing. The core businesses include custom profiles and exterior cladding. Dunsmuir said Royal will step up participation in trade shows and targeted ad campaigns.
Royal will add sales staff and analyze ways to accelerate introduction of new products. The company will anchor it all with a new corporate identity campaign, targeted to boost consumer awareness of Royal.
Royal Building Systems and Foreign Operations are being restructured, as the company will focus on operations in Mexico, China and Poland, and divest operations in the Philippines.
``These initiatives will not result in quantum leaps in sales overnight,'' Dunsmuir said. ``But they will help us in securing an increasing share of profitable target markets.''
The firm has named Tony DiGinisa senior vice president of custom profiles and appointed two new independent directors, giving the board a majority of independent directors.
The firm had announced several management changes in September, naming Angelo Bitondo senior vice president of operations. Ron Goegan became a senior vice president, in addition to his role as chief financial officer. At that time, the firm announced that De Zen and Dunsmuir would share the CEO title.
``It takes a crisis sometimes to get a change, and now we've got the change,'' McKinnell said. ``It's going to be a fascinating process to watch over the next couple years.''
Royal already has started closing plants. By the first half of 2004, an injection molding plant in Cornwall, Ontario, will be consolidated into a window coverings extrusion plant in Quebec. Metal-stamping operations will be consolidated into an Ontario facility where Royal produces storage sheds, fencing, decking and railing.
``No stone will be left unturned,'' Dunsmuir said. ``By locating these operations in the same facilities, we will increase efficiencies and reduce direct overhead costs. We will continue to pursue all practical opportunities to consolidate other operations as well.''
It was under De Zen that Royal built its massive industrial complex in Woodbridge, Ontario: a 205-acre, 14-plant site. Officials said no plants in the United States will be affected; in fact, they said they plan to expand one extrusion site near Pittsburgh.
``We will use some of our underutilized manufacturing plants to produce products for those plants that are constrained,'' Dunsmuir said. ``We are now producing cellular foam moldings at our Houston window coverings plant and are presently converting additional lines to those products.''
Still, despite the problems, others believe De Zen should be the man in charge.
``We are somewhat surprised by the timing of this announcement on a couple of fronts,'' Merrill Lynch senior analyst Pat Chiefalo stated in a Nov. 17 report.
``First, the succession time frame is very quick, with Dunsmuir only receiving the co-reins two months ago. Further, the actual departure as CEO for De Zen will occur in a month from the current initial announcement, which is also somewhat hastier than is the norm.
``Vic De Zen has been the main force behind Royal Group Tech since the company's inception, driving tremendous sales growth,'' Chiefalo said.
``We view this loss of expertise as a negative for the company,'' he added.
But others think De Zen's departure is not coincidental, timed after an unsuccessful sale process where potential buyers could not meet his minimum price.
``It all started to make sense,'' McKinnell said. ``He's turned a big page here, and I agree with their story about how there was lots of interest.''
Now, analysts said, Dunsmuir and his team can make substantial changes that are necessary in the current market.
What is necessary and practical does not necessarily jibe with a founder's favorites, and the new management team can move ahead without the intrusion of an entrepreneur's personality, typically a stubborn, driven style.
``There are no sacred cows, no sacred protection for the founder's pet projects,'' said McKinnell, who theorized that the new team may prep the company for a possible sale in a few years.
``The plant consolidations are just a beginning. I would speculate that there would be sales of entire divisions, like window coverings.''
In the fourth quarter, the lagging window coverings division did achieve positive earnings before interest, taxes, depreciation, amortization and minority interest, officials said.
The firm reported total sales of C$527 million (US$390 million) compared with C$547 million (US$347 million) for the same period in 2002, which officials attributed to U.S. dollar denominated sales being recorded at a lesser exchange rate.
