Royal Group Technologies Ltd. interim President and Chief Executive Officer James Sardo has more than a full plate. The Woodbridge, Ontario, firm still is involved in investigations that led to the ouster of founder Vic De Zen and two top executives in November.
The business environment for profile extruders focused on housing isn't exactly spectacular, despite several boom years when record housing starts floated a lackluster economy. Canadian manufacturers have been fighting the impact of the falling U.S. dollar, and raw material price increases are relentless, no matter where a processor is located in North America.
Sardo sat down at the International Builders' Show, held Jan. 13-16 in Orlando, for a look at how North America's largest profile extrusion house (in terms of sales) is coping.
Royal has appointed Piero Tambuchi vice president of research and development as it centralizes product development for the first time. He has been with Royal for 16 years, and has 26 years of industry experience.
Sardo said he wants to bring structure to the company's R&D.
``The visionary for product development has got to come from the operating units, as opposed to there being somebody like the CEO who is the product development visionary for the company - with all due respect to Vic De Zen, who was truly a visionary and developed the foundation of this business, certainly.''
Sardo said that, as with any company, there have been some products that have not been very successful.
``What we've got to try to do is to make sure that we're working on the products that have the best market research, have the highest growth potential, both in terms of revenue and profitability,'' he said.
``What we're finding is that in some divisions, there is product being developed for that division, but the concept has benefits in a different product in a different division, if the other division knew about it.''
With a centralized R&D department, he pointed out, the company's various units will be able to share technology breakthroughs.
Royal has hired executive recruitment firm Spencer Stuart of Chicago as it searches for a permanent CEO.
``We certainly want that person on board by the end of April, if possible,'' Sardo said.
``It's difficult to determine how long these things can take.''
Among other obvious challenges, that person will be charged with getting Royal back on track toward being a higher-growth company.
On Jan. 24, the firm estimated a net loss of C$0.39-0.45 (US$0.32-0.37) per share for the three months ended Dec. 31.
Company officials cited several factors, including investigation costs and related business disruptions, the effects of the falling value of the U.S. dollar, further increases in raw material costs, the settlement of a legal matter involving intellectual property and the write-down of assets in Royal's Mexican operations.
In a news release, Sardo said the company will take steps to improve financial performance, including price hikes and currency hedging.
``In addition, we will continue to analyze the profitability of our various businesses in an effort to reduce costs and improve profitability,'' he said.
Sardo has two major agendas: focused growth and cost reduction.
Each division cannot be all things to all people, Sardo said, but rather must focus on its market segment. Each unit is being analyzed to concentrate on growth; that could even mean greenfield expansions or acquisitions.
As for cost reduction, ``I think there are lots of opportunities for synergies within the units, in terms of improvements in our supply-chain management, in terms of productivity improvements within our manufacturing plants and in our corporate expenses,'' he said.
So, is Royal at a stage now where profitability and consolidation are more important than coming up with revolutionary new products?
``They're equally important, and I think they go hand-in-hand. You just can't save yourself into a profit. You might do that in the short term. In the long term, it's not an effective strategy. So to concentrate on that to the exclusion of growth opportunities would be a terrible mistake,'' he said.
The board is not actively searching for a buyer, Sardo emphasized.
``I can tell you at this point that there's no discussion of selling the company.
``If we were in the process of selling the company, or if we were talking to someone about selling the company, I'd probably say I couldn't comment on this at this point,'' he said.
Even though the building products sector, especially plastics-related products, has been a very popular segment for buyout activity, Sardo said the current management and any new management hold the power to unlock the firm's potential.
``We know the issues with this company and we know the potential of this company,'' he said. ``There was substantial value in this company in the past. In the last couple years, the company has declined in value.
``A lot had to do with rising resin prices, the rising Canadian dollar, as an example; overcapacity being built in North America and around the world. And I think those problems, those issues, are correctable.''