Royal Group Technologies Ltd. of Woodbridge, Ontario, has been through some dramatic changes over the past two years, after firing its top three executives, including iconoclastic founder Vic De Zen.
The largest pipe, profile and tubing extruder in North America still is for sale, and officials are in the midst of divesting noncore businesses. The most recent sale, of housewares maker Royal Alliance, happened the week of Jan. 17.
Lawrence Blanford, named president and chief executive officer in May, sat down with Plastics News at the 2006 International Builders' Show in Orlando to discuss the state of the business and what he hopes the future holds for Royal.
One significant change is that PVC-focused Royal will branch out and start using other materials. The company announced Jan. 17 its exclusive supply agreement with Mississauga, Ontario-based Conforce International Inc. to manufacture the new composite container flooring product EKO-FLOR. The product replaces hardwood floors in containers and highway trailers.
``The vision of this company that's emerged from our effort this seven months is pretty clear, and that vision is of a building products, home improvement company that's focused on aesthetically attractive, durable and maintenance-free products,'' Blanford said on Jan. 12.
``Now, PVC is important to us today. It will be important to us tomorrow, but we do see that in order to make that vision come alive, that we will need additional materials,'' he said. ``And we are already accelerating our investment in advanced materials.
Royal Group also is negotiating to sell about 540,000 square feet of excess space in the Woodbridge area, where it operates a cluster of plants. Blanford said that sale won't necessarily include equipment.
Asked about the status of a sale of the entire company, Blanford said there are several interested participants and the company is moving into the final phase of that process.
``No specific dates yet have been communicated, but certainly [we're] going into the final phase of due diligence,'' he said.
``We'll see what happens,'' he said. ``An offer may emerge, a binding offer, and it may not. We needed to have the alternative plan such that if there is not any offer that emerges for the company, we have to run this company. That's what we've been doing. We've been managing the sale process in concert.''
An edited transcript of the interview follows:
Q: Obviously, there have been a lot of changes in the organization that included bringing in new managers, such as the vice president of research and development. Can you talk about those cultural changes that are taking place at Royal?
A: Without any criticism of Vic whatsoever, sometimes organizations reach a point in time in their history, as do countries, when a different style of leadership is right for them. And I think what we have is a tremendous opportunity, this heritage, legacy of what has been built, we can now take that as our foundation.
Because Royal was a very complex company with many moving parts, Vic, because of his natural enthusiasm and interest and excitement, had taken the company in many directions, some of which paid off handsomely and some of which hit the shoals. But we're cleaning all that up. We're focused on the seven businesses. Behind those seven businesses, they all leverage our core competencies.
So moving from that entrepreneurial environment, where Vic was the founder and driving force, what we're now doing, again, without any criticism to Vic, is bringing a much more professional organization, meaning people that have functional competencies that the organization heretofore was a bit weak in. So [for instance] Daryl Wilson, in manufacturing, engineering and development; and Brad Holcomb coming in to manage our chemical operations and global procurement. Both of those guys have tremendous functional expertise, ability and are strong leaders.
[So] we're moving from an entrepreneurial culture to one where we have broad-based decision making where people are empowered on the basis of well-defined strategy. The strategy was basically in Vic's head, to the extent that one existed. Now we have well-defined strategies for all seven of those businesses, and we're working hard to get the knowledge systems in place. It doesn't happen overnight. But that's the direction that we're headed in; it's very, very powerful.
The other aspect of the cultural change, again under the entrepreneurial model, we had all these parts and pieces somewhat operating independently as well. Vic was the driving force. But it was this business talking to Vic, and this business talking to Vic, and not Business A talking to Business B.
The company already started down this path, as evidenced by the show. We're all here together as one team, as opposed to seven different businesses. This is just a start.
Q: And everything you're doing is to get lean?
A: In general, we're trying to improve the efficiency of all of our operations. One of the things, historically, within the culture of the company, the culture was very focused on growth and was driving growth on the basis of [earnings before interest, taxes, depreciation and amortization]. There wasn't a strong focus on the denominator, which is the investment.
One of the significant cultural changes that we have made is making sure we are leveraging all of the money that we have invested by driving return on invested capital, so again, we know what our cost of capital is. And Economics 101 in any business says you have to be able to return at or above your cost of capital.
That was not the focus of the company. It is now. Every division president, if you were to talk to them, would talk to you about where they are in their plans, relative to return on invested capital.
Q: Even though the company's rationalizing capacity in the Woodbridge area, it's making other investments, such as expanding capacity in the United States, for example in the fence, deck and railing operations. What would you like the industry to know about the state of Royal, at this exact moment?
A: Well, first and foremost, Royal financially is strong. I understand that there are some rumors out there about our financial condition that just aren't true. We have a very solid balance sheet. We've just, as we announced, extended the financing of the company. As we also announced, through those sales of real estate and businesses, we're going to be raising $150 million to $180 million in cash. We are very strong financially.
No. 2, we are now, as a result of going through this process, very focused on the seven core businesses. We believe that we already have an outstanding position, or believe we can obtain a very strong position, in those seven businesses, and in those businesses, we will be investing. We will be investing management time, money, personnel and R&D in those businesses. I think our customer base should be absolutely excited about the fact that we do have focus and we are going to be bringing new products and innovation; we have, but we're stepping that up at an even greater pace.
Q: Now you also have a very strong background in consumer-focused businesses. In plastics-related building and construction products, the industry has worked to make the consumer more aware of some of these products. With your experience, how do you see Royal in the future communicating with consumers?
A: We definitely will be enhancing our communications and enhancing our consumer research in order to identify new opportunities for products. In my strong view, innovation - true innovation - is the intersection of technology and consumer insight, or end-user insight if it's a contractor. You really need both. If you just have technology, you don't necessarily have innovation. At the intersection of both lie the opportunities.
We've been hit-or-miss at doing research - I'm talking consumer research or end-user research. That's going to dramatically accelerate.
The other thing, obviously, we still have work to do on our brands. Making sure that we have clear delineation between the Royal name as it is used to represent the corporate identity, as opposed to a product brand. Between now and next year, you'll see very significant strides made. And we will be building the Royal brand.
