Maui Capital

Who: Norfolk Group Limited
What: Purchase, subsequent float and re-investment in Australian industrial services sector of the ASX
When:  Investment in group in 2004, re-investment following float in July 2007, further reinvestment in 2009
Website:  www.norfolkgl.com


While the companies that made up the newly formed Norfolk Group in 2004 included some of Australia’s most respected brands they had also long been seen as poor cousins within a global organisation. Glenn Wallace, Norfolk’s Managing Director, explains how the group’s improved performance generated returns of 10 x money invested, thanks to a focus on the people who knew how to make its businesses work.

In late 2003, when Glenn Wallace returned to New Zealand following 15 years as Managing Director of Tyco Services for Australasia, he was planning on a new career as a business consultant. But it was not long before he was appointed to the board of the newly formed Tiri group of companies, and then a little later became its Managing Director. Named for one of the islands in Auckland’s Hauraki Gulf, Tiri had been formed by the team who would later go on to form Maui. It included seven companies with little in common beyond membership in a much larger collapsed group. While they included some of the country’s best-known manufacturing brands, their fortunes had waned. In aiming to turn that round, Mr Wallace says his first priority was to get to know really well the people who had led the businesses.

Now thoroughly back in a full-time role, he began by running a series of very open strategy meetings with each senior management team. These helped define new opportunities, but were deliberately not run by a facilitator, he says, “Because I needed to learn about the businesses for myself.”

Sometimes the meetings generated new answers to persistent problems. At wallpaper manufacturer Pacific Wallcoverings, for example, when they realised paper-hanging was becoming a dying trade the company established a new training school to teach it at Porirua. This produced the skilled paper-hangers their product relied on, “and when they qualified they had our brand in their minds as well”.

Other more conventional moves were equally effective. The Temuka pottery plant expanded into new ceramic electrical insulators and fuses. Lawnmower maker Masport cut losses by moving motor assembly to China. In Thames, heavy engineers A & G Price successfully expanded into supplying keels to America’s Cup syndicates. When Tiri was later bought by a new owner (who continues to operate all brands) earnings were sufficiently high to return 3.4 x the original money invested in the group.

The success and sale of Tiri was also a marker in the evolution of Maui. Tiri had been formed by the Hauraki No. 1 fund, run by a team including Paul Chrystall and Brent Lawgun at the Auckland office of Goldman Sachs JBWere. In 2004 this team were organising a second and much larger, Hauraki No. 2, fund. Having worked closely with them on Tiri, Mr Wallace saw how a similar successful approach might be applied, only this time across the Tasman and on a much larger scale.

If you look at it today, the ASX-listed Norfolk Group, employing 3500 people through nine companies in 150 sites in Australia, New Zealand and Asia, is a well-established industrial and property services leader. Its companies are leaders in their sectors.

O’Donnell Griffin designs, installs and maintains electrical and communications engineering systems for major civil engineering projects. Haden provides a whole-of-life capability in mechanical engineering and heating, ventilation and air conditioning (HVAC). Resolve provides a wide range of technical facilities and property management services. But back in 2004, most had been making a loss. Although they were individually well-established (O’Donnell Griffin and Haden are both over 100 years old), they had long been living near the fringes of the global group of Mr Wallace’s old employers, Tyco, who were then looking to consolidate around core fire and security products and services.

Mr Wallace and the team behind the second Hauraki No. 2 Fund were not alone in seeing opportunity in Tyco’s “non-core” Australasian businesses. Where other suitors offered only partial or sliced-up deals, Hauraki No. 2 succeeded with a simple “walk-in, walk-out” offer, with no redundancies and all members of the newly formed group kept intact. At the time, Mr Wallace says some of the companies had been battered by being marginal within the larger group. “But there were some very strong brands there. I knew the quality of the people. And I knew the opportunity.”

A key strategy was to seek new markets that were more profitable and sustainable. O’Donnell Griffin, which had been losing money but is today the group’s top performer, shifted from predominantly serving the commercial sector to new opportunities in Australia’s growing resources, power and rail infrastructure. In an uncannily well-timed anticipation of a possible economic downturn, Haden expanded into providing national HVAC service contracts. Growth was further supported by acquisitions. From losing money, within two years the Norfolk businesses were collectively growing at an average of 20-25% annually. Floated on the ASX in 2007, Norfolk’s value grew in three years from $A90 million to $A323 million.

It was shortly after this that Maui was also formed. Mr Wallace was one of its founders. And Maui’s Indigo Fund has since reinvested in Norfolk where Maui continues to hold a controlling stake of around 20% of the company’s shares. Mr Wallace and essentially the same senior management teams remain at the head of the group, continuing to focus on the same people and operational strengths that he says were key to its turn-around in the first place.

“The greatest fear a lot of business people have about new owners is that they will walk in and assume because they are buying the business they will know more about it. But as well as the financial fundamentals, the operational side is just vital. That is something we recognise in every business we work with at Maui. Businesses need people who know how to lead and manage people and to get results; and that’s not something you can find in a financial spreadsheet. You always have to genuinely include the people who are running the business in everything you do.”

He says Norfolk continues to operate as far as possible with much the approach of an unlisted company. They keep corporate costs low, senior management are well incentivised (including via holding equity) and the company has a small five-man board, on which Paul Chrystall, Maui’s Managing Director, is a non-executive director. It remains a point of pride that even during the global financial crisis most of its companies continued to hire new staff. And the prospects continue to look good. In the 2010 financial year the group posted record revenues of A$792 million. At A$828 million, its order-book has more than doubled in four years. It expects a further 10% growth in profit for 2011.

“A real satisfaction for me is in doing everything that we do but also being able to work with people in building up a company like this,” Mr Wallace says. “And seeing a better result for everyone, not just focusing on an outcome for the people who put the money in.”

“The greatest fear a lot of business people have about new owners is that they will walk in and assume because they are buying the business they will know more about it. But as well as the financial fundamentals, the operational side is just vital.”