The Rugby Group Plc Business Information, Profile, and History

History of The Rugby Group Plc

The Rugby Group plc is one of the United Kingdom's largest producers of cement and related products, such as lime and fuel ash. After an extensive late 1990s restructuring effort, Rugby has stripped back to these core products, shedding its joinery (windows, sashes, doors, and stairs) division and U.S.-based building products distribution business. The streamlined Rugby Group now consists of Rugby Cement, Ash Resources Ltd., and Lytag Ltd. in the United Kingdom; Cockburn-Adelaide Cement in Australia, the leading cement producer in that country; a 34.4 percent stake in Cementownia Chelm, in Poland, with an option to increase its shareholding to 75 percent; and the Rugby Jamaica Lime and Minerals. In total, the Rugby Group processes nearly seven million tons of cement per year; with nearly three million tons produced in the United Kingdom, Rugby ranks in the country's top three cement makers. Meanwhile, the company has jettisoned its joinery division, which included John Carr and Boulton & Paul Ltd., sold to Jeld-Wen, of Oregon, in 1999 for $135 million; the Netherlands-based group of joinery operations, including Zeeland Kozijnen, Van Bruchem Deurenfabriek, Ge-Ka Fenster & Türen GmbH (in Germany), and De Vries Trappen; and Stegbar, the company's Australian joinery arm. In November 1999, Rugby also agreed to sell its U.S.-based distribution business to its Huttig Building Products, which in turn is to be spun off as an independent company from parent Crane Co. The selloff of these interests cut out some 70 percent of the Rugby Group's annual sales, but only 40 percent of its net earnings. As part of its reorganization, Rugby has begun looking to make acquisitions to boost its cement production operations. However, the company has also suggested that it might itself be a takeover candidate at the start of the new century.

Cementing the 19th Century

The Rugby Group began as a small family business in the early decades of the 19th century. Taking its name from its Rugby, Warwickshire location, the family-run company opened its first cement processing works in 1825. The company took advantage of the growing market for cement during the Industrial Revolution; as with many of its competitors, however, the quality of the cement produced tended to vary widely, depending on the proportions of the ingredients used. By the turn of the century, the thriving company began to initiate stricter quality controls, especially with the adoption of the so-called Portland cement method. This process was stepped up in 1925, when, after 100 years of existence, the company formally incorporated as the Rugby Portland Cement Company.

The next milestone in the company's history came with the appointment of Sir Halford Reddish as the company's managing director in 1935. Reddish was chiefly responsible for building Rugby Cement into a full-fledged corporation, expanding operations beyond its Warwickshire base by adding larger production capacity and a more extensive quarry base and acquiring complementary operations. The times were right for cement, particularly with the introduction of steel-reinforced and other, stronger cement types. As construction turned from brick to cement and steel, the Rugby Cement company was able to grow into one of the United Kingdom's largest cement producers.

In the postwar years and resulting building boom, Rugby continued to prosper. By the mid-1950s, the company sought further expansion internationally. In 1955, Rugby founded its Cockburn Cement Ltd. subsidiary, in Perth, Australia. Cockburn grew to become one of that country's largest cement and lime producers, gradually adding new kilns across the country, including its sixth kiln, brought into operation in 1997.

By the late 1980s, Rugby had branched out from its Portland cement base at the beginning of the century to offer a wide variety of cement types, including sulfate-resistant cements, cements for the offshore oil well industry, quick-drying cements, and others. In 1987, Rugby acquired Ash Resources Ltd., which produced the cement extender product, pulverized fuel ash, using byproducts from coal-based power generation facilities. In 1996, Rugby added to the division's product versatility with the acquisition of Lytag Ltd., a producer of lightweight aggregates, sports surfaces, and other lightweight cement products.

Diversifying in the 1980s

The cement industry's vulnerability to the cyclical construction industry led Rugby to look for ways to shore up its earnings during economic downswings. At the same time, the company eyed entry into the vast U.S. construction market. Rugby achieved both of these objectives when it bought the Addison Corporation, based in Atlanta, Georgia, in 1984. Addison brought Rugby into the joinery business, that is, the manufacture of doors, windows, staircases, and related products. In this way, Rugby's newest operations remained linked to its construction industry base, but diversified enough to withstand the cyclical downturns of its industry.

Rugby quickly followed the Addison acquisition with a series of smaller acquisitions that enabled the company to solidify its U.S. position. Rugby also imported the new joinery operations to its U.K. home, with the 1985 acquisition of the John Carr Group. This acquisition formed the basis of what became the Rugby Group's Joinery division in the 1990s. Meanwhile, Rugby continued to seek new acquisitions to boost its newest product line. In 1988, the company expanded onto continental Europe, purchasing the first of several Dutch and German joinery businesses, including the wooden windows companies Zeeland Kozijnen, Kuin Kozijnen, and Limburg Kozijnen; wooden door manufacturers Van Bruchem Deurenfabriek, Kegro Deuren, and Tinga Deuren; and staircase maker De Vries Trappen, among others. These companies were formed into Rugby's European Joinery Division in 1988.

In that same year, Rugby took its joinery business to Australia as well, buying up Melbourne-based Stegbar Pty Ltd. Stegbar had been founded in 1946 for the manufacture of wooden clock cases. By the end of the 1950s, however, Stegbar had expanded through much of Australia, adding new wood products, including joinery products, before going public in 1965. Stegbar continued its expansion as a Rugby subsidiary, maintaining a position as one of the leading joinery products manufacturers in Australia, with a network of manufacturing facilities and display rooms.

By the 1990s, joinery products had become Rugby's largest revenue producer. Rugby continued to build this division, increasing its European operations through more acquisitions, mostly in The Netherlands, while also expanding its operations in the United States. The U.S. operations were brought under more central control with the formation of the company's Rugby Building Products division. In addition to joinery, Rugby Building Products took on a role as a distributor for building materials and industrial building products to the construction industry, while also operating millwork facilities. In 1994, Rugby Building Products took a leap into the big leagues, with the US $61 million purchase of the building supplies division of Bunzl Inc., as that company turned toward plastics and paper-related manufacturing. The Bunzl purchase made Rugby one of the largest building products suppliers in the United States.

Streamlining for the 21st Century

The severe downturn in the worldwide construction industry, beginning with the 1988 crash in the building market, after years of overbuilding, and compounded by a slip into the long recession of the early 1990s, not only gave Rugby a number of acquisition opportunities, but also left it with a heavy debt burden. Meanwhile, the joinery division was facing added pressure. While Rugby's joinery products continued to rely largely on wood and wood materials, the construction industry had begun increasingly to adopt new PVC-based products. Rugby moved to counter this threat in 1995, buying up the United States' Pioneer Plastics Corporation, which gave Rugby an extensive line of high-quality plastic laminates and entry into the plastics construction materials market. The company also tried to shore up its joinery operations by acquiring money-losing British rival Boulton & Paul in 1997. Rugby attempted to revive the flagging Boulton & Paul, closing some of its production facilities, eliminating some 750 jobs, and placing the new acquisitions under its John Carr division with the newly created Rugby Joinery UK subsidiary. The growth of PVC in the construction industry, however, particularly the increasing adoption of PVC beyond the replacement products market into the new construction market, traditionally the preserve for wooden joinery products, placed too much strain on the company's books.

Meanwhile, a new slump in the construction industry, starting in 1995, forced Rugby to cut back on its cement operations, where the company closed two plants and dropped some 20 percent of its work force. At the same time, the company faced the retirement of the company's former chairman and the resignation of its CEO. By 1997 the new management team of Robin Gourley, chairman, and Peter Johnson, CEO, were forced to restructure the struggling company, burdened with debt and unable to build the critical mass it needed to meet the growing competition. Johnson decided to jettison any subsidiary operation unable to meet a targeted 20 percent return on assets by 1999. At the same time, the company hoped to build a war chest to place it in position to add to its core cement products division.

By November 1999, Johnson had transformed the Rugby Group from a diversified building products company to a streamlined manufacturer of cement and cement products. Pioneer Plastics was sold off in 1998. In April 1999, the company sold off its United Kingdom and Australian joinery operations, including John Carr, Boulton & Paul, and Stegbar, to the U.S.-owned Jeld-Wen, based in Oregon, for US $135 million--a price that was reportedly $100 million less than the company had hoped to receive. That sale was followed by the announcement in October 1999 of the company's agreement to sell its U.S.-based construction products and distribution businesses to Huttig Door & Sash, the Crane Co. subsidiary set to be spun off as the independent company Huttig Building Products at the same time. As part of the deal, Rugby retained a 32 percent ownership position in Huttig, making it the new U.S. building products giant's largest single shareholder.

On the more constructive side, Rugby continued to shore up its cement operations. In 1997, the company moved its cement business into the continental European market for the first time, with the purchase of slightly more than 34 percent of Cementownia Chelm, in Poland. The purchase price of BP 60.5 million gave Rugby the option to acquire up to 75 percent of Cementownia, one of Poland's largest cement makers, with an annual production of more than two million tons. In Australia, Rugby took the unusual move of merging its Cockburn cement operations with those of rival Adelaide Brighton Cement. Rugby retained a 55 percent controlling position in the newly merged company, which took on the name of Cockburn-Adelaide Cement.

These moves not only gave the Rugby Group a vastly streamlined organization and product line, but also a war chest worth more than BP 500 million. Rugby immediately signaled its interest in adding to its cement operations through acquisitions. A possible takeover target was British rival Castle Cement, which appeared likely to be put on the block by Norway's Scancem, as that company prepared to dismantle much of its operations before the end of the century. If Rugby managed to acquire Castle, it might achieve the mass necessary to maintain independent operations. Yet the question remained whether Rugby intended to continue nearly 175 years of history. In November 1999, the company announced that it had been approached about the possibility of being acquired. While no names were mentioned, the approach was expected to take the form of a formal buyout offer with the beginning of the new century.

Principal Subsidiaries: Cementownia Chelm (Poland; 34.3%); Cockburn-Adelaide Cement (Australia; 55%); Rugby Cement (UK); Ash Resource Ltd. (UK); Lytag Ltd. (UK); Rugby Jamaica Lime and Minerals (Jamaica).

Principal Competitors: Aggregate Industries; Blue Circle Industries; Cemex; Ciments Fran&ccedils; CRH; Franz Haniel; Hanson; Heidelberger Zement; Holderbank; Lafarge SA; RMC Group; Saint-Gobain.

Chronology

• Key Dates:

• 1825: Company founded as family business in Rugby, Warwickshire.
• 1925: Incorporated as Rugby Portland Cement Company Ltd.
• 1935: Sir Halford Reddish is named Managing Director; he expands company on national scale.
• 1955: Cockburn Cement is established in Perth, Australia.
• 1984: Rugby acquires Addison Corporation of Atlanta, Georgia, to enter joinery industry.
• 1997: Rugby acquires Cementownia Chelm, in Poland.
• 1999: Merger of Cockburn Cement with Adelaide Brighton Cement (Australia).