Entrepreneurs Forum

Covering the world

Tuesday 10 July 2012 6:00

By sticking to its niche, Skipton-based Fibrelite is now trading in 70 countries all over the world as BQ Yorkshire editor Peter Baber reports.

This magazine is supposed to be all about Yorkshire companies and entrepreneurs being successful, and what follows is certainly an example of that.

It’s a Yorkshire company that is currently trading with 70 countries around the world.

It most recently opened it second overseas manufacturing facility, this time in Malaysia, having successfully opened its first, a 35,000 sq ft factory in Connecticut in the USA, in 2005.

It is not backed by any venture capitalists, thanks in part to the terms of a management buyout in 2005 in which the exiting seller allowed the incoming eight-strong management shareholder team five years to pay him back.

And yet it is still expanding – rapidly. In 2011 it achieved turnover growth of 12% to take it to around £12.5m, and it plans to increase by a similar amount this year.

Not bad for a company based in a 30,000 sq ft unit on the outskirts of Skipton, on an industrial estate whose activity belies that town’s sleepy reputation.

In fact Ian Thompson, managing director of Fibrelite, the company in question, says he sometimes feels complacent when he tells people about his company’s success.

This was brought to him most recently at a Leeds Chamber dinner where the talk amongst most of the fellow attendees was all doom and gloom.

Thompson, who will have been working at Fibrelite for 20 years this November, stood out by having a far more positive story.

So what are the grounds for the company’s success? One is operating in a very distinct niche.

The company was founded in 1984 by contractor Michael Jennings and Trevor Pardoe, who was then working for an oil company.

The two had noticed the unnecessary injuries that were being caused by staff on petrol station forecourts having to lift heavy metal manhole covers. (“A petrol station is like an iceberg,” says Thompson.

“It may look empty to you, but all the fuel and all the mechanisms for getting it to your car is underground. Manhole covers give access to that, but as a result, they have to be lifted frequently.”)

Jennings and Pardoe thought they could improve this situation by producing high quality manhole covers made of “composite” or fibreglass produced through resin transfer moulding (RTM) instead.

Their covers quickly became an industry standard, thanks in part to their early adoption by the likes of Esso.

Although by the mid-1990s the company had expanded so that it was also producing fibreglass railway carriage seats under contract for Network Rail and driver cabs for truck company Foden, Thompson, who became managing director Jennings’ retirement in 1997, decided to call a halt even from this expansion sideways and instead concentrate on the core product.

“I felt we didn’t know enough about the other industries to be profitable,” he says.

“Quite often it required high capital investment to get into them, the volumes were always less than half of what was promised, and the costings by which the sub-contract price was set were always widely underestimated. We were chasing opportunities which devalued our core focus on petrol stations.

"I thought it was a distraction with low profit, and I felt the competition creeping up on us. We weren’t innovating as fast as we could because we were spreading ourselves too thin. So we withdrew and remained a forecourt equipment manufacturer.”

It proved a shrewd move, because the attractions for such composite covers have only if anything grown stronger.

For one thing, they have next to no resale value for scrap metal thieves – a growing problem, even in areas as public as a petrol station forecourt and when you consider the potential devastation that might be caused by a cover being stolen.

And in this greener environment with a wider use in some parts of the world of ethanol-based fuels, the composite covers have come into their own again.

Such fuels need to be stored in a completely watertight environment, and Fibrelite’s vacuum tested covers can provide such a seal in the way that a potentially damaged and rusty metal cover may not.

The company has expanded into offering the covers in other areas as well, including airports, shopping centres, power stations, water, gas, waste telecommunications and other public work – all of which are also having problems with metal theft.

Still, these are hardwearing products: Fibrelite offers a 15-year warranty on each one it produces, although Thompson says they can last at least another 10 years beyond that.

So repeat orders aren’t exactly going to make a strong proportion of your sales.

That, says Thompson, is why his company had to start seriously looking at exporting and setting up operations overseas, at a time when its size – it then had a turnover of £6m – would suggest it might not be big enough.

“Then we only exported 20% of what we produced, and kept the rest in the UK. Now those two ratios have completely reversed.”

To be fair, it was initially lucky in that the company had got its name in the right places. It had been specified on the list of preferred suppliers by a range of companies building petrol stations worldwide, and, as Thompson points out, the big names in petrol like to make sure their petrol stations look the same.

“Shell and Esso have international standards,” he says.

“A petrol station in Malaysia, for example, has to be same as one in Paris, say, even if it is in the middle of a tropical jungle. It will have the same Shell sign, and so it should have the same manhole cover.”

Nevertheless, getting your product into 70 countries can’t all be put down to clever contractual work.

So what are the lessons Thompson has learned about trading overseas? One is use local people.

“You think you can do it with your own people, but you need local people,” he says.

The main reason for opening the factory in the USA, for example, was that at the time the exchange rate was so unfavourable that one supplier gave the company little option.

“We found a US national to work with,” says Thompson. “A man called Jim Goodman who at the time was a distributor of ours. He was my age, and we got on well. I approached him, and asked if he wanted to become president of our US manufacturing business.”

Similarly in opening the facility in Malaysia, the company has made use of the Malaysia Investment Development Authority, which has a remit covering inward investment.

“They actually came up here to see us,” says Thompson. “They said: ‘We will advise you, we will put you in touch with people you need to speak to in Kuala Lumpur. And it will all be for free.’ They said: ‘You can pay a consultant, or use us.’ It was a no-brainer really.”

A second rule is know your finance well. Thompson started off in the company as financial director – he says people still occasionally dismiss him as “just an accountant” to their loss. But he says the disciplines he learned in his initial role have carried him through.

“All chief executives and managing directors have to read a balance sheet,” he says. “It helps, especially when we were expanding and opening up overseas subsidiaries. You need a close understanding and control of everything.”

A third consideration is to choose the place you are expanding into carefully – and if possible choose somewhere like the UK.

That was the what swayed it for choosing Malaysia as a hub from which to trade with Thailand, Singapore, Indonesia, the Philippines, and China – countries which all have massively increasing car ownership, and a growing demand for petrol stations.

“The country has a nice feel about it,” he says. “English is the second – in some cases the first - language, and company law is generally based on UK law. You still need five Thai investors as part of setting up a company in Thailand. But in Malaysia you can be an 100% foreign owned subsidiary. They drive on the left hand side there, and the signs are in English. Out of all the South East Asian countries Malaysia has a more First World feel.”

That may be intentional: the oil and gas industry has been identified by the Malaysian government as one of 12 industry sector that will transform the country into a “high income nation” (otherwise known as a First World economy) by 2020.

Thompson thinks this target is easily achievable. But it was also knowledge of a country that dissuaded Thompson from having a base in the one country most people think of first when you mention the Far East: China.

Although the company does trade there, Thompson says he often goes there with a European friend who speaks Chinese but doesn’t let that fact on: as a result, on more than one occasion he has discovered that people he was meeting or deals he was being asked to sign were not exactly what he was being told in English they were.

He even notices a difference in similarity within the USA itself. The area in Connecticut where the USA factory is located, he says, is very similar to the area around Skipton, with rolling hills and dry stone walls.

“I have done a lot of work in California, and New England is half way between us and them, and I would say we are a lot nearer to New England culturally than we are to California. You see this change happening as you go across the States.”

One last point about exporting is to work at it. Fibrelite chose to manufacture as well as supply its product in Malaysia, because that way the company would get around punitive 30 per cent import duties.

But when it was first looking, RTM processes were not very well established in the country, or indeed anywhere in the Far East.

Fibrelite spent 12 months negotiating with local suppliers to make sure there was local availability of raw materials and resins.

Getting the new factory up to speed also took 12 months. And yes, there have been local imitators of the Fibrelite product now. But the company has pitched itself at the quality end of the market – and in 15-year deals in the petrol industry, that counts for a lot.

So where now? Well, Thompson says one of the attraction of the long earn-out period that former owner Trevor Pardoe – who is still non-executive chairman – agreed to in 2005 is indeed that he does not now have a venture capitalist breathing down his neck asking that question, looking for an exit.

He sees Fibrelite very much in the mould (if you will excuse the pun) of the ‘Mittelstand’ companies that make up much of the German economy. They are privately owned, and in it for the long term as a result.

“They take the long term view,” he says, “and are not looking to get in and get out. Their investment strategies are careful. It’s great to have a growth rate of 12 to 15%, like we do, but we still need to be considered and steady.”

Nevertheless, there are clearly other overseas options out there. Turkey is one, as is the whole of Eastern Europe. But Thompson is most interested in another former British colony.

“We would love to do business in India,” he says. “Unfortunately, the sophistication of the market drives our business. There are a lot of metal covers in tens of thousands of petrol stations in India, and there is not so much legislative requirement for converting them to lightweight. The Indian market is many times bigger than the Malaysian, but it is simpler. It is a given that most single skin underground storage tank will leak over time, causing pollution problems.

“That is why most tanks in the UK are double skin. In India they are still at the single skin tank stage. When they upgrade, that’s when we hope to break in. We are currently too expensive.

"They tend to build sites cheaply, and there are currently no environmental or legislative regulations to make them upgrade, but that is coming. Shell is in India, and as we speak we have landed our first site. That will be the flag for further exploration.”