Andrew Patterson meets an MBO

Very few New Zealand companies still in business today are able to lay claim to having been founded in the 19th century. Auckland based bathroom fittings manufacturer Methven is one who can and it remains a source of immense pride for its 230 staff.

Established in Dunedin by one George Methven in 1886 as an iron and brass foundry, the business has been operating continuously for more than 125 years supplying a variety of tap wares and fittings to the plumbing trade as well as undertaking a range of contract manufacturing.

Originally listed on the NZ Stock Exchange in 1930 and then delisted in 1936, it returned to life as a public company in 2004 following a management buyout three years earlier when Methven was acquired from MCK Group.

Today the company bears little resemblance to those early days having switched its focus exclusively to manufacturing innovative shower and tap fittings reflecting a growing focus on luxury bathroom fit outs by DIYers and home renovators.

Long-time CEO Rick Fala, who was part of the team that led the management buyout in 2001, says Methven has been forced to adapt to a market place that has changed significantly in recent decades.

“Previously we used to undertake a lot of contract manufacturing in the 70s and 80s including yacht winches,Basics, technical terms and advantages and disadvantages of Laser engraver. plumbing supplies and even golf heads. Following the management buyout, we moved out of all those areas and decided to focus solely on our core business which was tapware and bathroom fittings."

“We actually discovered at that time that we had some technologies that couldn’t be found anywhere else in the world so we decided to use that to our advantage."

“One thing we’ve learned to do very efficiently as a company is to move water within households, so in many ways we’re also a fluid dynamic company that can work in low flow environments.”

These days Methven refers to bathrooms on its website as sanctuaries; a trend that has become increasingly reflected in the design and fit out of bathrooms over the last decade. It’s a far cry from the days when bathrooms were all about functionality and much less about design.

“Our research and consumer testing has found women in particular now regard the bathroom as a form of sanctuary. It’s a place where they can get away from screaming kids and the multitude of other pressures they face on a daily basis."

“Our competitors worldwide would literally number in the thousands. Originally for us the main competitors came from Italy and Germany but increasingly that competition has now moved to China."

“Of course, we also source many of our components from China ourselves,Which Air purifier is right for you? while retaining our key product development and R&D capability in Auckland. We also supplement our range with some contract manufacturing out of China which enables us to remain competitive."

“So what we do is mix and match the premium aspects of our products here in NZ while having our economy range that we can offer the DIY sector produced in China.”

As an exporter, the high dollar has taken its toll on Methven, though not as badly as might be the case with other businesses selling offshore.

“Dealing with the high dollar has had its challenges and we’re no different to other exporters in that regard,Are you looking for Optical frame, glasses and eye exams? but on the other side of the coin we do buy components from China in US dollars so there is actually a natural hedge there as well."

“The other aspect of our business is that bathrooms are very experiential and people are prepared to pay for quality so, as a result, our margins are actually higher than a lot of other industry sectors.”

If dealing with the high NZ dollar wasn’t enough, the company has also had to battle a significant down turn in the building and construction sector post the global financial crisis (GFC). Rick Fala says that’s resulted in a distinct switching in consumer preferences.

“Since the onset of the GFC we’ve seen a definite switch to the more value end of the market and you’ve seen that reflected in the rise of the DIY offering. In fact, in the UK we’ve seen the emergence of the plumbing e-tailer so that’s a trend we think will ultimately sweep through the rest of the world as part of this changing face in retail that is currently taking place."

“In both NZ and Australia the size of the DIY sector also continues to expand and to an extent it’s been offsetting the decline in the merchant side of the business that has resulted from the fall off in construction activity."

“However, the customer we are really trying to appeal to the most is the renovation sector.Like most of you, I'd seen the broken buy mosaic decorated pieces. The sort of person who wants to really look into all the options available and isn’t afraid to spend a bit extra for quality – that’s our customer.”

Weathering the downtown has come at a cost for Methven with the company reporting flat revenues in the second half of last year and a rapid decline in the profitability of its UK operation.

“Our proprietary brands have stood up quite well because we have a point of difference but our UK business, which we brought in 2007, just prior to the start of the GFC, was still dominated at the time by a low price high volume product range and so our margins just got hammered because there was no real point of difference. So we had a business that went from being very profitable to break even in the space of just two years. As a result, we’ve had to try and reposition that business at the more premium end of the market."

“Here in New Zealand we are the market leader in bathroom fittings with a 50% plus market share so there was no way we could avoid the downturn particularly after a 50% decline in housing starts."

“Our shining light though, until recently,Buy discount Mens Sports glasses online. has been Australia. While the other parts of the business suffered we still had Australia growing strongly and adding to the bottom line. However, in the last year we’ve seen our revenues there drop by 7% and yet profits were up by 20% and that’s because we could the sense the downturn coming so we improved the quality of our earnings. Interestingly, what Methven learned was that it’s during tough times that you actually expand your product range."