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The Big Inter view

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Office Pr od ucts In ter na t io na l • Oc t o be r 2007


Eric Bigeard – Part 1

Home run by Steve Hilleard & Heike Dieckmann

In the first of a two-part interview, Lyreco’s Eric Bigeard talks openly about what makes the French contract giant tick Eric Bigeard is undoubtedly one of them. Liked Tfor nohisintroduction. charm (he’s French after all!) and respected for his nose for

here are just a handful of people in our industry who need little or

good business opportunities and stamina in executing them, Bigeard has become synonymous with the Lyreco name since taking over at the top nearly 20 years ago. Lyreco’s journey across the globe, and the battles with its formidable competition, have been closely monitored by OPI over the years. But it’s been five years since Bigeard himself has given one of his famously frank and free interviews on all things Lyreco and our industry at large. In this first part, he talks about the complexity of the European market with its margin pressures and distinct customer segments. Bigeard also emphasises the importance of acquisitions and makes the case for some inspired alliances. Here’s his fascinating insight... OPI: Let’s start by looking at your financial performance.

What have been the trends in your overall sales over the last five years and what have been your growth rates – organic and acquisitive – in that same time? Eric Bigeard: We’re looking at sales of between 12.2 billion and 12.3

billion ($3.04 billion to $3.18 billion) this year. That would be a growth of about eight percent in 2007, assuming things keep going the right way. This is purely organic growth because we haven’t made any acquisitions in the last 12 months. If anything, we have had some minor divestments after the Ahrend purchase. You may remember that the company had a little copy store chain. Well, we divested that business about a year ago. So if we look at organic growth, it would actually be a little over eight percent. OPI: I assume that growth rate is not even across all the markets in which you operate. Where does the best performance come from?

EB: No, it’s definitely not even. The largest percentage of our growth still comes from Europe, that’s where the bulk of our business is today. That has been reinforced further through the various acquisitions that we have made in Europe over the past five years. We still see double-digit growth in the UK, but our smaller markets of Spain, Italy and Poland also continue to experience double-digit growth. France, on the other hand, has been rather flat over the past five years, but I’m very pleased that we’re seeing some growth again in the country this year. The impact of the French business these days is obviously less pronounced than it used to be but it’s still, in revenue terms, our first market, and represents just a little under a quarter of our total business. OPI: What are your other big markets? EB: The French business is very closely followed by what we call the WISE zone – Wales, Ireland, Scotland and England – but it’s growing faster. There is lots of speculation internally at Lyreco as to if and when WISE will catch up with France. It’s a nice competition O f f i c e P r od u c t s I n t er n a t i on al • O c t ob er 2 0 0 7

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The Big Interview to have and really shows the representation of the various European markets within Lyreco. OPI: Does that mean you’ll finally do the decent thing and relocate your head office to the UK?

EB: (Laughs) I don’t think we’ll do that, but our heart is there anyway! OPI: So what revenues are you currently generating in France?

EB: We’re talking a little over 1500 million this year. OPI: And the UK? EB: A bit less. We should only have a couple of percent difference in the total split of the business between France and WISE this year, so it’s getting very close. OPI: That’s nearly half your total business from just two markets.

EB: That’s correct. You have to remember, though, that back in 1990, 100 percent of the business came from France, so that’s a substantial evolution in that period. OPI: What about Germany – your third largest market I presume?

EB: Not yet. Germany is growing very fast, but it’s not there yet. You have to bear in mind, though, that we’re talking about markets and not countries. We consider Benelux to be one market and we consider Scandinavia to be one market. That changes things a little, because if we were just looking at countries you would be right, but because we look at markets, we have France, WISE, Benelux, Germany and then Scandinavia. OPI: What’s happening in your far-flung regions like Canada and Australia? Are they growing?

EB: Australia is growing, which is good to see after a period of restructuring. Part of this restructuring meant that we divested and cleared some parts of the business we were not happy about. But we’re back on track now. Canada this year has been static. We’ve had some nice growth there over the years, but this year it’s been slow. OPI: How have gross margins tended to play out

over the last few years? Is it possible to generalise?

EB: Up and down. Compared to 2006, this year is flat. OPI: So what percentage are we talking about – will you share that with us?

EB: (Laughs) Nice try, but no. We don’t publish that kind of information. Also, it depends on the country. We have the middle segment customers – which we have a special separate division for – and the corporate side of our business, and on average we probably have ten points difference between these two segments. Just as a guide, for Lyreco as a whole we more or less have a 50:50 ratio for sales between the two segments. Then it depends on the split in any one market. If you look at Germany, for example, 80 percent of our business comes from the corporate segment, while in Spain, we generate about 80 percent of business in the mid market. As a result, the margins we have in those two countries alone are very different. OPI: Given what you’ve just said about these two customer segments, are there also certain markets that are more competitive and therefore lower margin than others?

EB: Definitely. Roughly speaking, we have a fairly narrow bracket of gross profit results if you look separately at the mid market by geographic region and at the corporate segment. The split from one market to another may be 46

Office Pr od ucts In ter na t io na l • Oc t o be r 2007


The Big Interview different, but the actual margin per segment per market is very similar. Generally speaking, the most competitive markets are also the biggest economic ones. If we look at Europe, the UK, France and Germany are right at the top. OPI: They also have some of the highest distribution and wage costs, of course. How difficult is it to make a decent net margin there?

EB: It’s a question of volume. These markets are volume businesses for us. You have fairly high structural costs and to compensate for those you need to push as much volume as possible through the pipelines of those businesses. I’ll give you an example. Since 2000, Lyreco has been building its own distribution centres and that, to me, is a key element of our business. The more business you push through these centres, the easier it is to make a profit. As a general rule, developing our salesforce remains a vital strategic objective in our efforts to boost business. The more business we have in any one country the more profits we’re going to generate. OPI: Going back over the last five years, you’ve entered quite a number of new markets, through acquisitions and one or two greenfields as well as some alliances. How many new markets have there been in total?

EB: In the last five years? I don’t know exactly. We’ve added Australia, Switzerland, Finland, South Korea, Singapore and Malaysia. We’ve also entered what we call the CASH zone – we like acronyms like that – which is the Czech Republic, Austria, Slovakia and Hungary. So that’s about ten markets, isn’t it? OPI: And you bought a stake in Egypt’s Speed Send. EB: Absolutely. We finalised this minority acquisition a couple of months ago. It’s a different strategy, but I’m delighted about it. OPI: Why did you only acquire a minority stake? That’s not typical of the way you operate, is it?

EB: No, it’s not. It took us a long time to get there and it’s a bit related to our experience of handling some of our partners. We don’t want to be directly present in that part of the world at this point in time. At the same time, however, we wanted to help the company to develop its business and make sure that Speed Send is, and will continue to be, the number one player in the region. OPI: Why do you not want a direct presence in

EB: (Laughs) No comment. OPI: I guess you weren’t the only party interested in Ahrend?

EB: Well, the whole discussion process went on for years. We finally got there in November 2005 and I was extremely pleased to have Ahrend on board. Tactically and strategically, it was the best possible acquisition for Lyreco in Europe. We’ve always been choosy with our acquisitions and haven’t just lined them up, like some. Ahrend was a prime acquisition target for Lyreco because of its size – 1200 million – because of its geographic presence in Germany and the Netherlands, two markets where we lacked volume, and because of the overall business approach, which was very similar to ours. It’s been a very energy-consuming journey, but so far it has been an extremely successful integration process. OPI: Is that process now complete? EB: No, it’s not, it will probably take another year. We have one common management team today and a joint salesforce. The logistics and IT parts in Germany will be finalised in November and in Benelux by the end of the summer next year. OPI: Are you still trading with the Ahrend name or is it just Lyreco now?

EB: The Ahrend part of the business has been trading under the Ahrend Lyreco dual name for 18 months, but we’re currently phasing out the Ahrend name. OPI: Let’s talk about Switzerland and your acquisition there.

EB: Switzerland is an interesting market because although it’s right in the middle of Europe, very few international moves have been made there in office products terms. It’s an incredibly nationalistic country with a very strong individual culture. We bought Büro-Fürrer, which is by far the biggest player in the country. It’s been a pleasure observing how the Swiss market and the Swiss teams have integrated with Lyreco. For us, it’s also been a good move because many large firms have their European HQs in Switzerland. OPI: What size is the business in Switzerland? EB: Switzerland is going to generate between 1100 million and 1110 million in sales.

Egypt at the moment?

EB: Well, it’s a matter of prioritising our resources. Our priorities at the moment are countries that have a stable economic and political situation, and there are other markets out there that are more stable than Egypt. South America definitely, Portugal, Greece, Turkey… OPI: So any readers from those countries that have decent-sized businesses, should they consider giving you a call?

EB: Sure. OPI: Let’s discuss a business that you already

bought – Ahrend. I guess that was the biggest acquisition for you in the last five years, wasn’t it?

EB: Yes, definitely. OPI: What revenue has it added? EB: 1200 million as it stands now. As I said earlier, we divested a small part of that business a while ago. OPI: How much did you pay for it?

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The Big Interview OPI: Another acquisition for you was National 1 in

Australia which, of course, was a company you got involved in through an alliance. What’s the story behind that deal? A lot of industry commentators, particularly locally, questioned your decision.

EB: We had never really thought about acquiring in Australia. But the story is slightly complex here. We basically needed to support some of our customers in Australia and found a good partner in National 1. Then, one day, the CEO gave me a call to say, “Eric, we’ve got a problem”. It was a cash problem and the company had not been able to pay its suppliers for some time. The option was either to let National 1 go bankrupt or to find out a bit more. As I said, we had customers supported by National 1. The alternatives in the Australian market are OfficeMax and Corporate Express. There weren’t any other potentially decent nationwide partners, and we decided there were enough good things in National 1’s business to pick it up. There was a lot of restructuring to be done as I mentioned earlier. The business was run like Gaspard was run 27 years ago, with regional entities, regional general managers, regional IT, etc. The name of the company was National 1, but it was anything but a national business. OPI: It sounds like a significant investment just to keep a handful of global customers happy.

EB: The financial investment was not that big. It’s been more an investment of energy. It reminds me of comments a couple of years after investing in the UK, when people were saying “You’re crazy investing in the UK. You had a successful business in France and now you are draining all your profits into the UK”. When I look at the P&Ls of what the UK generates for us today, I have a very big smile on my face. OPI: Fair enough. So where does Lyreco stand in Australia now?

EB: We’re number three in Australia, after Corporate Express and OfficeMax, with sales of roughly 150 million. OPI: Talking of alliances, you’ve been in some very interesting ones over the last few years – Pragmatic Express in Russia, Waltons in South Africa, Office Products Depot in New Zealand...

EB: I’ll start with New Zealand. Again, the situation there was about pushing the boat. Our two main competitors in Australia are both present in New Zealand and they are doing what we would be doing – they are selling the region as a package to their customers. Consequently, it was becoming more and more essential for us to have some sort of presence in New Zealand as well. New Zealand being New Zealand, we preferred to look for a partner rather than invest ourselves in that market, and we are very happy with Office Products Depot. OPI: What about Waltons and Pragmatic? EB: Russia is a key future market in Europe in my view. And Pragmatic is a fascinating company – spirited and very dynamic. It has fantastic organic growth and is extremely successful in the Moscow and St Petersburg markets. We are delighted to have this Russian alliance. As far as South Africa is concerned, geographically speaking it’s a long way away. Waltons is by far the most dominant player in the region and it makes perfect sense to have a deal with that company.

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Office Pr od ucts In ter na t io na l • Oc t o be r 2007

OPI: None of your major competitors – to my

knowledge – have alliances in markets like South Africa, but they seem to be doing a good job in terms of growing their business. How vital are alliances to you and why is it so important for you to cover these far-flung markets?

EB: It’s not necessarily that vital and it depends which ones you refer to. We haven’t talked about Staples yet, another one of our partners, and I would certainly put that alliance at the top in terms of strategic importance. Russia, Egypt and South Africa are probably further down the list in terms of timescale objectives. OPI: I’ll come to your relationship with Staples next time. But for now, are there other markets where you are currently considering finding a partner? You mentioned South America earlier on.

EB: Once again, typically the market has to have economic importance. There are markets in Asia where we would not necessarily want to be present ourselves today – Indonesia and the Philippines for example – but it might make sense for us to have a partner there at some stage. And yes, in Latin America we would be happy to either have a partner or a direct presence at some point in time. OPI: The last point I wanted to cover about your last few years of growth and expansion is the UK Ministry of Defence (MOD) contract that you won, so I’m told, from office2office. That deal raised a few eyebrows as well as assumptions that you sacrificed margin to go and pick up that business. What’s your comeback on that point?

EB: I don’t think we won that contract exclusively on price. I would also refer back to your earlier question about the margin level that Lyreco generates. Our margin is higher than the margin of our competitors. With that, and the MoD contract in mind, we certainly haven’t sacrificed profitability. We talked about P&L in the UK earlier – and we have very nice profits indeed in the UK, thank you very much. OPI: And thank you very much to you too, Eric.

It’s been a fascinating insight into the workings of Lyreco and your strategies. One region we’ve pretty much missed out on has been the Asian market. I’m looking forward to your thoughts on that particular part of the world next month. And, of course, I can’t wait to hear your ‘verdicts’ on your various competitors…


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