Rolling over the past: Three years after the demise of Coloroll, David Bowen picks through the rubble and finds strength among the survivors
Sunday 21 November 1993
Six months later, Ashcroft was awarded the CBE. Two weeks later, Coloroll announced it was in talks with its bankers; on 7 June 1990, it went into receivership.
There was much schadenfreude among those who saw Coloroll as the epitome of the folly in the 1980s. But it was not long before the City and the business-watching world had lost interest in a group that had been one of the 100 biggest industrial companies in Britain, with 8,500 employees.
If Coloroll the group disappeared, though, the people who worked for it did not. Nor, for the most part, did the companies that constituted it. The story of life after death, of Coloroll after Coloroll, is a surprisingly optimistic one.
The receivers were unusually successful in achieving seven management buyouts and two outright sales, closing down the parts that had no obvious future. They were lucky that Coloroll collapsed before the recession became too deep. They were also lucky that many of the underlying businesses were healthy and had enjoyed heavy investment while owned by Coloroll. All they needed were managers determined to make a success of them.
The banks and shareholders lost a fortune on Coloroll, and Ashcroft's reputation is in tatters. But in 1992, the companies that rose from Coloroll's ashes employed 4,800 people between them. They had sales of pounds 240m, and after paying interest on management buyout loans, they made about pounds 5m in profits. Only one of the eight buyouts has failed: some of the managers who led others are millionaires, or will be.
Would the companies be in better shape had they not gone through the Coloroll mincer? Probably, but given the depth of the recession the answer is not beyond dispute.
Coloroll was started in the early 1970s as a printed paper bag manufacturer. It was owned by the Gatward family, who hired a bright young marketing man called John Bray. He moved the business into co-ordinated wallpapers and fabrics, and brought in two designers, John Wilman and Linda Beard, to create a Laura Ashley look for the mass market. It was highly successful, in part because of the youthful and energetic export manager Bray hired: he was called John Ashcroft.
Ashcroft was managing director by 1981, and took full charge when the Gatwards and Bray left in 1984. Coloroll was floated, and in the next five years it spent pounds 420m on acquisitions - pounds 16m in the United States, the rest in Britain. Ashcroft's strategy was to spread the co-ordinated look beyond curtains and wallpaper to carpets, duvets, furniture, pottery, crockery and glass. He wanted to impose the Coloroll look on all products, and to replace existing brand names with the group name.
While some looked askance at this vision, Coloroll's real problems lay in its management style. Despite Ashcroft's obsession with analysis, the control he exercised on subsidiaries varied wildly. His main aim was to win market share, which meant managers were encouraged to invest, but also to undercut the competition. Real losses could be hidden by creative accounting.
In 1988, the group paid pounds 215m for John Crowther, a clothing and carpet conglomerate that had been thrown together at great speed. Ashcroft was balancing one house of cards on top of another, with inevitable consequences.
It was not until the autumn of 1989 that Coloroll's managers had an inkling that things were going wrong. The US wallpaper operations were suddenly closed down and their assets auctioned off.
During 1990, as the banks struggled to refinance the group, the extent of the group's problems became clear: the estimated debt figure rose relentlessly, eventually reaching pounds 350m. A last-minute attempt to rescue the group was made by Candover, the investment group, but it withdrew when it found no bottom to the quagmire.
Nigel Hamilton and Bill Roberts, Ernst & Young's receivers who took charge in June, cut 1,500 jobs and set about selling the constituent parts. By the following January, they could pack their bags: there had been the eight management buyouts (including one made before the receivership) and two sales to other companies. The receivers were fortunate that Coloroll had collapsed before the recession took hold: it would have been much harder to sell even six months later.
The immediate losers were the banks and the shareholders. The banks were owed about pounds 200m and retrieved less than half this: most egg landed on the face of NatWest, with an exposure said to be above pounds 50m. The unsecured trade creditors, who were owed pounds 150m, got nothing. Nor did the shareholders, led by Scottish Amicable, British Coal pension fund and two Swedish investment companies, Mercurius and Proventus. They paid pounds 2.3m for 5 per cent of the company in February 1990 in the vain hope of making a killing.
Ashcroft resigned as chairman in March 1990, retreating to his Lake District farmhouse to tend his flock of pedigree Charollais sheep. (Within a year he had bounced back to take over Survival Aids, a Cumbrian-based retailer of outdoor clothing. He was still only 42, and 18 months later had expanded the business from three shops to 14. In March this year Survival Group - unhappily renamed - was put into administration with debts of pounds 1.7m).
Of the 10 businesses that sprang from Coloroll's ashes, nine have been more or less successful. The one that was not was also the smallest, the china maker Royal Winton. In the mid-1980s, it had sales of pounds 5m, two thirds of which went to Marks & Spencer. Coloroll bought it, and almost immediately came into conflict with the retailer. M&S did not like its suppliers to have a high profile. After a mighty row Royal Winton was expelled from the M&S shelves, condemning it to heavy losses.
Frank Martin led a buyout after Coloroll's receivership: all finance came from the managers. 'We structured the deal so we could move into profit if there was an upturn by the end of 1991,' he says. There was not; Martin sold out to another team in mid-1992, but it could not stop Royal Winton slipping into receivership in March this year. It has since been bought by a mini-conglomerate, Spencer Hammond, but employs fewer than 100 people. Martin, now managing director of a carpet company, is philosophical. 'It was a pretty awful time,' he says, 'but I look back on it without too many regrets.'
At the other extreme, a number of companies vie for the title of greatest runaway success.
The two original Coloroll designers, John Wilman and Linda Beard, cannily held on to the rights to their own designs, and were in a strong position when bargaining with the receivers. Ernst & Young did not extract a bean from Ms Beard, who took her skills to the London-based textile company Ashley Wilde. Ashley Brodin, who runs it, wanted to recreate the original Coloroll concept of co- ordinated textiles and wallcoverings, and has succeeded. 'The Linda Beard division has done tremendously well,' he says. He reckons her lines have generated turnover of about pounds 20m.
The colourful Wilman is doing even better. He owns what should be a poisoned chalice, but is in reality a tonic: the Coloroll name.
Unlike Brodin and Beard he decided to keep manufacturing, and negotiated to buy the Nelson wallpaper factory, one of Coloroll's original plants, for a reported pounds 11m. He had to complete the deal fast, and needed a money man to help him. So it was that Eric Kilby, Coloroll's former finance director, joined him as chief executive. Of the original ruling troika of Kilby, Ashcroft and Philip Green (who now works for DHL in Brussels), it is Kilby who has fallen most surely on his feet.
John Wilman the man owns 26 per cent of John Wilman the company. Kilby owns 14 per cent. The rest belongs to Trevor Hemmings, a reputed hundred-millionaire who bought out then sold Pontins, the holiday group, and now has investments in 40 companies.
The receiver had cut the Nelson workforce back to a core of 285. Now it employs 600, has a turnover of about pounds 50m and makes a profit of pounds 3m. As well as his salary and dividends, Mr Wilman's personal company was paid pounds 385,000 in royalties, although he points out that he is still suffering from the loss of his shareholding in the old Coloroll, which was worth pounds 3m at the peak. Industry sources believe that when he floats, in the next year or two, the company will be valued at pounds 60m. That would make both Wilman and Kilby richer than Ashcroft ever was.
The success does not surprise Wilman. 'The original Coloroll was always a good business, but it had been forgotten,' he says. 'We got back to that business.' The company manufactures wallpaper under the Coloroll and John Wilman brands, and also licenses designs for production in the US. Coloroll's unhappy American experience is still in his mind. In the late 1980s, it was trying to carve out market share with aggressive pricing, but was savaged when domestic US competitors decided to turn the tables. 'You don't fight them at their own game,' he says.
Association with the Coloroll name is only a disadvantage in the City, he says. The big buyers, such as B&Q and Texas, were not at all keen on a name change, as they would have had millions of pounds worth of obsolete stock.
Denby Potteries is another high- flying buyout. It owes much of its success, ironically, to Coloroll. Denby was part of Crown House, which Coloroll bought in 1987, and had been suffering badly from under-investment. In four years, the group spent more than pounds 3m on capital equipment, even though Denby had sales of only pounds 7m. Stephen Riley, brought in as managing director in 1988, is broadly complimentary about Coloroll. 'The large divisions got a lot of pressure, but small ones like Denby were allowed to get on with it.' He agrees with the most common criticism of Ashcroft. The Coloroll name was put above the Denby name, 'which seemed to break all the rules of marketing', and he was asked to co-ordinate designs with those of the group. 'Fortunately we couldn't do it for technical reasons.'
Riley never believed that Denby, as a high-quality niche product, fitted Coloroll's image, and in October 1989 he proposed a buyout. The next July, after the receivership, he got his wish: backed by 3i, he and his colleagues paid 'between pounds 5m and pounds 10m' for the business. Six months later, orders dried up in the deepening recession. But customer demand for the fashionable stoneware remained undimmed, and after another six months orders flooded back. 'We've never caught up with demand again,' he says.
Turnover has doubled to pounds 17m in the last three years; profit in the last financial year was above pounds 3m. The workforce has risen from 380 to 560, and Riley says he is 'looking at all the options' to allow 3i to collect its profit. He and his colleagues, who own 55 per cent of the company, will soon be very rich men.
John Parker, who led the buyout of Kosset Carpets, happily admits that he is 'quite wealthy', because the company has already been sold on. Kosset had been part of John Crowther, where it had been bundled together with Crossley Carpets. Ashcroft soon realised this operation had its share of problems, and hired Parker from Holt Lloyds to sort it out.
He was unhappy from the beginning. He disliked the suppression of the brand name and the insistence on sales growth at all cost. 'We could see the potential damage being done by the centre's operating style,' he says. But he does allow that the group was not mean. 'If we took a view we wanted to invest, it was very good at providing,' he says.
His team bought Kosset in the summer of 1990 for pounds 17m. It was backed by Phildrew Ventures, the venture capital arm of Phillips & Drew Fund Managers, which put in pounds 8m. 'Within two weeks our biggest customer, Lowndes Queensway, went bust,' he says. Nevertheless, the next January he took over the Crossley business, whose factory had already been closed by Ernst & Young. Parker revived the brands and started to pull the company back. 'It was bloody hard work,' he says. 'But MBOs make businesses become much more focused: because it has borrowed a lot of money, the management team has to be much sharper.'
After interest charges of pounds 1.8m, Kosset made a pounds 1.1m loss in the year to September 1992. It was on its way back into profit, but Parker believed rationalisation of the carpet industry was inevitable and decided it was time to exit. He identified the world's biggest carpet maker, Shaw Industries of Georgia, and at the beginning of this year the sale went through. The price has not been revealed, but it was enough to give Phildrew a pounds 15m payback from its pounds 8m investment.
Alexander Drew, a Rochdale- based textile printing company, was bought out in January 1990 as Coloroll attempted to stave off its cash crisis. The pounds 15m buyout, backed by Morgan Grenfell, was led by four managers. Drew was profitable then and is more profitable now: in 1992, it made pounds 4m after interest payments on a pounds 14.3m turnover. In June of that year Lamont, the Belfast-based textile group, paid pounds 22m for the company.
David Yorke, the sales manager and one of the buyout team, says the secret of Drew's success was that it was already tightly run, and could react fast. The Coloroll experience was not a bad one, he says. It invested pounds 4.5m over four years. 'Coloroll didn't know anything about the business,' he says. 'It left us alone.'
The three remaining management buyouts have had more mixed experiences: they have struggled through the recession and are only now seeing an upturn. All will probably sell or be floated within a couple of years, so the managers will make their millions - even if they have to wait a little longer.
Fogarty, the Boston-based company that used to be synonomous with duvets, has had a 'mixed track record', according to its chief executive, John Szymkiw. Coloroll paid pounds 32m for Fogarty in 1987, and invested millions in two warehouses. It also gave it responsibility for its new retail chain.
In June 1990, the receivers cut the Boston workforce by 400. Mr Szymkiw, who had joined what he thought was a go-ahead company only a year earlier, led a buyout and shut down the retail division, losing another 250 jobs. He revived the Fogarty brand but could not fend off the effects of recession. In 1992, the company made a pounds 2.4m pre-tax loss, and the workforce came down by another 20 per cent to fewer than 500 - compared with 1,100 before receivership. But that was the nadir. 'We will do substantially better this year,' Mr Szymkiw says. 'There is a much greater degree of confidence.'
Much of Coloroll's investment, including one of the two warehouses, has remained unused because the group is half its previous size. Mr Szymkiw says that the last three years has been nothing but sweat, which is only now paying off. But it would have been worse under Coloroll. 'We would have had group restraints and had to link products in a way that was not profitable,' he says.
Like Denby, Edinburgh Crystal never felt comfortable under the Coloroll flag. 'We're hand- crafted, high margin,' says Colin Quinney, the marketing manager. 'Coloroll was the opposite.' Though the group invested heavily in the manufacturing process, and in the 110 shops inside department stores, it ignored the brand name. 'Our managing director had a long-running battle to keep the Coloroll name off the packaging,' he says.
Ashcroft kept Edinburgh Crystal, Quinney believes, 'because he liked the product. He took a great deal of pleasure in taking City people to the factory.'
Edinburgh was one of the last companies to be bought from the receivers, and was damaged by the long period of uncertainty. 'We went 18 months without launching any new products,' Quinney says. 'Our market share slipped from 23 per cent to 19 per cent.'
At the end of 1990, three directors bought the company with backing from Caledonian Investments. Their first move was to close one of the two factories, at Stourbridge in the West Midlands. 'We thought that Edinburgh Crystal should come from Edinburgh,' Quinney says.
In the first year, the company made a loss, in the second it broke even and this year, he says, 'we will make a significant profit'. Market share is finally back at 23 per cent.
Coloroll became the biggest mug-maker in the country in 1986, when it bought Staffordshire Potteries and Biltons. Mugs, John Ashcroft thought, were naturals for his co-ordinated look. The company remained healthy enough and the buyout team, led by Gordon Wareham and Geoffrey Windas, had to pay pounds 20m - the best price for a Coloroll company Ernst & Young managed.
The timing was not propitious. It was completed on 2 August, 1990, 'one hour after Hussein walked into Kuwait', Mr Wareham says, and life was tough until the end of 1992. 'We had to shed labour and trim costs, but we paid our interest and we're still here.' This year has been much better, largely because the company has diversified and upgraded its export effort. 'One of the benefits of recession is that it concentrates the mind,' he says. The workforce fell from 1,500 to 1,325, but has now recovered to 1,425.
The two businesses sold by the receivers to other companies are more difficult to track.
Coloroll's venture into furniture was a disaster. It paid pounds 14.5m for William Barrett Group, which made uphostered furniture, but failed to make anything of the company. One of the first things Ernst & Young did was to close down its Dudley factory, cutting 600 jobs, and to sell the company to a property developer. He in turn sold the styles and an pounds 800,000 order book to the West Bromwich- based conglomerate, Hampson Industries. Ian Walker, Hampson's managing director, says the order book has now swollen to pounds 12m; a new factory employing 280 people is servicing it. 'We paid just under pounds 100,000 for the business,' he says. 'It was a very good deal.'
Coloroll paid pounds 7m for the expanded vinyl wallpaper maker Burlington Wallcoverings in February 1989. In August the next year Ernst & Young sold it to Graham & Brown, a Blackburn-based family business. The acquisition doubled G&B's turnover and, says joint managing director David Brown, 'we would do it again, even though it hasn't been without problems'. After a tough two years, the business is now expanding. Coloroll had invested heavily, Brown says, but not sensibly. It put in machines that incinerated waste fumes then pumped them into the atmosphere, for example, where it should have recovered most of the heat for re-use.
'We always got the impression that everything they did, they did on the cheap,' he says. 'If Coloroll ran all their businesses the way they did that factory, it's not surprising they failed.'
History will probably be kinder to Coloroll than this. More likely it will look on the group as a victim of the 'moral epidemic' that hit Britain in the 1980s - the same mass delusion that hiked the stock market and house prices to palpably unsustainable levels. John Parker, who has now left Kosset amicably, spends some of his time mulling over the Coloroll phenomenon. 'I did a thesis at university on witchcraft in the 20th century,' he says. 'I think that is quite useful.'
(Photographs and table omitted)
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