Interview of the week: Angus Macdonald
A little over three years ago, Angus MacDonald saw the future… and he decided it was rubbish. This was nothing to do with his outlook on life, though. The Highland entrepreneur, fresh from selling his 25% stake in the publishing and recruitment business eFinancial Group in two successive deals to Dow Jones and recruitment group Dice Inc for £20m, was looking for a new challenge.
Suspecting that the world of finance might be hitting the buffers, the 47-year-old former Queen’s Own Highlanders officer weighed a number of options. He remembered an important lesson from his days as a small-cap analyst at City stockbroker Laing & Cruickshank and small-cap fund manager at Martin Currie in the 1980s to, “focus on a sector that is on a long-term growth trajectory”. After some research, he decided waste management fitted the bill.
The UK’s £12bn-a-year waste sector is dominated by multinationals such as Veolia, Biffa, Viridor, Shanks and Sita, who own virtually all the UK’s landfill sites and make their money by disposing of waste in them. But Angus MacDonald realised there was scope for niche players that made money out of recycling at a time when landfill is becoming even more expensive thanks to the Government’s landfill tax, which will rise from £48 per tonne to £80 per tonne in 2014.
Inspired by Connecticut-based Oakleaf, a waste management group formerly owned by the London-based private equity group Charterhouse, he would differentiate himself from the other fledgling recyclers by focusing on all areas and all types of waste.
He acquired Guildford-based Oakside Environmental out of administration for a nominal fee via a new company, Specialist Waste Recycling (SWR), having heard about it from a local business angel network that had decided an investment wouldn’t suit them.
He believed Oakside had had a sound business model and mainly failed because of inadequate access to capital. At the time of its collapse, the company had been turning over about £1m but making losses of the same amount. It had no debts and employed 20 people, who Angus MacDonald said “really knew and cared about recycling.”
Another attraction was that the company was focused on the motor trade, where he believed there was massive scope for improved waste management practices. And unlike Oakside’s rivals in the sector, it was able to handle all types of waste, providing a sort of outsourced environmental compliance solution.
On acquiring the company, Angus MacDonald injected £750,000 of his own cash to keep it trading. Then he raised £4.4m mainly from equity investors and family offices who had been investors in eFinancial Group and trusted his knack for turning around ailing businesses.
As executive chairman he has since been focused on re-energising SWR, hiring new people, expanding its geographic footprint, hiring chief executive Giles Whiteley (formerly of Redstone Telecom) and making major investments in things like new trucks and equipment.
Today he owns a 45% stake in a wider group that is registered in Scotland, has 70 staff and six depots, including one in Larbert, although it relies on England for the majority of its business. With the other depots in Alton, Peterborough, Burton-on-Trent, Bristol and Wetherby, a seventh will open imminently near Manchester.
The company breaks down waste into 19 different streams, including metal, cardboard and plastics. Once it has collated a batch of upwards of 20 tonnes of one substance, it sells it on to whoever can use it. Regular customers include scrap metal dealers and specialist glass recycling companies.
Annual sales have reached £6m and grew 80% in the half-year to June 30 despite the deep recession in the UK motor trade. This has been assisted by contracts from the likes of Lookers, Inchcape, Marshalls of Cambridge, Cameron Motors (Perth), Macrae & Dick (Inverness) and most recently Arnold Clark.
And while motoring remains the core business, other UK-wide contract wins in recent months have included Dobbies Garden Centres, Klondyke Garden Centres and Perth-based Sidey windows. Motoring is still responsible for 80% of turnover, but only 50% of new business.
“If anything, the recession has accelerated our growth,” he says. “Our sales pitch of taking your recycling levels way up and reducing your waste cost is clearly appealing.”
The company is still making losses, but Angus Macdonald predicts that it will reach month-to-month breakeven by mid-2011 and produce a pre-tax profit of £2m on sales of £25m by 2012 or 2013. Asked how he will achieve this, he points to his record for stellar growth at eFinancial Group (sales rose from £0.9m to £30m in 11 years) and his belief that when you cut someone’s waste costs, you are likely to retain their business.
When wooing prospective customers, Angus MacDonald says the secret is to, “persuade them to recognise that their waste can be someone else’s raw material.”
It requires a mindset change and Angus MacDonald says this does not always come easily. He is regularly stunned by the practices he encounters in the motor sector, where the average executive is a 55-year-old male whose scepticism about global warming has parallels with that of Jeremy Clarkson.
“They happily sell eco-hybrids out the front door and landfill everything out the back door. It’s astonishing,” he says.
He is surprised that the Scottish Environmental Protection Agency (SEPA) does not do more to police environmental regulations – particularly rules that hazardous waste must not be dumped in landfill sites.
“For our business really to lift off, we need the legislation to be better policed. A great many motor dealers are simply ignoring it,” he says.
Most of the prospective car industry customers seen by SWR currently recycle a mere 30% of their waste. SWR’s sales pitch is that it can help them raise this to 80%.
There is also a convenience factor, in that SWR takes a business’s entire waste management and environmental compliance needs off its hands thanks to its ability to track down buyers for the unlikeliest of substances. One customer was paying £60,000 a year to get rid of a “sticky rubber residue”, for instance. Now SWR is removing it for free and selling it for £20,000.
Angus MacDonald, who lives near Blair Atholl in Perthshire, is also the biggest shareholder in Helius Energy, an Aim-listed biomass company, where he is a a non-executive director after investing £4.5m. He is acquiring a waste wood aggregation company in London’s East End. This chips broken palettes and wooden construction waste for the biomass sector and may become a supplier to Helius in due course.
Having also bought 3,000 acres of forest in south-west Scotland with his eFinancial dividend, Angus MacDonald also manages to bring up his four sons, all of whom play the bagpipes. Whether these instruments might one day go the same way as all the car bumpers, engines and exhausts, he is not saying.
“The better segmented the waste is, the more valuable it is,” he concludes. “What we’re bringing is the ability to change the way staff work.
This article was interview of the week in the Sunday Herald on 15 August 2010