HNI Purchases the Vermont Castings Group Part II

[Date:2014-10-28 22:44:08]
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L to R: Ricardo Leon, president of the Vermont Castings Group and Brad Determan, president of Hearth & Home Technologies.


HNI Purchases the Vermont Castings Group
Part II


By Richard Wright

An interview with Ricardo Leon on his rationale for selling the company and his plans for the future

Hearth & Home: Can you explain how the past year went for you, culminating in the sale to HNI Corporation?

Ricardo Leon: “Sure. Fourteen months ago, when I became the major owner of the Vermont Castings Group, my first commitment was to try to save the company. It was in very, very bad shape, but I had a plan; I knew that we could save it, but we couldn’t really think much more beyond that.

“Hearth & Home Technologies (HHT) was, and is, a very important customer of ours (HHT purchases castings from the VC foundry in Vermont). I got a call on the first day after the acquisition from Brad Determan (president of HHT) who wanted to talk about the future of the foundry in terms of their supply chain. They were very nervous about what was going to happen.

“I told him I wanted more business from him, and he told me we needed to improve our quality and our on-time delivery. Those were the same issues we were having with the rest of our customers.

“We started a dialogue and, in that process, it became clear that they (HHT) were suffering the way our other hearth customers suffer with the same ailments. Namely, our inability to keep a promise, and our inability to deliver the quality they are paying for. A lot of that stemmed from broken promises, and also the cash situation we had at that time.

“We were able to refinance the company. We were able to make it profitable and, by about January, the industry was recovering and our customers were showing at least a little faith in us.

“But in the summer of this year, I started looking toward the future, which is one of my jobs. I just wasn’t happy with the fact that the industry was being reported as growing at 20+ percent, and we were still not growing anywhere near that level, although we were finally growing some.

“That caused me stress and, even though our customers wanted to believe in us, they were still believing in others more. That made sense because they’re not going to wait for us to deliver. They’re not going to enjoy product that doesn’t have the quality they deserve and pay for.

“So with other challenges that I saw, the length of time it was taking us to get there, and HHT still being interested in us, the dialog formed into more of a negotiation. We were trying to establish how they could help us, and it was very clear to me that the journey we were just starting is one they have traveled, and haven’t finished, but they certainly are way ahead of us.

“To me, this is still consistent with keeping the company alive, by putting it in the hands of people who love the industry, who have a passion for hearth products and have really done some amazing things by improving their company from within, which is what I was trying to do with the Vermont Castings Group.

“Although I’m extremely proud of what we did in 14 months, I think this is a way to really solidify Vermont Castings and all the facilities and the people here into a company that, from my perspective, can be pretty top notch.”

Is it fair, Ricardo, for me to say that, basically, you didn’t feel the company was growing fast enough to secure it, to provide the necessary financial stability, so you opted to sell? Is that close?

Leon: “Yes, that’s close. It wasn’t so much about the growth, because we were growing. We were profitable. The only reason I think HHT really looked at us this seriously is that they continued to see how we were doing and they saw some improvements. We would show them our numbers off and on and they were impressed with our progress. I think we did very well. I wasn’t as worried about growth as I was worried that growth would never come if our customers went another year with us still not delivering to them.

“Honestly, I didn’t know exactly how to fix that problem. I looked for help in trying to fix the issue of on-time delivery because our strategy is very simple – serving our customers better by fixing ourselves from within. The problem was we weren’t serving our customers better despite all the work we were trying to do. That’s the conundrum that I found myself in and it was difficult.”

So the negotiations with HHT continued in a serious fashion, culminating in the sale of the company.

Leon: “Yes, because despite the challenges that they saw we had, and our performance, nobody expected that our performance was going to be as strong as it was. I’m a good financial guy and I knew what we had to do. Our bank was happy; our customers were not. So we continued to slog our way through it.

“But I’m business savvy enough to know that unhappy customers are not going to create a sustainable company regardless of what brands we have. Now we’re a wholly owned subsidiary of HNI. I think that’s a smart play.  They’re keeping our distribution the way it is. They’re keeping the brands separate. They’ve become comfortable with vent-free and it will be part of our future. We’re still developing products. They’ve seen our product funnel, what we’re going to do, and there haven’t been any changes to that.

“Where I need the help is in manufacturing and they are really good at that. I don’t need help in creating a brand; I need help in clarifying my strategy out in the market and getting my dealers and my distributors on my side in a significant way. But I think the other side of it, the back office stuff, is going to be where the big play is in this acquisition.”

L to R: Brad Determan, Robert Wright, Foundry general manager, Rick Grant , Manufacturing manager and Ricardo Leon.

They’re going to help you with lean manufacturing, correct?

Leon: “Absolutely, yes. Last year, since you and I first talked in August, I’ve closed down our Mexico facility.”

Who bought that facility?

Leon: “I actually sold the assets to a liquidator and then used the money to pay the closure costs. We also shut down our distribution center in Canada. We kept the people that do customer service and sales and tech support working from their homes, but the bricks and mortar are gone. Then we also closed down our distribution center in Texas. It’s been a busy 14 months, but we had to do that to ensure that we stabilized the company from a financial perspective.”

Did you accomplish that goal?

Leon: “Absolutely. We were able to get a new bank in December, five months after I took over the company, on only five months of history. That was exciting, but we also had the results to back it up. By the time we got to January and February, which was when we finalized Mexico and Canada, we were able to build some momentum on profitability. We had shut down all those extra footprint costs and freight and complexity and rent and all that stuff.

“By the time we hit the summer months, we were doing well, but we also were shipping late to our customers. We still had issues at times with inconsistent quality and that’s just not acceptable. I’m embarrassed when I meet a customer and they point to the defects that we shipped out, or possibly they have something on order for three or four weeks and they can’t get an answer about when they’re going to get it. It’s like a big blow to the belly. There are some things we’ve been trying to fix for a long time and we just can’t seem to move the needle.”

That tells me you may have the wrong people in charge of manufacturing.

Leon:  “I don’t think it’s that simple. Perhaps we don’t have the right skillsets. It’s not just a management issue; I think it’s really a skillset issue. Remember that this company is made up of three different companies. You’ve got Monessen. That was a bootstrap company. Bill Tweardy (former owner of Monessen), who was great helping me last year, was always bootstrapping the business. Not because they were not profitable, but because it was growing so fast and they needed working capital. So everybody did everything on the cheap, waiting until the last minute.

“You never really develop a good process when that happens. CFM went through some major changes that affected the way Majestic and Vermont Castings were sold and how they were run. We had a lot of issues there, but I still think it would be an oversimplification to say I don’t have the right management team. I think I do have the right management team. But those guys can’t get it done without the help of others. They need the right skillset at the right level all across the company and that’s what we’re building now.”

Will you remain in your position as CEO?

Leon: “My title changed. I’m no longer CEO or chairman of the Board. I’m president of the Vermont Castings Group in Kentucky and Vermont. I’m not done with this. I want to see it through.”

Do you have a long-term contract?

Leon: “They want me to help guide the strategy, continue to keep some of the culture that I’ve created and build upon that. Those are things that are very important. A lot of my concerns in the early days of the negotiation were about, ‘What are we going to do with the plants, what happens to my team, what happens to the people, how do you see this playing out? What happens to our customers?’ They liked what we did with Mexico and Canada and Texas.”

To whom do you report?

Leon: “Directly to Brad Determan.”

So you’re probably functioning at his whim. In other words, he can fire you tomorrow if he wanted to.

Leon: “Yes, he could.  But I’m pretty sure that’s not going to happen.  Brad and I have spent some time together and are fully aligned on where we are going.”

I think you told me 14 months ago that you were grossing around $100 million at that point. Is that accurate?

Leon: “Yes.”

Still, picking up even some gains while making all the changes that you made, which were substantial, that’s accomplishing quite a lot.

Leon: Yes. I’ve been talking to our people. I talked to our hourly workforce. I talked to the staff and the office workforce, and week I went to Vermont to talk to those at the foundry. I’ve been very open with them, and the simple message is, You trusted me a year ago to do the right thing for the company and try to save it. You didn’t know me from Adam and I had a plan. Now you’ve seen what we’ve been able to do with your help, because this is not the Ricardo show.

“I’m asking you to trust me once more that I’m doing the right thing, the best thing for the company on a long-term basis to really get us out of this rut where we are at today. Most people have reacted positively to that.”

Last year you had a rather minor presence at the HPBExpo, but it was great that you chose to exhibit. Will you be at the Expo this year in Nashville?

Leon: “Yes, we’re still planning to go.”


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