THE BENEFACTOR Ian Good was awarded the CBE in 1992 for services to the Scotch Whisky Industry and was recently elected Chairman of the SWA. LFW: What is your job? I am Chairman and Chief Executive of the Edrington Group. I am also Chairman of the Scotch Whisky Association. The Edrington Group is a private company; it originates from Robertson & Baxter and the Clyde Bonding Company, both created by W. A. Robertson in the mid-nineteenth century. Recently, in the mid 1990s, we decided to simplify things and created the Edrington Group as an overall business umbrella for R & B and Clyde Bonding. In 1997 a share scheme was created for employees in the group rather than the individual companies. In 1999 we acquired Highland Distillers often considered a sister company. Edrington now controls the former businesses of Robertson & Baxter (brokers), Highland Distillers (distillers—Bunnahabhain, Glenrothes, Glenturret, Highland Park, Macallan & Tamdhu, plus The Famous Grouse and Black Bottle blends), Lang Brothers (Glengoyne Distillery and Lang’s blend) Clyde Bonding (maturation and bottling) and Clyde Cooperage. We also have a half share in the North British grain distillery and Cutty Sark International. LFW: But Cutty Sark belongs to Berry Brothers. It may be easiest to explain by looking at the history. It is complicated though! R&B was a whisky broking business whose founder, W. A. Robertson, was also one of the founding directors of Highland Distillers in 1887. R&B were the brokers or agents for Highland’s new-make spirit; if you wanted some new make Bunnahabhain or Highland Park for example, you dealt with R&B. A substantial proportion of Highland’s new make was bought by R&B and laid down for future blending. R&B blended for a number of brands on behalf of the brand owners, the largest of which was Cutty Sark for London wine merchants, Berry Brothers & Rudd. BBR paid R&B for the blend and Clyde Bonding to bottle it. BBR then marketed it. The success of R&B and Highland has been closely linked to that of Cutty Sark, particularly through the 1950s, 60s and 70s when it was one of the top selling brands in the USA. Because of this long and excellent relationship, in 1997 Edrington and BBR formed a joint venture called ‘Cutty Sark International’, a straight 50:50 joint venture in terms of distribution, sales and marketing, while Edrington remains responsible for the production. Cutty had developed principally in the US but now requires active marketing elsewhere. As we share in the success of the brand it is right that we share the risks and investment in further developing the brand which is why CSI was created. CSI is also responsible for the marketing of Glengoyne which was R&B’s only malt distillery), Glenrothes, BBR’s malt brand (produced by Highland) and Lang’s Supreme blend—I said it was complicated! LFW: And Robertson & Baxter? As brokers, R&B prospered passing from father W. A. to son James and then, in the mid 1940s, to the three granddaughters of the founder. These ladies were unmarried, business was booming and they realised that when they died there would be serious death duties and the company would almost certainly have to be sold. With great foresight they transferred their shares into a holding company choosing the name Edrington after one of their farms. They donated all their shares to the company. Edrington was controlled by a charitable trust they established called the Robertson Trust, and the profits of Edrington went to the Trust. Edrington had two principal subsidiaries, R&B and Clyde Bonding. Over the years it has acquired others, most notably Clyde Cooperage and Lang Brothers. LFW: Who benefits from the Trust? The Trust is very wide ranging in terms of who benefits. Most organisations with charitable status are eligible for consideration. In the year to April 2001 almost £5m was distributed to charities—almost entirely within Scotland. A proportion of the profits available to shareholders is payable as dividends. The recipients are either the Robertson Trust or the employees of Edrington. The Trust is run as a separate entity from the business. Edrington pays tax in the normal way, it is the charity that has tax benefits. LFW: Are you involved in the Trust? Yes, the sisters said in the trust deed that two of the Trustees should be from the business; currently there are three other independent members. I was fortunate to know the sisters. They were incredible ladies. To donate the entire value of their shares to ensure that the company stayed a private, independent ‘family’ company shows the passion they had for this company. Their main influence was their father rather than their grandfather; it was he who did a lot of the development of the business. He died in 1946, after which they had an interesting approach to running the company; they never did anything unless all three agreed. Miss Babs had the responsibility for the business, Miss Elspeth was a County Councillor for the region around Berwick and Miss Agnes looked after the farms. On Sunday evenings they sat down to discuss the issues which were likely to come up in the week ahead. LFW: Tell us more about Ian Good. I don’t often admit it but I am in fact a Chartered Accountant! I qualified in 1967 and spent two years with Price Waterhouse working in Glasgow and London. I took a job with Lang Brothers in 1969 (acquired by R&B in 1965) thinking I would have a few years in industry before deciding what to do in life. After two years with Lang’s I started working closely with the R&B Managing Director, John Macphail, with whom I got on extremely well. He was a remarkable man with a tremendous reputation in the industry. John and I were working on broader matters rather than just those of Lang’s and I joined the board of R&B in 1974. By then I had spent some months as a distillery hand and at the bottling plant, thoroughly enjoying all of my practical experience. I became Chief Executive in 1989 and Chairman in 1994. A number of people have influenced my career but none more so than John Macphail and the Misses Robertson. They were gracious in everything they did and their passion for the industry and the people in it was incredible. They saw employees as members of the family. Take for example our Company ball, a very formal event. I recall Miss Babs explaining why this was such a formal do; everyone should dress up, even the office junior. But we had to make sure that if anyone didn’t have a dinner suit and had to hire one, the company would pay and that everyone would go in a taxi, paid for by the company. That way everyone became aspirational, important for a night. It was that thinking and wisdom that impressed me so much. LFW: You produce Famous Grouse. We do the blending, yes but only since 1970 when Highland acquired brand owners Matthew Gloag and Son. Then Grouse was a relatively small player, just 40,000 cases in the UK. Since then an extremely consistent approach to quality and marketing has created the success of the brand. Immediately after Highland acquired Gloag’s there was a joint venture set up between R&B and Highland for the stock holding, promotion and sharing of profits. There was always a cross-shareholding between us; Highland has owned 35% of R&B since 1948 when some of the family’s cousins wanted out. R&B also had a small number of Highland shares prior to the acquisition of Gloag but since gathered more as they became available because of our mutual dependency. It was thought a good defence mechanism for all concerned, that and the complex supply agreements between the two companies. But as a public company Highland were vulnerable to takeover and in 1979 Hiram Walker (Ballantine’s) made a bid for Highland which was only blocked by the Monopolies and Mergers Commission. Had it not been prevented we could have lost our main supplier and customer. This realisation that we were vulnerable because of our dependency on Highland despite our agreements and cross-shareholding was a defining moment as far as R&B was concerned. Since then Highland acquired Macallan and they have developed their brands extremely well, but for five years their profits were flat because of the substantial investment behind their brands. Because of Highland’s lack of profits growth the share price was falling. It was clear that they had got into a situation where they might again be vulnerable to anyone with an eye for a bargain. By this time we held 28% and made it clear that we would make it very difficult if someone tried to buy Highland, both in terms of shareholding and our agreements. Considering the consolidation in the industry and the need to continue investment in the brands we believed that the best way forward was to take Highland private. The board of Highland supported this and in November 1999 we secured the company. LFW: An expensive shield. The total cost was £601m which was financed by bank borrowing, our own cash resources and by William Grant & Son [Grant’s, Glenfiddich & Balvenie] who came in as a 30% shareholder of the new 1887 Company which now owns Highland. Grant’s were interested in a long term investment in some very good brands—for a while we had been talking to them about private companies and how we could work together in our changing industry. We agreed that this was one way and I’m delighted to say it is working very well. 1887 is the year that Highland was formed and also the year that William Grant started distilling at Glenfiddich, on Christmas Day. The 1887 Company has a joint board between Edrington and Wm. Grant & Sons. We both think it important that Highland is run and controlled from Scotland; it is an international market but we are very proud of being Scottish-based companies in a Scottish industry. Grant’s have made it very clear that it was an investment but also that if there were ways of working together without compromising our independence then we would look at that and already there have been benefits such as joint materials purchasing. LFW: Just to complicate things, Suntory has a share of Macallan! Suntory of Japan has 25% of Macallan and 1887 now has 75%. There was an agreement whereby Suntory could exit at certain times and we expected that on our acquisition of Highland they might have chosen to leave but they are very keen to stay in, despite their recently acquiring Morrison Bowmore. Highland Distillers is now a sales and marketing unit. Our business is brands led. The distilleries and production are under ‘operations’ which is Edrington run. Operations provides the service to the brands as does finance and administration; each sector supports the brands as a consolidated item. Our principal brands now are Famous Grouse, Cutty Sark, Glengoyne, Highland Park and Macallan—these brands are paramount to everything in the Group. LFW: Is there favouritism towards Glengoyne? I always think that Glengoyne at older ages is a very good dram; the 17yo is superb. It was our only malt distillery before 1999 and I suppose from that point of view it does have a sentimental attachment. But I wouldn’t say that there was any favouritism! LFW: What about your other malts? Bunnahabhain is a tremendous and unusual Islay whisky and a wonderful malt. Now that Highland is part of Edrington we are working hard to communicate with the new shareholders in the company—the employees. I visit every site twice a year to explain how the business is doing, what the challenges are, how we’ve done, where we are spending money, etcetera. In January I was at Bunnahabhain when the employees said ‘if you want innovations how about letting us be responsible for the bottling, labelling, packaging and selling of one of our oldest casks?’ They selected a 1965 and now all 594 bottles have been sold. We are delighted with the project—a real example of innovation! Bunnahabhain is an important part of Cutty Sark but is not a priority brand as far as a single malt is concerned. However the impetus for a brand comes from the market, and that doesn’t happen with Bunnahabhain which is only one of a number of Islay malts. Highland Park is our island malt with a unique selling point of being the most northerly whisky distillery in the world and the only (supported) malt from Orkney. Glenturret’s main income is from visitors and as a small distillery is self-supporting. We are presently building ‘The House of Grouse’ there, a good location with a working distillery next door which will make this a very exciting visitor experience! Glenrothes is very important in many blends throughout the industry and as a single is marketed by CSI under licence to BBR. Tamdhu is also important in our blends. It matures early with a pleasing sweetness; great for blending but not one of our priority malts. LFW: And Glenglassaugh? Closed in 1986, it is now a warehousing complex. I don’t see it distilling again. In 1993 we formed a joint venture with International Distillers and Vintners and bought the North British Distillery in Edinburgh. NB was an important constituent part in our blends and it is also useful for trading for other grains, which are also important in our blends. You must have a balance. NB is unique because it uses only maize whereas other grain producers use wheat. Since then IDV has become part of UDV, but they seem happy with our arrangement; NB is an important part of their expanded portfolio. We are now self sufficient in terms of volume with some first class malts. The latest proof of that is Famous Grouse Vintage malt, a new product created by our blender John Ramsey made up of several of our malts. A tremendous dram and our fastest growing new product ever! We have blends, we have single malts and now a bridge. We’ve given it the assurance of the Grouse brand which encourages people who have heard about malts but are unsure—Vintage Malt takes them into the next category. Next we have Famous Grouse port and Islay finishes. I’m conscious that we have to be very careful not to confuse our customers but I believe it shouldn’t because of the way it is presented. These create another interest in the blended category, they give people something to talk about—that is the effect that wood has on whisky. LFW: You are keen on co-operation. It works! On the big scale, our Highland brands are distributed by Maxxium, a new joint venture between Remy, Kyndal (JBB as was), and Vin Esprit [Absolut Vodka]. A pre-eminent portfolio of high class products. On a smaller scale, our Highland Park workers are responsible for production at Scapa which is owned by Allied. As neither distillery was working flat out it was agreed Highland Park would run Scapa when required; Allied have secured us as their contractors to do so—more synergy! I think that continuity of any relationship is fundamental to success and this is very much the philosophy of our business. The Scotch Whisky industry is much better at doing this than many other industries. LFW: Your desert island dram? If it’s a hot island, I’d love a Cutty on the rocks, otherwise a Grouse. For malts a Glengoyne 17yo in particular, or a Highland Park 18yo, but on balance I prefer blends. LFW: Thank you.