Resilience Series Part 10: Bucher + Final Summary
Resilience Series Part 10: Bucher + Final Summary
Studying Edelweiss Holdings to learn more about resilience
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Bucher Industries
So far in this series, we’ve covered:
French barrel-maker, TFF Group
Biscoff famous, Lotus Bakeries
Faroe Island fisheries, Bakkafrost
Swiss plastic creator, EMS-Chemie
French plant extractor, Robertet
Swiss dairy, Emmi Group
Dutch investment company, HAL Trust
Mining royalties, Franco-Nevada
Food/shipping conglomerate, Seaboard
Now, let’s dig into Bucher Industries as our 10th and final post in this Resilience series! We will also do a short summary of our findings from this series at the end of this post.
Background
Heinrich Bucher started a small blacksmith shop over two centuries ago, which was later taken over by his son, Johann. The business was located in Niederweningen, which is on the outskirts of Zurich. In the late 1800’s, the small blacksmith operation expanded into selling foreign-made agricultural machinery. This was a driving force when Walter Bucher became CEO in 1934. The company then moved into selling tractors in the 50’s. Bucher was mainly still an agricultural equipment business when it went public in 1986. The 90’s were a busy decade as the company purchased a bunch of small businesses to move into hydraulic machines, food processing, and municipal vehicles like snow plows and street sweepers.
The Business
Nowadays, the company is decentralized and split into five business groups. Let’s go through each one.
Kuhn Group
This is the original business the company got into after the blacksmith shop. It’s one of the world’s leading providers of specialized agricultural machinery and it is the biggest revenue segment at 41% of sales. To give you a sense of the types of machines they sell, the latest one in the lineup is a bale wrapper. This goes on the back of a tractor and wraps hay bales so they can easily be transported and kept dry (here is what that looks like). And here is another video if you’re interested in the full lineup of machinery.
Bucher Municipal
This revenue segment makes up 15% of overall sales and includes making trash trucks, sewer cleaners, and street sweepers. The latest vehicle here is the “CityCat”, an electric street sweeper.
Bucher Hydraulics
The Hydraulics business accounts for 21% of sales. The company sells all sorts of hydraulic pumps, motors, and valves. You may already know how a hydraulic system works but it basically compresses liquid to create force. Imagine filling a (needle-less) syringe with water and then placing your finger over the nozzle. If you tried to press down on the syringe, pressure would build and then when you took your finger away, water would shoot out. That is pretty much how hydraulics (hydro!) work. The amount of force some hydraulic systems can create is truly mind-blowing. Elevators, boat lifts, cranes, garbage trucks, oil drills, and many more use cases are powered by hydraulics.
Bucher Emhart Glass
Accounting for 15% of sales, this segment is the most profitable with nearly 19% EBIT margins. Bucher, true to its mechanical background, doesn’t make the glass, they sell the machines that make and inspect glass. These systems are mainly sold to bottling facilities. In fact, here is the FlexRobot, one of Bucher’s machines, at work. The 42-second video is crazy because there is so much going on. It’s hard to see but gobs of molten glass – usually a mixture of heated silica sand, limestone, and soda ash – are being chopped and formed into the bottle shape. The resulting steam is from a quick cooling process. Scaled manufacturing is really amazing! Next time I drink something from a glass bottle, I’ll be thinking of this Bucher machine.
As the company has produced more automated systems, margins have increased since they save bottling plants so much time. Further, it’s incredibly difficult to switch machines so Bucher has strong pricing power with replacement robot arms and molds.
Bucher Specials
This segment makes up only 8% of overall sales but consists of four individual businesses. The first is called Vaslin, which is a leader in winemaking equipment. The second is a leader in fruit juice production equipment named Unipektin. Third is another Swiss agricultural machinery company called Landtechnik. And lastly, Jetter sells HVAC systems to glass manufacturers. As each of these businesses only accounts for ~2% of sales, I won’t go deeper and just leave it at that.
Now that we’ve rounded up the revenue segments, I just want to give you a sense of which are the most important, using some numbers.
Kuhn (sales: 41%/EBIT margins: 12%)
Hydraulics (sales: 21%/EBIT margins: 13%)
Emhart Glass (sales: 15%/EBIT margins: 19%)
Municipal (sales: 15%/EBIT margins: 6%)
Specials (sales: 8%/EBIT margins: 9%)
So the bottom two businesses, municipal and specials, only account for 14% of EBIT combined. That means the three top businesses are really the ones to focus on as an investor. These are the main drivers, Kuhn being the biggest.
Moat
What really sticks out is the company’s focus on machinery. It started out as a blacksmith over 200 years ago and it has stuck to its core competency all that time, just expanding into new markets.
The other remarkable thing about Bucher is its level of decentralization. These aren’t really revenue segments, they’re totally different businesses. Each business has its own leadership team and the longevity is quite impressive. The leader of the Kuhn Group has been at Kuhn for more than 33 years, the Hydraulics CEO more than 25 years, and the Emhart Glass leader for more than 20. This also provides more career growth opportunities. For example, the CEO of the Municipal division was in the Hydraulics business for nearly 15 years before switching businesses.
Overseeing all five revenue streams are just 30 people at the corporate HQ. But the level of decentralization forces each team to be responsible for its own results.
By this point, you may be thinking, well, is Bucher still family-owned? The last we heard was about Walter but that was in the 1930’s? It’s actually sort of interesting. In Switzerland, it’s fairly common to have a double-barrelled last surname, meaning a hyphenated last name with the man and the woman’s combined last name. However, the Swiss government doesn’t formally allow a double-barrelled last name for administrative purposes — so people have to choose. Well I guess, Walter Bucher and his wife preferred her name — Hauser. So officially Walter Bucher became Walter Hauser. And he had three sons, Hans, Rudolf, and Thomas, that took over the reins in 1967. In fact, Rudolf was the Chairman of the Board until 2007. Now, Anita Hauser is the Deputy Chair and the founding family still owns more than 30% of outstanding shares. So yes, the company is still in the family after more than 200 years! What an absolutely impressive feat! That’s all the more impressive considering 90% of wealthy families lose most of their wealth by the third generation. The Buchers became the Hausers but the Bucher name remained. The company’s long-term mindset and commitment to its core competency, while still expanding to other verticals, has enabled it to survive for two centuries. Talk about resilience!
Summary of the Resilience Series
We have now looked at 10 companies from the Edelweiss portfolio to teach us lessons about resilience. I have personally learned a lot and I hope you have too! To recap, here are the 10:
French barrel-maker, TFF Group
Biscoff famous, Lotus Bakeries
Faroe Island fisheries, Bakkafrost
Swiss plastic creator, EMS-Chemie
French plant extractor, Robertet
Swiss dairy, Emmi Group
Dutch investment company, HAL Trust
Mining royalties, Franco-Nevada
Food/shipping conglomerate, Seaboard
Mechanical production, Bucher
There are a few main takeaways. For one, there was significant insider ownership, specifically family ownership. Let’s go through each one.
TFF Group: Francois family (4th generation: 71% ownership)
Lotus Bakeries: Boone family (4th generation: 65% ownership)
Bakkafrost: Jacobsen family (2nd generation: 16% ownership)
EMS-Chemie: Blocher family (2nd generation: 60% ownership — this was a unique circumstance where the business changed families at one point)
Robertet: Maubert family (4th generation: 37% ownership)
Emmi Group (co-op: 60% ownership)
HAL Trust: Van Der Vorm family (3rd generation: 58% ownership)
Franco-Nevada (1st generation: 1% ownership — extreme outlier here)
Seaboard: Bresky family (4th generation: 77% ownership)
Bucher: Hauser family (6th generation: 33% ownership)
Franco-Nevada is the outlier here. It was founded in 1983, a baby by Edelweiss’ Lindy standards. The fact that it was sold and bought back also affects the ownership levels but out of the other companies, only one, Bakkafrost, has less than 30% insider ownership. Conveniently, Bakkafrost is second, youngest company, founded in 1968. Technically, the oldest company was the original Bucher blacksmith shop, founded in 1807. The next oldest is Robertet, founded in 1850. But most of the companies have been around for more than 90 years.
Lesson one — huge family ownership.
The second takeaway was the level of vertical integration. This, as we pointed out multiple times, is typically short-term inefficient but long-term efficient. Spending millions on capex while some competitors release impressive FCF margins is not easy to do. But when your family is thinking multi-generationally, it’s a simple trade-off to make. It would be far easier if TFF Group didn’t own its own forest or if Bakkafrost outsourced its fish feed or if Seaboard used mostly charter ships for its grain transportation. However, it also leaves them more susceptible to adverse events. For instance, we saw how Bakkafrost’s value-added production revenue segment made it quite a bit of money during COVID when the fish markets were shut down. What’s interesting is that Franco-Nevada bucks the trend here also. Royalties are probably the furthest thing from vertical integration. Maybe this is a unique sector where most of the investments have terrible returns on capital so it’s not necessarily accurate to say that all vertical integration is a good idea. However, we saw this pattern of vertical integration time and time again. TFF, Bakkafrost, and Seaboard probably focused the most on vertical integration but Robertet’s focus on funding small farms around the world was also very interesting. The main thing with vertical integration is that it’s very difficult to compete with over the long-term. Bakkafrost’s fish are bigger and stronger because they make their own fish feed. TFF’s barrels make wine taste better because they have such fine control over the process. And Robertet has great pricing power because they can track the natural ingredients from farm to scent.
Lesson two — vertical integration digs very deep moats.
If I had to distill all of the findings down to two things, those first two lessons would probably be it. Nothing revolutionary but the pattern is clear. To press on, a third takeaway would be sticking to the core competency but expanding into other verticals and geographies. This diversifies revenue while enabling further growth opportunities.
We saw this with Bucher where the competency in mechanical systems lead it to get into hydraulics and glass-making machines, on top of agriculture. One addendum to this lesson is that the revenue diversification was done through organic and inorganic means, but the acquisitions were never “bet-the-farm” types. In fact, Lotus and Emmi both would invest in newer brands and then buy the complete business if they liked what they saw. Most of the companies actually did acquisitions, but I can’t think of one that made a gigantic acquisition to juice revenue growth. I was surprised by how often growth did come from acquisition, but it was mostly new brands or tuck-ins for new technology. Again, Bucher acquired companies to get into hydraulics and glass-machines, but the core mechanical competency still existed. TFF also acquired a lot of small cooperages to get into new geographies. Franco-Nevada has diversified into oil and other precious metals that provide it some relief when gold prices are depressed. I think the main thing was that these companies weren’t stagnant. They were often reinvesting and continuing to grow.
Lesson three — growth through core competency, not giant acquisitions
The fourth and final finding is that these companies were always trying to stay relevant to their customers. Whether that meant investing in some plant-based products for Emmi, expanding to Scotland for Bakkafrost, getting into bourbon for TFF, or creating specific OEM designs for EMS-Chemie, all of these companies are trying to help their customers more and more every year. Robertet is often looking for new plant extracts so that customers can make new, unique flavors and scents. Bucher is annually releasing new machines. Seaboard is adding more pork processing facilities. Lotus and Emmi are investing in production capabilities. And
Lesson four — constantly adding value to customers
I could add a few more lessons but I think these are really the main things that stood out to me. If you’ve followed along for the whole series, I want to say thank you so much! I appreciate each and every one of you!
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