25 May 2006
By David Rae
It’s an unlikely story. Born out of two former government departments when it was privatised in 1985, engineering group BMT enjoyed tax-free status as a scientific research association (SRA), for more than a decade.
Then, under the guidance of its chairman and CEO David Goodrich, it was reborn as an employee benefit trust in 1998 to, among other things, keep its mounting cash pile out of the hands of nefarious individuals. Now the company boasts turnover exceeding £75m and has operations in 10 countries around the world. Oh, and it designs warships to boot.
Originally called British Maritime Technology, BMT is involved in some fascinating projects: it helped design the Royal Navy’s future aircraft carrier; wind-tested Dubai’s Rose Tower; designed a new type of non-nuclear-powered submarine; developed software for the Environment Agency to determine European sea water bathing quality and designed the fastest naval craft in the world for the US Navy.
But the group’s structure is equally interesting. Finance director David McSweeney (pictured) has been with the group since 2001 when he joined from accountancy firm Baker Tilly and now finds himself as custodian of Goodrich’s vision and legacy.
BMT’s website does a reasonable job of describing the company: “BMT is a company limited by guarantee and member based. The BMT employee benefit trust is the sole voting member. The EBT Trustees’ remit is to act in the best interests of all the staff in the short, medium and long-term and they are not themselves beneficiaries. The assets of the company are held in beneficial ownership for its staff.”
“The creation of the employee benefit trust was the brainchild of David [Goodrich],” says McSweeney, despite having some trouble describing it. While similar to a professional partnership that you might find in a firm of accountants or lawyers, none of the employees own an equity share. And while staff are paid a share of company profits it is worked out on a points-based structure, which takes into account length of service and salary level.
The decision to adopt the EBT structure was in response to the company’s growth, which far out-stripped its SRA status. “It became taxable,” says McSweeney. “If we retained reserves to the extent that we didn’t distribute any profit every year [it would] get taxed, and that’s why our distribution policy has been quite generous over the years.
“Our challenge is that we will have to retain reserves in order to fund the growth we’re experiencing. There’s a bit of commercial tension there and the reason it’s left to the board to decide is that it’s got to consider the commercial requirements of the business, first and foremost, and then decide how much is left to distribute.” In 2006, the board distributed £1.7m as a profit share payment among the staff of its subsidiary companies and £1m among BMT Ltd staff.
In the late-1990s, substantial growth in some of BMT’s energy support companies were creating a cash-pile that needed an outlet. “A lot of things were happening in the North Sea, leading to marine offshore service requirements,” says McSweeney. “Suddenly we had a growing asset with no mechanism to distribute or do anything with the wealth creation.” BMT is currently sitting on £5.7m in cash, not counting its overdraft facility.
And that was one reason that Goodrich originally created the EBT. The other was, as McSweeney points out, an attempt by Goodrich to ensure the funds held by BMT could not be misused. “David didn’t want us to become so valuable an asset that it attracted a lot of attention and therefore would be in some ways manipulated,” he says.
In many ways a paranoid approach, but a refreshing one nonetheless – in fact, the legacy of Goodrich infiltrates the entire organisation. BMT observes the Combined Code, despite having no requirement to do so. “We followed the Combined Code even though we’re not listed,” says McSweeney, describing the decision to adopt it as “only right and proper”.
“It can be an intrusion, but we welcome it with open arms because, without it and in the absence of a shareholder, how do you demonstrate to the world and, more importantly, to the staff internally, that we have probity,” he asks. “We have the checks and balances to make sure we don’t end up with our hands in the till. This is a way of, if you like, self-imposed discipline.”
Taste for acquisition
But growth remains a major focus. McSweeney has presided over around 10 acquisitions while involved with BMT – either while at Baker Tilly or as FD – and he describes the acquisition process as being reasonably straightforward. “Up until now we’ve been a beacon and it’s how these things have snowballed,” he says. “We’ve been a beacon for people that have known BMT in the industry, have seen what it’s done and therefore we get a lot of direct approaches.”
Because of this, the company tends not to overpay for its targets. McSweeney’s belief that small teams work better than large could be one of the main reasons for this, because scientific, research-focused companies tend to prefer to work independently. “One statistic, I think, is that with 70% of acquisitions people wish they hadn’t done them – the reason being, because they overpaid in the first place, so their expectations are never fulfilled in relation to what they paid.”
But acquisitions for BMT, at least, will likely remain a core component of its growth strategy and McSweeney is clear about the challenges that it presents. “There’s a challenge for us, particularly within the main board that we have to support the growth. But if you’re supporting the £100m to £150m as an ambition of turnover, ideally you really do need assets of £50m to £70m on your balance sheet to support those levels of projects.” Currently, BMT has net assets of £51.6m, although this is reduced to just over £39m when its pension deficit is taken into account.
Future growth is, however, particularly difficult to predict in BMT’s line of work because a single large contract – such as the Royal Navy’s new aircraft carriers – can have such a fundamental affect on the bottom line.
“The pipeline and flow of new projects coming on is what you’re beholden to,” says McSweeney. “There’s little you can do to influence that other than try and say you’ve got a competitive advantage.”
Expected to enter service in 2012 and 2015, the BMTdesigned HMS Queen Elizabeth and HMS Prince of Wales will be three times larger than the UK’s Invincible-class aircraft carriers and will have a top speed of 25 knots (almost 30mph).
The vessels will be 265m in length and large enough to hold 600 ship crew and 600 aircraft crew and the hangars large enough to hold 20 aircraft. The hulls are being designed for a 50-year service.
BMT is working with a consortium of contractors and defence specialists including BAE Systems, Thales, EDS, QinetiQ and Rolls Royce.
The carriers will be the largest warships ever built for the Royal Navy.
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