Though his ability to walk on water may be doubted, Sam Smith is still optimistic.
Sam Smith, entrepreneur extraordinaire, flaunts his colourful personality like a circus ringmaster. The sharp suit, the carnation buttonhole, the soft Scottish burr delivery quotes from Hemingway, may all be designed to make a lasting impact. And they succeed. It is no coincidence that he has used part of his considerable personal fortune to back West End theatrical productions and was once proud owner of 8% of Barnum, the smash-hit '70s musical. But can we take seriously a man whose middle name is McGonnigal and whose style at times seems more than a trifle melodramatic?
Smith's track record as a builder of businesses cannot be lightly dismissed. In 1976 after a 10-year stint as chief executive of engineers Drake and Scull, he struck out on his own buying Lee Beesley, the engineering arm of European Ferries, for £14,000 and selling it 12 years later to Triplex Lloyd for "several millions". "By the time I sold it Lee Beesley had sales of £25 million," he says.
Now he is building a second engineering empire in the same impressive style. From a quoted "shell" company called Biomechanics where he bought control in 1988, he renamed it Bimec Industries and re-financed it with the help of £1.25 million of his own money. "From a single operating company with 25 people and a turnover of £250,000 and losses of £637,000," he declares, "we have built Bimec into a business with three divisions, 18 operating companies and a workforce of 1,850 people." Sales in the year to March topped the £100-million mark and profits more than £6 million.
Until quite recently Smith and Bimec were stock market darlings. The mix of businesses he has put together through a steady stream of acquisitions have a "green" environmentally friendly theme: water and waste treatment, air conditioning and low emission technology for aerospace and other industries.
The City's fashionable environmental investment funds rushed to buy the shares and a year ago supported a £10.5-million rights issue to raise funds for more takeovers. Now the mood has changed dramatically, at least in the City. In July this year it became clear that neither Smith nor his company could walk on the water they were so adept at cleaning up. Profits last year still came in high but dividends were unchanged and Smith had to warn it was "unlikely" Bimec would "achieve much growth" in the current year.
The City does not like nasty surprises and the shares quickly became "ex-glamour" and the price - as high as 78p earlier this year - sank below 20p by the end of July. In November 1991 Smith had rashly taken a somewhat rose-tinted view of Bimec's prospects in a document he called "A Vision Through 1994". The ambitious targets he set for the company - profits rising to £15 million and then £24 million over the next couple of years - are now going to be missed by a mile. "The City has taken a particular dislike to all companies which have grown rapidly through a series of bolt-on acquisitions," says Anthony Dew of Bimec's own brokers, Kleinwort Benson. "They are waiting to be convinced that Bimec can recover quickly from the present setback."
Smith now says he is "rather hurt" by the treatment Bimec is getting from the financial community but there is no evidence of any "bunker mentality" in his boardroom. Some adjustments of strategy are going to cope with the recession but the atmosphere Smith generates among his boardroom colleagues is almost chirpy. In the context of his somewhat overblown forecasts he may look to have slipped on a banana skin. But compared with many other manufacturers his strategy appears to be holding his own pretty well.
"The recession means we have lost a year's growth," Smith admits. But he has no doubt about prospects, particularly in waste and water treatment. "The privatised water companies will spend £30 billion during this decade and we are well placed to obtain a share of that." The company estimates UK industry will be spending about the same - £30 billion over the next decade - on upgrading treatment of water and effluent. In addition the total European market for its waste and water treatment service is currently £15 billion a year and rising. A couple of years ago the water and waste treatment division was chipping in less than 20% of total sales. Now of the current year's £50 million order book, some 40% is for this division. Indeed last year the waste and water division showed its ability to buck the recession with sales doubling and profits almost quadrupling to £3.3 million. This was partly offset by a £1.2 million decline in profits in the aerospace side and static profits in building services.
The City hopes this division, headed by Peter Goldsborough, will not drag the rest of the group down too far as it feels the effects of the construction industry slump.
Smith is bent on switching the emphasis to providing a nationwide building maintenance service. This he sees as a way to provide some recession proofing from the construction industry for that division and to switch some of its engineering activities to target the water industry.
In management terms there is the "echo" of the two-man style that Sir Owen Green and Sir Norman Ireland created at BTR, with finance director Alan Hobday looking the perfect foil for Smiths' grand manner. They form a two-man central executive and the pivotal link with the four non-executives on the main board, the operations board and the head office services team. Smith and Hobday have turned each of the group's three divisions into plcs in their own right and each division's chief executive and finance director gets a seat on the eight-man operations board alongside Smith and Hobday.
Having a main board of predominantly non-executives, an operations board made up entirely of executives and below that three divisional boards with Smith and Hobday.
Having a main board of predominantly non-executives, an operations board made up entirely of executives and below that three divisional boards with Smith and Hobday on all of them is, Hobday believes, "unique to British industry. We believe it devolves the power to the people who are close to their markets and know their products at the divisional level: the people who are, in other words, going to drive this `business forward."
"This structure is one I found worked well at Lee Beesley," Smith says. "It gives management a sense of ownership and pride in their division. Here we believe very strongly in the philosophy of ownership. In the end it is what really motivates the key executives."
An unobtrusive figure with a dry humour, Hobday watches the day-to-day aspects of the business, giving his boss the space, as Smith puts it, "to orchestrate the strategy and create the ambience where we can flourish and go forward". Smith reckons to spend a third of his time dealing with shareholders and the City, a third looking for new opportunities, and the rest on more routine matters.
Dr Colin Winsper runs the waste and water division with its evident potential for growth not just in the UK but worldwide. When Smith bought Biomechanics four years ago he was buying valuable technology to treat both industrial waste and sewage. On this has been built a division capable of contributing all the way through the waste treatment and recovery cycle: from purifying water to extracting gas from landfills for district heating plants, or fertiliser from sludge.
Smith's first acquisition after Biomechanics was a pollution control business from another waste management company, Leigh Interests. By merging the two he turned two businesses which had been making losses consistently into one which has been consistently profitable.
Today that company, one of five in Winsper's division, has installed over 500 treatment plants around the world. Other companies in the division - none with a payroll of more than 140 - have taken the group into air pollution control, screening equipment and treatment for toxic industrial waste. All five companies can link up to provide a complete waste treatment package. In addition one offshoot, EFTA process Plant, supplies water extraction equipment to industries which include offshore oil, soft drinks and breweries.
Roy Windley, who heads Bimec Aero and Industrial Technology, originally ran the business as an offshoot of the Lucas aerospace division and had planned a management buy-out before Smith persuaded him to come under the Bimec umbrella. Since then the group has added three precision engineering companies to the division giving it a wide technical capability and lessening its dependence on aerospace. In the past year sales outside aerospace have risen from 30% to 40% of the total. Meanwhile within aerospace sales, dependence on Rolls Royce has been cut from 53% to just 40% of the total. "Under Lucas, 85% of the business was with Rolls-Royce," Windley says. "So when Rolls-Royce coughed we caught pneumonia. Under Lucas's ownership we never made a profit. We have made profits ever since we became part of Bimec."
Even more significant, Windley claims his gas turbine company is now one of the best performers in the whole UK aerospace industry in terms of profit on sales and value added per employee. "We are pushing hard to reduce our reliance on sub-contract work by developing our own proprietary products such as fuel injectors and even complete engines." Like Peter Goldsborough's building services division, Windley is now putting greater emphasis on a repair and maintenance operation for aerospace customers.
Within Bimec's 18 operating companies is some valuable technical expertise both in the treatment of waste and in low emission technology for industrial and aero gas turbine engines. In addition, companies like Allan Ford, specialists in machining complex shapes in exotic materials, and Rotherham Precision Engineers, makers of sophisticated timing devices, open up the prospect of new markets. With a twinkle in his eye Smith says Rotherham "can take us into water metering where a major market may soon develop".
The present climate may be tough as more engineering businesses try to enter Bimec's environmentally friendly markets and put the squeeze on profit margins, but Smith and his colleagues remain determinedly upbeat about prospects. Windley is particularly encouraged by changing attitudes on the workshop floor. "The workforce has agreed a zero pay increase for this year," he reports, "something that would have been unheard of even a couple of years ago. There has definitely been a change of culture." Says Smith: "Now we can concentrate on improving quality and productivity and reducing costs. Our biggest problem now is to find the ways to invest our money most effectively."
In the immediate future, joint ventures with overseas companies are likely to be seized on as the way to maintain Bimec's momentum. These are likely to be in the Middle East and Eastern Europe where new opportunities are beginning to develop. But Smith will have his work cut out over the next few months convincing the City he can restore Bimec's reputation for growth. Some of the businesses he has acquired have a high reputation in their niche markets, and some of those market offer enormous growth potential. He must now demonstrate that in the toughest trading climate since the war, he can be nimble enough to avoid major commercial mistakes.