Specialise or diversify? Focus on one market or many? It’s a question as old as business.
But for one of shipping’s oldest organisations, it’s a very contemporary quandary, the answer to which is driving dramatic strategic change.
Lloyd’s Register, which can trace its origins back to 1760 and what became today’s classification societies, has been on a half-decade journey to return to its maritime roots.
“Lloyd’s Register over our history — for one reason or another — had become quite diversified,” chief executive Nick Brown tells TradeWinds as he marks four years in the role bringing transformation to one of shipping’s most storied institutions.
Over the past few years, it has sold once-valued assets to give it the capital to finance the expansion and digitalisation of its core maritime services.
The process has seen it make its largest-ever disposals and acquisitions. Out have gone the group’s land-based certification and inspection business and its energy advisory businesses, which over the previous three decades had been the centre of investment growth.
The almost £500m ($606.1m) raised has been spent investing in maritime service companies and product and digital improvements for its maritime customers.
The new Lloyd’s Register is now solely focused on clients involved in maritime, a sector widely agreed to be facing huge change over the next few decades.
Brown says: “We feel there’s a real opportunity for us to be a more holistic provider of safety and sustainability to the industry through our rebalanced portfolio that serves what we believe will be the best ship operated in the best way by the best people.”
During the disposal process, Lloyd’s Register had shrunk to about half the size it was a decade ago in terms of turnover and staff.
The challenge now will be delivering sustainable and profitable growth. And without being asked, Brown rejects the likelihood of merging with another class society as was widely rumoured last year.
He says: “I’ll maybe preempt a question. I don’t see Lloyd’s Register ever being interested in merging with another classification society. I do not think there have been that many successful examples of classification societies joining together,” in a dig at the fraught merger between DNV and GL a decade ago.
Brown is himself the embodiment of this maritime focus, being a near Lloyd’s Register “lifer”, having joined the group in 1996.
His appointment as CEO in 2021 was an abrupt change from his immediate predecessor, Alastair Marsh, who spent five years using his accountancy background trying to get a grip on the business.
Brown acknowledges the transformation’s roots date back to 2019.
“We felt that we had become too diversified, and we wanted to refocus all of Lloyd’s Register’s resources, all of our energy, all of our expertise, all of our financial firepower back on supporting our maritime customers through what we think is going to be a very, very transformative few decades ahead,” Brown explains.
Financial transformation
Lloyd’s Register chooses not to discuss its financial performance. However, accounts from UK Companies House show the scale of the transformation.
Documents show that in 2014/15 it generated a turnover of £1.04bn and an operating profit before exceptional items of £34m from its 9,000 staff. As recently as 2018/19 turnover was £893m.
By 2022/23, the most recent figures available, turnover was £517m with an underlying profit of £34m. Staff numbers had shrunk to 3,669.
An initial disposal of its energy division to investment firm Inspirit Capital was completed in October 2020.
The much larger sale of its quality assurance division LRQA — dubbed Project Saturn — in mid-2021 to Goldman Sachs Asset Management generated net proceeds of £456m. In 2021/22 the LRQA business generated revenue of £314m, with energy generating £26m.
There are encouraging signs for Brown. The most recently available accounts from 2022/23 show revenue per staff of £144,000, up from £117,000 in 2014/15.
Company chairman Thomas Thune Andersen wrote in the report that the organisation’s aim to be a focused maritime services provider was “coming to fruition”.
He has spearheaded the group’s FIT — focus, invest, transform — to Grow strategy.
Andersen wrote: “Our performance demonstrates the relevance of our strategy and our proposition to clients, with services spanning our traditional core business of classification services, operational optimisation and business advisory, with scope to add to the breadth of our offer.”
Brown speaks of his vision for Lloyd’s Register building out from a core competence in classification. “Actually, everything that we have stood for — since classification was invented 265 years ago — heralds from the safety of a ship. How safe is this ship?
“That basically is classification. In a nutshell, is the ship designed correctly? Is it built correctly? Is it maintained correctly?” he says. “We then send skilled staff to check.
“So our view is, especially when you consider all of the new technology, all of the new fuels, all of the risks around digitalisation, all of the risks around decarbonisation — not just technical, but operational and financial risks — we like to think that class societies and Lloyd’s Register are sufficiently impartial to have conversations and be a trusted adviser to our customers.”
That gives him confidence they can reach a broader range of customers.
“Historically our customers have been more or less people that build or design ships and then people that own or operate them.
“Clearly, if we are talking about digitalisation and decarbonisation, ports have a huge role, and government should have a huge role,” Brown says.
“The finance industry, charterers and insurers all have roles to play, otherwise the ecosystem isn’t going to be able to make the transition.
“And everybody is interested and asking the same questions.
“Similarly, if we are going to safely introduce all of these opportunities from decarbonisation and digitalisation effectively, our view was as a class society we could also be playing a role in how the asset is being operated and what skills and competencies the people have that are doing the operating. And what role can we play?” Brown says.
Big deals
That logic was at the heart of Brown’s two biggest acquisitions to date, OneOcean and Ocean Technologies Group (OTG), which are similar in size with about 900 staff in total.
“It’s all been about how we can support our customers with the operation of those assets and fleets and how they can be optimised,” Brown says.
OneOcean, led by chief executive Martin Taylor, was acquired from Equistone Partners Europe, which created the group by merging ChartCo and Marine Press.
The price was not disclosed, although from company accounts it appears to have been around £300m. Taylor has now been succeeded by Martin Penney.
Similarly, OTG is built on the merger and acquisition of several digital training providers while under the ownership of private equity firm Oakley Capital.
The deal was completed late last year and terms have not been disclosed.
Brown pauses when asked if he enjoys negotiating with private equity sellers. After a moment, he says: “It’s a learning exercise. It’s a bit like negotiating with some of our customers.”
Oakley hoovered up six digital service companies — Seagull Maritime, Videotel, Tero Marine, Marlins, crew management software COMPAS and regulation and rule service DanDocs — and rolled them into one.
OTG chief executive Thomas Zanzinger says: “Becoming a part of Lloyd’s Register rapidly expands our capabilities within an organisation that aligns perfectly with our mission, vision and values as we support our industry towards a digital and sustainable future.”
Brown says: “OTG are providers of training material to 1,000 ship management companies and have a million seafarers using their training material. We think it’s about a 50% market share.
“When you put the two businesses together, the software is deployed across 30,000 ships. So again, more or less 50% of the deepsea fleet. The two together become a market leader.”
The combined operation has a turnover of about $175m.
The concept is to up-sell smart software to shipowners, ship operators and others to monitor and improve the performance of their ships and staff.
Combined data feeds of changing regulatory demands and needs of particular ports promise to streamline and speed onboard procedures for crews.
Brown says: “Often, it’s impossible for a human being to have in their head exactly what regulation applies depending on where the ship is.
“What this software will allow the senior officers on board to do is say, okay, the ship’s here today, I can do all of these tasks.”
Brown believes such technology can help the industry with its recruitment and retention problem while making crews work better.
“Bluntly, for what it’s worth, my view is that shipping hasn’t been spending enough to recruit, train and retain the sorts of people it needs.
“It’s increasingly complex. I don’t mean spending enough to pay high either, that’s a banal argument. It’s about a whole package of how you treat people. It just hasn’t really been good enough,” Brown says.
The acid test for Lloyd’s Register as a business will be whether its clients, old and new, want to buy into these services.
The risks are clear, with the landscape of e-learning and other digital services subject to rapid evolution and change, especially as generative AI is commercialised.
Brown rejects criticism, voiced by some current and former staff, that the new business model may not be sustainable. “We really want to be doing more for our existing customers and being a better, trusted adviser to them.”
He cites how Lloyd’s Register has had the leading share of construction orders for nearly two-and-a-half years. And he remains confident, with clients backing his vision.
Brown says: “The last few months since we announced the intention to acquire OTG, every customer has been saying to me, ‘Nick, I never thought about it, but it makes absolutely perfect sense’.”
