When Lloyd’s Register (LR) announced last August that maritime specialist Nick Brown would be its next chief executive, there were a few puzzled looks from long-time observers of the classification society.

No one doubted his commitment, having come up through the ranks to be the group’s director of marine and offshore immediately before his appointment.

Although well-respected and liked, it marked a sharp contrast with his predecessor Alastair Marsh, an accountant appointed five years previously from his role as chief financial officer.

Marsh’s appointment appeared to show a desire from LR’s board for financial management rigour rather than the maritime and offshore industry insider expertise of immediate previous CEOs Richard Sadler and David Moorhouse.

Now, with the sale of LR’s quality assurance division LRQA to Goldman Sachs Asset Management, Goldman Sachs' $2trn fund management arm, the puzzle has been solved.

Puzzle solved

Brown’s appointment is indeed part of a fundamental strategic shift back to its roots.

The London-headquartered group intends to double down on its 260-year-old heritage and core competence in maritime to focus, in future, on serving the ocean industries, as those businesses grapple with a period of unprecedented change.

In selling its business assurance arm to Goldman Sachs Asset Management for an undisclosed sum, it is freeing up capital to invest in its maritime services as the sector gears up to face the twin accelerating impacts of digitalisation and decarbonisation.

However, the shift to refocus on maritime was well underway before the LRQA sale was clinched. LR started its five-yearly strategic review about 18 months ago, with the group’s management considering many options.

Its most recent publicly available results for the year to the end of June 2019 reveal that financial pressure was mounting. After strengthening the business through and just beyond the first decade of the century, performance had started to decline in recent years.

Turnover fell from £1.03bn to £864m between 2014 and 2018, causing statutory operating profits to fall from £37m to just £7m. In 2019, turnover rose slightly to £893m and statutory profit to £10m, a margin of only just over 1%.

“Geopolitical and economic uncertainty continue to affect our traditional markets,” chairman Thomas Thune Andersen wrote in the 2019 annual report.

Brown told TradeWinds this week: “By around 12 months ago, it became clear to us that the pace of change that our customers were embracing as they moved towards ‘industry 4.0’ was accelerating fast.”

Digitalisation and decarbonisation are changing the game for the whole array of ocean industries — from shipping, ports and offshore energy — faster than anyone expected, Brown said.

Need to transform

“The business model needed to transform, and that accelerated through the pandemic, and with it our response to changing demands of our clients.”

Brown said it was clear all areas would need significant investment to develop, but it was questionable whether it could support funding all its units adequately.

“We didn’t think that we could do it at the pace and intensity necessary across all sectors,” Brown said.

So a decision was taken to try to find a buyer for its LRQA division.

Since it was set up 35 years ago, LRQA had grown to be around one-third of group revenues of £322m in the 2019 financial year, with 2,564 of the group’s total 7,117 employees.

A trade sale to another operating company was considered but soon ruled out, Brown said. “If we had gone down the trade route, it would have taken time to identify and organise synergies. The risk was that could have taken up to two years, and that’s two years wasted in a fast-moving environment.”

Financial buyers

Attention moved to a sale to an investment fund after the success last October of selling its energy division to investment firm Inspirit Capital.

“We were seeking a future custodian to have a vision as a digital assurance provider,” said Brown. “The key point is how to maximise growth — we think there is huge potential.”

He said Goldman Sachs Asset Management “showed a real passion to add a trusted ESG provider to their portfolio”, and the deal to sell the operation to the global investment bank got underway, with LR using the code for the deal ‘Project Saturn’.

“We both moved at pace in recent weeks to complete,” he added.

Funds released by the deal — the largest divestment in LR’s history — secures the ability to invest in upgrading and expanding its maritime portfolio, which in 2019 generated £428m in revenue.

Brown is also stepping up his industry profile as the incoming chairman of the International Association of Classification Societies (IACS) and playing a part in the new Maritime Technologies Forum with four other IACS members and three major flags.

And he had already moved to clarify organisation of its maritime businesses earlier this year with two key appointments.

Mark Darley was named business director of marine and offshore in charge of what Brown terms ‘compliance services’ — classification for ships, verification for offshore, type approval of equipment and related services.

“We want to elevate them to the next level with the potential of digitalisation,” said Brown.

And as head of marine professional services, Brown appointed Andy McKeran. “We think this gives a once in a generation chance to capitalise on what we do as a trusted advisor,” Brown said.