TWO'S COMPANY: PAUL SMITH AND RICHARD KILNER OF SHS GROUP

Paul Smith, the founder of SHS Integrated Services, welcomed Chairman Richard Kilner to the company in September 2012 when BGF invested £5.4m in the South Wales-based industrial scaffolding group.

Paul Smith

I’m extremely proud of what SHS has achieved to date. SHS principally work in the utility sectors with technically demanding scaffolding structures for clients in the petrochemical, oil and power generation sectors. It offers a multi-disciplined service in a highly regulated sector and we deliver it with a quality of client service that well exceeds the industry norm. We can count a number of blue chip companies in our client base including Dow Corning, MURCO, ALSTOM, Laing O’Rourke, Balfour Beatty, Shaws and Interserve to name but a few. We have grown at around 40–50% over the past few years and we currently employ around 180 people from six sites across the UK. Achieving such growth in a competitive sector cannot be underestimated; it really is a challenging environment for a small private company given the competition that we face from the large national companies.

After leaving school, I went to work on a building site with my father and, strange but true, it was there that I developed a passion for scaffolding. I went on to gain valuable experience with a number of large national scaffolding companies but gradually realised that these companies couldn’t offer me the progression that I ultimately wanted. So 15 years ago, I started SHS.

It’s not all glory owning your own company – there are ups and downs, and blood, sweat and tears. It’s important to stay agile – each year brings different opportunities and you need to ensure that as a businesses you are responsive enough to capitalise on them.

One of the challenges in the construction sector is to find the right kind of work to achieve organic growth. Price is all-important but we want customers to appreciate what we do to make the job a success. Quality and safety are key, and an intrinsic part of the service that we offer. You need to fill the order books with profitable work, while also recognising that the largest framework maintenance agreements, which can help you do that, may only go out to tender every two or three years.

One of the important turning points for SHS was securing a major power station contract in West Wales, Europe’s largest new build Power Station at the time. This was a significant contract win for SHS as it demonstrated our ability to successfully deliver on a prestigious project but more importantly gave us the opportunity to expand our service offering to include insulation services.

Growth brought with it constraints on working capital. Typical debtor days in this sector vary from 60–90 days and with payroll burdens in excess of £1m a month (at its highest), the business was faced with certain challenges that it had not encountered before.

We talked to several organisations about financing, but BGF impressed us most. We felt their overall offer (outside of the initial cash injection) would best suit the management team in achieving its business plan whilst providing a strategic voice on the Board. It has also been very helpful to have their presence on the Board; contributing the right blend of experience and talent to a business is another challenge that rapid growth brings with it.

BGF made the introduction to Richard Kilner, who is now our non-executive chairman. His background in industry and finance, international experience, and a history of working with other Welsh companies was impressive, but we only appointed him after we’d interviewed him. He was focused and intelligent – we felt that he brought additional and complimentary skills to our own team.

Just turning up to the board meetings isn’t enough and certainly it wouldn’t enable an incoming chairman to form a thorough view of the company. An active committed chairman contributes something altogether different.

I certainly see Richard’s value as an asset to SHS. It is hugely useful when he can make connections outside of the business, for instance, getting us in on contract discussions. As an example, Richard chairs an NHS Trust. This is exactly the sort of organisation that we want to be talking to.

It also helps that Richard is so direct. He’s an important presence on our board because he will ask the straight questions that need to be answered. Sometimes you need someone there who can stand back from the operational issues that we face as a business each day, in order to provide perspective.

To be a successful business, you need to bring together a group of good people who are all trying to achieve the same thing. It is something that I have grown to appreciate during my career. Bringing in Gavin Payne as finance director and Roger Wint as commercial director (both joined SHS in 2011) has made a real impact, and now Richard is on board too.

In the long term, we would like to increase our framework agreements and secure future work in the power and construction sectors. We have significantly invested in the recruitment and training of individuals to support this. We recently acquired Dixon Pentland Limited boosting our capability in the critical services sector and are also looking to make further acquisitions.

Together, we can see SHS’ potential. We’re turning over about £18m a year currently, and we would like to get that to £30m within two years. But the key is that we remain a profitable business. We know we have the capability and team of professional people to offer the industry the highest standard of safety, quality and commitment.

Richard Kilner

My background is in construction. I spent almost 20 years working in the industry, and then another 14 years working at 3i Group, the venture capital business, where I was a Partner in the Infrastructure and Growth Capital teams. So really, I’ve been around businesses such as SHS for most of my working life.

These days, I combine a number of different roles, including some consulting, and some work with the NHS. Now there is my Non-Executive Chairmanship with SHS. I first got to know many of the people at SHS whilst BGF was doing its due diligence work on the company before investing. They asked me to help with that process, possibly with a view to becoming a non-executive at the company. But when we got near to closing the deal and the suggestion was made that I might become Chairman of the business, I definitely felt the SHS guys were interviewing me, as much as I was evaluating them.

That is as it should be, because the relationship between chairman and chief executive depends to a large extent on chemistry: it is really important to spend time together, to find out whether you’re going to be able to make it work.

You also need complementary skill-sets. It would have been pointless for SHS to hire someone with huge expertise in the scaffolding sector, because the company already has that resource. I bring something different to the company; above all, my many years of working with businesses to give them the best chance of growing. There is a huge amount of process work involved in that, and this is an area where entrepreneurs are likely to lack experience. In the investment world, there is a saying, ‘You buy a business that is difficult to understand and build a business that is easy to sell’, and it is a good way to look at this. Companies need better structure and governance as they grow in size, so at SHS we’ve worked really hard on improving the quality of Board meetings and processes.

One way to achieve growth, of course, is through acquisitions and we’ve already done one deal since I arrived at SHS. I think my help was important because no-one at SHS had ever done an acquisition before, whereas I’ve spent a large part of my career working on deals of one kind or another.

In the end though, I don’t have a specific brief at the company. My role is to be here for Paul and his team when they need me. We don’t feel the need to have calls scheduled between us, for example, because either one of us just picks up the phone when we feel it’s necessary. Similarly, while the typical non-executive chairman would probably spend two-and-a-half days or so a month on this sort of role, I think it’s important to recognise that sometimes much more of my time will be required. I certainly spent more time than that at SHS during the acquisition process, for example.

The challenge now is to really grow the business aggressively, without losing what has made it special as a smaller company. For example, I’ve spent a lot of time talking with customers since becoming Chairman – I think that’s another important part of the job, and one thing they really like, is that every single project has a company director involved in it. Customers describe SHS as a very non-adversarial business, and the question is how you go about scaling that ethic.

I’m also keen to bring some of my experience from my work in the public sector, where I chair an NHS Trust. One of the things you notice in the public sector is a real focus on managing risk, and that’s something that is less common in the private sector, particularly among smaller companies. It’s definitely an issue I want to bring into the discussions we have at board level; this question of how you manage risk in a really strategic way.

Overall, my early impressions of Paul haven’t changed. It was immediately clear to me that he was a very “backable” Chief Executive. He has tremendous entrepreneurial drive and a real focus on customer service; and this is now a team approach. Paul has been wise to surround himself with really good people over the past couple of years, who are now adding tremendous value to the company. I really hope I can play my part too.

In fact, I feel fortunate that I arrived at SHS when I did, because Paul and his team had done a great job in what, looking back, was a really difficult market environment. The outlook for the next couple of years is certainly much more positive than the circumstances in which SHS had been working for the two years or so before BGF’s investment.

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