MTL Has Crossed $100M With Independent Growth & Success

MTL Has Crossed $100M With Independent Growth & Success

Click for Jim Pinto Biography

Published June 20, 2006
 
Measurement Technology Limited is part of The MTL Instrument Group plc, recognized throughout the process control industry as the world leader in Intrinsic Safety products. It is now a multi- national group of companies with its headquarters and main manufacturing in Luton, Bedfordshire, UK.
 
MTL was founded in 1971 and now employs over 800 people worldwide. Revenue in 2005 was £ 74M ($ 120M) with continued good profit margins and growth. The company has been publicly traded since 1988, with a recent P/E ratio of about 16 and a market-capitalization of £80M ($ 130M) (about 1X Revenue) – pretty good in a flat market.
 
MTL got its start with intrinsic safety products for hazardous areas and is an acknowledged world leader. Growing beyond its niche, MTL is successfully developing a strong position as an automation hardware infrastructure provider.
 
History
 
MTL was founded in Luton in 1971 by Ian Hutcheon and a group of engineers who were “made redundant” from the Kent Instruments which had been bought by Brown Boveri, now ABB . The formation and development of MTL is described in great detail by Ian Hutcheon in his 1996 book, “Amateurs Can Do It – The MTL Story”.
 
After MTL went public in 1988 at about £ 9M, Ian Hutcheon was advised to hire a “professional manager”, which he did – with disastrous consequences (from his viewpoint). The new manager was, in the opinion of others, a decent man and a good manager; but the style mismatch was spectacular – as often happens with a founder.
 
Ian Hutcheon then looked in the Kent "nursery" for young talent and found Graeme Philp who was then 33 and just completing his Ph.D. Graeme joined in 1991 when MTL was about £15M. His initial job was Technical & Marketing Director, and his assignment was to build growth in new products and markets. He was appointed Managing Director in 1991 and CEO in 1995, a position he has held ever since. This represents a significant and successful management transfer from the original founder to a new breed of professional manager.
 
Product Divisions
 
MTL now has four primary Divisions:
  • Hazardous Area Products: Intrinsic Safety barriers, isolators, interfaces, process I/O, Fieldbus components, shut-down and fire & gas systems. This is the expansion of the original business and still the largest segment. MTL is a world leader (second only to German manufacturer Pepperl + Fuchs) in the supply of products used in potentially flammable atmospheres;
  • Surge Technologies: Protection from damage caused by lightning strikes and over-voltage damage caused by the switching of heavy electrical equipment; for process instrumentation, telecommunications equipment and data networks.
  • MTL Open System Technologies (MOST): Open controller platform for Process, Discrete, and Hybrid Control Applications, Process I/O, SafetyNet SIL2 system components. Products: Matrix Control platform, MTL 8000 series I/O subsystems, ControlPlus control software. End users, DCS partners and system integrators can build their measurement and control systems using best-of-breed components.
  • Visualisation: A new division formed from the March 2005 acquisition of GeCma. Products include ruggedized and extended temperature range operator terminals and embedded PCs suitable for both hazardous and non-hazardous areas.
Growth History & Financial Performance
 
MTL has been consistently profitable throughout its history, with good cash-flow – a tribute to the tightly controlled discipline.
 
Total revenue declined slightly 2001-2002, but the company has remained consistently profitable, with excellent gross margins and positive cash-flow. (Table 1)
 
 
2001
2002
2003
2004
2005
Hazardous Area
36,300
33,600
36,223
37,354
37,896
Surge Technologies
8,800
9,500
6,839
8,883
11,077
MOST
16,900
15,600
15,687
15,396
18,682
Visualisation
 
 
 
 
4,715
Total
£63,406
£60,129
£60,243
£63,411
£74,223
Pre-tax Profit  £/%
2,405/4%
1,658/3%
3,581/6%
4,705/7%
7,146/10%
 
In the 80's and early 90's the expertise of MTL and the other major Intrinsic Safety product suppliers was highly valued amongst the control systems suppliers and end-user community – the standards were still somewhat confusing. So profit margins were in the region of 25%, equating to about 75% gross margin on core barrier and isolator business. Since then, intrinsic safety has become easier to apply and IS products are more like commodities, though still commanding overall gross margins of close to 50%! – quite good for industrial products.
 
During the 1990’s, MTL moved into the growth areas of instrumentation and process controls which didn’t have the price premiums associated with intrinsic safety. The company launched aggressive product development programs, completely re-inventing the intrinsic safety range as well as developing the 8000 series I/O platform, and cooperating with Emerson on the development of the I/O subsystems for Delta-V.
 
For several years, development expenses jumped from the usual 5-7% to more than 10% of sales (high for the industrial automation business); for a brief time in the mid 1990s it exceeded 13%. For a public company, with nervous investors, this took guts. Also from 1996 onwards, the development of the extensive MTL sales channel around the world was accelerated. The company was always well managed, and the resulting growth path that still continues.
 
Markets & Sales Channels
 
MTL has primary facilities in the UK and USA, with sales channels in more than 50 countries worldwide. There are 36 dedicated sales offices in 13 countries and 137 sales representatives in 64 countries, with a total of 198 people engaged in sales.
 
Sales are primarily to markets where flammable materials are handled, particularly the oil and gas, petrochemical, chemical, food and pharmaceutical industries. Market segments: Oil & Gas & refining (56%), Pharmaceutical (14%) Chemical (10%), Utilities (4%) Wireless & Industrial Networks (8%) and other (8%).
 
Geographical breakdown: In 2005 the UK represented 13% of sales, N. America (USA, Canada, Mexico) 44%, the rest of Europe, Africa and the Mid-east 20%, Australia and New Zealand 3% , Asia 16%. The relatively small UK revenue shows the companies commitment to global operations.
 
Growth strategy
 
MTL will continue to focus on extending its leadership in Hazardous Area and Surge Protection technologies, and will grow into closely associated areas in the control and instrumentation of process plants.
 
The growth strategy is to compete in the space between the control room and field instruments & valves. For the next stage of growth, MTL is positioning as a leading supplier of networking and interconnect components to the process control industry. Target customers will continue to be control system providers, system integrators, end users and OEMs.
 
MTL growth has been, and will continue to be supplemented through strategic acquisitions to expand competencies or customer base.
 
Table 2 shows all MTL acquisitions in the company’s history.
 
Year
Company Acquired
Core Business
2005 Revenue
1989
Hitech Instruments
Gas Monitoring Equipment
£1.9m
1994
Telematic Systems
Surge Protection Equipment
£5.0m
2000
Atlantic Scientific
Surge Protection Equipment
£6.1m
2000
Standard Automation & Control
Process Automation System Components
£16.0m
2005
GeCma
Operator Displays for Hazardous Areas
£4.7m
 
In addition to acquisitions, MTL also expects to generate growth through developing partnerships with existing suppliers where products or global sales channels are complementary.
 
Corporate Culture
 
MTL started with founder Ian Hutcheon’s philosophy: Bureaucracy is the enemy of growth; stimulate flair and entrepreneurism. The "Keep it Simple" mantra is still an acid test for overblown marketing plans, and the founder’s determination is still reflected in an ethos that expects the company to be run by engineers not by "managers". The management team still includes many engineers and consequently decisions are made based on an in-depth knowledge of the business.
 
All new employees receive a copy (local version) of The MTL Employee Handbook when they join the company. The very first item after the Introduction to the company is a simple statement of the MTL ethos under the heading "The Company's Objectives and Values". This has deliberately retained much of the format (and the content) of the original 1988 version.
 
As the company has grown and internationalized, communications remains the biggest issue – not the technology of communication (which is widely implemented) but, as Graeme Philp describes it, “Actually getting off your backside and DOING it.” Graeme insists, “Communications start at the top, and if we get that right, the rest tends to follow.”
 
Nowadays MTL is getting too large and too geographically distributed to rely solely on personal visits to communicate formally. So, Graeme Philp has taken to writing periodic CEO Newsletters to all employees.
 
The three phases of MTL growth
 
As a company continues to grow, clear understanding is needed about the different phases of growth, and the significant changes in organization that need to occur to achieve successful and profitable growth. Some companies get stuck at the entrepreneurial stage, and others at the various barriers that occur at $ 10M, $ 100M and $ 1B, on the path to growth.
 
MTL is an excellent case history. Having been with the company for almost two decades, and as CEO for much of that time, Graeme Philp has a good understanding of the successive growth phases and the changes that are necessary. Here’s his summary of how MTL progressed, and how the company expects to continue its growth path:
 
Phase 1 – startup to £10 million (1971-1988)
  • Founders establish the company
  • Clear focus, word-of-mouth communications
  • Clear & simple shared goals
  • Relatively little infrastructure needed
  • Loyalty to founders and "owners"
  • Charismatic leadership
Phase 2 – 1988 to 2004 – £10m to £60+m
  • Company goes public in 1988
  • Second generation management team, demanded by investors who are uncomfortable with entrepreneurial “founder-led” companies
  • Initial misfire through lack of empathy between founding entrepreneur and “professional manager”
  • Gradual recruitment of the "right stuff" into the management team
  • Fishing for staff from larger companies; some make the transition, others cannot get used to "rolling up their sleeves" and fade away
  • Mid-size company relies on rely on finding people with the vision to spot the opportunity
  • Constant battle to retain creativity, vitality and thought-leadership as size dictates more processes-orientation
  • Information Technology moves from "luxury" status to "necessity"
  • Too small for comfortable ride on stock market
  • Experienced board of directors – Malcolm Coster, Chairman (1998) and two non-executive directors
  • Good Financial executive and director, Bill Greenhalgh (1999)
  • Acquisitions bring new culture diversity – MTL allows them to be separate, to not destroy their own special culture
Phase 3 – 2005 onwards – £60m to £550+m
  • Mixture of organic and acquisition growth has brought MTL to "Mittelstand" size
  • Higher profile in industry
  • Ability to attract gifted staff
  • Good performance reflected in relatively high P/E ratio
  • Too expensive for most predatory acquisition
Key management
 
At 48, Graeme Philp is still a relatively young CEO and has brought the company past the second phase of growth very successfully. CFO Bill Greenhalgh (49) has been with MTL for 7 years.
 
Each of the primary MTL divisions is headed by a President. David Denton (60) just recently joined from ABB and heads up the largest division, Hazardous Area products. Tony Bird (44) is President of Surge Technology and has been with MTL for 6 years. Frank Kellershohn (40) joined about a year ago with the acquisition of GeCma and is now President of Visualization Products.
 
Dennis Gillespie (61) joined MTL about 12 years ago, and has generated significant growth in North America, including acquisition of Standard Automation & Controls; he now heads up the MOST Division. I have known Dennis for many years, and have great respect for his capabilities and experience.
 
CTO Jon Malins (53) came from Eurotherm and has spearheaded development of several significant new products. And MTL keeps fueling its technical leadership with a regular influx of new talent – visionaries like Ian Verhappen (47) who just joined in June 2006.
 
The management group is relatively young, and the company makes a strong effort to assure that there is indeed some depth of talent waiting in the wings. Of course, that is always a significant challenge. But also, MTL makes a strong effort to attract new, talented people who have the vision and the drive to help the company to achieve the next phase of growth and success.
 
Board Governance & Strategic planning
 
There are two main boards in the MTL Group. The Group Board represents the shareholders and it includes Graeme Philp and the CFO representing the executive management – all other members are non-executive. The Executive Committee includes Graeme Philp and the CFO, plus all four division heads, the operations director, CTO, Global HR Director and International Sales Director.
 
Strategy is developed by the Executive Committee and is reviewed and challenged by the Strategy Committee of the Group Board twice a year. A five year plan is renewed, reviewed and agreed annually.
 
I asked Graeme Philp whether MTL could be acquired by a larger company. His response: MTL is clearly a niche player, and supplier to several major automation companies; the competitive position will be adversely affected by acquisition or close alignment with any one supplier. Because of this, MTL have never had sustained interest from any corporate acquirer, and expects to remain independent.
 
In the final analysis, motivation for continued growth and success always stems from the top. Graeme Philp says, “I love this business. I have a point to prove about British companies in this industry, and also about engineering-led public companies. I think we are living through probably the most interesting period in process control since pneumatics gave way to electronics. MTL is the best thing that ever happened to me, short of founding my own company.”
 

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 Jim Pinto is an industry analyst and commentator, writer, technology futurist, angel investor. You can email him at: [email protected]. Or review his prognostications and predictions on his website: http://www.jimpinto.com/ . Review the contents of his new book “Pinto’s Points – How to Win in the Automation Business” at: http://jimpinto.com/writings/points.html