Company News » The Financial Director interview: BNFL’s new clear strategy

To work at BNFL it probably helps to be able to engage in “double-think”. You have to be able to say, as group finance director John Edwards does, that a nuclear power station is “a very dangerous place to be” – and yet insist that “our safety records are immaculate”.

You have to be able to deal not only with uranium and plutonium assets – and their waste products – that have dangerously long lives, but, on the other side of the balance sheet, clean-up liabilities that stretch more than 100 years into the future, too. You have to accept that the DTI is your shareholder – but that this is a state-owned plc that has made acquisitions, picking up business units from the private sector, from the likes of Westinghouse and ABB. And it helps if you can convincingly argue that nuclear is the energy of the future – while at the same time being lumbered with a number of Magnox reactors, some of the oldest, least-efficient nuclear power stations in the UK.

In particular, a finance person has to get their head around the fact that this company is, in balance sheet terms, worthless – a paltry Pounds 253m of net equity – yet it has cash in the bank of more than Pounds 5bn. Add on a Pounds 4bn IOU from Her Majesty’s Government and, on the flip side, some Pounds 18bn of discounted liabilities.

There’s another odd thing about this particular plc: it has some exceptionally intelligent employees, with an impressive board of directors, and yet this is manifestly not a hugely business-focused operation. Chairman Hugh Collum is the recently-retired FD of SmithKline Beecham (so what’s it like having a former FD for a chairman? Edwards just says: “Hugh doesn’t want to be a finance director anymore.”); chief executive Norman Askew has been managing director of TI Group and chief exec of East Midlands Electricity; Edwards has served at Jaguar, Northern Electric and Meyer International. “There’s a lot of clever people about here,” he says. “If you ever wonder where the PhDs go who do theoretical physics and the like, a lot of them are working for BNFL. Having said that, because of the way they think, they’re not the most commercial people: I wouldn’t put them on a market stall to sell me a bag of apples, for example. But I’d trust them to set up a nuclear plant.”

Getting these bright people to think in a commercial way is part of his job, Edwards says. “I think it’s part of the whole way we’re moving, to have a more commercial view about how to run nuclear businesses.”

A good example is the clean-up business which, in its work on British nuclear sites, has been “fairly good and reasonably commercial”. An attempt to expand into the US resulted in big write-offs, however. Those contracts, Edwards says, were “well-managed technically but they’ve been a financial disaster”. As Edwards sees it, there’s lots of potential business around the world – the problem is, nobody wants to write blank cheques for it.

Edwards signed off the accounts for the year to March 2000 barely three weeks after he joined BNFL last year, but by then he had already conducted an urgent overhaul of existing long-term contracts. As a result, the accounts carry a #139m exceptional hit providing for foreseeable losses on clean-up deals.

The accounts carry another exceptional item to the tune of Pounds 125m, because the decontamination provisions had been underestimated in previous years.

And, most painful of all – not least because of the stupidity of the circumstances – is the Pounds 113m charge relating to a data falsification scandal that rocked the company in 1999. Technicians who were supposed to be making laborious manual measurements of fuel pellets at the Mox Demonstration Facility in Sellafield copied out old data instead – reducing the length of a boring job from a couple of hours to ten minutes. Exposure of the scandal resulted in the departure of the entire board of directors, the deferral of any privatisation or public-private partnership, and payment of Pounds 40m compensation to BNFL’s Japanese customer and additional costs relating to the return of fuel to the UK.

“My predecessor went down on record saying, ‘What’s safety got to do with the finance director?'” Edwards remarks, incredulously. He is at pains to emphasise that the incident was never, in fact, dangerous. “But it’s a fact that you can’t deal with nuclear material and be sloppy because customers expect the highest level of standards on everything,” he says.

Ironically, on the day of this interview, the government announced that it was giving the go-ahead to commission BNFL’s Mox recycling plant, a uranium/plutonium handling facility that has been ready to go since the mid-1990s – and which was knocked sideways by the falsification scandal.

So Edwards’s first month at BNFL saw him engaged in heavyweight accounting issues as he got the annual report ready for sign-off. But these problems had also badly affected morale in the finance department. What with the falsification scandal, the mispriced contracts and the under-estimation of provisions, “they felt a bit down because they’d been a bit criticised for not getting all these things right,” he says. “They needed a bit of tender, loving care.”

There was a team specifically dedicated to working on PPP proposals, but as they were taken off the starting blocks pending a full strategic review – which is now just about to be finalised with the DTI – Edwards pulled the whole team back into finance, moving some of them into operational roles. In the department as a whole, one or two people weren’t comfortable with the changes and they left. “But quite a few people find themselves in jobs they wanted to do before,” Edwards says. “I would say that people are feeling a bit more happy about the future and driving forward.”

The attempt to change the culture of BNFL, to make it more commercially-minded, has been helped by some of the acquisitions that the state-owned business has made. For example, when BNFL bought the fuel manufacturing business of Westinghouse, before Edwards joined the group, it also picked up a lot of business acumen from the management it acquired. “They are very turned on to the marketplace,” Edwards says of the Westinghouse team.

“They are proactive, and I think we’ve benefited from that American relationship.”

Without question, one of the biggest problems in trying to make BNFL focus on commercial priorities is its own shareholder, the DTI. We ask what sort of communication there is between the company and the ministry.

“I spend three days a week up in Risley (which is the main office in Cheshire) and two days here (in London), which I mainly spend with the DTI, which is just over the road,” says Edwards. “I’ve answered your question, I think.”

He says the DTI is “not the best shareholder in the world” – and he maintains that it agrees with that statement. “Those guys over there are confused,” Edwards says. “They’re the shareholder, the customer – they pay us for doing some of the work – they’re the regulator, they control the environment, and they’ve got other issues. They have about five different roles in our cycle. So we try to separate them out and say, ‘If you were purely a commercial shareholder – which they want to be because they don’t want the p&l or the losses or the costs to be bad – then you would have to behave differently.’ It’s not simple; they get confused about these roles.

And on top of that they’ve got the minister to deal with. In essence, the civil servant is there not to run the company but to protect the minister’s backside.”

But equally – and it’s another example of double-think – Edwards says that BNFL “doesn’t feel like a nationalised industry. I thought I would feel like that when I came in but I don’t. The relationship with the shareholder is extremely time-consuming – but I don’t think of it as a nationalised industry.”

But there’s no getting away from the fact that BNFL is a state-owned enterprise operating in a sensitive industry. It has priorities and key performance indicators that none of Edwards’s previous employers had to contend with. Number one on the DTI’s list, for example, is the job of cleaning up the legacy of years of nuclear development at Sellafield – some of it dating back to the early days of Britain’s nuclear weapons programme. “We’ve got our best brains on to it, we spend a lot of money and we work out the provisions – but we don’t get any margin on it,” Edwards says.

This has been a key topic of discussion between BNFL and the DTI as they develop a strategy to prepare the business for some sort of privatisation or flotation. The problem, however, isn’t just the p&l, it’s the balance sheet. “One of the big issues that we’ve had over the last year is trying to resolve that position: who takes the risk?” he says. “The market would not take this kind of risk. It will not take in gross terms, before discount, #35bn of liabilities, where the risk can wipe out your net worth in a second. That’s not a commercial decision. So we’ve spent a lot of time with the shareholder trying to work out that position.”

As an aside, Edwards made a small headline for himself last year when he offered #10 to anyone who could demonstrate a thorough understanding of note 19 in the accounts for the year to March 2000. It’s four pages long and – well, let’s just say that it doesn’t make riveting reading.

Edwards’s tenner was quite safe. “Nuclear liabilities is the most complex accounting issue I’ve ever come across in my life,” he says – and he sounds as though he means it. “FRS 12 on provisions has made it doubly bad.” The problem is not just an engineering one of having to work out how much it will cost to level a power station to a brown-field site in perhaps 50 or 100 years. It’s also necessary to second-guess government policy.

For example, even though there are at present no solid plans for a permanent, safe site for the storage of some of the really nasty stuff – highly-active liquor has a life of more than 10,000 years – Edwards has had to lump a Pounds 7bn gross provision in the accounts to allow for the cost of building the storage facility which, if they’re lucky, will be available by 2040.

“All of those things have got major question marks and we have to work out in the accounts how much that’s going to cost. It is almost an impossible task,” he says. He’s not even sure it’s worth it. “The way to look at it is that it costs you Pounds 500m a year,” he argues. “You don’t know how many years it’s going to be, but it’s going to cost Pounds 500m a year.”

So Edwards has a lot of things to talk about with his shareholder before any form of privatisation: the fact that it doesn’t make any money out of cleaning up Sellafield; the old, inefficient Magnox power stations that none of the privatised generators would touch because they don’t make enough profit to cover their own accumulating liabilities; and the billions of pounds of liabilities for decommissioning and cleaning up.

Moreover, BNFL provides about 40% of the jobs in West Cumbria – and that’s another DTI priority.

“We have occasional small volcanic eruptions, but other than that I think we get on quite well (with the DTI). I think we’re making good progress with the strategy that we think will take the company forwards and towards the private sector,” Edwards says. He’s hopeful that the strategy document will be concluded within a couple of months.

So what kind of company will BNFL be in the private sector? “Hopefully it could make the switch very effectively,” he says, “but I think there’s going to be a lot of pain in getting there. Maybe it will never be a takeover target. But it will always be a middle-of-the-road dependable utility.”

That would be a nice change for Edwards: every other company where he’s been FD has been taken over. He joined Jaguar in 1980 at the age of 31 and oversaw the company’s privatisation four years later. In 1989, though, the company succumbed to a knock-out Pounds 1.8bn bid from Ford. Edwards was asked to stay with Jaguar, and he did so for another five years. When he finally left to join Northern Electric, he was only there for two years before it was taken over by US group CalGen. Then at builders merchants group Meyer International, Edwards was involved in making a lot of acquisitions.

“But we forgot there was a big company in France looking at us and just waiting for the share price to go down,” he says. He was again asked to stay on but he declined. “I’ve been there before. I don’t like parrots on my shoulder too much,” he says.

– Additional research by Tom Berry.


Name: John Edwards

Age: 52

Qualification: CIMA

Salary:Pounds 191,250 basic (9 months) + Pounds 55,543 benefits & bonus


2000- Group finance director, British Nuclear Fuels plc

1997-2000: Finance director, Meyer International

1995-1997: Finance director, Northern Electric

1980-1995: Finance director, Jaguar Cars

1975-1980: Various senior finance roles Massey Ferguson

1971-75: Various budgeting and accounting roles Chrysler UK

Biggest challenge: “Getting the strategy going forward.”

Biggest hassle: “The shareholder.”

You can be FD of any company except BNFL: which? “I don’t think that way. I’ve always been quite content. I like working with chief executives who are operators and move forward. So if I had to choose a company you’d have to tell me who the chief executive was before I’d take the job.”


Activities: Fuel manufacturing & reactor services; Magnox generation; spent fuel and engineering; nuclear decommissioning and clean-up

Auditor: Ernst & Young