BALFOUR BEATTY looks set to lay the foundations for a determined turnaround in its fortunes and rebuild its shaky recent performance with the appointment of Philip Harrison as its new chief financial officer.
Harrison was poached from travel firm Hogg Robinson and will take up his new role, a seat on the board and a £400,000 basic salary, later this year.
Prior to this, the chartered accountant was chief financial officer at VT Group, the former Vosper Thornycroft – which successfully morphed from a Southampton-based warship builder to international support services business.
Balfour’s chief executive, Leo Quinn, said Harrison’s understanding of businesses that bid and deliver major contracts globally, and his track record in embedding strong financial controls across complex companies, are “essential” in Balfour’s drive to “improve cash generation and reduce overheads”.
Quinn, who only joined Balfour Beatty earlier this month on an £800,000 basic salary from defence outfit QinetiQ, will hope the City sees the appointment as a key move in his reforming strategy designed to strengthen the senior management team at the firm which has been haemorrhaging key players over the last year or so.
Howard Seymour, an analyst at Numis Securities, said it would be Harrison’s experience at VT Group, rather than Hogg Robinson which would be especially valuable to Balfour, due to it dealing with scores of long-term contracts and a high level of public sector-related work. “VT has a very high credibility and is regarded as a doyenne in the sector,” he said. “Both Harrison and Leo strike me as a very sensible moves.”
Balfour Beatty, the UK’s biggest construction outfit responsible for building the iconic Aquatics Centre in London’s Olympic Park, has had a difficult recent past, with five profit warnings in under two years and calling in Big Four accountants KPMG to explore a £75m profit shortfall in its construction services UK division. It also haemorrhaged a number of senior management and the collapse of a merger with rival firm Carillion.
And following the recently rejected £1bn bid by John Laing Infrastructure Fund (JLIF) for Balfour’s investment portfolio, the company is still viewed as a likely break-up candidate. Also, under UK takeover rules, Carillion could make another bid for the company next month as it reserved the right to make a future offer for Balfour “at any price”, in strict compliance with the code.
Seymour said Carillion would have to come back with a very strong bid if it was still interested come February. “The dynamics in Balfour have picked up a bit,” he said. “Even though there has been systematic failure in the business, the business is winning work, it’s still a very valuable business and still has a very strong name with £1bn of assets. So you were never going to get in on the cheap.”
Carillion would have to come in with a “knockout blow” should they be tempted to bid again, he added. “If they walk away again with a bloody nose, people will start to question their strategy. They’ll be tempted to stand back and see the lie of the land and potentially be opportunistic if the share price goes down a lot and say, really we should do this because there’s value to both sets of shareholders.”
Back in September the builder, which employees 36,000 staff, announced that its executive chairman, Steve Marshall, would be leaving and in November, Duncan Magrath, who spent eight years at the company, the last six of which was as CFO, said he would be heading off for pastures new but would stay in the role until a successor was found. Another loss was UK FD Beverley Dew who left to join Kier.
Interestingly, Paul Lester the former chief executive of VT Group – where Harrison worked under him – is now at JLIF, so the two could well meet again over any second-round, future negotiations.
But the tides of fortune may be turning in the infrastructure group’s favour with news that it has scooped a £1.5bn UK public works framework contract, as the sole operator, which will run until February 2019.
The national framework – operated by Scape Group – the public sector-owned built environment specialist, will encompass a wide range of civil engineering projects from light rail schemes, road repairs, coastal defence works, bridge and coastal defence works and large road projects.
In the chancellor’s autumn statement, Osborne announced a £15bn road investment strategy – the biggest such round of funding for a generation – which will boost the wider infrastructure sector.
Balfour Beatty said it will be the sole contractor for a new UK-wide civil engineering and infrastructure framework, which runs until February 2019 and will involve a string of individual projects that are expected to be worth up to £40m each.