Balfour Beattyhappy with BICC

by John Leitch



Balfour Beatty "enjoys being part of BICC," said Mike Welton, Balfour's chief executive, this week.

BICC's share price has fallen consistently, reducing the conglomerate group's market value from £1.7 billion a few years ago to £180 million today. With shares last week trading at just 38p last week, analysts pointed out that demerging Balfour would give BICC shareholders better value.

Welton is strongly opposed to any suggestion of demerger. "The market is undervaluing BICC," he said. "We enjoy being part of BICC for the strength of its balance sheet. This is important for PFI work, private investment and bonding."

Welton emphasised that there is no possibility of him leading a management buy-out of Balfour. Asked if he had talked to venture capitalists, Welton replied: "I have not talked to anyone, nor will I. You have got to be careful of being in charge of ships in case they sink. I'm a BICC director and want to stay one."

Current trading is 'thinnest' in Balfour's major projects division (both UK and international), while at the other extreme both Building and Building Services and Balfour's US division feature at the top of the class - Welton said both are "doing well."

Asked about railway maintenance work, he said: "Contracts are needing to be rebid, which means the potential for downward pricing - so railway maintenance is relatively unstable. Margins will come under pressure, but nothing other than what we'd have expected."

Although several rival contractors have recently formed rail divisions, Welton sees them as a minimal threat as "they don't do live railways". He commented: "Railtrack is looking to increase the quality of its assets and that is difficult in open competition. Having a large number of contractors in the field would not be helpful."

Welton listed the three big issues currently facing the construction industry as the rail market, the changes in the Ministry of Defence's procurement policy and the need for a continuing flow of PFI work.

Balfour's total equity aspirations in its PFI projects are secret. While Amec and Laing have both said that their target figure is £30 million, Welton wouldn't be drawn on Balfour's position. "I won't give a figure," he said.

l Balfour is restricting the work undertaken by its two M&E businesses, Haden and Balfour Kilpatrick, to a limited number of customers.

"We are not prepared to take on projects where the client or main contractor expects us to take outrageous risks," said Welton. "For example, we might be expected to take a high level of potential damages where the rate of progress is not under our control. Other M&E people are prepared to do that work, but not us."

Instead of undertaking more design work, Balfour's M&E businesses have been doing less. "Haden did more design and construct in the past than it does now," said Welton. "Over the years there have been more M&E consultants designing work, so we've done more construct-only."