Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

Balfour Beatty 1909-2009: The first 100 years

Britain’s biggest contractor Balfour Beatty has been celebrating its 100th anniversary all year and the presents have kept arriving in the shape, for instance, of a win on the M25 DBFO in May and the purchase of Parsons Brinckerhoff in October. But what is in store for the future? Jackie Whitelaw talks to chief operating officer Andrew McNaughton to find out.

“It’s amazing how it’s all coming back to power and energy,” says Balfour Beatty chief operating officer Andrew McNaughton. One hundred years after George Balfour and Andrew Beatty set up the company to bring electric light and power to the homes, businesses and transport networks of the UK and the world, McNaughton is looking at a future where creating the next generation of electricity supply and delivery is once again likely to form a big part of his workload.

In the next decade, he points out, governments in the developed world will have to come to terms with the need to replace life expired power stations with lower carbon generating options that offer security of supply, while at the same time the developing world is crying out for new sources of electricity. And there’s more.

“Whether it is nuclear, microgeneration, wind, local community power or a combination, it will all have a huge impact on the national grid.”

Andrew McNaughton

“Take the UK as an example. Depending on what energy policy is agreed − whether it is nuclear, microgeneration, wind, local community power or a combination, it will all have a huge impact on the national grid. At the moment it is predominantly based around electricity created at power stations near coalfields. So if the future is offshore wind, the grid is wrong; if we opt for a tidal barrage, the grid needs redistributing. There are huge decisions to be made that will have an impact for generations.”

In a nice piece of symmetry McNaughton, like Mr Balfour, is an engineer (though of the civils rather than Balfour’s mechanical and electrical variety), and his chief executive Ian Tyler, like Mr Beatty is an accountant.

Tyler, along with previous chief executive Mike Welton and a board replete with accountants, economists and now McNaughton, have charted the company on an astonishing path of growth over the last 10 years.

Turnover has rocketed from £2bn in 2000 to close to £10bn and the business is valued at £1.7bn now, four times what it was worth in 2000. In the course of that time the company has changed from being a major projects contractor to a firm that not only builds infrastructure but finances, operates, designs and manages it.

Trigger for change

The trigger for the change was the decision by Balfour Beatty to split from its owner for nearly 30 years BICC in 1999. In fact, Balfour Beatty sold its parent, and with the £200M dowry it acquired as part of that process, set out on an expansion plan founded on acquisition and investment in asset ownership.

Why becomes clear when McNaughton unveils a graph of growth on a flip chart. “I’ve gone back to steam power for presentations, you get more engagement particularly with a small audience,” he says, by way of explanation for the move away from Powerpoint.

BICC had been quite content for Balfour Beatty, as a heavily civil engineering project led company, to be a cash generator for the wider business. Profit from contracting was virtually non existent. It was an unsustainable model for the future.

“Mansell is a perfect example. We bought it, encouraged the business to grow and now it’s contributing £1bn a year to our revenues.”

Andrew McNaughton

Organic growth was possible but would not produce a fast enough return, so the company set about buying businesses which would enhance its existing skills and propel each of its operating companies into becoming market leaders in their individual fields.

Mansell, Birse, Dean & Dyball were all added, among many, to the Balfour Beatty portfolio and have more than returned their initial purchase price. “Mansell is a perfect example. We bought it, encouraged the business to grow and now it’s contributing £1bn a year to our revenues,” McNaughton says.

But the real big ticket successes he says, have come from Balfour Beatty’s ability to “identify the next business stream and be the first to market”. Fast feet and long vision got the company into design and build and early contractor involvement contracts.

Changing roles of the modern contractor

Michael Davies

Michael Davies

Michael Davies

Safety, health & environment manager on the East London Line project

The introduction of the company’s “Zero Harm” initiative, which is designed to change our thinking about safety, is having an effect at all levels of the business,” says Davies. “There is a stronger willingness to intervene if something is thought to be a hazard and to resolve the problem, rather than expecting someone else to do it.”

Andy Moore Senior site agent on the £176M Carlisle Northern Development Route

Andy Moore

Andy Moore

Senior site agent on the £176M Carlisle Northern Development Route

Moore has seen some changes in the site agent’s role since he first joined the company 11 years ago. “The role is becoming more of a management role of both resources and the project as opposed to the hands on role it used to be,” he says. “It has also become more technologically based over the past few years in terms of computers on site, GPS systems, etc.”

Ian Whyte Community relations manager on the A3 Hindhead project in Surrey

Ian Whyte

Ian Whyte

Community relations manager on the A3 Hindhead project in Surrey

“Over the last few years the industry has moved from the position of tolerating community relations to realising that the role is essential to the successful completion of any project,” says Whyte. “The importance of the role has allowed community relations to become an active part of the construction team, equal in importance to any other discipline.”

 

Design and build led directly into private finance which has made a huge contribution to the company’s growth. “As design and build moved on and became commoditised, the market opened up in PFI. We had the financial strength and someone as bright as Anthony Rabin [the group’s deputy chief executive] in the business, and we’ve been very successful.

“We had revenue from asset ownership in the 90s − from Barking Power Station and Devonport [which the firm has since sold]. Now investments and asset ownership represent around 30% of the value of the group.” Recent investments include the purchase of Exeter and Blackpool airports. The group’s profits now stand at £250M in the last financial year.

Balfour Beatty’s 40% stake in the £6.2bn M25 DBFO, which is now underway, is crucial to its future in private finance. “It’s important we won this; and it’s important we do it right,” McNaughton says.

Going forward

Going forward, long term investment in infrastructure is a key part of the company’s strategy. “We are changing the business model again,” McNaughton says. Five years ago 85% of the company’s revenues were from the UK, 10% from the US and 5% from the rest of the world. In 2007 several scenarios for 2022 were considered.

“Continued major growth in the UK would have meant swallowing everyone and was not a sensible option. So we looked at increasing the geographical mix.”

The purchase of contractor Centex in the US acted as a spur to developing Balfour Beatty in the States where the company has been incredibly successful in recent years.

But the group was still looking for a way into markets in the rest of the world. One trigger for the solution was actually losing a big Crossrail contract. Balfour Beatty, via its Balfour Beatty Management arm created in 2004, bid for the highly desirable project delivery role in joint venture with Parsons Brinckerhoff. They lost out to Bechtel. “What that spurred us to realise was that we can’t always leverage the business as Balfour Beatty.

“Continued major growth in the UK would have meant swallowing everyone and was not a sensible option. So we looked at increasing the geographical mix.”

Andrew McNaughton

Though we were a strong professional services business, we weren’t what professional services people wanted on their CVs. We had to look at another model. We were in joint venture with PB so the next step was to buy them. And where we had been buying additions to our operating companies in the past, this time we bought an operating company and are adding our existing management business to it. “Parsons Brinckerhoff is a world class professional services business and it will lead all of us into new markets.”

McNaughton says Balfour Beatty’s big strength for the future is the interconnectivity of the four services it offers. “Parsons Brinckerhoff is the entry point for new markets in the rest of the world. And from there we can finance, manage and maintain infrastructure, but not necessarily build it.” McNaughton believes a £20bn business offering stronger returns for Balfour Beatty’s shareholders is not beyond the realm of possibility. If a couple of entrepreneurs 100 years ago could create a business that has grown to be the giant Balfour Beatty now is, who is to say that ambition may even be on the cautious side.

Timeline

  • 1912 Titanic sinks
  • 1914-1918 First World War
  • 1922 Power Securities launched
  • 1926 National Grid established
  • 1934 Kut barrage inaugurated
  • 1939 WWII breaks out
  • 1944 Churchill Barriers completed
  • 1948 Electricity nationalisation
  • 1957 Start of work on Berkeley nuclear power station
  • 1961 Francis Chichester sails solo across the Atlantic
  • 1961 Bay of Pigs invasion, Cuba
  • 1963 Marilyn Monroe dies
  • 1963 Profumo scandal
  • 1963 President Kennedy assasinated
  • 1964 Beatles on Ed Sullivan Show
  • 1965 Construction of Dungeness nuclear power station begins
  • 1966 England wins the World Cup
  • 1967 Summer of Love
  • 1967 Second Blackwall Tunnel opens
  • 1968 UK’s 400kv supergrid completed
  • 1970 Beatles break up
  • 1971 UK switches to decimal currency
  • 1972 Amin expells 50,000 Asians with UK passports from Uganda
  • 1973 Power cuts and Watergate
  • 1974 Two general elections
  • 1975 Channel Tunnel cancelled. Offshore oil production starts
  • 1975 Balfour Beatty wins Jebel Ali port contract
  • 1976 Queen sends her first email
  • 1978 First test tube baby born in Oldham
  • 1979 Margaret Thatcher elected
  • 1980 Construction begins on Victoria Dam, Sri Lanka
  • 1981 Wedding of Prince Charles and Lady Diana Spencer
  • 1982 Argentina invades the Falkland Islands
  • 1983 Margaret Thatcher elected for second time as Prime Minister
  • 1984 THORP contract
  • 1985 Balfour Beatty takes stake in US construction manager Heery
  • 1985 Live Aid concert in London and Philadelphia
  • 1986 Chernobyl nuclear disaster
  • 1986 Balfour Beatty turnover hits £1bn
  • 1987 Margaret Thatcher’s third term as Prime Minister begins
  • 1988 Pan Am flight 103 explodes over Lockerbie
  • 1989 Fall of the Berlin Wall
  • 1990 Nelson Mandela freed after 27 years
  • 1991 Operation Desert Storm begins
  • 1991 End of The Cold War
  • 1992 Maastricht Treaty signed
  • 1992 Premier League formed
  • 1993 Bill Clinton inaugurated as US President
  • 1995 Barking Power Station completed
  • 1996 Rail Privatisation
  • 1997 Princess Diana dies
  • 1999 Balfour Beatty split from BICC
  • 1999 Cardiff Bay Barrage opens
  • 2000 Balfour Beatty buys rail electrification and power business of Adtranz
  • 2001 September 11 terrorist attacks
  • 2002 Edinburgh Royal Infirmary handed over
  • 2003 Balfour Beatty acquires Mansell
  • 2004 preferred bidder for Birmingham schools PFI
  • 2005 Hurricane Katrina hits New Orleans
  • 2006 Balfour Beatty acquires Birse
  • 2007 Credit crunch triggers recession
  • 2008 Balfour Beatty acquires Dean & Dyball
  • 2009 Balfour Beatty enters FTSE 100 for the first time

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Please note comments made online may also be published in the print edition of New Civil Engineer. Links may be included in your comments but HTML is not permitted.