No new major schemes in the UK or Europe, a global recession and the collapse of business in Dubai. So why is EC Harris so bullish? Chief executive Philip Youell explains how his re-engineering of the (former) cost consultant has been vindicated
It’s the first day of the new school term and in the headmaster’s office at EC Harris, there is a certain empathy with the millions of children trundling back to their classrooms across the country. Chief executive Philip Youell, just back from the beaches of Mauritius and, sporting a deep tan, is feeling the autumn chill. “I got up this morning and put on a coat for the first time in months,” he says. “What a wussy!”
In reality, Youell is anything but. If his actions over the past year are anything to go by his soft speech belies a ballsy attitude to business. Since last September, Youell has overseen a rebranding of the business that is intended to present it as more of a management than a traditional cost consultant (see below) and he has re-orientated it towards the energy and infrastructure sectors. At the same time, he had to grapple with the global financial crisis: a little over 10% of the firm’s 3,800 employees have been made redundant and benefits reduced. In spite of this, the firm paid out £2.6m in bonuses in July – a bold, some might even say provocative, gesture.
Sitting in a plush meeting room in EC Harris’ King’s Cross office, Youell appears relaxed about the topsy-turvy year behind him. One reason for this could be the firm’s financial results, which are contained in a folder next to his cup of tea. The figures are the first since the firm rebranded in December, and have only just been presented to the board. Sipping Earl Grey, Youell talks through the numbers and explains why he thinks EC Harris is leading a change in the shape of professional services.
The results tell a mixed story. Pre-tax profit in the year to 30 April was £41.1m, down from £41.4m last year, but revenue grew 15% to £306m, compared with £267m in 2008. Post-tax profit was also up, at £39.3m. The biggest growth areas were public (40%), oil and gas (50%) and energy (20%).
For Youell, the figures – which follow one of the toughest years the industry has faced – are proof that the change in direction at EC Harris was well-judged. “You have to remember that these increases follow the virtual stopping of significant new schemes in the UK and Europe, as well as the collapse of Dubai,” he says. “This time last year, the leadership team came together, we called the market and we moved quickly.”
One of the decisions to come out of those strategy meetings was the bringing forward of the rebranding – EC Harris is now a Built Asset Consultancy. Youell cut his teeth as a marketeer in the banking industry before joining EC Harris 13 years ago, and when he explains the concept behind the new name, his roots are clearly visible.
“Built Asset Consultancy is a state of mind,” he says, beaming. What this boils down to is a shift from project-focused to client-focused consultancy; the idea is to help businesses become more efficient and profitable through the clever use of their built assets.
Although EC Harris was the first to put a name to it, the move reflects a more general market shift; the big consultants have long been trying to shake off the quantity surveying label since the “death of the QS” panic a decade ago. Turner & Townsend has announced that it will offer an “end-to-end” service and Davis Langdon’s purchase of architect DEGW last month indicates ambitions beyond project and cost management. “The pressure is going to be on professional services to really focus on the business problem,” says Youell. “To do that, they’re going to have to add more skills and become integrated. Am I happy that others are going in that direction? Yeah, fine, because it signals we read the market right.”
Changing the face of an organisation requires major investment and EC Harris has been pumping money into recruiting senior figures to beef up new teams – 17 partners have joined since May. Indeed, the discrepancy between the firm’s rising revenue and flat profit shows just what an expensive year it has been. Outlays have included redundancy costs, moving partners overseas and poaching people from other parts of the industry, such as new head of programme management, Steve Paxton, who came from Amec’s nuclear arm.
But the most notable expense has been dealing with unpaid debts in the Middle East. Like many British firms, EC Harris moved quickly to snap up lucrative Dubai deals last year – only to suffer painful indigestion later. “We’ve been prudent and increased the provision on the balance sheet for clients not paying by £5m – it’s now at £6.8m,” says Youell. “That’s a big increase and, frankly, it’s particular to the collapse of Dubai.”
The Dubai fiasco has not dampened EC Harris’ international ambitions, however. Overseas income accounted for about 40% of turnover last year – not as much as Youell would like but he expects this to change as ground is gained in infrastructure, oil and gas. In 10 years’ time, he imagines that UK contributions will account for just one quarter of revenue and the business will orientate around several global centres. “Our leadership is powerfully centred here but as our regional businesses get bigger, the transfer of power happens because you want that power close to decision-making,” he says. The centres are likely to be Hong Kong, Abu Dhabi, London, Moscow, the States and either Poland or Germany.
One hope is that foreign markets will offset looming cuts in UK public spending; Youell is keen to flag up hospital programmes in the Middle East, for example. But he admits there is no escape from the inevitable – and painful – demise of the UK public sector. Public work was the biggest growth sector last year, and EC Harris took home £48m in fees from the government’s Buying Solutions framework. “The industry has got at least one more body blow to take and that’s a reduction in UK public expenditure,” he says. “It’s going to be tough and the consequence will be more business failures – we haven’t seen that many yet. One of the reasons for that is that the banks haven’t really put the squeeze on, but I think it’s inevitable.”
Youell insists EC Harris is in a strong position to get through that squeeze and its cash management indicates confidence – partners are still drawing profits and the highest paid took home £700,000 last year; 36% down on last year but not to be sniffed at.
Still, as the industry continues its way through the chill winds of the recession, that coat he put on in the morning could still come in handy.
Price competition intensified over the summer and we’re even seeing it in government projects. We’re lurching from one stage of reaction to another and the current stage is heavy price discounting. One of the concerns I have for the industry is that if you go on pure prices purchasing, it’s a false economy you go back to a conflict situation where it’s all about getting the most money out of a particular arrangement. So what happens to investment? What happens to learning? What happens to innovation? We go backwards.
The UK nuclear programme
It’s probably going to be the single biggest area of spend. The French will play a significant role. Whether American technology will bring with it American delivery, or whether the British government will require a stronger play by UK providers is not clear its track record on that front is not great. So we have to be as good and better. What this recession will do is sharpen up a lot of organisations so that we are better able to compete in delivering major projects.
Paying out bonuses
Some of our people have felt really guilty about seeing a bonus when their mates are not getting a job. But bonus payment is about exceptional performance and I think that’s investment in some ways. There have also been some questions around partners still taking profits. Last year’s highest paid partner was £1.1m and this year it will be around £700,000. That’s a lot of money and it’s a lot of money in the context of laying people off. But ultimately there is a reduction being felt.