After swallowing 18 companies in five years, the consulting engineer was bloated with debt and stranded in rapidly receding markets. Now its new boss, Paul Hamer, has to mount a rescue. Tom Bill asks him how he’ll do it …
I’ve been practising my Dutch for you,” says Paul Hamer before we even sit down. The stocky Lancastrian, who turned 40 last week, is grinning broadly as he refers to a recent Building report that White Young Green was in the sights of Dutch consulting engineers Arcadis and Grontmij. The reason for the takeover speculation surrounding the firm is WYG’s perilous financial state; this also explains the flicker of apprehension behind the grin …
After spending more than £85m on buying 18 companies in five years, doubling its staff to 3,000, and betting on some crumbling markets, the consultant abruptly parted company with chief executive Lawrie Haynes in January. He was not the only one to go: WYG shed 235 jobs in the last six months of 2008 and more will follow this year. Peter Wood, WYG’s outgoing chairman, has already indicated that it is planning cuts in its Irish and its engineering divisions.
So this is not the ideal time to be promoted to chief executive from chief operating officer, especially when you’ve only been with the company for seven months. One of Hamer’s first tasks was to admit that the £282m-turnover company may breach its banking covenants this year, rising the grim prospect of being put into administration.
But that confession marked a change of tone for the firm. Whereas Haynes had the silver tongue and big-picture acumen needed to run two government quangos – he headed the Highways Agency and British Nuclear Group (BNG) before joining WYG in 2007 – Hamer knows the company’s predicament now calls for some northern candour. “I want to get back to basics,” he says firmly, “and take away any peripheral distractions.”
How did WYG become so vulnerable?
Hamer addressed the City for the first time in an analysts’ meeting on 25 February; this was the fateful morning he warned of the potential covenant breach. Richard Rae, an analyst with RBS, issued a note after the meeting entitled “White Young Green. Road to Recovery”. It said: “It looks clear to us that the new management team is addressing the legacy of an acquisition-driven strategy that has left the group too broadly spread and with a trail of uneconomic local offices.”
The implicit criticism of Haynes’ tenure was supported by another analyst, who declined to be named. “If you spoke to Peter Wood in private, you could probably push him to admit that appointing Lawrie Haynes was a mistake.”
It is common knowledge that the City did not warm to Haynes. One piece of evidence cited by his critics is the rebranding exercise he undertook last year. A press conference in November to unveil the new livery was cancelled at the eleventh hour, and there was a profit warning three days later.
Hamer concedes the incident “took up a lot of management time” but pauses to consider his answer when pushed on whether the previous regime had its faults. “I’d say that before it was an old-style approach and now it’s more modern. We’re in the middle of a transition from command-and-control to empowerment. My style is to push things down to the managing directors.”
But below boardroom level there is no sense that the staff shared the City’s view of Haynes. One senior employee says: “Lawrie and Paul are two very different men for two very different economic climates. Lawrie was an excellent guy but the world has changed and Paul is right for the company now.”
Too much of a good thing
Hamer insists he “only sees upsides” as a result of WYG’s £85m-plus spending spree, but whatever the merits of individual deals, the cold fact is that they have bloated the company’s balance sheet with £123m of goodwill (the difference between a company’s tangible assets and its sale price).
It is by far the largest asset on WYG’s books but can be written down if its accountants think the value of the acquired businesses has fallen. That, in turn, would almost certainly trigger a breach of its banking covenants. One analyst said: “It’s yet another problem. Goodwill hasn’t been written down by much so far so there is an inbuilt risk. Hence the need for extra cash.” Hamer declines to expand on this beyond stating: “There’s a standard process when you look at goodwill. The advice we have been given is that there is no need for it to be written down.”
Aside from the scale of its splurge, another mistake, many argue, was a focus on Dublin over Dubai when the former was already looking shaky but the latter was booming. The firm spent £29.2m on five firms in Ireland between 2004 and 2007, including £12.5m on consulting engineer PH McCarthy in October 2007, after the first signs of the slowdown had emerged.
He faces quite a few problems but he comes with a good reputation. If he can’t sort them out, nobody can
Hamer is keen to emphasise the strong reputation of WYG’s £55m-turnover Irish business, but admits the company “arrived late to the party” in the Middle East. It is just getting off the ground in the region and the company plans to open an office in Abu Dhabi by the end of the month.
So why didn’t it go in earlier? “The demand in the domestic market was so strong that we didn’t need to,” he begins, not entirely convincingly. He goes on to hint that the company was caught slightly flat-footed by the boom. “There weren’t enough people with enough international experience to convince the board about the risks of being in those territories.” But he rejects the suggestion that the party may be over in the Middle East. He says there are still opportunities if a consultant can put its “A team” on a job. “Companies have been filling a huge demand hole in whatever way they could,” he says.
The fact that a third of WYG’s turnover comes from the UK private sector has not helped, either. The overall split is 47/53 between public and private but Hamer wants to reach 50/50. “You still need that balance,” he says. “We’re not galloping towards the public sector.”
Can WYG be saved?
Can Hamer turn the company around before the banking covenant time bomb goes off? The early signs are encouraging. One of the eight analysts that gathered to hear him talk in February was impressed with his take-no-prisoners approach to regaining credibility. He says: “Peter Wood dropped some heavy hints that previous presentations hadn’t sat easily with him in terms of their clarity.”
“The City wanted us to answer two basic questions,” Hamer says. “What are you doing? And, where are you going? They’ve needed a clear and simple strategy they could monitor.”
This drive for frankness extends to his relationship with staff. “Our strategy used to be printed on three sides of A4. We’ve condensed that onto a single side and pinned it up in every office. Everything we do is linked back to that piece of paper.”
That piece of paper contains a three-part plan: create a fit-for-purpose business, internationalise it and create peaks of excellence. Hamer has already made ambitious plans to boost international turnover contribution from 18% to 50% by 2012. This would mean the international arm had a 30/70 split between the Middle East and central and eastern Europe.
He also hints at renewed harmony at the top, repeating the phrase “It’s now a very united board” three times in 10 minutes.
The elephant in the room is the company’s £91m debt, and not everyone who attended the analysts’ meeting is convinced the company will survive. Hamer is now in talks with a syndicate of bankers and investors, both new and old. It is understood the company is looking to raise between £30m and £40m to avoid a covenant breach, although private equity investment has reportedly been ruled out given the fragile state of the global credit market.
And what about those rumoured Dutch takeover talks? “We’ve had absolutely no approaches from any domestic, European or American companies since last summer,” he says firmly, before refusing to reveal the identity of a mystery bidder the company is known to have fended off last August.
The cash call and Middle East expansion plan address the first two points of his strategy, but what about the peaks of excellence? “The environment, planning and transport and management services operations are high-end businesses with market-leading capabilities that are proving very resilient,” he says with a note of pride. “The engineering business has also got a massively strong spine,” he adds, while conceding it may need to be scaled back in the UK regions.
It’s one of many issues for filing in the “difficult” tray in Hamer’s Leeds office. He clearly won’t have a painless 2009, but the words of one rival may provide some comfort. “He faces quite a few problems but he comes with a good reputation. If he can’t sort them out, nobody can.” And one of those eight analysts goes further: “I like him. He should have been here 18 months ago.”
Paul Hamer’s CV
MSc in Engineering Project Management, UMIST
October 1995-June 1997: Mowlem Engineering, senior project manager
June 1997-May 2003: Costain Oil, Gas and Process, director of projects (UK and Europe)
May 2003-April 2004: British Nuclear Fuels Environmental Services, operations director and director of UK projects
April 2004-June 2008: British Nuclear Group, project services managing director
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Original print headline: Saving white young green