A new superbreed of finance directors is taking over at the largest contractors. They are fighting to turn the industry into a City darling.
A new pack of moneymen is poised over construction's calculators. In the past nine months alone, four of the industry's biggest firms – Amec, Carillion, Costain and Taylor Woodrow – replaced their long-standing finance directors with fresh faces from outside the industry (see page 38).

As the cash flow and financial management of all listed companies are being subjected to the most intense investor scrutiny for a decade, leading City analysts are calling on construction bosses to give their FDs a bigger role in the boardroom.

But industry still views its top number-crunchers with a suspicious eye. This becomes immediately obvious if you consider the former Laing employees who complain that the company is "run by accountants these days rather than engineers", or the outcry caused by Railtrack's decision to replace its troubled chief executive Gerald Corbett with the company finance director.

The task facing the new pack – to repair construction's badly tarnished reputation in the Square Mile – will be a tough one. Their tenures are likely to be fraught with City inquisitions, boardroom run-ins and, as the pressure to squeeze costs continues, staff resentment.

At the same time, the role of the group finance director is changing "enormously", according to Andrew Sawers, editor of Financial Director magazine. "The FD is increasingly involved in setting corporate strategy. More and more companies recognise that he is no longer just a bean counter or the guy who says 'no' when it comes to budget time." Perhaps the most significant change for construction's FDs has been the need to satisfy an increasingly sophisticated investor audience. "Ten years ago contractors were large companies in the universe and investors would follow them because they had to," says JP Morgan analyst Mike Betts. "Now they have to try much harder to generate interest, and if they don't, their ability to access the equity markets is reduced." Thus the ability to communicate numbers, rather than just add up, has become a key skill, and it is rare for chief executives to brief analysts without their FDs beside them. "In every industry, investors want more communication," says Mike Roberts, who recently joined Costain as FD. "But construction has got more explaining to do than most. It is marked down because it is highly fragmented and there is a lack of liquidity. To add to that, people don't understand the industry's advanced payments, huge turnover, tiny profits, and the fact that it is highly variable." Clients' increasingly sophisticated procurement techniques are also creating headaches that the finance department feels it is best suited to tackle. "The timing of the capital expenditure on a project can significantly affect our clients' tax charge," says Roberts. "Structuring projects in a way that will help them do that means that finance comes in far more widely than it ever did before." In recent years, contractors that invest in PFI projects have had to learn to cope with both aggressive bankers and huge amounts of off-balance-sheet debt. But just as the mathematics of construction has grown in complexity, the problem of attracting appropriate people to the sector has become more acute. Contractor Jarvis and housebuilder Berkeley are both hunting for new finance chiefs after making appointments that lasted only a few months.

These twin debacles had different causes but they highlight the fact that a job in the construction sector is not at the top of most accountants' wishlists. This is not solely because unemployment is historically low and most trained professionals are operating in a sellers' market. For the FD of a contracting company, the stakes are higher than in most sectors because valuing work in progress is fraught with difficulty. "If you sell a tonne of cement or a pint of beer you know exactly what profit you have made on it," says a leading banker. "With construction contracts you don't really know the profit until the contract is finally settled, which can be many years afterwards. If you are an FD, you are relying on all the inputs from the site, from the QS, and your accountants in the various divisions. And as we have seen with classic cases like the Cardiff stadium [where Laing lost £26m], you can't always rely on that." Not only can you lose your shirt, but the rewards are relatively low. At board level, construction pays worse than other sectors, and construction's finance bosses are usually paid less than its top operations directors. And while FDs in other sectors enjoy sizeable profiles in the City and industry, construction's finance chiefs have tended to be eclipsed by the cult of personality nurtured by its high-profile chief executives.

Finance chiefs who have shone in construction have tended to leave for bigger companies in different sectors because the promotion prospects of someone with little or no site experience were appalling. Corbett, for instance, made his name as FD of materials giant Redland, but left to join drinks group Grand Metropolitan before eventually getting the top job at Railtrack. E E "If you try hard enough you can think of two or three examples over the years where non-construction people, non-engineers if you like, have tried to run contracting businesses," comments the chief executive of one major building materials firm. "By and large they have not done very well." All this could be about to change as a growing number of City analysts and commentators are calling for the FDs of the building sector to start punching their weight. "I'd like to see the FD taking on a much more powerful position on the board," says JP Morgan's Betts. "The seniority of FDs needs to be much more consistent with other industries where the finance director is ideally number two, or at worst number three, and works very closely with the chief executive." Sawers agrees: "As the nature of the construction industry becomes more complex, and issues such as risk management and appraisal come to the fore, the FD needs to be much more involved in determining long-term strategy and the risk implications of those new trading relationships." Peter Mason, Amec's chief executive, recently lost his highly-rated FD Simon Batey to United Utilities, a larger company in a different sector, and replaced him with a former Balfour Beatty colleague Stuart Sidall.

If one believes Mason's claims about the way his company has transformed, the march of the coin-counters into construction's boardroom has just begun. "The industry is changing and that change will further enhance the prospects for accountants in this industry," he says. "I don't think it's impossible now for an accountant to run Amec. And that's because running Amec is no longer about second-guessing guys on projects."

Chris Girling, Carillion

A former director of engineering group Vosper Thorneycroft, Girling joined Carillion in mid-2000 to fill a slot that had been vacant since the previous year’s demerger from Tarmac. Boasting no construction experience, Girling quickly set about transforming the firm’s approach to accounting by shunning the traditional contracting ploy of aggressive profit-taking. The new accounting policy led to the discovery that growth had got out of control at Carillion’s M&E subsidiary, Crown House Engineering. The ensuing restructuring led to 900 job losses. Girling’s thinking has won him considerable favour with analysts. He wants to do more still, having expressed a desire for the major contractors to agree a common way of disclosing profits from PFI projects. “The analysts have precious little time, so we need a transparent approach to help them,” he told Building last July.

Stuart Sidall, Amec

Stuart Sidall landed the biggest finance job in contracting in May 2000 when Amec, the UK’s largest contractor, headhunted him. The move saw Sidall, a former finance director of Balfour Beatty, reunited with former Balfour boss Peter Mason, now Amec chief executive. Sidall has large boots to fill. He replaced Simon Batey, the long-standing FD who was highly rated in the City, and who left for United Utilities earlier in the year. Mason says Sidall brought to Amec “a happy blend of sound industry knowledge, experience of the services sector from Alpha Airports, and experience of the utilities industry from his time at Manweb”.

Miles Roberts, Costain

At 36, Miles Roberts is the youngest FD of a listed construction business in the UK. Since joining in June to replace retiring John Campbell – 20 years his senior – the former Arup engineer has had to deal with the sudden decision of joint venture partner Skanska to sell its 7.6% stake. He and chief executive John Armitt discussed a possible takeover with Skanska before the Swedish giant plumped for rival Kvaerner instead. Roberts admits that he was surprised by the sale because Skanska had said it was a long-term investor. But he remains philosophical, insisting that the best position for Costain is to remain independent. “We had long discussions with them [Skanska] during their process of due diligence with Kvaerner in October. But you have to decide what’s best for all shareholders, not just a shareholder which owns 7.6% of the company,” he says.

Adrian Auer, Taylor Woodrow

Adrian Auer joined Taylor Woodrow as FD after the retirement of David Green in September 2000. Formerly finance director of IT services firm Admiral, he says: “I joined because, unlike a number of other construction companies and housebuilders, it has very strong financial resources.” Auer insists that he was unconcerned by the poor reputation of contractors and housebuilders in the City. “Clearly I’ve been around a fair bit and I’ve spent a lot of time on the theory and practice of value management. One thing I believe is very important is that low share ratings don’t mean bad companies or bad management. That’s a very important point because housing and building have very low ratings but it doesn’t mean they are bad companies – people will always want housing.”