When contracting faltered, the cables business rescued it, and vice versa. At least that was the idea, but cables has struggled badly in the past two years, and rather than allowing BICC to soldier on, investors have pushed for a demerger.
BICC is now on the verge of selling the last of its major cables businesses for £275m, leaving contracting arm Balfour Beatty as a core from which it hopes to rebuild.
Some add-ons remain, but they account for 10% of the business at most. BICC has already sold out of housebuilding and property.
We believe that our ongoing businesses will have more than enough financial muscle to do what we want to do
Balfour Beatty chief executive Mike Welton, whom many expect to replace Alan Jones as group chief executive by the end of the year, says: “Focus seems to be the fashion. There is no doubt that conglomerates have become unfashionable. Investors have had little transparency. Some firms have been forced to demerge – we have taken the choice ourselves.” But BICC’s share price tells a different story. The fact that it sank to a low of 38p suggests a loss of confidence by investors, prompting the group to rethink its position.
“We were either going to carry on in a big way in cables or with Balfour Beatty. There was an argument at one time for quitting construction, but we believe it now offers real opportunities for growth,” Welton says.
It seems that BICC managers, who have watched manufacturing firms struggle to raise margins despite world-class innovation, now see construction as offering real hope.
BICC’s strategy is to concentrate on developing its two strong core businesses of cables and construction through a mixture of organic growth and selective acquisition
BICC 1989 Annual Report
They believe major contractors will soon be able to differentiate themselves from their rivals thanks to specialities in different fields, such as rail, or by owning private finance initiative assets. This, the theory goes, will make them individually attractive to the City.
After the cables sale, BICC will have £50m to invest, and the firm is also seen as a candidate to merge with Tarmac. But, like Tarmac chief executive Sir Neville Simms, Welton does not believe scale is important. “I cannot understand this preoccupation with size. If it was important, the only construction firms would be big ones. We believe that our ongoing businesses will have more than enough financial muscle to do what we want to do.” The plan is for BICC to grow in four areas: capital projects, rail, asset or facilities management and the USA. It may or may not be renamed Balfour Beatty, although it is likely to be relisted as a construction stock.
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Mike Welton: Unravelling from cables will allow Balfour Beatty to be a pure contractor