Asked if a Bovis deal has ever affected P&O’s share price, Sir Frank says: “Never. Not at all.” An adviser tells him that winning work on the Atlanta Olympics nudged P&O shares higher, but Sir Frank says: “Did it? I never noticed.” “Unfortunately, what for us is a huge success – profits up 5-10% – doesn’t move P&O shares. It’s too small. P&O is very generous with shares and options, but the shares cannot act as a real incentive because Bovis cannot influence their value.” Lack of stock-market recognition is one reason Sir Frank went to P&O chairman Lord Sterling in January and suggested that Bovis was ready to float and make its own waves.
After the collapse of merger talks with WS Atkins last December, Sir Frank and other executives wrote a paper saying that Bovis, with operating profit of £21m in 1998, was ready to cut free.
Their thinking coincided with Lord Sterling’s plans for a £2bn demerger of all P&O’s non-core assets.
Bovis, which is likely to fetch £300m; property worth more than £1bn; and Earls Court Olympia are all being sold in P&O’s drive to focus on cruises, ferries and ports.
Lord Sterling, who was under pressure from the City to focus his business activity, explained his strategy in P&O’s annual report: “In my statement three years ago, I said we would be concentrating the group’s resources on a smaller number of businesses. We have now decided to focus even more closely.” For Sir Frank, the City’s call for focus simply means “they want transparency and predictability. With a conglomerate, they have neither. They are saying: ‘If we believe the telecommunications sector is the sector we want to invest in, we don’t want it polluted with construction or retail.’ ” Sir Frank, who is likely to remain president of Bovis after a flotation late this year or in early 2000, hopes that the contractor will be able to control its own destiny.
If you are part of a conglomerate, you have to fight for your investment with all the other parts of the group
He joined the P&O board in 1985 and has seen enough internal haggling to know that Bovis benefited – and suffered – from being part of an empire.
The strength of P&O’s balance sheet helped persuade clients that Bovis was a safe bet for major projects, but there were times when he wondered about its status within P&O.
He says: “If you are part of a conglomerate, you have to fight for your investment with all the other parts of the group.
“You sometimes end up being used to boost another division because the ‘central government’ decides that that is the sector they want to support. P&O has done a great deal for Bovis – 10 or 15 years ago, Bovis couldn’t have been floated and Lord Sterling and [P&O managing director] Sir Bruce MacPhail helped build Bovis up worldwide.
“But P&O will also say there was a time when Bovis contributed to the shipping company when it was not making money and needed to buy a ship,” he says.
Good progress has been made on sales of residential units at London’s Chelsea Harbour. With the opening of the 160-suite hotel shortly after the year end, the construction of phase one of this project is now substantially complete
P&O 1989 Annual Report
But Sir Frank knows, as his chief executive Luther Cochrane told Building (19 February) that P&O has been a “nice house in which to shelter from the storms”.
Some analysts believe that Bovis’ US businesses have loss-making guaranteed-maximum-price contracts that will be more open to scrutiny after the demerger.
Sir Frank insists that this is not so, and that not even Atkins’ advanced due diligence procedures unearthed any problems. “Under P&O, we had risk control second to none. The last thing they wanted was some problem with construction,” he says.
In fact, Sir Frank says the market would be surprised at how few GMP contracts it has actually entered into, explaining that clients often opt out of them at the last minute.
Investors also argue that Bovis will have to grow to take on major projects, and that more merger plans would be a healthy way to start.
Motorfair, World Travel Market and the International Food exhibition were outstanding among many successful exhibitions [at Earls Court Olympia]
1989 Annual Report
But Sir Frank says the Atkins experience showed that staff can be reluctant to merge, and that clients, too, can be hostile. Stanhope chief executive Stuart Lipton – one of Bovis’ best-known clients – was among those against the deal. “I am doubtful whether there is a possibility for Bovis to merge with anybody after the Atkins experience,” he says.
And he believes it is unlikely that Bovis will be gobbled up by an overseas giant such as Skanska ahead of the demerger because the move would lead to a culture clash that might force Bovis staff to leave.
Another City view is that Sir Frank’s paternal style might be questioned by investors that intend to grind out every last ounce of profit.
He counters: “However benevolent I may appear, I am trying to squeeze out as much profit as I can. But the profit is created by employees and if they are not happy in the environment, they don’t produce. That’s the basic principle.
“I have always tried to keep the interests of clients, shareholders and employees in balance. If you maintain growth in profits and a well-controlled, well-managed company with a vision for what you will do in five or 10 years, you will be all right.
“I had to convince the P&O chairman that I wanted to go into Poland and into the Czech Republic. The same will go for the City, and we will have to take them with us.
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