Bob Vickers is making margins of more than 5 per cent in a sector that has overwhelmed industry heavyweights. He talks to CN about how Clugston succeeds at EfW, whether Brexit will be an issue and why Balfour and Carillion have the same problem.
“With the right partner, you can do anything,” says Clugston Group chief executive Bob Vickers as I ask him the secret of its success in the energy-from-waste market.
It is a sector where contractors seem to walk a knife edge between success and failure as they deliver the work, with a number of heavyweights taking substantial hits to their business due to problematic projects.
Among the most high-profile of these has been Interserve, which announced in August last year it was to exit the sector after taking a £70m hit on its Glasgow energy-from-waste deal.
Yet Clugston, despite its smaller size, has been successful in a field where many large contractors have experienced difficulties.
The company has achieved margins of more than 5 per cent on its EfW schemes and the sector accounts for around 60 per cent of its annual turnover. And at the heart of this strong performance has been its tie-up with French firm, CNIM.
So why has the partnership been so successful, what challenges does it now face, and what steps has Mr Vickers taken since becoming CEO in February to ensure continued success?
Clugston’s journey in the EfW market started back in 2003.
At this point, a deal was struck between the firm and French engineering group CNIM to deliver schemes together as a joint venture. Fourteen years and 13 projects later, the partnership between the two companies still stands.
“Risk is divided where it should [logically] belong; other contractors take the process risk and tackle things they don’t understand”
“Our relationship with CNIM is excellent,” Mr Vickers says. “Over a period of years we’ve learned how to work and deliver these projects together.”
How does this dynamic work in practice? Mr Vickers explains that splitting the risk appropriately between the two businesses is essential when delivering these projects. While Clugston takes control of the building and civil engineering works, CNIM handles the process risk elements.
“The essential thing is that risk is divided where it should [logically] belong; other contractors take the process risk and tackle things they don’t understand,” Mr Vickers explains.
“To be frank, we do not have the skills to take on the process side, but our partners are very good at this. And on the other hand, they don’t understand the civil engineering and building parts as well as we do. Coming together works very well.”
A philosophy of ‘sticking to what you know best’ seems to have worked well on these schemes. And through this collaborative environment, both parties have been able to challenge each other and combine to figure out how best to deliver the work.
“No contractor knows the answers to everything,” Mr Vickers says. “It’s about being prepared to listen to someone else, take constructive criticism and give it in return. You get to really understand how you can help your partner deliver what needs to be delivered.”
While the two firms have experienced occasional problems and delays on projects, Mr Vickers is adamant that the “contract never comes out of the drawer”. However, one test to their relationship could be Brexit.
“We’re not worried. Brexit won’t be a problem – we’ll find a way round it together”
As uncertainty continues over what kind of relationship Britain will have with the European Union, overseas companies such as CNIM could be forgiven for feeling nervous over possible changes affecting their operations in the UK.
Mr Vickers seems unfazed by the challenges this could present. “We’re not worried,” he says. “Brexit won’t be a problem – we’ll find a way round it together.”
And despite the referendum result, Mr Vickers insists CNIM has not been put off the UK market. In fact, he says if CNIM had its way, it would have Clugston working in Europe alongside it – but his firm isn’t looking to take up such an offer just yet.
“Maybe in the future,” he says. “But not currently. We don’t have anyone based in Europe at the moment. Bringing people out of their comfort zone and putting them in a different location is a big risk – and I don’t think we’d take that on. We’re comfortable doing what we’re doing.”
Balfour and Carillion ‘suffer same problem’
Prior to joining Clugston Group, Mr Vickers was Carillion Construction Services’ director from July 2016 to February 2017. Before this, he was managing director at Balfour Beatty Engineering Services from January 2014 to July 2016.
In July, Carillion issued a profit warning as it revealed a provision of £845m over problem construction contracts. Chief executive Richard Howson stepped down from his role with immediate effect – although has since moved into the position of group chief operating officer.
“Both Carillion and Balfour Beatty are fantastic companies. Unfortunately there is too much focus on processes rather than on the front-end”
What does Mr Vickers think of this series of worrying developments, having only exited the UK’s second-largest contractor earlier this year? From his experience at both Balfour Beatty and Carillion, he says the group’s troubled times reflect a wider issue.
“Both Carillion and Balfour Beatty are fantastic companies – but both suffer from the same problem,” he says. “They have become so process-led in terms of dealing with risk management in a way that is exceptional, with great procedures and processes dealing with those things. But unfortunately there is too much focus on these processes rather than on the front-end of the business.”
This could explain why both businesses have faced similar issues, he argues. “If you take your eye off the front line – what your guys are doing, the projects they’re building, how they’re building them, how they’re overcoming those problems – then that will affect the bottom line.
“Process is about making sure you are doing all the right things, but it needs to go further than a tick-box exercise. You have to take that to a position where you can put this into action.”
During his time at both firms, Mr Vickers says he was there to “solve problems” for both businesses. One particularly troubled project he was called upon to tackle for Balfour Beatty Engineering Services was the refurbishment of Sea Containers House on London’s South Bank.
The iconic building was undergoing an office-to-hotel conversion. Balfour scooped a £30m M&E contract on the scheme but was having trouble achieving the required margin from its work.
“Now, it’s about looking at the good things and futureproofing the business. It’s very different to solving a crisis”
The job was hit by a series of delays and in April 2015 Byrne Group, the fit-out contractor for the development, said the project had “experienced significant delays and under-performance from the mechanical and electrical services subcontractor”which placed the “hotel opening date in jeopardy”. This problem project, along with a second residential development in Westminster, contributed to Byrne Group posting a pre-tax loss of £12.1m in April 2015.
Clearly then, Mr Vickers is no stranger to challenging circumstances. But moving to the smaller Clugston Group required him to adopt a completely different approach to his usual business mindset.
A very different set of skills is needed being chief of the Scunthorpe-based group, he explains: “When I went into Balfour Beatty and Carillion, I went in there to identify problems, put together a plan and execute that plan. But going into a business that is successful, making money and has lots of cash in the bank is a completely different situation.”
It meant that Mr Vickers went from being chief problem-solver to looking to capitalise on and develop a company’s strengths. “Now, it’s about looking at the good things and futureproofing the business,” he explains. “It’s very different to solving a crisis.”
Vision for the future
“Our business model is not about turnover,” he says. “It’s not about being the biggest. It’s about being the best at what we do.”
Indeed, establishing a long-term sustainable business is something of a mantra for Mr Vickers. He describes his focus as establishing long-term, predictable incomes for the business by ensuring it works with customers over an extended period of time, instead of merely delivering one-off projects.
“We’re not arrogant, but we’re very considered about what we want to do. We’re selective; you have to work with the right people”
One sector Mr Vickers is eyeing for growth is homes for the older generation. The group is currently working with local authorities to make properties more suitable for elderly people to continue occupying as they grow older. “It’s certainly something we’re focusing on,” he says. “It’s a growing market, as people are getting older.”
He believes this sector will prove lucrative, but the group will be selective about which local authorities it works with. “The group is very strong and cash-rich, which means we can pick and choose who we want to work with – just like our clients will pick and choose [whether they] work with us. We’re not arrogant, but we’re very considered about what we want to do. We’re selective; you have to work with the right people.”
The type of client Clugston is looking for is one that is willing to innovate and do something different, which Mr Vickers says can be difficult in the sector.
As well as ensuring steady business growth, the chief executive is aiming for the firm’s internal divisions to collaborate more efficiently. “We don’t currently have a joined-up approach – but it would be good to do that in the future,” he says.
“It’s a more efficient way to do what we do. For example, construction is doing a fantastic job, but doesn’t really relate with the distribution arm. And likewise, I would like to see our distribution company delivering building materials to our construction division.”
But this isn’t the biggest problem that Mr Vickers is trying to solve at Clugston Group.
“In November this year, the business turns 80 years old,” he says. “I want to futureproof the company for the next 80 years – and that is my problem: making sure we’re ready for the future.”
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