Balancing act

Alan Jones has applied high voltage restructuring at BICC. Melanie Tringham reports

Alan Jones is a deceptively modest manager. Chief executive at construction and cables group BICC, he keeps his profile low. `I’m no great strategist,’ he says. `I follow the business and invest in it.’

But he has managed to stem the enormous losses run up in recent years at BICC, and at the same time reorient the company towards new global markets in telecommunications.

Jones was hired to shake up and sort BICC out two years ago. Since the early 1990s it had suffered losses from the construction division, Balfour Beatty and low returns from the power and telecommunications cables market. But last week he announced the first signs of a turnaround. Pre-exceptional profits were up 18% at £129m and a £200m expansion plan is in place.

In the past two years Jones has propelled the group into a massive restructuring programme, which has seen factory closures in North America and Germany, cutbacks in Italy and nearly 1,000 redundancies. Less than 200 of these have affected the UK and they have been voluntary and agreed by unions.

These decisions have seen a capital write-off of £241m in the past two years. For a company that only turned in profits of £131m on turnover of £3.9bn in early 1995, this is evidence of considerable nerve at the top. What is Jones’ motivation?

`My basic contention is that the business should be run properly and we should generate wealth,’ he says. `The first thing we did at BICC was to identify that there were quite a lot of assets not doing very much. So it seemed to me that we should bring them into a position where they were either earning their keep or turn them into cash.’

One of the first things he did was to ask for higher margins on the low voltage cable business. It has suffered from a 72% increase in the price of copper in the past few years. Jones ran counter to the industry’s price cutting trend and put his prices up.

It sounds like an unpopular policy. But Jones is adamant: `Wherever we had a situation where a business appeared to be under price pressure, and the natural inclination was to take the price down, I said no, we must keep this price above a minimal level so that we can make money. And if we lose business, then we lose business.’

For a trained engineer who started life at GEC and worked his way through some of the country’s most exciting defence technology at Plessey, he sounds remarkably like an accountant. `I don’t look at profit margins for success, particularly for the cable business. I look at internal assets and growth in profit, and how you balance them off. Above all, I look for 20% return on assets.’

But while he uses an accountant’s arguments to support his strategy, his technical past is, almost by accident, starting to make its mark at BICC.

Accompanying his rationalisation strategy is an investment policy which is powering BICC’s expansion into high-tech, growing markets. A £170m rights issue last year is being used to expand the higher technology cables: high voltage power cables and telecommunications cables are seeing amazing rates of growth.

`We are only moving into higher technology business by coincidence,’ says Jones, `because what we’re doing is moving to the faster growing and more demanding markets, where you get more product change.’

But the telecommunications sector has been growing rapidly since the early 1990s, so why is it only now that BICC, under Jones, is making the investment? He robustly defends BICC’s position: `This is the right time to do it. I think it was right to pile in fast and get on with it. It puts us in a strong position in most of the world’s markets.’

Jones believes the market for high speed telecommunications will grow `ad infinitum’. The Brand-Rex data communications division is growing at 12-15%, and the optical fibre market at the same rate.

Unsurprisingly, the strongest geographic area is the Far East. `South east Asia is an exciting market for telecoms manufacturers because of their conventional role in the growth of rapidly emerging economies.

`We took the Asia-Pacific region, and put a strategic plan in place very quickly as to where we thought we’d like to be.’ BICC has built factories in Malaysia and the Philippines, and expanded in Indonesia. Jones says deregulation in Europe’s market also justifies investment.

He argues that even in the mature markets of Japan and the US, there is rapidly increasing demand for data cables, pushed by the Internet and complex financial transactions.

The result for BICC is that its growing business moves further from its problematic construction division. Balfour Beatty provides half BICC’s turnover but, at £10m, only 6% of its profits.

There is speculation that it will be sold off. Belonging to an industry which suffers badly in recession, Balfour Beatty and its 3% margin would seem like a millstone around any new chief executive’s neck.

Jones is adamant in his commitment to the business, however. Balfour Beatty has the advantage of offices around the world and a good track record on major projects.

But its greatest asset is belonging to the same group as BICC Cables. As a cash generative division, cables provides the balance sheet to finance the big projects Balfour Beatty wants to win.

`You need to be able to handle the increasing world trend for design build and finance, with emphasis on finance, and that’s where Balfour Beatty has got the right cards.’

Alan Jones is not the most obvious choice to overhaul a large construction and cables business. Aged 57, he has in turn worked in the defence, electronics and aerospace industry.

He also sat at the helm of two major businesses that were taken over: Plessey when it was divided up between GEC and Siemens (1989) and Westland when it was bought by GKN in 1994.

Jones rose to the board of Plessey, the British electronics giant, by way of managing director of Plessey Marine, Plessey Radar and Plessey Electronic Systems. After promotion to the board as international director, he left to run Westland as chief executive.

He says experience of running major projects qualifies him for the current job. `Westland and Plessey were very much about major international projects, and that’s first class training for BICC,’ he says. `I’m very pleased to be in the infrastructure business.’ It is also likely to be music to the ears of Balfour Beatty management.

Jones’ discipline would seem to be starting to bear fruit at BICC. Despite Balfour Beatty’s drop in profits from £18m to £10m, group debt has been cut from £350m to £80m, and the firm has raised enough money to increase last year’s £118m capital expenditure by 40%.

This money will be spent on telecommunications cables, data cables and Asia-Pacific investment. Britain’s Deeside factory is included in this plan. It will see further investment to expand capacity, productivity and workforce. It is a strategy which epitomises Jones’ philosophy: `I’m not into acquisitions, that’s not my style. One’s role in life is to increase the wealth generated by the business.’ It is a strategy which should stand shareholders in good stead for the future.