Having set his firm ambitious plans for sustainable growth, Murphy CEO Steve Hollingshead talks to CN about the ‘family’ business, entering an infrastructure golden age, and adapting to an ever-changing market.
Walk into Steve Hollingshead’s office, and three signed England shirts catch your eye.
The most striking is an England rugby shirt – the one worn by Jonny Wilkinson and co when they were crowned world champions in 2003. “I’m sure John Murphy would have been delighted,” Murphy’s CEO jokes, referring to the company’s founder, who was a proud Irishman.
The World Cup-winning shirt is a relevant one for Mr Hollingshead and the Murphy Group, which has some serious targets to hit over the next eight years.
The contractor plans to increase turnover to £2bn from £647.5m by 2025 with net margins of 10 per cent.
When Sir Clive Woodward became England’s rugby team coach in 1997 he had a similar challenge. He was handed a team that had finished fourth in the 1995 World Cup but that didn’t stop him from aiming for top spot.
£2bn by 2025
The scale of Murphy’s expansion plan is immense, but is it daunting? “We’ve got some tough targets,” Mr Hollingshead admits as we sit down at Murphy’s Kentish Town HQ. “But it is definitely achievable, and in a sustainable way.”
When Mr Hollingshead joined the company in May 2015, Murphy was in the red. A problem contract – its £70m Beckton CHP scheme – had seen it post losses of £9.7m.
Steve hollingshead murphy 1
This was the first loss the company had posted in its 65-year history, Mr Hollingshead tells Construction News.
“It was clearly a wake-up call,” he recalls. “We realised we needed a resolution to make sure it didn’t happen again.”
That resolve has so far paid off. Last year, Murphy made a pre-tax profit of £13.8m. But as its profit has increased, its turnover has dropped each year: from £953.8m in 2013 to £780.5m in 2014 before hitting £647.5m last year.
“We’ve seen the erosion of our balance sheet, cash balance and an erosion of our profitability and we need to change that, that’s not sustainable,” says Mr Hollingshead.
“So we resolved [last year] to move the dial on our financial performance.”
And there are few more experienced than Mr Hollingshead to lead that change.
Over his four decades in the sector, the 60-year-old has worked for contractors such as Taylor Woodrow, infrastructure clients like Tidal Lagoon Power and even the Ministry of Defence’s engineering arm.
But he is probably best known for his time at Laing O’Rourke.
He met former Murphy employee and current Laing O’Rourke boss Ray O’Rourke in the late 80s. The two quickly developed a close bond, with Mr Hollingshead playing an important role in growing Laing O’Rourke from a successful concrete specialist to the UK’s fifth largest contractor.
“It is a regret that I never got a chance to meet John, but there is certainly evidence of him all around the business”
Mr Hollingshead was appointed as O’Rourke & Son’s construction director in 1991 and was integral in the company’s acquisition of Laing Construction in 2001. He was then made chief executive of Laing O’Rourke’s Australia Hub, where he helped the business grow its turnover to $3bn (£1.55bn) and headcount to 7,000 people.
This was a far cry from his start in the industry, when he worked for his father, a civil engineer in north Wales.
“[My first construction job] was during a gap year,” he recollects. “My father got me a job as a chain boy on one of his projects, an earth-filled dam in north Wales called (Llyn) Brenig reservoir.”
Keeping it in the family
Following in his father’s footsteps is something that fits with the Murphy tagline: ‘One family - One team – One Murphy.’
Mr Hollingshead talks enthusiastically about the number of second-generation workers in the company. The family still plays a role in the running of the business, too.
“[The family] are all thoroughly engaged in the 10-year plan and understand the ambition and the investment needed to achieve that,” Mr Hollingshead says.
John’s grandson, John B Murphy, is part of the company’s executive management team as its northern managing director, while his son, Bernard Murphy, holds a place on the company’s board.
Clearly, John Murphy’s legacy is lasting. “It is a regret that I never got a chance to meet John, but there is certainly evidence of him all around the business,” Mr Hollingshead says.
“I think the government will be looking at alternative financial models for delivery of infrastructure and we are certainly interested in that”
Even as you enter Murphy’s HQ, you are greeted with a portrait of the founder which prominently hangs in the foyer. There are stories that circulate around the firm of an aged John Murphy rolling up his sleeves and showing younger employees how to use a shovel.
And this hands-on approach is something that Mr Hollingshead believes is key to running a construction business.
The leaders also agree on the importance of directly employing labour. The majority of tier one firms moved away from the direct delivery model in the 80s and 90s.
But Murphy decided against this and directly employs the majority of its people as well as owning the majority of its plant.
Similarities can be drawn from Mr Hollingshead’s old employer, Laing O’Rourke, which last month called on clients to reward firms that directly employed staff.
Mr Hollingshead acknowledges the pitfalls of this model and how in a downturn firms can be forced to lay off workers – something which Murphy knows all too well after cutting its headcount from 4,278 to 3,660 following 2014’s profit loss.
“There is a temptation to hand risk down and pass it on to other contractors,” he says. “But we are determined we are not going to do that and we will continue to invest in our direct delivery model that involves employing people, training them and giving them great careers.”
Murphy is now on a recruitment drive and has already made a number of senior management hires, including several over the course of 2016 to form what Mr Hollingshead describes as his “A-team”.
The recruitment began with the former Laing O’Rourke offsite construction boss Russell Kellett in January, and has been followed by the appointment of Capita’s civils head Alistair Smyth as engineering lead and Interserve’s Bim aficionado Alex Jones as its head of digital construction (see box).
“Murphy is a business that has built its strength on fantastic operational performance and it has done so in some ways to the detriment of its functional support. We’ve now enhanced our offering by bringing [in] very capable individuals in engineering, procurement, commercial, planning, BIM, IT – all of the functions needed for a successful business.”
It is with this A-team that Mr Hollingshead hopes to take advantage of the “golden era of infrastructure” that he believes is on the way.
Golden era for infrastructure
Murphy’s growth aspirations are largely based around success in four core markets: rail, power, water and natural resources.
Mr Hollingshead is confident these markets will continue to provide opportunities for the foreseeable future. His confidence remains in spite of the UK voting to leave the European Union, which happened more than two months before Murphy published its 2025 plan.
Steve hollingshead murphy 2
“All of these things add question marks over the economy,” Mr Hollingshead says. “But the UK and Ireland have huge populations, the fifth largest economy in the world, huge amounts of innovation, [so] we are not going to come to a grinding halt; we are going to find new ways of doing things.”
He says the government’s enthusiasm for investing in infrastructure can only help Murphy’s growth aspirations.
And Mr Hollingshead talks excitedly about the opportunities projects like Heathrow and HS2 offer.
“Murphy is a business that has built its strength on fantastic operational performance and it has done so in some ways to the detriment of its functional support”
Whether it’s rail or utility projects or the tunnelling expertise needed for the Lower Thames Crossing, Murphy believes it is well placed to take advantage of upcoming opportunities.
It has already reaped the rewards of government investment in major projects. Last month, it partnered with Laing O’Rourke to scoop Lot 3 of the highly sought after enabling works packages for phase one of HS2.
Utilising these partnerships will play an important part in the firm meeting its 2025 targets.
The firm has also joined forces with Hochtief, which completed the £350m C310 Thames Tunnel for Crossrail and is now working with on Sirius Minerals £2.47bn potash mine.
Construction News reported earlier this year that the contractor was also bidding in a joint venture with Bouygues TP for the £260m Barking Riverside rail line, as well as joining forces with Atkins, Volkerrail and Laing O’Rourke for the £2bn TransPennine Upgrade.
“I believe in strategic joint ventures, I think they need to be for the longer term not just project specific. But it is still like marriage isn’t it,” he jokes. “You shouldn’t go into it without thinking very carefully about it.”
Changing face of infrastructure
While the overall pipeline of infrastructure projects is strong, Murphy will also have to adapt to a changing market to achieve the growth it needs. This is something that Mr Hollingshead acknowledges, adding that the firm is already exploring new means of delivery, including taking equity in future projects.
“I think the government will be looking at alternative financial models for delivery of infrastructure and we are certainly interested in that. Coming to market there are several PFI opportunities; I do think as the market deregulates there will be more opportunity in this area.”
This was backed up in last week’s Autumn Statement, when chancellor Philip Hammond revealed that a pipeline of projects delivered through PF2 public-private partnership scheme would be unveiled early next year.
Mr Hollingshead’s ‘A-Team’
- AndrewWaghorn; from Van Elle; Date: November; Position: director of ground engineering
- DavidBurke; from Serco; Date: October; Position: chief financial officer
- AlexJones; from Interserve; Date: September; Position: head of BIM and digital construction
- GaryBroadley; from MWH; Date: September; Position: head of estimating
- AlastairSmyth; from Capita; Date: August; Position: engineering director
- ChrisGreen; from Capita; Date: August; Position: group commercial director
- RussellKellett; from Laing O’Rourke; Date: January; Position: group Operations
- PaulMohan; from Murphy (CP5 director); Date: January; Position: Director of rail
- Jim Yerkess; from Murphy (framework manager); Date: January; Position: Operations director north
Jobs of interest for the firm could include the £1bn Silvertown Tunnel, where TfL is looking for a contractor to design, build and finance the scheme.
The contract will involve a four-and-a-half-year construction phase, followed by a 25-year operational phase. And this is the type of scheme that fits ideally into the type of public-private partnership Murphy will be looking at in the future.
“We want to deliver the project that we have equity in and in the longer term deliver the operational maintenance of that product,” Mr Hollingshead says. “We have the delivery competence, and then we will have to look at the financial model and if it stacks up, we will pursue it.”
The biggest project of them all
So with a great pipeline of major projects and a government willing to put its money where its mouth is on infrastructure, is this a great time to be leading a civil engineering company?
“I bounce out of bed at 5am every day and look forward to what lies ahead,” Mr Hollingshead beams.
But eight years is a long time in construction and as Murphy is aware, a couple of bumps in the road can quickly send consistent growth hurtling the other way.
Mr Hollingshead is adamant this will not be the case and believes Murphy’s history of successful delivery on a wide range of schemes stands it in good stead to overcome any roadblocks in its way.
This applies not just to delivering the UK’s future infrastructure projects, but also the biggest project of them all, driving up turnover to £2bn by 2025.
Steve Hollingshead on…
Offsite: “I am a massive fan of offsite. I have spent a long part of my career developing it alongside Ray O’Rourke.
“What we don’t do is manufacture ourselves. We have a different model where we procure it from the market. That model works as it is. Laing O’Rourke’s model depends on them having a big volume of repetitive product – housing, for example.”
Murphy’s loss-making Beckton CHP plant: “We have definitely spent time over the last two years strengthening our governance, making sure our decisions around risk are properly considered.
“There are some great positives to take out of the experience at Beckton; I would be very disappointed if we said we were never going to deliver work of the scale of Beckton again.”
International aspirations: “What we don’t want to become is a global contractor, we’re not looking to deliver construction products in the global market. We are looking to be a good international contractor; the difference is, we can enter a country where there is a programme investment and we have skills to make a difference.
“We will look around for other opportunities in the market, but we don’t want to trade in places where the values that we espouse aren’t shared, it destroys value, we are not turnover junkies.”