Ian Tyler’s decision to step down as Balfour Beatty chief executive gives the company time and space to make further changes, analysts told CN this week.
The company’s share price dipped 3 per cent following the surprise news, but bounced back today to 289.8 pence per share.
Mr Tyler, 51, leaves after eight years as chief executive, with deputy CEO and chief operating officer Andrew McNaughton, 48, taking up the role in April.
Investec analyst Andrew Gibb said the succession announcement “may be a surprise to some in terms of timing, given the fundamental restructuring ongoing within the group at present”.
Mr Tyler leaves as Balfour Beatty enters the next phase of its restructure, having already targeted back-office efficiency savings and realigned itself into three UK divisions and four regional hubs.
Mr Gibb said a handover could also give the company some space to make more changes.
He told CN: “Balfour Beatty has got to convince the market and a good way of doing that is a new chief executive, a new pair of eyes, someone new at the helm.
“Investors tend to give people time to get their feet under the table and see what they can do.”
A trading update alongside the announcement this week said the firm will “take further action, both operationally and strategically where necessary, to mitigate any adverse impacts on our business”.
Mr McNaughton joined from Kier 15 years ago and has been central to Balfour’s global strategy in the last three years.
UK construction now represents 15 per cent of total revenue.
A senior executive at a major contractor said: “I think clearly Andrew McNaughton has been groomed for years for this. The outcome is exactly as we thought; the timing is a bit quicker.”
He added: “Tyler has been there for eight years, which is a reasonable tenure for a CEO of a big company.
“Part of me says, times are a bit tough at the moment… the profit warning, a big reorganisation that is halfway through. Part of me says Tyler thought ‘enough’s enough’ and part of it could be precipitated by what’s gone on.”
Balfour Beatty also said the “back-end loaded margin profile” of support service projects means profits and revenue on those schemes will not be seen until 2014.
Analysts are awaiting further guidance on the 2013 expectations.
Liberum analyst Joe Brent said in a note that the new CEO “should be well received”, but suggested some investors “may have hoped for an external appointment”.
He added: “Andrew is the obvious choice and knows the business well and should have the operational skills to deliver the £80m of announced cost savings.”
Andy Brown, analyst at Panmure Gordon, also described it as a surprise, but added: “This is a sound replacement and Mr McNaughton is well known to the city. It is unlikely to signal a major shift in group strategy.”
“He is not that different from Tyler; very considered in that way,” he told CN.
Former finance director Anthony Rabin had been deputy CEO until the firm announced his retirement in March last year. Balfour Beatty said the deputy role would not be replaced when he retired.
Two months later, the company said it was making Mr McNaughton both COO and deputy CEO, giving him additional responsibility for the investments division and for various global functions including health & safety and human resources.
The company has seen a large drop in cash in recent years.
It said in November 2010 that it will accelerate its PPP sales programme by selling £200-300m of mature assets by 2015. It is also targeting emerging markets.
Mr Tyler said yesterday: “After eight years, I believe, the time is right to hand over to Andrew to lead the business in the next stage of its development.”
Mr McNaughton said he is “looking forward to building on the solid platform that we have created and leading us to the next stage of strategic growth”.
Ian Tyler at Balfour Beatty
1996 – Tyler joins from Hanson Group as finance director
1997- Firm disposes of cable businesses
Balfour Beatty Investments formed
1999 - picks up major contracts in US and Hong Kong
2002 – Tyler made chief operating officer
Balfour Beatty Utilities created
2003 – Balfour Beatty buys Mansell
2004 Hong Kong expansion with purchase of 50% of Gammon Construction from Skanska
Jan 2005 - Tyler made chief executive
2006 – Balfour selected as preferred bidder to acquire Exeter International Airport.
Balfour buys Birse
2007/8 - acquisition of US construction management company Centex Construction and GMH, a major player in the US PPP military accommodation market creates a major business in the US. Cowlin Construction acquired in UK and Dean and Dyball.
2009 - acquisition of Parsons Brinckerhoff
2010 – Balfour buys part of collapsed social housing maintenance firm Rok
2012 – UK Construction Services business restructured