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Peasland pushes PFI and profit margins

PROFILE - With a track record of dragging up profit margins and a remit to strengthen regional activities, Mike Peasland is the new head of Balfour Beatty's building and building services group. He talks growth and acquisitions with Emma Crates

'I USED to be hands-on. I used to lead with my chin, ' says Mike Peasland, the recently appointed group managing director of Balfour Beatty's building and building services group. 'Over time I learnt to push from the back. It's an age thing.' This comment is by no means an indicat ion that Mr Peasland is slowing down. A Balfour Beatty man to the core, he has been at the company for 35 years and has a track record of seizing struggling divisions and thrusting them back into profit.

Between 1999 and 2001 Mr Peasland headed up the struggling M&E firm Balfour Kilpatrick.

During his time there he increased turnover from £180 million to £220 million and turned a lossmaking business to one with 3 per cent margins.

'It was a tough task at the time. The company had lost its way. The turnaround strategy was programmed for three years but we did it in two, ' he says.

In 2003 Mr Peasland led the acquisition of the regional cont ractor Mansell. He stayed on as managing director, nurturing the company from a turnover of £500 million with roughly 1 per cent margins to £650 million at a healthier 3 per cent.

This pattern looks set to cont inue as he steps into the shoes of fellow Scot Alistair Wivell, who retired at the end of last year. Over the next few years Mr Peasland is aiming for an operating prof it of upwards of 3 per cent across the whole building and services group.

Mr Peasland's broad exper ience with regional contractors and specialists will prove invaluable as he takes this more senior role. And it ref lects a change in Balfour Beatty's philosophy over the past few years. A decade ago the firm was centralising its operations, now the focus is more regional.

'The whole raison d'etre for buying Mansell was to give us a better spread in our regional activities.

My view is that to be a true national, you have to have a strong regional delivery, ' he says.

Mansell is now the group's biggest banker and pulls in £100 million more turnover than the next biggest company in the division, Balfour Beatty Construction. Since the acquisition much of its growth has been from social housing ? both new build and refurbishment. Under Mr Peasland's stewardship, Mansell's social housing activities have doubled to £200 m illion in around two years.

And he believes that the company still has room for substantial growth. 'It will continue to get bigger ? certainly £700 million to £750 million is not beyond the possibilities of what we can achieve in the next two years, ' says Mr Peasland.

He adds that housing will form a major part of the strategy, as will education and Mansell's large defence programme. It is largely through Mansell that Balfour Beatty is involved with three of five prime contracts for the Ministry of Defence.

He says that Balfour Beatty's interest in buying Mowlem at the end of last year was driven by the company's desire to strengthen further its regional capabilities.

'We have gaps of where we want to be. Both in terms of where our capability lies and where there is workload in the market that we can address. We are continuing to look towards filling those gaps, ' says Mr Peasland.

But he disagrees that life will be more difficult now that Carillion has acquired Mowlem.

'We've seen competitors come and go. At the end of the day, we're striving to increase the value of what we do. I still think there's room for growth, ' he says.

One of his top priorities for 2006 will be to seek out suitable acquisitions for the group. Mansell is currently looking at a possible acquisition in Kent.

It is perhaps surprising, then, that Mr Peasland says that the Olympics will not be forming a major part of his group's strategy.

Through Mansell, the group will be looking at more per ipheral activities that the events will be throwing up, such as housing possibilities, student accommodation and the Games village.

PFI will also be a major driver for the growth of companies in the group as a whole.

In Balfour Beatty Construction and building services company Haden Young, PFI sales account for nearly 60 per cent of total sales. Even in Balfour Kilpatrick they account for between 20 and 30 per cent. Mr Peasland says he expects the current rate of PFI work to continue until 2012.

To be successful in the PFI arena Mr Peasland readily admits that it is essential to choose your projects extremely carefully. 'You're choosing the ones that you believe will reach financial close. One of the issues is whether the project is affordable in the first place, ' he adds.

Mr Peasland is also on the hunt for new markets that will take up the slack when the PFI market slows. To do this, he forecasts that his specialists will specialise still further. For example, the M&E business could develop expertise in sprinklers systems, building management systems and medical gases.

'One of our drivers is the fact that we are doing more off-site manufacture on the M&E side. So all these things could come within an integrated approach, ' he says.

More traditional forms of straightforward tendering still account for about 30 per cent of what Mr Peasland's group does. So he welcomes the news that the commercial sector is pick ing up.

As a result he is seeking more strategic alliances with the private sector and is keen to develop the current relationship with airport operator BAA.

As a group, Balfour Beatty is currently managing £400 m illion-worth of work at T5, including the rail and tunnels, M&E work inside tunnels and also the M&E on the complicated station interchange as well as the tracked transit system.

'This is a critical area for delivery, including all the main interfaces. From this position we are keen to move a relationship forward both in terms of framework contracts and the development of Heath row East, ' he says.

Future projects will see Balfour Beatty pulling together the skills of its subsidiaries from geotechnical specialists Pennine and Stent through to general construction with Balfour Beatty Construction and Mansell. It may also call on its mechanical and electrical specialists Haden Young and Balfour Kilpatrick.

'There aren't that many megaprojects that will allow us to do that. BAA is one of the few, ' he says.

He agrees that his experience running specialist subcontractors has given him a good insight as he draws companies in his group ? and the wider supply chain ? closer together.

'I've seen the world as a principal and as a specialist contractor. In some cases we don't give specialists enough credence in terms of process and main contractors can ride roughshod over subcontractors.

We're in partnership with our customers; we should also be in par tnership with ou r supply chain.'