CFO Interview: Heath Drewett, group finance director of Atkins
By Michelle Perry | CFO UK | Published 14:15, 01 March 12
As a finance chief it must be a warm feeling watching your company’s share price edging up post-results presentation. It’s what Heath Drewett, group finance director of design and engineering business Atkins plc, has been doing since the early February when Atkins reported robust half-year earnings and profits.
But Drewett wasn’t watching the rising share price for the warm glow it offers, but more as an exercise in investor psychology. “I wondered to what extent … shareholders that have been watching and waiting for this inflection point are now deciding ‘OK, this is the time to move in’,” Drewett says in an exclusive interview with CFO World.
Despite tough markets in the UK over the past two to three years, Atkins has grown top and bottom line at between 5 and 7 percent while repositioning the company in other regions ready for an upturn in growth. Forecasts suggest that operating profits will be about £100 million this year on revenues of over £1.6 billion.
“The market itself is now recognising that there are growth opportunities,” he says.
The finance chief has been helping to drive the business to boost sales without much top line growth over the past few years, but now he feels that they are reaching that “inflection point” where both revenue and profits grow together. It’s the point that investors have been waiting for, too.
He likens investors to surfers waiting on a beach, when they should, he argues, be in the water ready to catch the wave. “If you get out in the water then you’ll catch the wave when it comes, but if you’re standing on the beach asking me to tell you when the big wave’s coming then, you know … ‘Get in there, get yourself a holding’,” he says, noting that he has little sympathy for investors who miss an opportunity.
That said, Atkins – which is also the London Olympics 2012 official engineering design services provider – has a pretty stable, loyal shareholder register which Drewett says has supported the business during the recent economic turmoil and uncertainty. A stable shareholder register can, however, pose challenges when a business is on the up. “The problem with a stable one is that it’s difficult to attract new shareholders in terms of liquidity of the stock.”
But it is not an issue that is bothering him at present. “Our top 10 investors have been with the company for a long time and are supportive and encouraged by the recent momentum behind the share price.”
Shareholder engagement is a pertinent issue with the growing outcry over executive pay and the government’s plans to bequeath greater powers to shareholders in terms of a binding vote on remuneration.
Drewett considers this last point to be a moot one as he labours under no illusion with whom his responsibilities lie. “Whether they’ve got that [extra power] or not, the shareholder will one way or another respond if I don’t do a good job, either through pay or they’ll find someone else to do the job.
“If I’m underperforming, the shareholder isn’t going to wait 365 days to exercise his vote at the annual general meeting. The shareholder will bring to bear its views on the business through the board and the governance structure. Whether you enshrined those powers in law, well it’s still clear to me that I’m accountable to the shareholder to reinvest and return a value.”
And that is what Drewett has been busy doing. Like many companies, Atkins’ board took an executive decision to reposition the business ahead of what they considered to be a long and painful recession.
Prior to the credit crunch Atkins was around 70 percent UK-focused with its second biggest market in the Middle East. With both regions facing economically challenging times – the Middle East saw a liquidity rather than recessionary crisis – the board decided to reduce its reliance on the UK and build up offerings in other markets.
Currently, Britain makes up just under 50 percent of Atkins’ business, but management’s mid- to long-term goal is to reduce that to below 25 percent with a further internationalisation of the business. The UK will of course remain a strong focus for the business, especially since it has helped transform the Olympic Park site from derelict industrial land into a world-class sporting venue and asset for East London.
Cash-rich and confident
Thanks to its strong balance sheet, Atkins was in a position to spend cash without borrowing to develop existing markets or enter new ones. It was during this period that Drewett joined the board. One of his prerequisites in looking for his first CFO role was that he wanted to join a company where finance had a position “round the top table” and was considered a “business partner”.
Heath Drewett, group FD of Atkins: “I had worked in British Airways where the events of 11 September 2001 had thrown finance into the driving seat alongside the top team and I had been part of a finance team which had enjoyed that relationship and the privilege that that brings. I was clear that I wanted to join an organisation that reflected that change,” he says.
Drewett found the criteria he wanted in the job at Atkins when he joined the board in June 2009. Just over a year later Atkins had completed the acquisition of US design and engineering business PBSJ in a deal worth $280 million (£178 million). By buying PBSJ, Atkins’ US presence went from a few hundred staff to a multi-skilled, multi-disciplinary workforce of over 3000.
Despite the US also facing a recession at the time it remained for Atkins “the biggest global infrastructure market in terms of design and consultancy spend”. The calculated gamble paid off as it is the US economy that is showing signs of consistent growth as unemployment falls and the housing market stabilises while the UK and eurozone recovery continues to falter.
Despite Atkins having nearly £300m in cash on its balance sheet at the time, Drewett wasn’t taking any chances and renegotiated the group’s facility – which was due to expire in 2011 – for another four-year term to 2014, bringing in another bank “to provide us with additional liquidity”.
Wisely, Atkins didn’t only count on the US for growth. The increasingly international business also repositioned its business in the Middle East, moving out of property-heavy Dubai and into Qatar where a huge amount of infrastructure spending is going on ahead of the 2022 Football World Cup. Saudi Arabian authorities are also spending significantly on public works somewhat in response, says Drewett, to the Arab Spring protests in neighbouring countries. Hong Kong is also providing good income in terms of Atkins’ rail business and there are solid growth opportunities in Scandinavia, too.
“We’ve now got our resources marshalled in the right places in terms of where the growth will come. We’re a market taker, rather than a market maker, therefore we need to make sure we understand the future investment; where the infrastructure will happen and that we’ve got the right resources, right relationships with clients and public bodies and private clients that’ll be the source of our income,” he says.
Drewett says Atkins’ main aim is to grow organically because of lower risks and higher returns, but he says it’s likely the business will continue to look for bolt-on acquisitions where they buy in skills and resources to boost their offering, rather than buying entire businesses as they did in the US. Bolt?ons can be funded through cash generated out of the business without even touching cash on the balance sheet. That said, he isn’t ruling out large-scale acquisitions.
“We’ll never rule out the game-changer. In business, never say ‘never’. It’s difficult to plan for those things but if opportunities come along…” he says rhetorically.
In regards to the mounting anti-business sentiment Drewett says: “There’s another side to the value of British business and people are trying to do a good job and employ people. Nobody likes to let people go. It’s a painful conversation. [Managers] do everything they can to avoid that.”
The critical focus should be on getting the right leaders to drive growth and start re-employing. “Many of the [anti-business] issues of today will disappear,” he says.
As those concerns disappear more CFOs, like Drewett, can return to reaping the rewards in share price rises and with it investor returns and more jobs.
CV: Heath Drewett
2009-present: Group finance director, Atkins
1996-2009: Head of business performance; Group financial controller; Head of corporate finance; Financial controller – commercial; and Head of investments and joint ventures, British Airways
1993-1996: Senior financial analyst, The Morgan Crucible Company
1989-1993: Assistant manager, audit & business services, Price Waterhouse
Atkins stands out as leader among laggards in the diversity stakes with just over 20 percent of its board made up of women. And its strong female board representation is not a reaction to Lord Davies’s call to arms in February 2011. Fiona Clutterbuck was appointed a non-executive director in March 2007 and Joanne Curin has been a non-exec since February 2009.
Indeed The Times named Atkins among its Top 50 Employers for Women in 2011. Group finance director Heath Drewett says the company was “early to recognise the merits of a diverse workforce” and has “tried to lead with the board and to set the right tone and change the behaviours”.
Perhaps the company’s progress explains the board’s stance on quotas: neither Drewett, nor his fellow board members want them. He argues that behaviours and consciousness is adapted over time and worries that quotas would not achieve the desired aim.
“[Women] want to be treated equitable and that’s it. Once they’re on the level playing field they’ll fight for themselves and will find themselves in senior management positions and on boards. It’s slight changes, not some radical edict,” he says.
“We’ve got some way to go but we take it seriously. We think there are benefits to a more diverse workforce, and that’s not just women, ethnicities, backgrounds, skills, to bring to bear a much richer set of people to the issues and business challenges of the day,” he adds.
London 2012 – Official engineering design services provider.
Crossrail – Architectural and engineering design services including design of the central London tunnels and station design at Tottenham Court Road and Custom House.
Oxford Circus – Design of diagonal crossing to tackle pedestrian crowding.
Statue of Liberty – Construction management for restoration and life safety improvements.
Dubai Metro – Design and programme management of civil works for red and green lines
Qatar – Recently awarded major contracts with Qatar Ministry of Municipality and Urban Planning for transport & infrastructure programme running up to 2030 and encompassing the 2022 FIFA World Cup, and Ashghal Public Works Authority for roads & drainage infrastructure.
European Rail Traffic Management System (ERTMS) – Designing the first country-wide rollout of an ERTMS system which increases train frequencies, speeds and safety.