黑洞社区

鈥淚 think we had a five-minute discussion for good governance, and that was pretty much it.鈥� Bill Hocking, the chief executive of Galliford Try, is talking about the process behind the move to hand more than half of the firm鈥檚 3,500 staff a cost-of-living payment totalling 拢1m in September. More than 1,800 of them were given a one-off payment of 拢750, which, together with a reward scheme, meant some employees received an extra 拢1,000 in their October pay packets.

鈥溌�750 will be a lot for some and not a lot for  others, but it was the right thing to do,鈥� Hocking says. 鈥淲e support a local food bank out of here [the firm鈥檚 main office is on a business park in Uxbridge on the outskirts of north-west London] and I鈥檇 noticed that demand for it was going up. It got me thinking. You hear stories about hard-working people struggling to make ends meet, and I thought: we鈥檝e got to do something about that.鈥�

Following the news, he received dozens of appreciative emails from staff whom he had never met. 鈥淚t was a pretty heart-warming response, actually.鈥� He seems slightly taken aback. 鈥淚 hate this thing that people are having to choose between heat or food; that鈥檚 just appalling, and especially for kids. Can you imagine that? Choosing between putting the heating on or feeding your kids?鈥�

Hocking arrived in the UK from his native Zimbabwe in January 1990 to work for Trafalgar House, later bought by Kvaerner which in turn was taken over by Skanska. 鈥淚t was bloody freezing. I lived in dodgy rented accommodation with water running down the windows.鈥�

He had arrived just as the UK was about to enter a recession, which began later that summer and was not declared officially over until April 1993.

Hocking is speaking to 黑洞社区 on the day the Bank of England raised interest rates by the biggest amount since 1989 and warned that the longest recession in 100 years 鈥� now expected to last until the middle of 2024 鈥� was on its way. But he is scratching his head.

鈥淚鈥檓 no economist, but what I don鈥檛 understand is that inflation is up and unemployment is at a historic low. How can you have a recession when everybody in the industry is scrabbling around for good people?

鈥淭his [current situation] is more about cost of living for individuals than it is about having a job or not having a job. In our sector, we are still looking for lots of people 鈥� all of our peers are.鈥�

He says much will depend on chancellor of the exchequer Jeremy Hunt鈥檚 autumn statement, which was due to be delivered this week. 鈥淚鈥檓 always optimistic,鈥� Hocking adds.

鈥淣othing is going to be axed, in my view. Hopefully I鈥檓 not proved wrong on 17 November. But are they going to stop building schools, hospitals? No. They might build 5% less so there might be a 5% moderation in the pipeline.

鈥淭here are some things that just have to carry on. In [Galliford Try鈥檚] world, the regulated side of things has to carry on. People still need electricity, water, gas. Work in train is not going to be stopped.鈥�

Don鈥檛 panic

Hocking says Galliford Try has had one project paused since the abandoned mini-Budget of late September, a residential scheme that a US investor was bankrolling. 鈥淭hey said the situation was too uncertain. People are waiting for the 17th and, after the 17th, if things are there or thereabouts, I think the taps will come back on again.鈥�

Hocking says the industry saw the same kind of talk in the early weeks of covid-19. Those events have taught him not to panic. 鈥淧eople can look through the current issues of the day and say, 鈥榠f we need an asset in two years鈥� time, we need to start building now鈥�.鈥�

I鈥檓 no economist, but 鈥� inflation is up and unemploymenty is at a historic low. How can you have a recession when everybody in the industry is scrabbling around for good people?

Bill Hocking, CEO, Galliford Try

The role of the much-maligned construction minister came to the fore during the pandemic, he adds. Then, it was Nadhim Zahawi, later to become chancellor for just a matter of weeks during the chaotic events of the summer and who is now chairman of the Conservative party.

鈥淚 thought he did a cracking job,鈥� Hocking says. 鈥淗e was very down to earth and approachable. We talked to him every week.鈥�

The coronavirus pandemic, he says, underlined the importance of cash flow 鈥� from both clients paying up and contractors paying their supply chain on time. With this in mind, Hocking says the materials price hikes of earlier this year caused by rampant cost inflation have plateaued.

鈥淭he availability of most things is OK. The big spike is behind us. That was a headache but we have a strong balance sheet, buying some things further ahead in some cases. We鈥檙e seeing more materials on site than we would have done a year ago. People are buying ahead.鈥�

He says he would like clients to give more weight to firms鈥� balance sheets. 鈥淭hey will say they value a strong balance sheet 鈥� but then they give a lot of work to people who don鈥檛 [have one].鈥�

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After what seemed like years of bleeding money on two problem jobs in Scotland 鈥� the Aberdeen bypass and Queensferry crossing; 鈥渢he important thing is they鈥檙e gone鈥�, Hocking points out 鈥� the firm sold its housebuilding arm nearly three years ago to the then Bovis Homes, run by former Galliford chief executive Greg Fitzgerald and since renamed Vistry. It was a sale that put its balance sheet on a much healthier footing.

The disposal was sealed weeks before lockdown. 鈥淭he timing was good,鈥� smiles Hocking, with the deal allowing it to pay out dividends, pick up rival firms such as with the 拢1m it spent last October on collapsed civils contractor NMCN鈥檚 water business, swelling staff numbers by 900, and leaving it with an average month-end net cash position last year of 拢174m.

In turn, this has meant its average payment time to its suppliers is an industry-beating 25 days. But even so, the firm has been hit by two subcontractor failures in the past few months as firms get caught out by cash flow problems caused by inflation.

One was a French curtain walling manufacturer working on a commercial scheme in Bristol. Hocking says that, to get around this, Galliford Try is paying the firm, which under French law is still allowed to trade, weekly to keep producing the panels and has sent some of its staff across the Channel to supervise production. 鈥淲e鈥檙e just about done.鈥�

The other was an M&E contractor on a London residential scheme, which recently sank with Galliford Try weeks away from handover. 鈥淭he client is being reasonable,鈥� Hocking says. 鈥淥ne thing post covid is that people seem to be more accepting that we鈥檙e living in a more volatile environment and some things we can鈥檛 control. When something goes wrong, it鈥檚 better to work together, mitigate the issue as best you can rather than say, 鈥榠t鈥檚 all your problem contractually, get on with it鈥�.鈥�

Achievable margins

Hocking has set the firm a 3% margin target on turnover of 拢1.6bn by 2026. In its latest financial year, it posted an operating margin of 2.4% on revenue of 拢1.2bn. He bats away suggestions that the target is not ambitious enough.

鈥淚 say, let鈥檚 get there first and, as soon as we get there, we鈥檒l raise our sights. It needs to be a sensible, achievable and realistic aim. If you ask someone to aim for the stars, that鈥檚 great, but if you consistently fail then that鈥檚 not so great. Whereas if you have got a sensible target they can see a route to, people will perform better.鈥�

The firm鈥檚 average-sized contract is around 拢20m and the split in income between its building and civils arm is currently 65:35. Its largest building job is a 拢105m PRS deal in Leeds, while in civils it is an 拢85m dualling scheme on the A303 in Somerset.

Hocking reckons the split will be closer to 55:45 in the longer term and last year鈥檚 deal for NMCN, stitched together over a weekend, pretty much sated its appetite for water work. But in highways Hocking reckons there is more business to be had. 鈥淲e can grow there by another 50% to 拢300m-拢350m.鈥�

The demand for affordable housing is still huge; it鈥檚 a market that is big and is going to be around for a long time

Bill Hocking, CEO, Galliford Try

The firm is also looking at the affordable housing market again, once a three-year no-compete clause it signed with Vistry elapses in January. 鈥淭he demand for affordable housing is still huge; it鈥檚 a market that is big and is going to be around for a long time,鈥� Hocking adds.

It is also eyeing the green retrofit of existing buildings such as fitting photovoltaic panels to roofs and is looking at helping clients, mainly local authorities, to bankroll the initial cost. 鈥淚t鈥檚 a massive market and, for those clients who don鈥檛 have the money, then there鈥檚 the option for us to fund this through our balance sheet and they pay us back over five years or whatever.

鈥淭here is the workload we get from it, and the money we invest, we get a finance-style return on and an FM-style return on installation. It would be 6% on FM and something similar on finance,鈥� he says.

But what Hocking will not be sanctioning is taking on any job at any cost. 鈥淭here is not a single revenue incentive in Galliford Try. My incentive is around profit, cash, ESG [environmental, social, and governance] measures,鈥� he says.

To underline the point, Hocking says the firm recently walked away from a new-build commercial job in London. It was in the sole negotiating position for a 拢70m scheme.

Sounding aghast, he says: 鈥淚t was a nice job. The client just became totally unreasonable, wanted us to take risks that were just unmanageable, saying, 鈥榠t鈥檒l be all right鈥� and we said, 鈥榳e鈥檙e not signing that鈥�. We would rather walk away and deal with sensible people.

鈥淚t鈥檚 hard to walk away from a 拢70m job that鈥檚 pretty much ready to go. The thing that鈥檚 interesting about this particular one: I reckon if that had happened two years ago, I would have got a call from that particular business MD saying, 鈥楤ill, I want to walk away from this job 鈥� is that OK?鈥� I would have said yes. Whereas now they say, 鈥業鈥檝e walked away from this job, Bill,鈥� and I say 鈥榞ood鈥�.鈥�