Back On Course

Just five years ago, Atkins faced financial ruin; yet, today, it is eagerly charting a course for sustained growth. CFO Robert MacLeod tells Steve Coomber how he has redirected the company’s fortunes.

In October 2002, Atkins, the international engineering consultancy, issued a profit warning, announced it was cutting 400 jobs, and CEO Robin Southwell stepped down. Investors took flight and the share price collapsed by some 70%, from 137p to 52p.

Five and a half years later, Atkins is in robust health. It is cash rich, and shares are trading above £12. A £1,000 investment in 2002 was worth over £23,000 in October 2007 – not a bad return over five years. So how has Atkins made such a healthy recovery in such a short space of time? CFO Robert MacLeod modestly claims the firm’s revival is largely down to great teamwork, but there is no question that, as head of finance, he played a major role in Atkins’ success.

CONFIDENCE IN THE NUMBERS

When MacLeod joined Atkins in March 2003, initially as financial controller, the company had implemented a shared services system in Worcester to deal with billing or accounts payable activity from across the UK. However, the new system did not work properly, and the initial teething problems led to a lack of confidence in the numbers being produced.

MacLeod’s first task was to restore confidence in the financial data. "We needed to bring a degree of rigour to the financial process and the information produced for the board. It was around the timing and robustness of the key performance indicators (KPIs) – could we rely on the numbers and what they were saying? Could we understand what was behind them?"

He explains: "As controller, I helped the finance director and finance team to improve the robustness of the data and worked with the different businesses on the key issues needed to help us move forward and get out of the trouble we were in."

In October 2003, Keith Clarke joined as CEO, and then in 2004 MacLeod was promoted to finance director. Since his appointment, MacLeod has led a number of initiatives that have helped revive the fortunes of the 69-year-old company.

FOCUS ON THE CORE

The next task for the management team was to refocus the business, which he felt had lost its way. "In 2004, if you had asked the shareholders what we did, they wouldn’t really have known. To be honest, if you had asked the people at Atkins, there would have been a lack of clarity.

"That was clear from the range of businesses, including a real estate business, the core engineering consultancy with architects and quantity surveyors, a facilities management arm and private finance initiative (PFI) investments."

MacLeod explains: "We were trying to become more of an overall outsource player, rather than what we should be – an engineering consultancy working in the capital environment." Over the last two to three years, the focus has shifted back to that core engineering and design consultancy business. The company disposed of its PFI investments, recycling the equity and selling it on the secondary market. Atkins also sold its real estate business, Lambert Smith Hampton.

LOOK AHEAD

At the same time, growth in earnings per share has been emphasised. "We now do our strategic plans and review the strategy for each part of the business every year. This enables us to look forward and identify our strong markets. It’s a powerful process that encourages our different businesses to think three to five years ahead," says MacLeod.

This strategic review is telling MacLeod that the markets for Atkins are fairly robust, and likely to remain so for the next two to three years, on top of a healthy period of steady growth. "Over the last three years, incrementally, we have increased margins every year, and there is still more improvement to come in a number of areas," he says.

"For instance, we can potentially raise prices to our clients in strong markets with constrained resources, but this can only happen gradually. Also, as we emphasise our growth markets and de-emphasise weak areas, we should get a more appropriate business mix."

MacLeod intends to keep overheads under control. But he also understands that in a decentralised, people-based business, it is not necessarily sensible to squeeze overheads too much.

GOOD STAFF, CLEAR PURPOSE

Although the outlook looks promising, MacLeod acknowledges that success is contingent on a number of factors, not least the challenge of hiring, retaining and developing the right people.

In addition to its core engineering skills base, Atkins needs architects and quantity surveyors to generate fees and good staff for the finance function and all the support services.

One of MacLeod’s priorities since assuming the CFO role has been to define the finance team’s role. When he was appointed to the post in 2004, the company’s situation meant that it was mainly engaged in fire-fighting.

"We were still wrestling with problems caused by the new system. A lot of effort was being put into understanding the management accounts, looking at the KPIs and the way we report, and deciding on the right metrics."

MacLeod points out that when a firm is investing a lot of time in checking that financial accounts make sense, it is worrying about the past rather than concentrating on the future.

Now, that situation has changed. He explains: "Over the last three years, we have begun to obtain robust financial information that we can rely on. This frees up the finance team to spend time moving the business forward.

"So, from a finance point of view, it is about encouraging the team to get more involved in the business as a whole, to be business partners rather than just reporting on the business, to get more involved in the bidding process and in project management, to look more at forecasting and the budgetary process – to look forwards rather than backwards."

A PROBLEM SHARED

Part of being a good business partner is disseminating best practices. In 2007, the finance function held its fourth finance conference, with 100 senior finance people from across the business meeting up to debate and share experiences of problems relating to certain contracts and the lessons learnt.

MacLeod says: "We have encouraged much more mobility around the organisation in finance. Finance is a community in itself, rather than just an individual business stream, so we are trying to get more people to move across the group, and that allows us to share best practices.

"We have also spent a lot of time and effort getting people more involved in the bidding process, and doing training and development with our finance team to make sure that we all understand the business model we are working in, and the risks and challenges associated with it."

The contract bidding process is a good example of where the finance team can add value to the business, believes MacLeod: "Finance people can advise on structuring a contract, such as tax, as efficiently as possible. They will think about hedging issues and currency exposures, look at pricing and the allocation of overheads to particular jobs. They should have a good grasp of the risk profile on subcontracts, on the staff you are hiring and on the profitability on jobs.

"People in finance tend to take these things for granted, while people from elsewhere in the organisation may not approach business from this perspective. That’s true in many organisations."

LEARNING CURVE

MacLeod is not afraid to learn from the company’s mistakes either. Atkins announced a £39.6m loss before tax in its results for the year ended 31 March 2007 (normalised profit £81.7m). The loss was due to a £121.3m write-off in respect of its 20% interest in Metronet, the failed London Underground infrastructure company, which is currently the subject of the bid from Transport for London.

Metronet has been a drain on the resources of Atkins, both in terms of senior executive time and write-offs. MacLeod explains: "Metronet was always going to be a tough project.

"We were a 20% shareholder in a contracting organisation, and we’re not a contractor. One thing we learnt about ourselves is to understand what it is that we do, and not try to do things that we don’t do. We lost a lot of money on Metronet last year. It is not nice standing up in front of the shareholders saying we have written off £120m."

HONESTY PAYS

MacLeod has also focused on communicating with stakeholders. He believes that it is a key part of the role of CFO, noting that within ‘stakeholders’ he includes staff, as they also need to understand how the group is performing.

With respect to shareholder communication, MacLeod emphasises two things: "First, you have to be clear in your statements – try not to use jargon and don’t assume knowledge.

"Second, be frank. If something is going wrong, you have to be able to tell shareholders. We do a reforecast every quarter, and if we see that there is going to be a downturn, we tell our shareholders. It cuts out the surprises."

POWERING AHEAD

Fortunately, other than the Metronet project, it is mostly good news that MacLeod has been relating to the stakeholders. The question is, can Atkins continue to deliver such impressive performance?

MacLeod says: "Our expectations going forward are to continue to grow, and to do so effectively. The key thing is to grow in a sustainable manner. So maintaining the balance and the structure is critical.

"In many ways, the real positive about Atkins today is that there are lots of opportunities out there, and they are within our reach. It is very exciting. It’s what makes us get out of bed in the morning."