Eons a Staying down to earth Being involved in high profile projects such as The Shard is all well and good, but there’s more to Mace than meets the ‘sky’ says the firm’s finance chief @ By Gaurav Sharma CetHa or \ Te} Vaughan Cee cet) Finance Director, fUteraety ergs you drew up a lst of iconic British [resto Shard, Emirates Air Line, London 2012 Olympics sites, Heathrow Terminal 5, City Hall and London Eye would figure highly And they have at least one thing in common ~ global construction and consulting firm Mace was involved in all of them, “You can add the Battersea Power Station redevelopment’ preliminary works to that list of iconie projects,” says David Vaughan, the firm’ group finance director Set up in 1990 by construction industry veteran lan Macpherson along with a crew of fous, Mace has come a long way from its humble beginnings. For over two decades, the firm has consistently claimed that it brings a novel approach to consultancy and construction, bagging plaudits and an ever-expanding lobal client portfolio along the way. By all accounts, and no pun intended, 2012 was a bumper year for the frm. Mace’s ‘umover last year hit an all-time high of ELA billion; an annualised basis. Furthermore, it also sn increase of 18 percent on secured 77 percent of its 2013 turnover target well before the last fiscal year started. “As we say, i's not about turnover but what's ‘leftover’. Last year was a fantastic one for us and the result was down to a combination of factors. Three major projects — the Emirates Air Line, The Shard and the London 2012 Olympic and Paralympics Games construction (delivered as part of the CLM consortium) reached completion, It was the successful culmination of seven years’ worth of forward planning and a realisation of set objectives,” Vaughan says. FEL wwwcfoworld.co.uk September 2013 TThe finance chief notes that Mace’s frst ‘major breakthrough was the contract for project and construction management of British Airways’ headquarters at Waterside back in 1991, “However, our work on the London 2012 sites (and subsequent reconversion of the Athletes’ Village to housing) has well and truly put us on the world stage.” Simple but effective Teonie projects grab headlines, but for Vaughan, it's the simple projects, effectively executed over the yeats and a constantly volving business mode, that have held the key to Mace’ corporate health “If you go back 20 years, we were very ‘much a construction firm that was heavily involved with office space realisation. Over the years, we have painstakingly built a robust consulting [cost project and facilites management] azm to complement our service offering in terms of construction delivery, and an international footprint to boot.” Strategic diversification not only helped Mace survive, but rather thrive, either side ofthe 2007-08 economic downturn. “Construction always was and remains a very cyclical industry. So you need a back- up plan, especially inthe current climate,” ‘Vaughan adds His favourite examples ofthe firm's “effective if not iconie” projects happen to be the Great Northeen Hotel and the Assam Place student accommodation in London. “The hotel was a straightforward project jin an area of London ~ King’s Cross — which is undergoing something of a transformation in terms of construction activity. The refit sitsin a part of the capital thar’s got a lot going for it in terms of transport, commercial real estate and economic activity.” Similarly, Assam Place was another ‘opportunity where Mace quite literally nailed its colours to the mast. “We invested equity in the projec, built the 300-plus bedroom accommodations and have seen it pretty well fully lee for forthcoming academic years. Student accommodation remains one of ‘buoyant segments of the construction business as demand is not coping with supply,” Vaughan adds, a Partnership with the public sector has been a constant feature of our business The company has no intention of losing sight ofits public sector portfolio. “While the public and private sector client base as well as our resultant revenue mix alters from year to year, Mace’s partnership with the public sector has been a constant feature of ‘our business since 1993. Market conditions Even though the ‘economy is turning ‘ corner, Vaughan says market conditions continue to remain cough for the firm's small to mid-tier clients. Furthermore, the market itself is quite polarised between the North and the South of the UK. “Larger projects tend to be in metropolitan areas, where Loncion leads the way. Within London itself, there isa fair degree of polarisation when it comes to raising capital The big guns such as British Land, Land Securities and Great Portland Estates all ‘of whom are our clients ~ typically have developments of £50 million and upwards and can fund their own projects “They're listed and have access to capital from banks to Canadian pension funds and have the nous to build through bad times, Furthermore, the market appears to have shaken off the post Lehman Brothers” dip and has more of an appetite to take large scale developments on balance sheets.” However, moving away from the major developers, Vaughan says enormous funding ‘gaps persist for the smallee players, “At present, banks will only lend 50 to 60 percent of development costs or 50 to 75 percent of gross development value, So ‘getting something going in this climate is tough unless you have the clout or the cash.” Bankability of a project has always ‘mattered, “But never more so than in the curtent climate, even though the core of London is always going to be buoyant. The City weathered the financial crisis beter than most other parts of the country,” he adds. Diversification is key Diversification i in the firm's corporate DNA according to its finance chief. Mace ventured for business overseas as early as 1998 withthe launch of its international operations in Dubai September 2013 wwncfoworld.co.uk EE]» Cae i WEN TOR, M While the UK market remains the firm's ‘mainstay, it has thriving hubs in Doha and Dubai to cater to the Middle East, one in Hong Kong for the Far East, New York for North American ventures and Johannesburg for the continent of Africa “We see a huge potential in Africa, including sub-Saharan regions. BRIC (Brazil, Russia India and China) opportanites still ring true, despite the reeene turmoil in the ‘currency markets. However, the US remains ‘one ofthe most important overseas market for us and we've set ourselves an intetnal bar todo better there,” he says identified global opportunities where we provide facilites management, erect ancillary office structures and project management. “The international projected turnover jump is retaive to what happened last year, as we had some write-off, for example in Libya. However, itis positive and we are hoping to build on it further, “A Joc can happen over the remaining months of the fiscal year and it depends on factors other than just us being able to build. We have to be on our toes," he says. Financing the future What we need is a stable tax framework and not rhetoric from the swear doing inthe States, where emittaness " HOlitical classes ‘Vaughan also reveals thatthe firm has no major exposure to the euro, rouble, Indian rupee or major Middle Eastern currencies. Despite being a strong believer in international expansion, Vaughan says the UK remains a great place do business, “Our approach is a fairly basic one ~ ‘Mace’ businesses tend to be local where we pay costs and receive revenue in the local ‘currency. The problem occues with the work “There are challenges and we can be better. What we need is a stable, thought- through tax framework and not the kind of chetoric that’s coming from the political classes over corporation tax. Companies are subject ro enormous dollar variations.” do not need to be hammered for doing Invariably, currency hedging comes into play accompanied by careful monitoring of analysts calls on dollar movements going as far out as 18 months. | “Currency risk is manageable; what's ‘more of a concer is price inflation coming ‘through, from the services of sub-contractors to commodity and steel prices, even though the later are sill blow historic highs.” In kecping with a seven-year forward | planning cycle, the corporate path to 2020 is already being chalked out, with an ambitious tumover target of | £2billion, More immediately, Vaughan | forecasts a total group turnover of £1.2. | billion for 2013, While bulk of the projected conteibution to turnover will stem feom Mace’s construction services, its international project and facilites management business is likely to see the most impressive growth to the projected tune of £140 million, up from £81 million last year. The firm is also pursuing management contract in the energy, infrastructure, ‘mining and transportation sectors. “Let me attach an important caveat, Mace is not venturing out into building power plants and nuclear reactors. Rather we have EX wwwcfoworld.co.uk September 2013 some basic tax planning under existing regulations, drawn up ironically by the very political classes that are now castigating UK Inc for following them! “Like every international business, we look at where we go and grow, but we do so from the UK. Ie remains a welcoming place to do business,” concludes the finance chief of one ‘of the country’s biggest private sector fim. ‘Vaughan also feels the accounting profession as well as financial stewardship of firms has come a long way since he started cout in 1977, While the basics have remained the same, corporate chinking has altered. “You find finance professionals embedded in all patts of businesses these days. It certainly isthe case with Mace, because our colleagues who run [non-finance] parts of the business see value in having someone with financial judgment alongside. ‘Conversely, the finance function is encouraged, especially inthe current climate, to proactively strategise and help the business reach crucial decisions. So there is a layer of responsibility which wasn'e there in the 1980s. In smaller fiems, where there is no room fora CIO, the remit passes on to the CFO. Finance and technology are a natural fit— both are enablers.” Ml