In business with Galliford Try’s Bill Hocking: ‘There are some things that just have to carry on’

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

“£750 will be a lot for some and not a lot for  others, but it was the right thing to do,” Hocking says. “We support a local food bank out of here [the firm’s main office is on a business park in Uxbridge on the outskirts of north-west London] and I’d 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’ve got to do something about that.”

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

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. “It was bloody freezing. I lived in dodgy rented accommodation with water running down the windows.”

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 Building 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 – now expected to last until the middle of 2024 – was on its way. But he is scratching his head.

“I’m no economist, but what I don’t 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?

“This [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 – all of our peers are.”

He says much will depend on chancellor of the exchequer Jeremy Hunt’s autumn statement, which was due to be delivered this week. “I’m always optimistic,” Hocking adds.

“Nothing is going to be axed, in my view. Hopefully I’m 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.

“There are some things that just have to carry on. In [Galliford Try’s] 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.”

Don’t 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. “They 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.”

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. “People can look through the current issues of the day and say, ‘if we need an asset in two years’ time, we need to start building now’.”

I’m no economist, but … 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.

“I thought he did a cracking job,” Hocking says. “He was very down to earth and approachable. We talked to him every week.”

The coronavirus pandemic, he says, underlined the importance of cash flow – 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.

“The 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’re seeing more materials on site than we would have done a year ago. People are buying ahead.”

He says he would like clients to give more weight to firms’ balance sheets. “They will say they value a strong balance sheet – but then they give a lot of work to people who don’t [have one].”

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After what seemed like years of bleeding money on two problem jobs in Scotland – the Aberdeen bypass and Queensferry crossing; “the important thing is they’re gone”, Hocking points out – 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. “The timing was good,” smiles Hocking, with the deal allowing it to pay out dividends, pick up rival firms such as with the £1m it spent last October on collapsed civils contractor NMCN’s water business, swelling staff numbers by 900, and leaving it with an average month-end net cash position last year of £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. “We’re just about done.”

The other was an M&E contractor on a London residential scheme, which recently sank with Galliford Try weeks away from handover. “The client is being reasonable,” Hocking says. “One thing post covid is that people seem to be more accepting that we’re living in a more volatile environment and some things we can’t control. When something goes wrong, it’s better to work together, mitigate the issue as best you can rather than say, ‘it’s all your problem contractually, get on with it’.”

Achievable margins

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

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

The firm’s average-sized contract is around £20m and the split in income between its building and civils arm is currently 65:35. Its largest building job is a £105m PRS deal in Leeds, while in civils it is an £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’s 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. “We can grow there by another 50% to £300m-£350m.”

The demand for affordable housing is still huge; it’s 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. “The demand for affordable housing is still huge; it’s a market that is big and is going to be around for a long time,” 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. “It’s a massive market and, for those clients who don’t have the money, then there’s the option for us to fund this through our balance sheet and they pay us back over five years or whatever.

“There 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,” he says.

But what Hocking will not be sanctioning is taking on any job at any cost. “There is not a single revenue incentive in Galliford Try. My incentive is around profit, cash, ESG [environmental, social, and governance] measures,” 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 £70m scheme.

Sounding aghast, he says: “It was a nice job. The client just became totally unreasonable, wanted us to take risks that were just unmanageable, saying, ‘it’ll be all right’ and we said, ‘we’re not signing that’. We would rather walk away and deal with sensible people.

“It’s hard to walk away from a £70m job that’s pretty much ready to go. The thing that’s 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, ‘Bill, I want to walk away from this job – is that OK?’ I would have said yes. Whereas now they say, ‘I’ve walked away from this job, Bill,’ and I say ‘good’.”