Podcast: This company beat its benchmark by 50% over five years – who is behind this success and how did they do it?
Leo Quinn began his career as a graduate at infrastructure firm Balfour Beatty. Here he tells of how he returned as CEO to lead its turnaround.
Profily autorov
You can listen to the podcast by clicking the play button above. You can watch most recordings of the podcast on the Schroders Youtube channel.
You can also subscribe, download, rate and review the Investor Download via Podbean, Apple Podcasts, Spotify and other podcast players. New shows are available every other Thursday from 5pm UK time.
The full transcript is available below:
[00:00:00.20] - Announcer
Welcome to the Investor Download, the podcast about the themes driving markets and the economy now and in the future.
[00:00:24.13] - Jean Roche
Hello, and welcome to the Mid-250 podcast. I'm Jean Roach.
[00:00:29.18] - James Goodman
And I'm James Goodman.
[00:00:31.03] - Jean Roche
James and I are fund managers on Schroders UK Smaller Mid-Cap team, and we're speaking to you from Schroders head office here in London.
[00:00:39.12] - James Goodman
Jean, this is our fifth podcast in our Mid 250 series. We had the Multibagger one in March last year, where we showed how you are more likely to find a 30 bagger in the UK than the USA. A 30 bagger being an investment that will return 30 times your money. We had the Cranswick one in May. Remember, that's over 200 times your money. Lisa from Pets at Home. A good chat about the vet sector and also pets. We had Nick Jeffries from DiscoverIE, which has returned 15 times your money in the last 15 years. We're really looking forward to the discussion today with our guest, who is Chief Executive of a company that's delivered a 50% outperformance of the FTSE 250 over the last five years.
[00:01:25.09] - Jean Roche
Yes, our guest has been selected because they are very rare example of someone who joined a company as a graduate, went off and got a reputation as a fixer and a problem solver, and then came back to the company and the industry later on. Obviously, nobody listened to you as a grad, so you felt that you had to come back. So welcome, Leo Quinn, Chief Executive and former graduate trainee of Balfour Beatty.
[00:01:55.17] - Leo Quinn
Good to be here.
[00:01:56.17] - James Goodman
Leo, Jean, as she mentioned, you your started your career at Balfour Beatty. What was your first role there?
[00:02:03.11] - Leo Quinn
Well, my first big assignment was actually building the new hall viaduct, which was a 300-metre post-tension bridge, part of the M25, before the M25 was constructed either side of the bridge. And when you think about today, we're actually now rebuilding the M25. I'm sure you've all recently heard about the closing of the M25 for the Wisley Junction. So we still carry on doing fantastic things with infrastructure architecture across the UK, USA, and also Hong Kong.
[00:02:34.18] - James Goodman
And what was Balfour Beatty like then? What did the business look like?
[00:02:37.21] - Leo Quinn
Well, Balfour Beatty was simply a subsidiary of BICC, British Industrial Calendar Cables, that made copper wiring and fibre optic. So we were a small division, but again, great brand, did iconic projects. We do what we do today still. We paint skylines, we connect communities, and then we take young people like me and turn them into great leaders. It's such a great recruiting ground for talent.
[00:03:05.12] - James Goodman
And we really want to delve into the Balfour Beatty business today. But just before we do that, could we talk a little bit about your career and some of the mentors that you've had? Who stands out as being important in your career?
[00:03:15.10] - Leo Quinn
Yeah, look, I'm a great lover of mentorship and mentoring. And within Balfour Beatty, we actually have three values or three behaviours which we try and repeat and exemplify. And those are things like talk positively, collaborate relentlessly, and encourage constantly. And I'm where I am today because throughout my career, somebody, multiple people, put their hand on my shoulder and made me the leader I am today. So part of our culture and our philosophy in the company, we challenge everybody in the company. We ask them the question, is who's shoulder do you have your hand on? And who are you developing and training? And that's an ethos which goes through the whole company. And it's the thing that you leave behind as a legacy. When I leave the company, it's going to be great to know that there's a cadre of people behind me who can actually run the company. And from that cadre, there'll be a future CEO.
[00:04:16.05] - James Goodman
And you've been a chief exec now for over 20 years or nearly 20 years. De La Rue, QinetiQ, and now longest stint at Balfour Beatty. Did you always want to be a chief exec? Was that always a goal?
[00:04:26.08] - Leo Quinn
A very interesting question. Look, I think when you start out in your career, you really don't really have an idea of what you want to be. You start something and you develop from there. So not necessarily wanting to be a chief executive, but always wanted to be a a leader. And from a personal point of view, I knew what I didn't want to be. I knew I didn't want to end up poor. I knew I wanted to actually make a difference. And I do remember before the age of 26, 27, I tried to privately buy seven different companies and failed on every occasion. But the interesting thing that what I learned through that process actually allowed me to take over my first senior director's position at 29, and my career then developed on from there.
[00:05:17.17] - James Goodman
Why weren't you able to buy those businesses? Why didn't it work out?
[00:05:20.13] - Leo Quinn
Do you know something? It was very simple. I had all of the business plan, right? I just had no cash. That's fashioned my philosophy around cash is king or cash is our compass. Without cash, you can't do anything. So when you ask me later about what is I look at in the annual report every year, the first thing I look at is the cash balance, and that, to me, drives the engine.
[00:05:42.21] - James Goodman
And what about some of the highs and lows? Are there any that stand out over the course of your career?
[00:05:47.19] - Leo Quinn
Oh, that's a good question, isn't it? Look, there are many highs, but I don't suppose anything really surpasses turning Balfour Beatty around. It is a fantastic company. As you know, we turn over 9 billion. We have 25,000 employees. The opportunity to have led and transformed a company like that is a real privilege. In terms of Lows, I don't think of lows as lows. I think of them as, look, it's somewhere along the line, a mistake has been made, and it's an opportunity to learn. And I think the fact that you've heard of non-productive successes, but productive failures. Every opportunity, whether a high or low, is an opportunity to learn and to take something away with you. I always encourage all my employees every year to sit down and take out their CV and write what they've accomplished in that year and see how that has added value to them. I think the fact that you spend a little bit of time to reflect on those learning opportunities, call them highs or lows or whatever, means that you take those lessons and you take them into the future. By building your resume, you just build your credentials for a future leadership position.
[00:07:04.19] - Jean Roche
That's a really good point. James and I can add podcast professional to our CV when we were adding extra bits to them at the end of this year. You've given us a bit of an idea of the turnover. You've mentioned the geographic regions you operate in, the number of staff, 29,000. That's a lot of people to look after. So it's very important to have that framework. But if, say, my nine-year-old son was here and he said, but what What does Balfour Beatty do? What would you say to him about... To explain it really simply, and how do you do it?
[00:07:39.03] - Leo Quinn
Yeah, look, I'll tell you what we do, and I'll repeat, and I'm not ashamed to repeat it, is we do paint skylines, literally. We connect communities. We're the biggest infrastructure provider in the UK by a long measure. We're doing half of HS2. We did the M3. We did the £1 billion upgrade on the M4. We just do extraordinary things. But I think above all of that, we're a business that takes young people, gives them massive responsibility and very early opportunity, and you either succeed or you fail. But what we really do is we turn out fantastic leaders. And that's great for Balfour Beatty. It's great for the country.
[00:08:23.23] - Jean Roche
That's very inspiring. I think he'll be pleased to hear that answer when he's listening to the podcast later on.
[00:08:28.17] - Leo Quinn
And I have to tell you, is that You ought to send them to Balfour Beatty because we'll train them. We do it all the time.
[00:08:33.19] - Jean Roche
He'll take you up on that. James and I were talking about the company yesterday, and I think what we'd really like you to outline within the company, you've got this investment portfolio alongside the construction and support services business. Why does it make sense to have both of those things? And was that a very deliberate decision?
[00:08:56.02] - Leo Quinn
Well, first and foremost, I believe it was deliberate in the past. It wasn't constructed me. I was the beneficiary of such a thing. But what I would say is that we are a negative working capital business, which means that we hold customer funds along with our own cash. As of today, we have about £725 million in the bank. And with a negative working capital model, cash is very inefficient. So you have to find a way of investing that cash to maximise the return. A lot of people will actually set up a capital-intensive house building business where you buy land and you build houses. Because we're in infrastructure, what we've invested in is effectively infrastructure assets. Our portfolio yields about 6%, so that's a good return on the capital. And given our ability to design, build, finance, and operate, it's a very logical extension. That portfolio of about £1.2 billion, we can actually add assets to the portfolio. We can sell assets. It's a source of value to the company. And the other thing is it underpins the whole capital structure of the company. So It's a great business for us.
[00:10:03.00] - Jean Roche
Does the investment portfolio, does that exist in all territories, or is it mostly UK?
[00:10:11.23] - Leo Quinn
No, it's 50/50 UK and USA. Our largest single asset is our US military housing, where we have 43,000 homes on 55 different sites. And that's actually on our books at about £500 million, but worth substantially more than that if it was ever to go to the market for sale.
[00:10:32.23] - Jean Roche
I can imagine that would be an interesting one. If you look at the differences then, given we talked about the US there. We were talking at desk yesterday... would there be many big cultural differences in doing business in the US and the UK? The word can can mean a different thing. In the US, it's more litigious, for example. If you can do something, it means you won't go to jail for doing it. Whereas in the UK, it can mean a bit more, you can do it, but it means that it's polite also to do it. Are there any cultural nuances you'd like to bring out for us in terms of how you do business there and here in the UK?
[00:11:14.03] - Leo Quinn
Look, The US is different to the UK. It's, to my mind, much more risk-loving. It's more entrepreneurial. There's more drive and energy in it, and there's more money, a lot more money. Our business over there was comprised of a number of acquisitions between 2000 and 2010, the remnants of which is a 4 billion business, which produces just between one and a half and 2% operating profit margins consistently. So a good solid business for us. From my point of view, I remember my background was I worked for Honeywell, for Invensys. And during that period of time, I lived in the US between Atlanta and Boston for seven years. So I'm quite used to working over there. I used to run the Southeast United States for Honeywell. So I really like the way they do business there. I like the speed of making decisions. I like the light touch legislation, which is very different to the UK, where it's very heavy touch and everything is, in many cases, set up to actually prevent you getting stuff done quickly. And that will be another topic we'll I'll talk about in a few minutes because I think it's important.
[00:12:32.20] - Leo Quinn
But no, for us, the US is a good business. We're in all the way from the Washington State through to Southern California, Texas, Florida, all the way up to Washington, DC. So it's really the southern smile. But no, I'd do business in the US all day long and be very happy to do it.
[00:12:55.07] - Jean Roche
Yeah, I think there are parallels with the financial services industry as well, clearly. Yeah, scale.
[00:13:00.04] - Leo Quinn
Yeah, definitely.
[00:13:01.12] - Jean Roche
On Apple Podcasts, Spotify, or wherever you get your podcasts, you're listening to the Investor Download.
[00:13:11.01] - James Goodman
We mentioned it earlier on, but now Balfour Beatty has a very different balance sheet to the one it did when you took over in 2014 or early 2015. Does the company need to have £750 million of monthly net cash on the balance sheet? I know that's a topic of discussion. We beat up your CFO, Phil, often when he comes into the office about, are you hoarding too much cash?
[00:13:34.07] - Leo Quinn
Look, on a personal level, you can't have too much cash. And the point is that you can use that cash to capitalise an opportunity. So I don't think you ever want to run too skinny on cash because companies go out of business because of a lack of cash, not because of a lack of profit. So you can never have too much cash. And I think we put it to good use. If you think about where we came from, and I'll go back and reflect on this for a little bit because it's really important. September 2014, when I joined, our cash flow was minus $1 billion. That's an enormous amount of money for a 2% margin business, which actually then was minus 2%. And we deliver seven profit warnings. Carillion had actually made a takeover bid for for us, and we know where Carillion ended up. JLIF (John Laing Infrastructure Fund) had actually bid for our investment portfolio. We had circa 100 distress projects in the group, 20% attrition, which meant we'd turn over our entire working population in five years. We had a billion pounds worth of debt, and we had to actually sell Parsons Brinckerhoff to raise 700 million to pay down that debt to stabilise the balance sheet and stabilise the company.
[00:14:57.11] - Leo Quinn
So when you come from a near-death experience, you can never have too much cash.
[00:15:02.04] - James Goodman
Very clear. And as we mentioned earlier, the share price has done very well in the last five years, outperformed the FTSE 250 Index by over 50%, but we were breaking down the components of that return. It's not been a huge re-rating. It's not been the stock market putting a massive multiple on the profits you're making. It's been driven by both profit growth, but then also a reduction in the number of shares outstanding. Correct. You've bought back nearly 20% of the shares, I think, since since 2020. Why have you chosen to buy back shares?
[00:15:34.08] - Leo Quinn
Look, it's very simple. I think as shareholders look at the company, I don't really think they fully appreciate or understand the value. But we're not the only stock like that. And the bottom line is why we buy back our stock? Because it's cheap. So explain to me why is it cheap? First and foremost, as a business, I think there are three real important propositions for shareholders. The first is that as we look forward, we have a decade of infrastructure growth which we're going to capitalise on. And remember, we're the biggest player in that market. What is that growth? Well, first and foremost, the number one driver is energy security. The ASTI (Agricultural Science and Technology Indicators) programme will actually designate 20 billion to be spent on upgrading the grid and connecting clean energy to the grid. You heard this morning that National Grid did a rights issue for seven billion, basically to put into upgrading the grid. We're a big player in that area with National Grid, with SSE, and the other power and utility companies. If I then combine that with the fact that our positioning and transportation, HS2 is a transport project. The Midland Hub is an electrification project with rail.
[00:16:51.08] - Leo Quinn
The rail infrastructure upgrades, the transportation in terms of highways, the Lower Thames Crossing. We're major players in all of that, and That's going to be growth for the next 10 years. The other thing that's interesting, and if you take a second and start looking at the numbers, we're involved with Rolls-Royce in the AUKUS programme, and the That's effectively the reequipping of the nuclear deterrent, which is an enormous programme. So if you look at energy security, you look at transportation, you look at defence security, we're front and centre. And of course, within all of that, you've got this nuclear component. We're working on the building of Hinkley, we'll be building Sizewell. We're looking at SMRs. So all of those things read across to big infrastructure. If you then look at the fact that you've got that growth engine, you look at the strength of our balance sheet. We've got a 17 billion backlog. We've got a 9 billion turnover. We make about a 2% margin. I can't give you a forecast, but I'd be embarrassed if We couldn't double that in the current environment, given the way that our order book over time has changed from a hard bid, fixed price lump sum type of market to a two phase, whereby you'll actually work with the client to actually do the initial specification and costings, and then you'll commit to a price after you've done all of the engineering and the research.
[00:18:20.24] - Leo Quinn
Really, really important that you know what you're getting into very, very early on. And if you look at the balance sheet, that strong balance sheet in terms of we've returned 600 million over the last three years. We'll do similar this year. I don't see any reason why we wouldn't do it next year, but that's not a forecast. We brought back half our market capitalisation by the end of 2024. Five. And the only thing that we've done wrong is we should have bought the company personally three years ago and benefited from that cash flow. So I think there's a real pony inside Balfour Beatty, and it will get recognised probably in the next two or three years.
[00:19:04.18] - Jean Roche
Yeah. That is really inspiring to hear. And I think cheers us all up thinking about where growth can come from and where pockets as the growth will be over that time. But actually, I hate to drag you back to the 2015 or end of 2014 when you must have been approached and asked, are you willing to take this on? Seven profit warnings. Those are pretty big negative numbers that you described. So what was it that made you think that you could take this on? Did you have a plan from day one? This is what I'm going to do to fix this. And you talked about you made a disposal, you raised some cash. But if you put yourself back in that position, what was the... If somebody else was looking at doing this job for another company now, coming in, doing something similar, how How would you lay out the plan and what did you think at the time?
[00:20:03.10] - Leo Quinn
Well, look, the first thing to understand is how did it get itself in the place it was in? And as I tell all my employees, I've made my entire career out of one very simple thing, and it's called force growth. What happens in companies is they end up with too much cash and they don't spend it wisely. So what they'll do is they'll acquire companies and pay too much for them. They'll take on contracts with too much risk, which ultimately ends up in a loss. And quite often it's very interesting when you look at succession of management, where if you buy something today, the consequences of it don't materialise for 2-3 years. It's really, really important that you keep your hand firmly on the tiller and you manage the growth that you're taking in. So I'm not a great lover of growth. I mean, growth is going to happen naturally for us because it's part of our core business. But forced growth, whether it be De La Rue, who end up with three profit warnings, QinetiQ had two. The issue is around acquisitions and acquiring contracts, which are fundamentally bad contracts. And what Balfour Beatty had done in this is that they'd entered into on the top of a very tough market, more and more revenue pumping up their top line with ultimately no profit coming from it and a loss and tying up our cash.
[00:21:22.02] - Leo Quinn
One contract that was signed with one of the big utilities was for eight years, required the deployment of 130 million of working capital, our working capital, producing a zero return. And the management time and effort it took to run that, the day that finished, it was a champagne moment for us. So really, looking at the proposition, I actually thought it was quite easy because I'd done it several times before. So Balfour Beatty, I suppose the story is unfolded before us, but it was force growth was the issue.
[00:22:04.18] - James Goodman
Can we step back a second and talk about the industry in general? It's interesting that my question was going to be, has the balance of risk been reset? But it sounds like you're almost saying that it's a change in attitude from the leadership of the various industry players to walk away from some of those bad contracts.
[00:22:23.14] - Leo Quinn
There's no doubt. There's two things happening today, which is different than 2010 around that period. And believe it or not, it comes back to skills and people. There is not enough capacity in the industry to deliver all of the infrastructure that's required today. So what I would say in respect of Balfour Beatty here is that we're well positioned to take advantage of that, and therefore we get to choose. We will only work with customers who share a similar value set to us. We have our circles of risk whereby we're looking at the customer, the location, do we have a team? If it doesn't really come inside our circles of risk, we choose not to bid. Then if we do bid, it comes down to the terms and conditions. What T's and C's have we been tied up to? Whether it be force majeure, consequential loss, liquidated damages, all these things are important because fool's rush to rush in where angels fear to tread. We have to live with these projects for, in some cases, seven or eight years. So you really do have to be careful that you've got the right risk review process at the front-end before you sign on the dotted line.
[00:23:45.11] - Leo Quinn
And the industry is becoming much more sensible. Prices are starting to rise where people realise, look, you can't run a business of our scale and size and our level of complexity on a 2% margin return, especially when you've got to invest in a new generation and train them and teach them. You've got to get better returns. I think you will see the whole industry will start to see the level of returns rise.
[00:24:14.05] - James Goodman
And do you think that sustainable in a world where HS2 is massively over budget. It's going to take longer? There's a lot of negative press around some of the profits maybe that the industry is making when they didn't really... The public didn't see the downside, maybe necessarily of those risky contracts?
[00:24:31.09] - Leo Quinn
Yeah, look, I don't see necessarily across the piece today the profits that they're making from HS2. I mean, the nature of the contract is such that the risk is shared with the government. More of the risk sits with the government than usual. But that's because of the size, scale, and complexity of the project. If you think about the cost overspend, which comes down to things like assurance, ecology, and half of it's inflation. If If that risk was passed to the contractor, which it's not, the entire UK construction industry would now be bankrupt. Somebody once said to me, Would that be a bad thing? Because we could buy you out of bankruptcy. I replied to them, Nobody bought Carillion. You have to understand the risk is in the right place. It's with the person who can manage it. In the case of HS2, it's the government. But you come into a very interesting area here, and this is around infrastructure projects. I think there are some Very, very valuable lessons for the industry, but also the customers. People talk about HS2. I mean, HS2 is just a minnow. Globally, the timing and the costing of infrastructure projects tend to overspend.
[00:25:48.06] - Leo Quinn
There's a very good book called How Big Things Get Done by Bent Flyvbjerg. And it talks about why, universally around the world, major projects are overspend. And part of it is a bias towards optimism. People think it can be done cheaper, it can be done quicker. And if you're honest with yourself, the bottom line is, it can't. And you need to face into the fact. Now, of course, if you face into the fact that it's going to be more expensive and take longer, it gives you good reason for not doing it. So it's important, I think, that that's understood. But put that to one side, one of the thesis around infrastructure, and also comes out very well in the book, is around think slow, act fast. And as an architecture engineer, if I've got a rubber and a pencil and I need to change something, I can do it, and it's a few hundred dollars. If I've got 2,000 people on site and someone decides, well, you can't progress with the work because we've got some badgers or some bats or some ecology, or we don't have an agreed design, then that's 2,000 people standing around all the machinery.
[00:27:00.19] - Leo Quinn
It's a lot more expensive than $100 an hour with a rubber and a pencil. So this idea of get the planning done up front, get the schedule done up front, get all the design done up front, and then don't change it. Stick to the plan and you'll deliver in the most cost-effective way. And then you must have that the governing team and the delivery team have to work in concert. It can't be them and us because if people put up barriers, That ultimately reflects on more time, more money, and ultimately a poorer product.
[00:27:36.16] - James Goodman
You mentioned about skills and capability within the country. How can we improve our position there? How can we get the next generation to be Have the skills required to deliver the infrastructure we need?
[00:27:48.17] - Leo Quinn
Yeah, look, that's a big, big question. I mean, there is a massive shortage, and there's going to be a massive shortage of skills, and it has to be tackled every way. I was recently treated to a presentation by one of the Goldman economists, a lady called Sharon. And one of the things that was interesting, we talked about Japan 20 years ago. And as you know, you can't adjust the birth rate. It's done, it's dusted. But women in the workplace were about 10%. If you look to Japan today, women in the workplace is about 80%. So the fact of the matter is you've got all these assets in society, but they're not necessarily capitalised on or used properly. I think you really have to drive every single opportunity. Visas and immigration will do something for you, but that's quite restrictive today. Our diversity and inclusion policies, I'm the board representative within Balfour Beatty. We want to encourage every denomination, every nationality, to see us as a very open culture, and we wanted to capitalise on that. I was at a lunch yesterday with one of the PR firms, and the person who was hosting it said he had recently met two young men at university from Afghanistan, and one wants to be a doctor, the other wants to be an engineer.
[00:29:16.16] - Leo Quinn
I said, Send me the engineer. I'll take him. And he said, These two people were the most impressive people that he'd ever seen. So there is no stone that comes under that should not be turned over in solving this skills problem. And then, of course, You could get into technology.
[00:29:32.12] - Announcer
Get in touch with us by email at schroderspodcasts@schroders.com or visit our website, schroders.com/theinvestordownload.
[00:29:45.17] - Jean Roche
Well, I'm glad you mentioned that. I did want to ask about that because James and I have both had in our houses construction projects carried out where you get a little bit of planning, bit of stuff done on paper, and then the guys arrive on the day and they go, Oh, this wall is a bit higher than we thought. This hole, we're going to have to dig a hole. What here? Yes, we're going to have to dig a hole. This isn't quite how we planned. Oh, this window is a bit bigger than, you'll have to buy another window, this thing. How can technology help to solve some of those problems? I think you hinted at doing the preparation, doing the pencil and the eraser bit to begin with, because that's the cheap part. But can technology save us? Cheer us up here. Make James and me not afraid to have another conservatory put on the house. That's a bit old fashioned.
[00:30:38.17] - Leo Quinn
All I can say is you obviously didn't engage Balfour Beatty in your delivery. We might have charged you a premium, but you would have got a quality products without the aggravation. Look, this whole thing about technology is absolutely fundamental. Mckinsey, in their study 10, 12 years ago, pointed out that there's a 15% technology productivity gap. It's huge if you think about it. I have to say Balfour Beatty are absolutely the industry leader in this in our sector by a big measure. And in your example, a lot of it comes down to getting the design done, the beam modelling, and all of those things. And again, that's really, really important. But there's a whole new generation technology and things coming through. So last week, I was in Seattle at Microsoft's global CEO conference. It was Satya there, CEO of Microsoft. There was Sam Altman from AI. There was the CEO of NVIDIA and DeepMind. There was Bill Gates, and we were talking about AI and the role of technology. And it's early days, but the rate of adoption is actually getting faster. And it's surprising how a year on from the first conference that we had in person, how much things have advanced and how people are using it.
[00:32:08.02] - Leo Quinn
I saw a fantastic example of one of the CEOs I was chatting with over lunch. Every year, he has a medical. So he took his last five years medical measurements into blood level sugars, his good and bad and his cholesterol, put them into a spreadsheet, dropped them into ChatGPT and said, Analyse this report and tell me what does it mean. And the interesting thing is that if you're a doctor, you need to worry about AI. In our industry, because no two things are the same, maybe we don't have to worry too much, but we need to capitalise on the productivity benefits there. And Balfour Beatty apart from the BIM modelling, we're doing amazing things around digitising our processes, but digitising real practical things on site, like digital permits for breaking ground or Hot Works or M&E Works. And what that does is it goes to one of our core values is that it saves lives. So our safety performance in the last year since we've adopted this technology has almost been world-class. It improves productivity and gives you better assurance. These are all things that technologies bring to the party. Ai will help drive productivity.
[00:33:25.24] - Leo Quinn
So recently, we were looking at project controls, and I was to one of our engineers, and he said he had to write out a project controls report for a new startup contract. That's normally about 40 pages. So he typed it into ChatGPT, typed in the headings, and it printed out a 35-page report, which actually was 70% accurate. He then went in and finished it off, and that was part of his submittals. That's a lot better than starting with 40 blank pages. So you can start to see at the edges how these things are starting to make an impact. And we have a dedicated AI group within Balfour Beatty just to start working out how can we do these things. And I'll go back to skills. I'll go back to capability. That gap that we have between where we are today. I can't change our historical birth rate. So there aren't the people. I can train people. I can make sure that everybody who can work and wants to work is given a chance to work. But I've got a big gap I've got to fill, and AI AI is going to be critical to filling that gap.
[00:34:33.23] - Jean Roche
Yeah, I think that's the big thought piece at the moment, isn't it? Working out what AI can do for us and what it can't do for us. And it's interesting. What AI writes, I saw it dismissed, written off as... It's called Slop. I don't know if you've heard of the term. And this is the slightly mediocre text that it can write. But I think all you have to do is say to it, No, I want better quality. It's up to us to train it and make it our helper, but in the best, most high quality way.
[00:35:04.03] - Leo Quinn
Yeah. And I'll tell you, it's interesting. You go back to Balfour Beatty, 2014, 2015. The only ingredient that was missing was just what a leader. The one thing I really emphasise is if you want something to happen quick, it happens from the top. So my interest in AI is not a passing interest in that it's interesting or it's a bit of technology. It's in the fact that this is going to drive this business for the next decade plus. I'm personally making sure that we capitalise on it.
[00:35:38.07] - Jean Roche
It's very important to us, isn't it, James? When we look at businesses who the CEO is, especially in smaller mid-cap investing because it can make a huge difference. You can have a sector that's not that investor friendly, but the CEO can make this a good investment proposition. I think that's what we really like about investing in this part of the opportunity set. One other thing James and I wanted to ask you about was he did a bit of digging around your role in the 5% Club. Would you care to say a few words about that and how that plugs into Belfour Beatty or other businesses?
[00:36:15.02] - Leo Quinn
Yeah, the history on that is really, really, really simple. Back in 2013, when I was at Kinetic, we had a situation where in Europe, Spain and Greece had 49% youth unemployment. Even France did. The UK had 22 %. And I think life is very simple. We don't put enough value on social stability. And if you got 49 % of your youth population with all of their energy, their creativity, and their intellect, if they're not putting it to work, it's being potentially put to a form of mischief or something that will cause you a problem. So to me, it's really simple. How do we get young people and put them to work productively? That was the whole essence behind the 5% Club. It was really around getting listed companies who employ people to make a public declaration that 5% of their workforce would be made up of graduates or apprentices, and that they would put them through the training required. Today, over a thousand companies are members. Their average graduate apprentice ratio is about 6%. We at Balfour Beatty here at 7 %. And if you think about it, we all talk about social value and whatever and this.
[00:37:36.21] - Leo Quinn
But there's nothing, I think, more important than maintaining the enterprise and investing in your next generation of employees and leaders is the single most important thing that you do. And again, for us, it comes from the top. And we did something really interesting recently is that we're 10 years into the club now. We had a founder's pledge. And so I personally put up £10,000 of £1,000 awards to go to apprentices whose CEO agreed to mentor them for a year. And they came along to the Guildhall and we did a big presentation. But it was fantastic to see these 10 young people with their CEOs, not their HR director, but with the CEOs, having made that public declaration. What we're going to try and do at the end of the year is get them all to come back, see what they gained from it, and if we could hold the meeting in 10 Downing Street. So if you can imagine for this young group of people to enter the Guildhall and to see it, and then to come along and see Downing Street. It's all part of life's rich tapestry and their development. And again, that's what it's about.
[00:38:45.22] - Leo Quinn
How do you put things into people and then hopefully get good things back?
[00:38:50.14] - Jean Roche
I think there's a reality TV show in that. I really do.
[00:38:54.24] - Leo Quinn
I better claim the IP now then, don't I?
[00:38:58.01] - Jean Roche
Well, maybe you should. Maybe you should. I think we know..
[00:39:01.19] - Leo Quinn
I like that, by the way. That's a good idea.
[00:39:03.20] - Jean Roche
Yeah, well, always coming up with new media ideas. I think so far we've learned a little bit about your values and a little bit about your background. But I think in terms of your business background, but people always want to know more about CEOs. They find CEOs really interesting. James, we found that we've had loads of interest in the podcast because people just... There aren't that many CEOs around, really, as a percentage of the population. And we want to know how they run their lives, how are they successful, how are they so productive, or just simply, what does your working week look like? Are you one of these, get up at 4:30 AM, do yoga, do a spin in class? This is what we see in California, isn't it? Or are you more chilled? Or just tell us about a typical working day, if that's easier. Will you give us a little bit of insight into the world of Leo?
[00:39:55.04] - Leo Quinn
Yeah, look, I normally get up about 5:30. I got up at five o'clock this I'm going to get here for this meeting. But I was greeted by my dog who put his head on the side of the bed. Every morning at 5:30, he wants you up, and then he wants his tummy tickled, and then you have to let him out. So that's the first job of the day. But then what I normally do is I go to a local hotel and I swim. So for the last 20 years, I've been swimming half a mile every morning I'm at home. So I swim, I come back, I'll grab a coffee, jump in the car, and my office is 15, 20 minutes from the house, which is really important to me because I don't believe in lots of time sitting behind a windshield and driving. And I get into the office, circa eight o'clock. Nothing goes in my diary before nine because that's my time just to wander around the office, see who's at the coffee machine, catch up in terms of how do I want to plan the day out, what do I need to do as a priority.
[00:40:55.13] - Leo Quinn
And then at nine o'clock, I'll sit down, look at some emails, work out what the diary is, probably have three or four meetings. I don't stop for lunch, funny enough. I mean, lots of people do, but I don't. And if I get invited out, I will go to lunch, but it's very rare. And then I'll work through the afternoon. Again, it'll be meetings, time with my secretary, time with my employees, some phone calls. Of course, you've got Hong Kong that comes on early in the morning if you have to touch base with, and you've got the US in the afternoon, so you can do it a prolonged day. But I leave 6:30-ish. I go home and I'll have some dinner with my wife, and then I'll sit down and do another hour or so and watch 10 o'clock news and go to bed. So pretty boring, really.
[00:41:43.01] - Jean Roche
I'm tired listening to you.
[00:41:44.20] - Leo Quinn
But the other thing is that I also am a great believer in doing things through learned experience. I'm very practical and put hands on. So I think what qualifies me to do the job I do today were many of the things that I did in my early years, whether it was trying to buy companies at certain things, whether it's building my own house and whatever. So I think those are things that come weekends, I'm always trying to do something different like that. So there we are. That's my day in the life of this CEO.
[00:42:21.11] - Jean Roche
Thank you.
[00:42:21.17] - James Goodman
And we said to you when we were organising this that we'd have one mystery question which we would withhold from until the day. And given that Rishi Sunak yesterday announced that there's going to be a general election on July the fourth, we thought we may have a new government after that. What would be your advice to a new government or the existing government on the next five years of running the country?
[00:42:49.14] - Leo Quinn
Yeah. Look, if I think about infrastructure, infrastructure is really, really important. And I talked about our number one growth areas, energy security. And capitalising on low costs of energy. If you think about the German industrial revolution that's occurred over the last 40 years or so, it's been funded by cheap energy from Russia. We've now got a unique source of low cost energy, which we can bring on shore. I think that will actually fund the next industrial revolution for the UK. If you look around the world, think about data centres and low cost power. Microsoft have built 500 around the world. I've only got four in the UK. Sometimes it's just too expensive to do business here. The first thing is, I think I would commit to the plan we have today. I would try and give certainty in terms of infrastructure spend over the next 20 years. Then I would put a lot of resources behind training and developing the best skilled workforce in the world. Again, low cost energy is going to allow us to open doors to things like innovation. I recently read a fabulous book called The mysterious case of Rudolf Diesel.
[00:44:10.06] - Leo Quinn
Diesel gives it away. It's the invention of the diesel engine, of course. But it takes you through what real innovation looks like. How do you get from technology readiness level six in terms of a prototype or nine, a fully fledged product. How then with something as game-changing as that, you end with the politics of the Rockefellers wanted to use petroleum, but of course, it could run on peanut oil. Very different mechanics. You then get into the contribution it made towards driving submarines in the war effort. And of course, Germans certainly didn't want the technology getting outside of Germany at that time in the first World War and the likes of that. So the fact of the matter is, is we've got the brainpower, we've got the best universities. Anything we can do to keep making it good for innovation Innovation and the startups and new companies is really, really important. So certainty in terms of infrastructure will fund a generation of innovation.
[00:45:08.23] - James Goodman
That's terrific. Leo, thank you very much for coming to see us today. It's been great to hear about some of your career, some personal background, but also to hear about Balfour Beatty, not just from a spreadsheet, a stock on the screen that we sometimes look at, but hear how it's really important for the country's future and to hear about the plans. It's been a terrific conversation.
[00:45:26.21] - Leo Quinn
Thank you.
[00:45:29.23] - Announcer
That was the show. We very much hope you enjoyed it. You can subscribe to the investor download wherever you get your podcast. And if you want to get in touch with us, it's Schroderspodcast@schroders.com. And you can find out much, much more at schroders.com/insights. New shows drop every other Thursday at 05:00 PM UK time. In the meantime, keep safe and go well.
[00:45:55.23] - Announcer
The value of investments and the income from them may go down as well as up, and investors may not get back the amounts originally invested. Past performance is not a guide to future performance. The information is not an offer, solicitation, or recommendation of any funds, services, or products, or to adopt any investment strategy.
Profily autorov
Témy