Bricks and mortar

Bricks and mortar

A ten-year-old Leeds business is proving that builders can still thrive, even in recession, as Peter Baber discovers.

If you’ve been going through Leeds City Station recently, you might have noticed a new structure emerging on what used to be the taxi rank. It’s going to be the Leeds Cycle Point, the first such unit in the country, where you can leave your bike securely and also have it maintained and repaired while you’re away, if you wish.

The concept is already a familiar one in the Netherlands, and is being brought to Britain by Abellio (formerly NedRailways), the owner of Northern Rail.

The unit, which is due to open in May, has attracted a fair amount of publicity, with transport minister Lord Adonis launching the building work. There’s also a good story behind Strategic Team Group, the local business constructing the scheme.

The company is 10 years old, and in those 10 years has become one of the fastest growing construction companies in Yorkshire. How do I know this? Well, unusually for a privately-owned construction company - unusually for any private company, in fact - the company has regularly produced full company reports that are freely available to all and look like just the kind of thing that a publicly quoted company would produce, although founder and business development director Charles Tweed insists that a flotation is the last thing on his mind.

He says he wanted the company to be run transparently from the start, which probably explains why the report also includes full details of directors’ remuneration. The highest paid got just over £144,000 last year (to end March 2009).

The latest report also reveals that in the 12 months to the end of March 2009 the company, based in Castleford, increased its turnover by 20% to £34.5m. And even though it admits operating profit came under severe pressure during the downturn, it still managed to bring home EBITDA of £2.5m.

Tweed says that since then the company has carried on growing, to the point where he now believes turnover stands nearer £39m. “We are now on the YORbuild, Kirklees and North Yorkshire frameworks,” he says, “with all those appointments made in the last 16 months. YORbuild takes in Leeds, Scarborough, East Yorkshire and Rotherham. With Leeds City Council we can tender on everything up to £3m.

“Admittedly, that is a ceiling, but it does mean you are at the party and you are there to play. With Kirklees we are a framework contractor and we get the jobs. We have completed Phase 1 of the redevelopment of Huddersfield Town Hall, and are about to start on Phase 2. We have also just completed the ‘air dome’ indoor all-weather sports facility on Leeds Road.

“The other big area over the last 12 months is train operating companies. They are quite a tight-knit community, so if you get a good name like we have managed to achieve through Merseyrail you soon find you are working with Northern Rail, Arriva, and Transpennine Express, as we are.”

Yes, in the past year, while property and construction companies all around have been tottering on the brink or just falling straight into the chasm, Strategic Team Group has kept ahead.

“We have lost eight or nine competitors,” says Tweed, “but we have managed to survive through diversification.” Such a feat is not entirely unexpected, given Tweed’s own track record.

Born into a family that already ran a building maintenance business, he initially eschewed that to start a painting and decorating business down in London before selling his share in that to the other directors and coming back north to have a go at running the family firm, by then called Station Maintenance.

“I built it up and diversified it,” he says. “Under my father’s direction the company had been focused very much on oil companies, and I diversified it into banks.” Despite the name, the company had relatively little involvement in railway contracts.

By the time he sold it to Mansell for £4m in 1995, the company was “predominantly a maintenance operation with long-term contracts with blue chip clients”. As is usual in these cases, he worked with Mansell for two years on an earn-out business, with a place on the main board. But he says he didn’t like ‘the people issues’ in a big organisation and felt it was time to move on.

Fortunately, two of his former colleagues, who were also still working for Mansells – Andy Watson, now managing director, and Gary Taylor, now operations director – also felt it was time to start again as a maintenance contract business. It wasn’t going to be easy.

Tweed emigrated to the Isle of Man for a year to serve out his exclusion clause. He worked part time in a golf shop, although even there he found time to launch an electric lighting business in Wrexham that he still has an interest in.

While he was away, Taylor and Watson started Strategic Team Group, and Tweed invested in it from the beginning and joined them as soon as the exclusion clause had expired. In fact, the three soon found they weren’t seeing any continuing competition from their old employer.

“Shortly afterwards, Mansell did a deal with Balfour Beatty over our old business and completely closed the operation,” he says. That left the new company free to diversify into new areas. First it moved into refurbishment, and then into new build, which Tweed calls a ‘massively different’ business.

“We had to create separate teams,” he says. “A maintenance engineer and manager is completely different to a new build manager. We even thought about splitting them off completely. We bought a safety services business, and a shutters and doors business which we are only now selling off to management, and the idea was to create a brand called Strategic with many companies belonging to it.

“But we decided to concentrate on core activity, and expand into other areas. That included opening an office in Scotland. And we expanded into the North West. But we are not planning to expand further south.

“We do have certain maintenance contracts there, but we sell ourselves as a North of England and Scottish company.”

He puts the success of the business down to, “putting more energy into having sales people out there, but also people who are very good at pre-qualification questionnaires (PQQs)”.

More recently, too, it has been down to embracing a new kind of contract – a “prime cost” contract which Tweed says gives the client much more clarity over what the final cost is likely to be.

“Both the recent Kirklees jobs were done on a prime cost basis,” he says. “That means whatever it costs now, plus a margin, plus a target. This kind of contract works for us because we are not having to tender. We know it’s a prime cost, so we know what the margin is.

Local authorities, meanwhile, are always having to be open, and the difficulty from a council perspective is securing value for money. That’s easier to achieve with this kind of contract, because they don’t have to spend money on tendering and can get things going faster.”

But it seems another key ingredient the company has benefited from is the right kind of people. Right from the start the three of them were lucky, because the demise of their old business meant there was a load of people only too willing to work for them, so they could cherry-pick.

“For the first three years, we were hand picking people,” he says. “We weren’t having to spend a lot on recruitment.” But right from the start it was also made clear that those joining the new group would be heavily incentivised, with a profit-share scheme and clear targets everyone knew they had to work towards.

Tweed says this is why the company has always been able to enjoy profit margins of around 8%. “That’s unheard of in an industry where many were only doing 2%,” he says. But Tweed clearly takes an interest in people in other areas too.

He is keenly aware of the industry’s need to respond to the new equality laws that may or may not pass through Parliament before the election. To that end, the company has brought in a new HR manager who has specific experience in diversity issues.

“We are a business that does need to bring people in from all parts of the community,” he says. “It helps us getting contracts like Trident in Bradford, which was one of our biggest projects. The difficulty is in attracting the ethnic minorities. There still seems to be a perception about construction. This is why we brought the new manager in.”

He is also keen to get accreditation in diversity, because more and more clients are demanding it. Such accreditation will also help to create clear water between Strategic Team Group and smaller companies who may not have the resources to attend to such issues.

Tweed freely admits that this kind of legislation operates against smaller players. But that could play to the company’s advantage.

For the other added benefit it has had over the past couple of years is private equity backing: Barclays Ventures invested in the company in March 2008 in an £11m deal.

Tweed says in the first few months after this they were left largely to themselves.

“Because of the marketplace and how it has changed over 18 months we have actually been one of the best performers in their portfolio. So they have kept off our back because trading has been good. But they are now starting to inject a little bit of pressure about acquisitions. They are now two years in, and ideally see an exit in three to four years, so they want to get the right multiples on our business.”

So the company is looking at two acquisitions – one in Scotland and one in East Yorkshire – which, if successful, could take its turnover up nearer £60m. It is looking at expanding in other ways too. Into sustainability, for example.

Tweed says the company is currently working to at least a level four on the nationally-recognised sustainable code for housing, if not higher, with its new social housing. And he says there are so many older properties built to a lower level that there is bound to be refurbishment work out there.

“At one stage, we were working with Leeds University and were going to employ a strategic performance improvement engineer who was going to monitor those buildings,” he says.

“We were going to get grant funding for that, although that opportunity has now been lost. But we are going to look at it again.” The other new avenue is property investment. In part because of the recession, the group has taken its first tentative steps towards owning some of the property it builds.

This began with an InCommunities scheme in Keighley which housing minister John Healey opened earlier this year, where the group will own eight of the 27 units it is building. Other private sector schemes are also afoot.

But Tweed is quick to point out that this is not a rash move into investment – the kind of thing which has tripped up many a construction company before now.

All the investment – and the risk - will be taken on by 21C Properties, an offshoot of Strategic Team Group which he, Watson, Taylor and other unnamed high net worth individuals are investing in. The advantage to the core company will come in the maintenance that is likely to be needed.

“Strategic Team Group will continue to be a contractual business,” he says. “At the moment, people are wanting to invest because we are getting these sites at discounted rates.” In fact, the company could even be expanding the services it offers to these “high net worth individuals” – a group which, thanks to Tweed’s connections, includes sporting celebrities – by offering to work directly for them as well.

“People with that level of money are always disillusioned about getting ripped off,” he says. “Everybody knows them, so they automatically add 10 to 20 per cent because they think they can afford it. We want to sell it in a different way, using our prime cost model. Again the group as a whole will benefit.”

You get the feeling he speaks from experience here, because one of the reasons he moved to the Isle of Man was to get away from the tax man. His then advisors had set up a scheme for him there, but in the end he says this didn’t work out.

“I ended up doing a deal with the inland revenue,” he says.

So does he regret the hiatus his little sojourn there caused? Is this an attempt to do something better? He is not sure.

“I am a big believer in fate, and it all worked out for the right reason,” he says.

“It was good to be away for a year because I knew it was going to be unpleasant: Mansell suspected I was setting a business up, and at the time I was going through a divorce.

“It was not very good for my daughter, but it did allow me to be away from the scene.” Now, having come back and launched a construction business that is bucking the trend, it is easy to see what he means.