Balfour Beatty plc History

Company Perspectives:

Our aim is to create shareholder value by providing value-added engineering, construction and service skills to customers for whom infrastructure quality, efficiency and reliability are critical. Key Dates: Late 19th century:Callender's Cable and Construction Co. Ltd. becomes a leader in electric wiring.

Key Dates:

1890:

British Insulated Wire Company is founded.

1903:

British Insulated merges with Telegraph Manufacturing Company of Helsby and Anchor Cable of Leigh to form British Insulated and Helsby Cables Limited.

1909:

Balfour Beatty & Company Limited is formed by George Balfour and Andrew Beatty.

1922:

Power Securities Corporation Limited is founded and becomes the parent of Balfour Beatty.

1924:

Balfour Beatty undertakes its first major overseas venture.

1945:

British Insulated and Callender's Cable merge to form British Insulated Callender's Cables Limited (BICC).

1969:

BICC acquires Balfour Beatty, which becomes a wholly owned subsidiary.

1975:

British Insulated and Callender's Cables changes its name to BICC PLC.

1999:

Company divests its optical and energy cable businesses.

2000:

Company divests its data-communication and specialty cable unit, and is now focused solely on engineering, construction, and related services; BICC changes its name to Balfour Beatty plc.

Company History:

Balfour Beatty plc is a leading worldwide engineering, construction, and services company, with three main business segments: building, engineering, and rail. The building segment, which generates about 40 percent of overall revenues, is involved in the design, construction, equipping, maintenance, and management of buildings. The engineering segment, responsible for 39 percent of revenues, provides civil and other specialized engineering, design, and management services in such areas as hydroelectric dams, tunnels, roads and bridges, and overhead transmission lines and towers. The rail segment, generating 15 percent of revenues, specializes in the design, construction, equipping, maintenance, management, and overhauling of rail systems and equipment. The remaining revenues come from Balfour Beatty's promotion of and investment in privately funded infrastructure projects, such as roadways, hospitals, power stations, and educational facilities.

The history of Balfour Beatty is intertwined with that of BICC PLC. This firm was the outgrowth of the 1945 merger of Great Britain's two largest cable manufacturers, British Insulated Cables and Callender's Cable and Construction Company, to create British Insulated Callender's Cables Limited, which changed its name to BICC PLC in 1975. The two antecedents of BICC both traced their origins to the late 19th century and pioneered in the nascent electrical cable industry; in the early 20th century, Balfour Beatty & Company Limited was formed with initial interests in the design, construction, and operation of electric streetcars and railways, which were then just being developed in Britain. In 1969 BICC acquired Balfour Beatty, which operated as a subsidiary and eventually accounted for more than half of BICC's revenues and profits. In 1999 BICC reached a strategic decision to exit from its founding cable business. Following the company's divestment of its last cable activities in early 2000, it was effectively reduced to the operations of Balfour Beatty. BICC, therefore, changed its name to Balfour Beatty plc in May 2000.

The Predecessors of BICC

The predecessors of BICC were both outgrowths of the late 19th-century scramble to devise the safest and most economical means to distribute electricity across the length and breadth of the United Kingdom. In 1882, when the Edison Company demonstrated the feasibility of incandescent lighting by illuminating its London offices at Holborn Viaduct, William Ormiston Callender realized that he was in the wrong business. Callender and his five sons ran a profitable construction company, importing for the purpose of road surfacing large amounts of the petroleum compound bitumen. Spurred by the recent developments in electricity, William M. Callender, one of the sons, invented a process for insulating electric wire using vulcanized bitumen, a tarlike, elastic substance that could be used as a coating for copper wire that was flexible, strong, waterproof, and nonconducting. First used in an installation at the Marquis of Salisbury's home, vulcanized bitumen-insulated wire proved to be excellent for the transmission of low voltage electricity and was soon adopted for a wide variety of such applications.

The Callender family built a plant in Kent, and Callender's Cable and Construction Co. Ltd. quickly became a leader in the rapidly proliferating electrical business. Among many other innovations, the Callenders devised a method of laying cable beneath city streets, running the lines through shallow iron troughs that were then filled with more bitumen. Callender's also began making a second type of low-voltage cable using oil-filled jute as insulation, thus acquiring expertise in both of the methods favored for the distribution of low voltage electricity.

About the time that Callender realized the value of his bitumen supply, James B. Atherton heard a lecture in New York on the remarkable electrical properties of paper--specifically, that it was a poor conductor. Atherton was in the fur business, but he too was caught up in the excitement over electricity. Arming himself with the British rights to certain U.S. patents, he returned to London and founded the British Insulated Wire Company (BI) in 1890. Joining him on the board of directors was famed Italian inventor Sebastian de Ferranti, through whose influence the company was asked to manufacture new high-voltage cables for the main London generators at Deptford. Carrying 11,000 volts, the paper-insulated cables passed every test, proving the viability of paper insulation and giving BI a strong debut in the marketplace. The company refined its manufacturing techniques, eliminating production problems while bettering the flexibility and other properties of its insulation, and by 1903 had joined forces with the Telegraph Manufacturing Company of Helsby and Anchor Cable of Leigh. The new company was British Insulated and Helsby Cables Limited. It quickly became the leading supplier of high-voltage cable in the nation.

Both BI and Callender's were involved in virtually every important cable project in the United Kingdom after 1900, including telegraph, telephone, electrical, and petroleum networks operating below ground, in the air, and across the ocean. In 1904, for example, the two competed for and collaborated on the electrification of the London Underground, together laying about 250 miles of high-voltage wire. Along with a third company, W.T. Henley's Telegraph Works, BI and Callender's early established themselves as the dominant power cable manufacturers in the country, vying with one another for business in all sectors of the vast electrical industry. Though the companies tended originally to pursue opposite ends of the high-low-voltage spectrum, by World War II both of them were well equipped for any type of power-distribution assignment.

During the early part of the war, British shipping suffered severe losses caused by German magnetic mines hidden in the Channel and ocean traffic lanes. P.V. Hunter of Callender's designed a magnetized cable strong enough to push through ocean swells yet light enough to float, and Callender's produced about 2,000 such 'minesweeps,' each one approximately 500 yards long and capable of detonating submerged mines at a safe distance from the sweeper ship. The entire cable industry subsequently worked on practical methods of degaussing, or demagnetizing, the British fleet, eventually manufacturing many thousands of miles of cable for installation in the hulls of seagoing vessels. The combination of sweeping and degaussing succeeded in substantially reducing the damage inflicted by magnetic mines. Later still, BI and Callender's contributed to the construction of a gasoline pipeline across the English Channel to supply the World War II D-Day forces with fuel.

Pre-Balfour Beatty BICC: 1945-69

By war's end the two companies, already the largest U.K. cable manufacturers, merged their forces to become British Insulated Callender's Cables Limited (BICC). The company's formidable assets and technical expertise provided sustained growth during the decades following. BICC's experience with cable installation led the company into the allied fields of civil engineering and large-scale construction work. BICC as a whole was active around the globe, establishing an especially strong Australian presence in both cables and construction and later expanding there into the retail electrical and electronics businesses. At home, the company dominated the U.K. cable market, making the most of its powerful position to win contracts on the nation's most important electrical and civil engineering projects.

BICC carved for itself a secure place in the heavy construction industry, but the company's profits failed to dazzle the stock market. By the 1960s the firm was generally recognized as a rather stolid blue chip: safe, slowly growing, and modestly profitable. Between 1966 and 1970, for example, sales increased from £300 to £400 million but profit remained around £20 million. Investors were sometimes made uneasy by BICC's heavy dependence on the price of copper, which it needed to make its power cables. Importing some 300,000 tons a year, the company's profitability was directly tied to the fluctuating copper market. In addition, BICC's product mix was not calculated to excite the interest of stock watchers. Contracts for the electrification of a London subway extension or the widening of highways do not provide the cachet of a so-called glamour stock. With or without the market's enthusiasm, BICC ended the 1960s with an important acquisition, the 1969 purchase of Balfour Beatty.

The Creation and Construction of Balfour Beatty: 1909-69

Balfour Beatty & Company Limited was founded in 1909 in London by George Balfour and Andrew Beatty, two former employees of the London branch of J.G. White & Company, a New York-based engineering concern. Balfour had an engineering background and had worked on the construction of a number of electric streetcar lines while working at J.G. White, while Beatty was a trained accountant. The new company soon had its first contract, for £141,450, which involved laying new track and cables and upgrading a power plant for a streetcar line in Dumfermline, Scotland. Other contracts followed, but in the initial years Balfour Beatty mainly concerned itself with investing in and managing the finances of existing and new streetcar companies. During World War I, streetcar construction in Great Britain came to a halt. The war, however, provided an impetus for Balfour Beatty's expansion into civil engineering as the company took on commissioned construction work, such as a five-mile-long aqueduct in Scotland that was needed to supply water to an important aluminum manufacturing operation.

The war also made clear the need for a nationwide system of transmission lines, an electrical 'Grid' that would be flexible yet economical. George Balfour, as a member of Parliament starting in 1918, played a key role in the passage of legislation in the 1920s that would eventually lead to the completion of the Grid by the early 1930s, with Balfour Beatty heavily involved in its construction. Balfour Beatty managed several expanding power companies in the 1920s, including the Scottish Power Company and Midland Counties Electric Supply Company. By the early 1930s, these firms were the two largest power companies in Great Britain in terms of area served. Meantime, in 1922 Balfour, Beatty, and their colleagues established a new company called Power Securities Corporation Limited so that they could fund larger projects than they previously could, projects that would then be carried out by Balfour Beatty, which became wholly owned by the new corporation. Under this new arrangement, Balfour Beatty secured its first major construction contract in 1926, a £2.5 million hydroelectric power project in Scotland which was most noteworthy for involving a 15-mile-long tunnel.

The 1920s also saw Balfour Beatty venture overseas for the first time, mainly through the management--but not ownership--of power utilities in the British Commonwealth. The first major such venture came in 1924, when Balfour Beatty took over management of the East African Power & Lighting Company in Kenya. After constructing a power station on the Tana River near Fort Hall (later known as Murang'a), Balfour Beatty helped expand the power system throughout Kenya and into Tanganyika and Uganda as well. In 1926 Balfour Beatty took over a commission to supply electricity and water to the Palestine cities of Jerusalem and Bethlehem. Other early overseas ventures were undertaken in India, Italy, Bermuda, Argentina, Uruguay, Nigeria, and Malaya.

In the 1930s Balfour Beatty began taking on overseas projects outside the power industry. The largest of these was the four-year, £1.25 million construction of the Kut Barrage, a dam that was built across the Tigris River in Iraq to divert floodwaters via irrigation channels into vast areas of desert. Meanwhile, cofounder Beatty died in 1934.

During World War II, Balfour Beatty's overseas activities were largely curtailed. By the end of 1939 half of the company's staff were serving in the army while the other half began concentrating on construction activities that proved vital to the war effort. The largest project undertaken was a massive four-year project to close the channels around the Royal Navy's chief base, which was located at Scapa Flow in the Orkney Islands. The project had been ordered by Winston Churchill following the torpedoing and destruction of the battleship Royal Oak by a German U-boat in October 1939. It involved the construction of 9,150 feet of causeway, up to 70 feet deep, using half a million cubic yards of quarried rock and 300,000 tons of concrete blocks. Balfour Beatty undertook numerous other wartime projects, including the expansion of power stations, the repair of electrical installations and underground railway stations that had suffered bomb damage, and the building of underground bomb shelters. In January 1941 George Balfour was appointed to chair a committee charged with assessing the organization of cement production. Balfour died in September of that year, however. Succeeding Balfour as chairman of both Balfour Beatty and Power Securities Corporation was William Shearer, who had been with Balfour Beatty since its founding, first serving as secretary.

With the end of the war and the victory by the Labour Party in the general election of 1945 came the nationalization of the British electricity industry. A New British Electrical Authority took over the financing, operation, and management of all the power companies. Balfour Beatty and Power Securities were thus pushed into the decision to build up the construction side of their operations and to diversify into other areas of construction. An example of the latter was the 1949 acquisition by Power Securities of James Kilpatrick & Son, an electrical contracting firm. Balfour Beatty completed a number of major construction projects in the immediate postwar years, including: a second large irrigation project in Iraq that involved diverting floodwaters of the Euphrates River into Lake Habbaniyah, finished in 1948; the 160-foot-high Loch Sloy dam in Scotland, completed in 1950; and a third large flood control/irrigation project in Iraq, the Wadi Tharthar project, which was built to protect Baghdad from the floods of the River Tigris and was completed in 1956. In the 1960s Balfour Beatty took on an increasingly wider array of engineering and construction work both at home and overseas, including electric transmission lines, power stations (including nuclear power stations), dams and reservoirs, tunnels, railway stations, and roads. In 1969 British Insulated Callender's Cables acquired Power Securities, and with it Balfour Beatty, which became a subsidiary of BICC. The construction side of BICC was merged into Balfour Beatty, thus enlarging the company. Balfour Beatty also took over the electrical contracting activities of Power Securities, which were reorganized in 1973 as Balfour Kilpatrick.

The BICC/Balfour Beatty Era: 1970-2000

The newly enlarged British Insulated Callender's Cables, which changed its name to BICC PLC in 1975, enjoyed steady growth throughout the 1970s. Its Australian division became easily the largest of BICC's many overseas operations, while Balfour Beatty quickly became the company's most reliably profitable subsidiary. Balfour Beatty continued to diversify during the 1970s, taking on five major road construction projects in Scotland; expanding into the building of factories and commercial buildings, such as a £2 million shopping and office development in Kilmarnock, Scotland, and a £3 million terminal at an airport in Aberdeen; and participating in the North Sea oil boom through the construction of concrete offshore oil platforms. In the late 1970s, the company expanded further by delving into residential property development and construction. Overseas, Balfour Beatty took on a massive £16 million expansion of the Chambishi mine in Zambia. The firm then entered into a joint venture that in 1976 won a £350 million contract to build the Mina Jebel Ali port in Dubai, a four-year project that included not only the port but also a 300-house village complete with clubs, sports facilities, a power station, roads, and other services.

In 1979 BICC began diversifying into the rapidly growing electronics field, for a more balanced and, hopefully, recession-proof portfolio. The firm bought Vero, a U.K. manufacturer of printed circuit boards, and the U.S. companies Boschert and Sealectro, makers of switching equipment and high-frequency connectors, respectively. Chairman Sir Raymond Pennock predicted that by 1990 a quarter of BICC's revenue would be generated by electronics. Of equal interest was the 1981 agreement with Corning, the U.S. glass maker, to build a plant in Wales for the purpose of manufacturing fiber-optic cables. These hair-thin fibers of glass were capable of transmitting many more telephone and data messages than comparable copper wires and quickly became the new standard for long-distance trunk lines. The Corning-BICC plant was finished in 1983 at a cost of £17.5 million and was an immediate success.

In 1981 BICC sales hit £1.36 billion and its profits, £102 million, both healthy figures, and the company looked forward to the new decade with much confidence. The worldwide recession of the early 1980s soon took its toll, however, with profit levels slipping into a trough from which they did not fully emerge until 1987. Halfway through these doldrums, in 1984, the BICC board of directors named Sir William Barlow as its new chairman. Barlow, the former head of Britain's postal service, soon brought in Robin Biggam as president and CEO, and the two men designed a program of sharp labor cuts and further acquisitions to prod their sleepy giant. Upper-level management was also shaken up, the much-heralded electronics division pared down to a handful of companies in fields directly allied to BICC's main interests, and the Australian division, Metal Manufacturers, restructured to provide greater control. Most significantly, BICC closed out the decade with several major purchases of foreign cable companies. Its acquisition of Cablec and BRIntec in the United States made BICC the leading high-power cable maker in North America, with combined sales of around US$750 million. For the first time, BICC expanded into continental Europe, with the purchase of Ceat Cavi Industrie, Italy's second largest cable concern, and of 20 percent of Grupo Español General Cable (GEGC), Spain's cable leader. The expansion onto the continent came in anticipation of the ending of European trade barriers in the early 1990s. BICC also acquired U.S.-based Andover Controls Corporation, a leading manufacturer of building automation systems, in 1989.

The combination of stringent staff reductions and international expansion showed excellent results. In 1987 profits finally passed the 1981 level, with the company recording earnings of £128 million on sales of £2.49 billion. The following year showed further gains, as did 1989 over 1988. Earnings in 1989 were £201 million on sales of £3.79 billion.

In the early 1990s Balfour Beatty felt the effects of the worldwide economic recession but not as deeply as other construction companies that were more heavily involved in residential development. BICC, meanwhile, continued to build its cable operations, increasing its stake in GEGC to 67 percent and taking over the U.K. cable maker Sterling Greengate, both in 1990; doubling its share of the U.S. cable market with the 1993 acquisition of the electrical division of Reynolds Metals Co.; and, also in 1993, purchasing KWO Kabel, the third largest cable maker in Germany and prior to German reunification the largest cable maker in East Germany.

A markedly rapid decline in BICC's fortunes began in the mid-1990s. The construction activities of Balfour Beatty were hurt first by a prolonged slump in the housing market, and then by sluggish demand for infrastructure projects at home and in Europe. New CEO Alan Jones, who joined the company in early 1995, took the immediate step of selling the housebuilding unit to Westbury plc. Balfour Beatty barely eked out a profit in 1996. BICC's cables business was at the same time hit hard by fierce price competition and high raw material prices, particularly of copper. Deregulation of the European utilities market also cut demand for cable as the utilities cut their spending. Jones determined that the company should concentrate on higher margin optical, data communication, and high-voltage cables. Several cable-making plants were closed in Europe and North America as part of a resultant restructuring of the cable operations. In 1997 BICC merged its troubled German cable business with those of NKF of the Netherlands to form a joint venture called Kaiser Kwo Kabel. In early 1998 the company announced that it would lay off 2,000 workers across Europe in its cable operations, and it also swapped its remaining low-voltage building wire operations to Delta for that firm's heavy power cable business. A further thinning of the company's portfolio came later in 1998 when BICC parted ways with its majority owned Australian subsidiary, Metal Manufacturers, retaining that company's cabling operations.

By late 1998 BICC seemed to be teetering on the brink. The company had seen its market value fall from £1.65 billion in 1993 to £165 million. It was becoming readily apparent that the company's cable business was simply unable to compete anymore with the giants of the industry--Alcatel, Siemens AG, and Pirelli S.p.A. By contrast, Balfour Beatty was showing the beginnings of a strong recovery, aided by tighter management control, large overseas contracts, and a growing rail unit which gained business from the 1996 privatization of British Rail. In 1998 Balfour Beatty made profits of £69 million compared to only £25 million from cables. Jones then took his most drastic action yet; in early 1999 he began the divestment of all of BICC's cable units in order to focus the company entirely on Balfour Beatty. In April 1999 BICC sold its optical cable unit to Corning, then one month later sold its energy cable business to General Cable Corporation. While making these deals, the company fended off takeover overtures from Wassall, a venture capital group. In March 2000 BICC sold its data-communication and specialty cable unit, Brand-Rex, to Caradon plc. Two months later, BICC fittingly changed its name to Balfour Beatty plc, embarking on a new era focused on engineering, construction, and related services.

Principal Subsidiaries: Andover Controls Corporation (U.S.A.); Balfour Beatty Capital Projects Ltd.; Balfour Beatty Construction Ltd.; Balfour Beatty Construction (Scotland) Ltd.; Balfour Beatty Inc. (U.S.A.); Balfour Beatty Construction Inc. (U.S.A.); Balfour Beatty Ltd.; Balfour Beatty Rail Ltd.; Balfour Beatty Rail Engineering Ltd.; Balfour Beatty Rail Maintenance Ltd.; Balfour Beatty Rail Projects Ltd.; Balfour Beatty Rail Renewals Ltd.; Balfour Beatty Refurbishment Ltd.; Balfour Kilpatrick Ltd.; Balfour Kilpatrick International Ltd.; Balvac Whitley Moran Ltd.; BICC Developments Ltd.; Cruickshanks Ltd.; Emform Ltd.; Haden Building Management Ltd.; Haden Building Services Ltd.; Haden Young Ltd.; Heery International Ltd.; Heery International Inc. (U.S.A.); Lounsdale Electric Ltd.; Painter Brothers Ltd.; Raynesway Construction Services Ltd.; Raynesway Construction Southern Ltd.; Stent Foundations Ltd.

Principal Operating Units: Building, Building Management and Services; Civil and Specialist Engineering and Services; Rail Engineering and Services; Investments and Developments.

Principal Competitors: ABB Ltd.; Acciona, S.A.; ACS, Actividades de Construccion y Servicios, S.A.; AMEC p.l.c.; Bechtel Group, Inc.; Bouygues S.A.; Grupo Dragados; Grupo Ferrovial, S.A.; Fomento de Construcciones y Contratas, S.A.; Fluor Corporation; Groupe GTM; Peter Kiewit Sons' , Inc.; Serco Group plc; Skanska AB.

Further Reading:

• Balfour Beatty: Fifty Years, London: Balfour Beatty, 1959, 78 p.
  Balfour Beatty, 1909-1984, London: Balfour Beatty, 1984, 83 p.
• Barker, Thorold, 'BICC to Sell Cables Arm for £275m: Engineering Group to Focus on Construction,' Financial Times, April 8, 1999, p. 29.
• Barker, Thorold, and Charles Pretzlik, 'Industrial Logician Who Aims to Conjure Rabbit from Hat,' Financial Times, April 10, 1999, p. 20.
• Batchelor, Charles, 'An End of the Line but It's Not the End of the Road,' Financial Times, May 10, 2000, p. 29.
• Baxter, Andrew, 'Building from a Local Base: A Look at BICC's Strategy for Winning Work in Asia,' Financial Times, October 7, 1994, p. 23.
• 'BICC Plugs into the 1990's,' Management Today, February 1989.
• Burt, Tim, 'Jones' Setting to Rights at BICC: The Cable Group's New Chief Is Keen on Change,' Financial Times, September 20, 1996, p. 25.
• ------, 'Taking Up Slack from the Cable Business,' Financial Times, November 16, 1995, p. 30.
• Byatt, Ian C., The British Electrical Industry, 1875-1914: The Economic Returns to a New Technology, New York: Oxford University Press, 1979, 228 p.
• Crisp, Jason, 'Tuning in to a Wire-less Future,' Financial Times, April 22, 1981.
• Edgecliffe-Johnson, Andrew, 'BICC Stumbles Off the Ropes into Another Left Hook,' Financial Times, October 21, 1998, p. 26.
• ------, 'Can BICC Sink Any Further?,' Financial Times, October 24, 1998, p. 4.
• Garnett, Nick, 'Limbering up for the Acquisition Trail,' Financial Times, May 11, 1987.
• Hill, Roy, 'Cable Superpower,' International Management, March 1993, pp. 46+.
• Morgan, R.M., Callender's, 1882-1945, Prescot, Merseyside, England: BICC, 1982, 256 p.
• Waller, David, 'Radical Changes in a Quiet Revolution,' Financial Times, July 6, 1989.

Source: International Directory of Company Histories, Vol. 36. St. James Press, 2001.