Take one engineering company, save from the brink of bankruptcy, then rebuild.
And just when you’ve had your best half-year for a decade and are waiting
for the plaudits, watch the markets collapse and your share price plummet.
Then your order book starts to look vulnerable. For any boss, these are
frightening times.
For Michael Foster, chief executive of Charter International - the group that
owns ESAB welding and Howden gas-handling equipment - it must be hard to
take. He had hit record monthly revenue figures for June and July, but by
this month he was issuing a profit warning.
“I just don’t know,” he sighs, pondering what happens next in his sector. “If
you’d asked me in September I was feeling pretty comfortable. If you looked
at the long-term trends - energy consumption, steel intensity, spending on
infrastructure - they indicated a good long-term future. But medium-term
now? We’re a bit less clear.”
He pulls a hand over his chubby face. Charter, Europe’s biggest maker of
welding equipment, first hit the headlines in September when it announced it
was moving its tax base from Britain to Ireland, looking for a cheaper
domicile. That seems almost irrelevant in the current economic slump.
This month Charter made a different form of statement: warning that
performance was suddenly running below the board’s expectations. Its share
price - £10 last year, £5 last month - has since tumbled closer to £2. That
seems harsh, as Charter is still in good shape, but with some predicting a
bloodbath in engineering, it’s difficult to know what to plan for.
“In the short term, the share price doesn’t affect operations at all,” says
Foster, “so the most important thing is to keep our heads down and run the
company. The other side is what it means to the overall environment we
operate in and for the business going forward.
“It’s a very rapidly evolving set of circumstances, and um . . .”
He pauses. Curly-haired, paunchy and direct, Foster exhibits a dry sense of
humour about most matters, but on business, it’s hard. He worked as a
barrister before starting his career at engineer GKN, yet even he is stumped
for words. There is no script for this downturn, and he knows it.
Yes, he says, there will inevitably be job cuts to Charter’s 12,000 workforce,
but he’s not discussing them with the press now. Instead, like many bosses,
he prefers to accentuate the positive.
“Howden is very much unchanged. It has a long order book of 18 months, solid
going forward. The prospects for 2009 are where we were, much of it linked
to power projects and oil and gas. The issue is, will new projects get
finance in 2010?
“On the ESAB side, the good thing about welding is that it’s a bit like
eating, people have to do it every day – if you’re joining metal, you have
to weld. But it’s a little difficult.”
ESAB has experienced a slowdown in sales in Europe and America, partly as
distributors wait to restock, anticipating price cuts. Will they get them?
Again, Foster won’t say, but this month’s warning may give a clue. He is
predicting a bounce-back in performance for next year’s first quarter. And
then he counsels patience.
“We have net cash on the balance sheet, all our banking lines have been
refinanced and are in place for three to five years, we’ve done all the hard
work, we are as well placed as any going into this period.”
Running through the arguments in Charter’s modest London office, he sounds
anxious but determined. Chief executive since 2006, Foster, 55, has had full
control since last year when executive chairman David Gawler - the man who
appointed him – stepped down.
The irony, not lost on Foster, is that the group was starting to do so well,
after a period when it came close to collapse. Set up originally as a
mining-finance house in 1965, part of the Anglo-American empire, and listed
in 1993, it was nearly sunk by debt a decade ago after it shifted strategy
and paid heavily to buy Howden and ESAB. In 2001 Gawler was brought in by
investors to steady the ship and, over a period of five years, he cautiously
did so.
Now the business, with £1.5 billion revenues, faces uncertainty again.
Foster is phlegmatic.
“We’re still seeing growth in South America, Russia and parts of southeast
Asia. It’s not all bleak. You just have to assume that things will
reposition themselves in due course.”
The problem, he adds, is that “people are sitting on their hands in the
expectation that things will get cheaper”. And that is stalling economic
activity.
“But I’ve worked through the southeast Asian currency collapse, I’ve seen
difficult times before, and you learn that so long as you do the right
things and watch your cash, all things will pass.”
Such words should help to calm investors, who are again edgy at Charter’s
prospects. For Foster, in his first chief executive job at a listed company,
the slump couldn’t have come at a worse time.
Colleagues say he is well prepared. “Michael is bright, consensual and
commercially savvy. He’s also totally on top of the products and the markets
that he’s in,” says Grey Denham, who worked with Foster at GKN, and now sits
as a Charter nonexecutive director.
Gawler, Charter’s last boss, highlights Foster’s legal skills as well. ESAB in
particular, says Gawler, is a complicated business, requires high-calibre
management and faces regular litigation issues in America from “ambulance
chasers” who target the welding industry.
“Having a chief executive who is steeped in engineering yet contractually
aware is very unusual and a real asset.”
In fact, few share Foster’s career path. Born an only child - his father an
engineer, his mother a teacher - he read engineering at Cambridge then
practised law in the West Midlands for a decade before joining GKN as a
commercial lawyer. He then moved to its treasury.
He later worked under Gawler at the Trafalgar House conglomerate, and in 1995
started in general management at its Davy engineering-construction business.
His experience there, merging Davy into John Brown Engineering after a
takeover by the Norwegian group Kvaerner, will stand him in good stead now.
He jumped to the cement business in 2000, joining RMC, but left to rejoin
Gawler at Charter in 2005. He had already served as a nonexecutive director
since 2001.
“I wouldn’t have come if I hadn’t known David,” says Foster simply.
As a team, the two cut overheads from ESAB, and closed “low added value” areas
at Howden. “What you then had was a business with good products, good
technical reputations, suffering from years of underinvestment.”
Both businesses are run separately, with corporate functions kept at the
centre. But even the IT systems are still different. So why keep them
together in one group?
“It’s something we obviously look at all the time,” says Foster.
“The benefits of keeping them together is that both are capable of growth and
development, and only halfway through rehabilitation from the nadir of
2002-3, and that takes a decade.”
Still? “If you look at the welding business, we are one of the two big welding
businesses in the world - Lincoln Electric in America is the other.
“There are not many big deals you can do – the authorities wouldn’t allow us
to get together, so we have to hoover up smaller competitors. And Howden
itself is capable of growth as it supplies power stations, and that’s
growing, especially in the Far East. About a third of our employees now are
Chinese.”
Acquisitions are a moot point. Gawler says he hopes Foster will be careful.
“He would be foolish not to pick up distressed companies, as many will go to
the wall, but he mustn’t stretch himself too far.”
Gawler also says that Charter’s share slide suggests the company is still
being punished for its “past mismanagement”.
Foster’s Charter will be more thought-out. The move to an Irish tax base was
his initiative – inevitably, given his treasury experience. Under Irish
legislation, profits earned overseas in lower-tax jurisdictions aren’t taxed
in Ireland, while the UK seeks to tax them even if they are not transferred
to the UK.
Such moves abroad have drawn criticism for depriving the Exchequer here of
much-needed income for schools, hospitals and the like. Foster, ever the
barrister, is not slow to counter that.
“First, we haven’t paid UK corporation tax for a decade given historical
losses and the fact that only 5% of revenues stem from here. And you could
argue that, as we are still listed here, British institutional investors in
Charter will get better returns. All the people who work here still pay
taxes here. I will remain resident here.”
That initiative will start to pay off when times improve. Until then, Foster
wants investors to hold their nerve. Yet the old target in brokers’ reports
of a £10 share price looks a long way off now.
Foster sighs. “We hope it will get back there, we hope so,” he says. But a lot
of it is out of his hands.
The life of Michael Foster
VITAL STATISTICS
Born:February 17, 1953
Marital status:married, two children
School:Nottingham High University:Peterhouse College, Cambridge
First job:barrister on the West Midlands judicial circuit
Salary package:£1m including bonus
Homes:Shad Thames in south London, Woking in Surrey
Car:green Jaguar XJ8
Favourite book:The Grapes of Wrath, by John Steinbeck
Favourite music:Muddy Waters, Howlin’ Wolf
Favourite gadget:80GB Apple iPod
Favourite film:Yojimbo, directed by Akira Kurosawa
Last holiday:Cornwall
WORKING DAY
THE Charter chief executive wakes at his flat in Shad Thames, south London,
after 7am, and catches the 521 bus from London Bridge to his office in
Holborn before 9am. “I’m not sure how many other plc bosses are on the 521,”
says Michael Foster. “There’s not a lot of conversation.”
His day is usually stuffed with meetings. “I only have four or five executives
reporting to me – our subsidiaries ESAB and Howden have their own chief
executives, but I spend a lot of time videoconferencing with our businesses
around the world.”
He leaves for home after 6pm, and catches up on paperwork in the evening.
Foster travels two weeks in four. “I prefer lots of microcontact with lots
of people, rather than a number of set pieces.”
DOWNTIME
“ACQUIRING money and spending it are sharply divided activities in our
family,” says Michael Foster. “I have a whole procurement department that
works on spending it!” He will buy art for his two homes, and once a year is
taken by his wife to buy clothes. “Two new suits, one shop in Guildford,
that’s it.” He likes to relax by clay-pigeon shooting, and listening to
1950s Chicago blues. He used to be a keen horse rider - hunting and
competing in events. “But when the kids arrived, we decided either the
horses or the kids had to go. We couldn’t get any buyers for the kids, so .
. .”
