Diversification to keep BGC kicking goals

As a big private company with a healthy balance sheet, BGC Contracting can afford to be strategic as the commodity cycle turns, according to CEO Greg Heylen.

One of the state’s biggest mining contractors is seeking to diversify revenue streams and keep a lid on management costs to stay ahead of the game during the downturn.

BGC Contracting chief executive Greg Heylen said although the Perth-based business would still be underpinned by profitable mining contracts, it would be returning to public infrastructure in the near term to broaden its revenue base as well as other changes in its market mix.

Moving away from resources was a natural progression for BGC, he said, which was focused on public works before the boom nearly a decade ago.

This shift would be aided by the impetus on infrastructure spending from the federal and state governments, Mr Heylen said.

As with other large businesses,, multiple divisions bring a natural level of diversification, while the long-term split for contracting work is 50:50 between infrastructure and resources.

Geographic broadening and changing the mix of commodities are an additional part of the diversification strategy in BGC’s resources division, to balance the existing large exposure to iron ore.

Mr Heylen said he made no apology for the exposure, because that had been driving revenue for contractors. “You had to be in iron ore to earn good money, we’re typical of people being in that space,” he said.

“We’re now looking at coal in particular and looking at some gold opportunities.”

While acknowledging the challenges inherent in changing the company’s focus, Mr Heylen said there were broad similarities, notwithstanding the technical differences.

That was particularly the case for open-pit mining, which has been the dominant mining style in Australia for some years.

There was some existing experience in coal within BGC, with some staff moving between commodities during their careers.

The company has recently developed a presence on the east coast to pursue opportunities in both these resources and infrastructure.

Queensland, which has a similar environment to Western Australia for building infrastructure in remote areas, and New South Wales, which has a huge public investment strategy under way thanks to its asset recycling plans, are the two key targets for geographic diversification.

There is light at the end of the tunnel in the west, too.

“I have an expectation in two or three years … it will be a much better market for contractors than it is at the moment,” Mr Heylen said.

Costs

Cost reduction is a feature across the industry, as project proponents come back to contractors over and over seeking reductions.

“The industry has got fat and lazy over the last five or six years and we’re all having to lower our cost base,’ Mr Heylen told Business News.

He said that could be done without substantially erasing margins.

One part of that was smarter supply chain management, while another was reduction in manager oversight.

The combination would be a 15-20 per cent reduction in costs, Mr Heylen said.

“If you’re not achieving numbers like that you’re not going to be competitive,” he said.

But that should not imply a race to the bottom, Mr Heylen was quick to add.

Businesses need to focus on their competitive advantage, and ensure their clients understand that advantage to keep winning work, he said.

For BGC that means relationships are key.

“One of our brand pillars is around strong relationships with our clients,” Mr Heylen said.

That enables frank discussions about changes that can benefit both parties in difficult circumstances.

He cited the long-term relationship with Cliffs Natural Resources, lasting nearly a decade, for which BGC has shifted nearly 50 million tonnes of iron ore, as an example of how a good relationship will help guide through difficult times.

Mapping strategy

As a private business with access to capital, BGC could afford to be more risk averse than many public companies, Mr Heylen said, as the views of the external market need not drive its strategies.

This conservatism guided negotiations with Atlas Iron, with the company now operating one mine site, down from two earlier this year.

Mr Heylen said the changes were a necessary move for Atlas.

“We would have liked to have kept the Wodgina job but we understand the realities of where Atlas got to,” he said.

“It was my view we needed to work with Atlas so that they continue mining. I think there’s been great success in doing that.”

Mr Heylen said he was pleased with the deal because BGC was able to re-engage employees who had been in the business many years and had been at risk of losing their jobs.