On Tuesday, the British Airports Authority presented its annual results, ending the financial year for its group chief financial officer Margaret Ewing. It’s been a busy time for BAA’s finance function – out with the old practice of a finance function devoted to financial reporting, and in with a new issues-based, decision-making organisation.
‘We are replacing most of the finance roles with completely new ones,’ says Ewing, in the airport owners’ offices in London Victoria. All this in the midst of the usual difficulties of reporting under international financial reporting standards.
At the same time, Ewing has to balance the tricky business model that is a quasi-government organisation. As the formerly nationalised custodian of the UK’s main airports, its closeness to government is entirely natural.
Like many other large corporations recently sold off to the private sector, its revenues are at least partly dependent on its regulator. Like water companies, it must convince the regulator (and it is only regulated for its three main London airports – Heathrow, Gatwick and Stansted) how much it is allowed to charge.
There are those who might say that makes investing a bit of a steal for shareholders. Keep the government sweet, and the money keeps rolling in. Like a lot of private finance deals, the business could be said to be more about political contacts than about efficiency. ‘I don’t personally [have much contact with politicians]. I try to avoid it. I stay in the background and keep quiet,’ she says.
The closeness to government is subtly clear in Ewing’s language. She talks a lot about ‘stakeholders’ and the relevance of local communities to BAA’s mission.
The relevance of those stakeholders is particularly clear in discussions over the Stansted airport expansion, which is being fought tooth and nail by local communities, who are worried both about the effect on the area’s aesthetics and carbon emissions from planes.
Ewing sounds like a politician when she talks about the risks posed by the protesters. It’s not just a risk, ‘it’s a fact of our business’. ‘We have to manage and we have been very good at managing that area. And we do a lot of stakeholder engagement. We have a very big engagement with the local communities and the lobby groups. That will always be a part of our business in many respects. We understand their concerns. Our business is about growing shareholder value and the job we do is actually very good for the economy. It’s essential for the UK economy.’
Whatever its connections with government, the business is clearly demanding in terms of finance. With increases to shareholder value driven by airport expansions, it operates with a high level of debt, combined with high profitability.
It recently announced its funding plans for the years to come, and the figures are mind-bogglingly large.
Terminal 5 at Heathrow, currently under construction, will cost £4.2bn. BAA intends to spend £6.8bn over the next decade to handle a predicted rise in passenger traffic. And even that does not take into account a projected third runway at Heathrow and the work at Stansted.
A look at 2004’s figures also reveals the group’s high level of profitability. It made pre-tax profits of £539m on revenues of just under £2bn. It banks, then, more than 25% of all the cash it earns.
That money goes on capital expenditure largely, and one question that has concerned analysts is how the Stansted expansion will be funded. ‘It will be off our balance sheet,’ she says.
‘By the time we come to build terminal five, our debts will be reducing quite rapidly and we will be able to finance it out of our existing facilities. Our net debt peaks in 2008 at £5.5bn. It then comes down quite rapidly. If we’re very optimistic we could start building then, and that net debt will start to even out for a while. We believe the first phase of Stansted will cost just somewhere under £2bn. And that will be spread over a period of four to five years. We can fund that quite easily out of our cashflow.’
The restructuring of BAA’s finance department will help meet the demands of such a challenging environment. ‘The new jobs will be about performance management and business planning, rather than all of the traditional reporting and main transactions,’ she says.
In fact, she is at some pains to stress what the change means. Will the new, slimmed-down finance department have a policy role? Are they like financial consultants?
It is, she says, a question of being ‘more focused on influencing and supporting what the business does in its performance’. A question of ‘decision-making’ rather than number-crunching.
As far as the numbers themselves are concerned, she suggests it may mean a slight diminution of the function. But the group is also wary of putting any figures on it. The process, which started last October, is scheduled to end this September.
Risk is another key issue for the business – not just in terms of the threat of campaigners disrupting expansion plans, but also terrorism and other aviation nightmares like horrific accidents.
As a result, she says, BAA is probably at the ‘leading edge’ in terms of risk management. ‘We have highly developed and embedded
risk management throughout the entire organisation. We use it as a management tool,’ she says.
The risk management is not really a question of insurance. ‘We manage our risk, and insurance is what we lay on top of it. Our risk is managed without taking our insurance into account. We get all the insurance we can get. There are some risks you can’t eliminate.’
The plan is working. ‘At Heathrow we’ve had no industrial action and no major accidents,’ she says.
Before Ewing joined BAA in 2002, she was finance director of Trinity Mirror where she helped merge Trinity and Mirror group. Perhaps one of the most striking things about Ewing is her ability to do both those jobs. The two businesses could hardly be more different.
‘Trinity Mirror is a very short-term focused business. You have to get the paper out today. A lot of the focus is around short-term decisions rather than bigger strategic plans. The culture is very different, driven by the product,’ she says.
And while the UK seems to need an ever-expanding number of runways, it has a declining appetite for newspapers. ‘There’s no doubt national newspapers are declining, but you can compensate that with advertising revenues,’ she says.
During her time at Trinity Mirror, she would have worked alongside the ubiquitous Piers Morgan. ‘I didn’t have an awful lot to do with Piers. Piers dealt mostly with the chief executive and the managing editor of the national newspapers,’ she says, hinting that accountants and tabloid journalists may not make the most likely bedfellows.
She pauses for a second and continues: ‘But he’s a very good editor and a real character.’
She has chosen in her career to embrace a variety of different challenges. She worked in corporate finance at Deloitte for 13 years from 1986, starting her career as an audit partner at Kidsons.
‘When I was at Deloitte I was responsible for transaction services and that involved working with different businesses the whole time. A huge range.’
The highlight must have been helping out with the Mannesman takeover in 1999, towards the end of her time at Deloitte (she was head of transaction services from 1992 to 1999). At the time, it was the biggest takeover in the world.
‘My job then was in the due diligence side, to pull out the key issues in the business and give the management an in-depth understanding of what they were buying.’
Turning to the present, Ewing claims she doesn’t want the top job at BAA. ‘I’m not a chief executive. My strengths are in supporting the chief executive,’ she says.
In fact, she lists her appointment to CFO director of BAA as the highlight of her career so far. ‘This organisation provides huge challenges on a daily basis and it never stays still. We have so many stakeholders, every decision is quite complex and far more complex than it is in most other organisations. It’s also because of the way the regulation works – its quite challenging intellectually.
We have some amazing people in the organisation, in terms of passion and love of the business.’
2002: Group finance director, BAA; Member, BAA board; Member, BAA exec committee; Member, BAA ethics committee
2000-02: Group finance director, Trinity Mirror plc – helped merge Trinity and Mirror group
1992-99: Head of UK corporate finance transaction services, Deloitte & Touche – worked on Vodafone’s hostile takeover of Mannesman.
1987-92: Partner, corporate finance, Deloitte & Touche
1986-87: Senior manager, corporate finance, Deloitte & Touche
1977-85: Audit partner, Kidsons