GHD self-funds emergence as a global major

LONG-TERM planning has allowed GHD to build itself into one of the world’s largest private companies and the largest private Australian company servicing the engineering, architecture and environmental
consulting sectors. Reflecting on his eight years as Chief Executive, Ian Shepherd, who is retiring after three decades with the firm, explores GHD’s extraordinary growth in recent years . . .

A CLIENT services-led strategy has seen the former Gutteridge Haskins & Davey become one of the world’s largest 100 per cent employee-owned professional firms. Today, GHD has 200 offices and 8,500 staff through more than 90 countries. It earned AUD1.6 billion in revenue in 2015.
GHD’s revenue base is diversified across the market sectors of water, energy and resources, environment, property and buildings.
Founded in Melbourne in 1928, GHD now works across five continents – Asia, Australia, North and South America and Europe, as well as the Pacific.
The biggest game-changer came in July 2014 with the announcement of a strategic merger between GHD and Canada-based Conestoga-Rovers and Associates (CRA),
allowing GHD to boost its presence in North America and the United Kingdom.
GHD’s Chief Executive, Ian Shepherd, describes the agreement as one of the largest true mergers to have occurred in the global engineering and environmental industry. The merger was phased in over a year, and CRA
offices now operate under the GHD banner.
In 2014, GHD acquired two other US companies, the Protection Engineering Group (PEG) and Carlton Engineering. In the UK it acquired GHA Livigunn in 2015, adding 160 people working across the building, water, nuclear, power, waste, bioenergy and chemical sectors.
Says Shepherd “We have been in North America since 2004 and CRA was started 34 years ago, so there is a lot of history and a lot of capability there between us.
“We now have a very good footprint in North America across the environment, water, power generation and infrastructure areas. The merger enhances our business (in North America) and we are able to truly follow clients around the world. We can also work locally across the office network we have in the US and Canada.
“In North America, there is a mix of new infrastructure because the population is growing — in urban areas, new infrastructure is required to augment existing infrastructure, particularly in water.
“We are also involved in remediation of contaminated land and that type of area, and we have quite a niche capability in emergency response – where there is a spill or a train derailment, for example. We are now taking this capability, which we developed particularly in North America, around the world. In an emergency, we are able to respond in a very disciplined way.”
Shepherd says that while GHD is an Australian reporting entity, it does not see the need to have a designated Head Office. “We have offices and a regional network (but) we operate as one connected network. We have corporate type people in different locations, but we don’t have everyone in one location. We empower people to go out and deal with clients.”
The Philippines continues to be GHD’s biggest base in Southeast Asia, with 300 staff there. “This enables us to springboard off into other parts of Southeast Asia,” Shepherd told ATI. “We have a strong presence in the local (Philippines) market, particularly in power and water. Some of the ability we have developed there in geothermal power is unique, and can be applied elsewhere. That does set us apart.”
In terms of GHD’s revenue streams, approximately 60 per cent of the total is now earned outside Australia, compared to 20-25 per cent prior to the CRA merger. CRA revenue in 2014 was around US$500 million.
Shepherd says GHD’s ethos all comes back to a belief that the business should be client service led. “We don’t have an aspiration to be the biggest — but we have an aspiration to be the best,” he says.
“So we encourage large companies to continue to further their own journeys – they all have their own strategies and desires and objectives, but we don’t want to match them in the 100,000 people game.
“We believe we have a value proposition. We have a regional network which is very close to clients locally, and we have a diversified business model.”
GHD funds its activities, including M&A, through a capital structure that incorporates its internal shareholding system.
Says Shepherd: “Almost a quarter of our people are owners of the business. There is no external shareholding. When a person retires, the shares come back into the system. That has continued for many, many years. So we don’t see a need to take the business public.
“And certainly in Australia in our industry there is no other company that has been around for nearly 90 years. There would not be many in the world with our heritage value.”
Shepherd says that just one of the advantages of being a private company is the ability to be more agile. “We don’t have external parties trying to set where we are going. We play the long game, we set our strategies, and our people see that there is a career in which they can participate as an owner of the company.
“That is why we have a lot of people who stay for 10, 20, 30 or 40 years. They see a lot of value. The average age of our employees is around 40, but we continue to put great emphasis on recruiting graduates – about 270 globally in 2015.
“I suspect there are not many companies that are doing that, certainly not of our size, and we have been doing it now for probably 20 years. Even during the 2008-09 downturn, we put on graduates.”
Shepherd traces the genesis of GHD’s recent expansion back to the turn of the century, when the firm embarked on a series of five-year plans.
“The 2000 Plan was about globalisation, about ensuring that we had a business that could sustain itself through economic cycles. Australia is not a big economy in a relative sense globally, so we moved into a number of different locations around the world and, in recent years, have really focussed on building scale in these locations.
“Our current Five Year Plan revolves around building scale in three economic regions – the Americas, Asia Pacific (including Australia) and Europe/Middle East/Africa.
“We believe these three regions offer a very stable platform for us, and we will build scale in the various operations we have there and then work with clients wherever in the world they
invite us.”
Asked if he is surprised by the scale of growth in recent years, Shepherd replies, “Our performance is the result of the long-term strategies we have put in place. By working towards those goals, what we have been able to achieve in 15 years is quite extraordinary.
“Over a 15-year period from 2000, we have probably had a compound growth rate of something like 13 or 14 per cent. Now, 15 years out of a 90-year history is not a long period of time. You go forward another 10 years to 100 years, and the 15 years is 15 per cent of that timeline.
“But it was all planned. That is the benefit of having a long-term strategy. You keep working away at it.”
GHD’s future, Shepherd says, will be built around satisfying growing global demand in water, energy and urbanisation, demands which, in reality, will never be met because of growth needs.
“Environment, really, is the lynchpin between each of these three, and that is where we have a very significant strength in North America and in Australia – this gives us a competitive edge around the world.
“We will build out business around these demands and that sets us up for the future.”
In Australia, he says, the infrastructure sector has pulled back over the past three years, but he is convinced that it will come back, although not to the level it was at in boom years underpinned by the resources sector.
“There is demand,” says Shepherd. “It might get delayed or deferred, but the demand does not go away, and we believe infrastructure business in Australia can and will continue to grow.”
Internally, GHD is also benefitting significantly from an innovation initiative started a little over 10 years ago.
The firm has been able to commercialise a number of what it calls “smart ideas”, including a continuous energy audit system for pumps which identifies problems and areas of potential savings. This has been deployed in Australia and the US.
“Our commercialisation of ideas is quite advanced, and, apart from that, we get involved in a lot of ideas that we develop in a technical sense,” says Shepherd.
“We operate horizontally through our business with service lines that have the ability to generate special projects that relate to the development of new ideas and concepts in areas such as waste management.
“We continually try to understand what is happening in the market — the changes, the disruptive factors — we need to take into account, the drivers. We know as a business that we have to remain agile and be able to
respond to market changes. And the market does change, particularly these days. We are in a very fast-changing set of markets.”
He adds: “We develop a lot of our own strategies in-house, but we do have people who come in and give advice. On our Board we have two non-executive Directors, and on our committees we have non-executive people who come in and give advice.
“We operate in quite a distinct way. We have a Board that helps set strategy and to identify the issues for that strategy. Management has the responsibility of developing that
strategy.
“The Board then tests it out and where we need external advice we get it. But we don’t have someone come in to do it for us because we understand our business.
“We see these rolling five-year plans as part of our success story – of being able to set a direction where people can see horizons that can be identified. “It is amazing what opportunities arise.”