Bringing NTR down to earth

NTR boss Michael McNicholas, regarded in the industry as a ‘safe pair of hands’, is busy picking up the pieces after his predecessor’s costly gamble on solar power backfired badly, helping to notch up record losses of €381m at the group, writes Kyran Fitzgerald

IT is Horse Show week and the recently installed management team at NTR have been out there showing off a set of freshly-cleaned stables.

There has been plenty of muck to be shifted. The full year results make for pretty grim reading.

At €381 million, the full-year losses are among the highest in Irish corporate history outside the banking sector.

Impairment losses amounted to almost €196m, with much of this coming from a disastrous investment in US solar power through a company called Stirling Energy Systems, or SES.

The long-serving and previously successful chief executive, Jim Barry, made what could be described as a calculated gamble on solar, one which has blown up in his face and in that of the shareholders, including notably, the businessman Philip Lynch, recently ousted chief executive at One51, 24% shareholder in NTR.

If Barry flew too close to the sun, only to watch his wings melt, then his successor, Michael McNicholas, is viewed as a grounded individual, a safe pair of hands.

McNicholas took over as chief operating officer at NTR in the Spring of 2010, having served for almost five years as chief executive of ESB International, a company with an annual turnover of €800m and a staff of 1,300.

The new NTR boss was identified early on by his ESB bosses as a manager with high potential and from the early 1990s was effectively fast tracked through the organisation.

Having worked in customer service, he moved into power generation were he was involved in the board’s Cost & Competitiveness Review involving a major overhaul of the organisation in the 1990s.

At the beginning of that decade, the company was overstaffed, having been pressured into hiring people by a succession of governments. Staff numbers in the core organisation have almost halved over the past two decades, down from 13,000 to about 7,500.

McNicholas spent much of his ESB career on the power-generation side helping to preside over a major reorganisation in work practices and operations. The company is heavily unionised and dealing with the ESB group of unions, on the one hand, and the shareholder as represented by the Department of Energy, on the other, will have demanded much in the way of diplomacy.

McNicholas rose to become managing director of the Powergen division, succeeding Ken O’Hara following the latter’s selection as group chief executive at the end of the 1990s.

Former colleagues describe McNicholas as “dynamic and committed” and as a “quiet man who gets on with the job, affable and with an ability to look at things dispassionately”.

By the time he took over at ESB International, this business had broadened out from international consultancy to include the operation of power stations in Ireland as well as abroad where the ESB has been a major investor.

ESB International is an important player in alternative energy having operated through an offshoot called Hibernian Wind.

McNicholas has also ensured that the company increased its commitment to wave energy. It has backed a wave energy research project run by University College Cork and the University of Limerick and has been working closely with Irish wave energy companies such as Wave Bob and with Sustainable Energy Ireland.

It recently announced plans for with a wave project off the west coast of Ireland in a move designed to get Ireland into a race in which our near neighbour Scotland has already made significant strides.

McNicholas would have been tipped as a successor to the outgoing ESB chief executive Padraig McManus.

When it was revealed that Mr McManus would be serving an additional three-year term, this may have served as a trigger for Michael McNicholas — still relatively young at 50 — to depart for a well remunerated job in the private sector.

The ceiling on top salaries within the ESB will no doubt have served as a motivating factor. The large salary pay-out to Mr McManus triggered a major public controversy in spite of a subsequent reduction. Increasingly, commercial semi states find themselves caught in something of a bind as they seek to reward and retain senior executives without alienating an increasingly disgruntled public in the process.

At this stage in the game, at NTR, McNicholas’s operational skills are at a premium. On his side is the fact that the company is effectively controlled by the Roche family, having evolved out of National Toll Roads, the company founded by Tom Roche Snr in 1978.

This week, NTR confirmed that it would not be paying a final dividend to shareholders, having also failed to pay an interim dividend. This drought contrasts with the position in 2008 when chief executive Jim Barry, was able to shell out €275m to shareholders and still have enough left for a major punt on solar, wind and bio ethanol.

The company was riding high following the €850m sale of wind energy company, Airtricity and the €475m sale of its Dublin West Link toll interests for another fortune to an Irish Government still dwelling in the fiscal equivalent of la-la land.

Barry transformed NTR from a Steady Eddie toll bridge operator, earning annual revenues of €30m into a diversified player in renewable energy, biofuels, waste and broadband.

In a way, NTR became what it had once been under Tom Roche Snr, a thrusting, risk taker with a long-term vision.

In 2007, NTR was valued at €1.2bn. Toll roads made up just a rump part of the business.

Barry’s big gamble was in embarking on a strategy of bolting solar onto wind and bio ethanol in the US.

It worked up to a point.

The wind and bio ethanol businesses are profitable. However, the solar energy investment decision backfired.

Investing in a Californian company with a well developed technology may have appeared a sensible move three or four years ago, but that was before the global downturn and the dramatic rise of China in the solar energy space.

Ironically, the Chinese have come under sustained and justified criticism over the country’s soaring contribution to global greenhouse emissions through its investment in coal-fired power plants. However, in the mid Noughties, the Government woke up to the potential of alternative energy.

By mid-2009, China had pulled ahead of the US as the world leader in solar power production, driving European producers into a lossmaking position in the process. In just one year, the Chinese drove down the price of solar panels by almost 50%.

NTR subsidiary SES lost key contracts in 2010 triggering the write-down in the financial accounts as NTR washed its hands of an investment which was acting as a major drain.

Michael McNicholas will now be expected to produce a period of stability in a company which has received a severe setback.

The consolidation process is under way. Cash resources are back up to over €112m. In March, a partnership with the global infrastructure financier, Blackrock was announced.

There have yet to be any developments on this front, despite much upbeat talk at the time.

Blackrock manages $110bn in assets. It may well be keeping its powder dry in view of the huge uncertainties surrounding the global economy.

However, a tie-up between NTR and Blackrock must offer scope for profitable activity in the not too distant future.

Revenues on continuing businesses are up 35% to €320m, driven by an increase of €68m in waste.

Losses on continuing operations stand at €140m, reflective in part of conservative accounting.

Stockbrokers, NCB, have issued a Buy recommendation on a stock now viewed as being in bargain basement territory. We shall see.

The group retains modest toll road interests and a 38.5% stake in Anglia Water.

Its ongoing headache lies with the lossmaking Greenstar waste management business in Ireland — here, there is huge uncertainty stemming from general demand and the prospect of the waste incinerator in Ringsend, with all the impact this could have on the rest of the waste business in Ireland.

NTR now has an cagey ESB hand on board. Expect less in the way of excitement, and a lot more steadiness. Shareholders, having seen the share price tumble from over €3.30 to around 55 cents, will hardly complain about this change of direction and approach.

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