Crash brings tough lessons for engineers

02/07/2009 - 00:00


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GET back to basics, have the right people and advisers around you, and make sure everyone involved shares the values that have made your business a success.

Crash brings tough lessons for engineers

GET back to basics, have the right people and advisers around you, and make sure everyone involved shares the values that have made your business a success.

Those are among the key lessons cited by local survivors of the downturn that has cruelled Australia's newly listed engineering and construction groups.

Pre-crash, engineering floats were a sure-fire way to raise cash for acquisition-driven growth. But listing has left many with no place to hide as sentiment has turned and the price for past decisions falls due.

Decmil Group managing director Scott Criddle knows first hand how quickly decisions made in boom times can come back to bite when times turn tough.

Decmil is one of Perth's leading listed engineering and construction groups, and has just won its biggest ever contract - a $170 million tender to build the construction village for Chevron's Gorgon LNG project.

But as Paladio Group last year, it was struggling under the weight of a nationwide growth-by-acquisition strategy in a faltering market.

That all changed in April, when Mr Criddle led a management overhaul to refocus on Western Australia's resilient resources and infrastructure sectors under the banner established by his father 30 years previously.

Mr Criddle said when Paladio bought Decmil in 2007 the transition from autonomous private company to public company subsidiary was "very uncomfortable".

"We had a rough two years," he said. "Decmil was a very profitable business, and was winning these massive contracts and had a fantastic reputation with all our key clients, but it was a bit of waste ... because the executive above us didn't have the same ideas or synergies."

The answer was to take over management and implement the approach that had made Decmil a success.

"Bumping it up to basically being our company ... in public hands," Mr Criddle said.

Since then Decmil's share price has trebled, to 65 cents, as has its order book, to $330 million.

Jim van der Meer, founder of listed engineering group VDM Group, is another avid believer in sticking to core values and approaches.

One of WA's hottest floats in 2006, VDM has been hammered during the past year, its shares plunging 85 per cent to current levels around 18 cents, and a $75 million write down of boom-time acquisitions meaning it will post a loss this year.

Mr van der Meer said a shift away from the close-knit family character that defined VDM as a private company contributed to its difficulties.

It is a process he is now determined to rectify, starting with the hunt for a new CEO.

He sees the downturn as an opportunity to "stand naked in front of the mirror and see where you can lose some fat".

"It's given us the signal that we must get back to the basics, which is looking out for your employees and just getting back to family values," Mr van der Meer said. "You can do that in a public company ... but you do need people at the top who value that and who will swear by it."

Peter Wade, managing director of Bibra Lake-based contracting services group Mineral Resources, believes his company has thrived despite the downturn because of years of careful preparation for the transition to public company life.

"The one thing I would say we have learned is the fact that it is so important to have good advisers and people around you," he said.

"Based upon that, what we were doing as a privately owned company were all the same things we do as a listed company, the only difference being that now our clients can see what we do, what profit we make, and how strong we are."

Consequently, the firm had always relied on the same management processes and systems as a public company.

Mr Wade said another key factor in the firm's success had been that the people who founded the business grew the business.

"[They] know the business came with us when we floated and have stayed there as the people who will drive it to the next stage," he said.

Lycopodium executive director Rod Leonard is another to attribute his firm's success to having the right systems in place and focusing on its core activities - meaning there was virtually no change when the company listed in 2004 after 12 years operating privately.



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