08/11/2005 - 21:00

The year United almost went under

08/11/2005 - 21:00


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The year 1991 was a bad time to be in business. It was the year Australia had “the recession we had to have”, to quote the immortal words of then Prime Minister Paul Keating.

The year United almost went under

The year 1991 was a bad time to be in business. It was the year Australia had “the recession we had to have”, to quote the immortal words of then Prime Minister Paul Keating.

The property market collapsed, entrepreneurs who had survived the 1987 stock market crash fell over, and banks wrote off billions of dollars in bad loans.

It was also the year when United Construction went close to failure.

As often occurs, the company ran into cash flow problems not because it couldn’t grow, but because it was growing so fast.

United grew rapidly through the 1980s, with turnover moving towards $100 million by the end of the decade.

Not only was United getting bigger, the business was getting more diverse and complex, with the establishment of UC Engineers and the management of a large fabrication yard at Batam Island in Indonesia.

The four partners, through their holding company UC Holdings, had also rescued Monadelphous and found the challenge of turning around that business was much harder than they had expected (see page 13).

The end result was that management was stretched thin, leaving the company exposed to any difficulties that may have arisen.

And that’s exactly what did happen. The company had some challenging contracts and was hit by pressure on margins, which led to a major cash flow squeeze in 1991.

“It was a very tight market, the profit margins were really tight,” John Trettel said.

“We were lucky because by then we were doing work with top clients – Rio Tinto, Woodside, BHP – so they were good payers, but at the same time we were spending a lot on equipment.

“One thing we didn’t do was take money out of the company, we just kept reinvesting.”

There were two key developments that probably kept the business afloat during this period.

One was an emergency trip to Sydney, where John Rubino managed to convince United’s main bank, Banque Nationale de Paris, to provide an extra $3 million in short-term funding.

This proved to be a very costly line of credit for the founders, because they had to provide private property assets as security.

Mr Rubino said the $3 million loan was repaid inside six months but the bank retained its security over the property to cover other loans.

The property was subsequently sold at a knock-down price in the middle of the property slump.

Banque Nationale de Paris then decided to withdraw from the construction market and from Western Australia, adding to United’s problems.

“They decided to pull out of Perth,” Mr Trettel said.

“It was very awkward for a time because virtually all the money that was flowing into the company was being used to reduce its debt.”

Once again, emergency negotiations enabled the company to continue trading.

Mr Trettel visited three major clients at this time and gained concessions that may have saved the business.

“I put the cards on the table. I said ‘we are very sound, we have a strong base, but we also have a cash flow problem, would you be able to help?’

“All three said yes and they started paying weekly in advance instead of normal trading terms.

“I think there was a huge level of trust and respect and a recognition of our performance on projects.”

This difficult period turned out to be great opportunity for National Australia Bank, which was the only major Australian bank to avoid disastrous losses at this time.

Mr Rubino, who became chief executive of Monadelphous in early 1991, transferred his banking business to the National after Standard Chart-ered Bank pulled out of the state.

He paid tribute for the National’s former state manager Kevin Jarry, who he said had an astute commercial mind and was able to seize the opportunity.

The link with Monadelphous and Mr Rubino then helped the National win United’s banking business.

The National also picked up the banking business of Kwinana company Total Corrosion Control, which was then half-owned by UC Holdings and had also banked with Standard Chartered.

The National has reaped the benefits ever since; all three companies have grown substantially, and it is still their bank.


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