Heavy heap of blocks- the Grinaker-LTA story part 2

aveng made a cash offer of r46/lta share or 667 aveng shares for every 100 lta shares. this was a year where lta stock was at the lower r30 levels.

others say grim had no option but to go about building critical mass for his company. "though the merger has not gone as smoothly as expected, i think it was a necessary act," says ian robinson, former executive director of the building industries federation of sa. "the industry was overpopulated with medium-sized players and screaming for consolidation."

grim admits he has had problems with the grinaker-lta integration. but, he says, it's not a disaster. "putting together two groups of 10 000 people each is not easy," says grim. "ours has been a difficult but worthwhile process. you have two groups of people who are used to doing things in different ways. you have to adopt one or the other system, or something totally different. it's easy at senior level, but very difficult at lower levels."

grim's two biggest problems have been dealing with the particularities of the construction business and managing the cross-border commitments of the combined entity.

industry analysts point out that integration in construction is particularly difficult. this is because contractors are known to be conservative. critical management layers comprise individuals with highly specialised skills, who often stick to one company for many years.
on top of this, grim had to deal with pressure on the order book that came from combining offshore activities.

both grinaker and lta were heavily committed to cross-border contracts. the merged entity's resources were stretched on an order book equalling 129% of annual revenue.

this is a key measure in the construction world. once the order book tops 90%, there will be capacity problems, which could ruin profitability. the result for aveng was a loss of r178m in the construction division the year ended june 2004.

aveng's offshore problems have been made much worse by the strong rand. offshore activity accounts for about 50% of total earnings, which are us dollar-denominated and translate into huge currency losses when the rand is appreciating. to make things worse, three african road contracts - risky for any company - went awry, producing significant losses.

last year grim ordered a review of all business units, which resulted in the reduction of offshore activity, especially road-building. about 2 500 jobs were lost. says aveng deputy chairman phil erasmus: "i think he [grim] has dealt with this rough patch in a mature manner by putting the cards on the table. he is an open and easy-going personality who is able to communicate well with people."

despite the problems, grim remains convinced aveng has turned the corner. "we are beginning to see the benefits of this decision [the merger] coming through." the biggest benefit, he believes, is that the combined entity is in a much stronger position to win large tenders. while grinaker was largely a building company, grinaker-lta is far more than that. grinaker-lta can tender for the high-speed train project, gautrain, and stand toe-to-toe with large international construction groups.

grim says another five years of work lie ahead to make aveng a globally competitive construction group, with a good and dependable return to shareholders. "i am absolutely committed to this and i am going to deliver the results," he says.

"would i repeat the lta deal today?" he asks. "i doubt if i would have the courage. but having done it, i believe it was the right thing."