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Controlled Demolition crawls out of the rubble

DEMOLITION - When high-profile contractor Controlled Demolition fell by the wayside last year it sent shockwaves through the sector.Sophie Kernon reports on the firm's attempt to rise back to the top

THE FAILURE of Controlled Demolition in September last year left hundreds of subcontractors reeling. For Controlled's rivals, though, its demise provided a valuable and timely lesson in simple economics ? do not buy work to the detriment of profit.

Compared with recent years, the construction industry went through a bit of a hard time in 2005 and the demolition sector was no exception.

According to figures from the Construction Products Association, output fell by 1 per cent, the first drop in over a decade. A further study by financial services specialist Experian revealed that company failures jumped by 8 per cent.

The demolition sector was less optimistic about its fortunes in 2005 than it was in 2004, according to National Federation of Demolition Contractors president David Clarke.

Spending by the Government and the private sector was sporadic and energy costs soared in the summer, which had a knock-on effect du r ing the second half of the year.

Controlled's plight was not helped by a dearth of decent schemes, according to Mr Clarke, who is also managing director of Suffolk-based CDC Demolition.

'Perhaps it is me becoming more cynical but there was a drop in the number of quality enquiries last year, ' he says. 'The Olympics may help to keep the market rolling along in the south in the near future but quality tenders are harder to come by.

'There is a lesson we can all learn form the collapse of Cont rolled: in a market like this on the edge of a slowdown, you can't buy work; you have to be a bit more pragmatic with your pricing.' Back in 2001, when managing director Darren Palin led a £7.5 million management buyout at Controlled, things were looking rosy.

The bid, backed by venture capitalists 3i, was successful but even so Mr Palin claims he was not prepared for the equity investor's approach to business.

It set a target for the company to grow its turnover to £30 million a year so that it could get a good return on its investment. But even before 3i pulled the plug on its foray into the demolition sector the directors of the Wakefield-based firm were unhappy with the way things were moving (see below).

'3i wanted to build the business up because that way it would have made money selling up, ' Mr Palin says.

He claims he was given very little notice of 3i's change of heart ? that the investment stream had dried up and it did not want to be involved in the future.

Controlled was performing well as far as Mr Palin and his directors were concerned. It produced profits before tax of £205,000 on a turnover up 20 per cent to almost £20 million in the year to September 2004.

But a change in tack by 3i ? to get out of 'smaller legacy' investments ? left Controlled in the lurch.

'We were left between a rock and a hard place and we simply had no other choice than to put the company into administration, ' Mr Palin said at the time.

To some in the sector the venture capitalists were unrealistic about what could be achieved.

'It appeared that this investor had no idea about the demolition industry. It is hard to grow a demolition contractor past the £20 million turnover mark. To do that you would have to expand into other areas, ' says one rival's managing director.

Since the turnaround Mr Palin has had a rethink and plans to build on the company's explosives operations and tap into work coming out of the nuclear industry. This will see Controlled shrink in size and turnover is expected to drop to around £12 million.

Since the company's troubles last year it has understandably kept a low profile but at the time trade body the NFDC was inundated with complaints from subcontractors.

'We were concerned that Controlled was bringing the NFDC and the industry into disrepute, ' says Mr Clarke.

Controlled's membership was terminated late last year. The news that Controlled ? renamed CDG Realisations and Controlled Group Holdings in administration ? owed nearly £15 million and that unsecured creditors would not get a penny confirmed many of the firm's subcontractors' worst fears.

'It has left a lot of us facing a pretty dire 2006.

It's going to take us all year to get back to where we were before it went under, ' says one.

While Controlled now faces the possibility of a court battle in Ireland to claw back money it claims it is owed , its reputat ion in the UK is already beginning to show the green shoots of recovery.

'They kept a low profile after the initial furore and managed to hold on to a lot of the work they were in line for.' Mr Clarke says. 'Subcontractors need work so they will return and always hope to get paid.' Controlled Demolition was, according to Cuddy Group joint managing director John Cuddy, the vision for the demolition industry and to a certain extent its public face.

Indeed, Cuddy was linked with a move to buy Controlled when 3i pulled out and an urgent search was launched for a new supporter.

The Swansea-based firm has since taken on two former Controlled employees in a new office in Worksop, Nottinghamshire. They are business development manager Jim MacEwan and estimating director Paul Geary.

But the biggest loser has been the industry as a whole. The impact of the Controlled affair has been felt far and wide.

'When a company goes down like that it does the indust ry no good , ' says Mr Cuddy.

'Sadly the concentration of talent they had has been diluted.' 'The biggest effect of Controlled's demise was what it did to the confidence of subcontractors.

They were affected in hor rendous numbers.'