Imtech UK’s new general manager plans to streamline and consolidate the business over the coming months but will not be making any acquisitions this year.
Paul Kavanagh, who took over as general manager from Jim Steele on 1 January, told CN that acquisitions across the group have been suspended as a direct result of problem projects in Poland, which caused Dutch-owned parent firm Imtech NV to write down £86 million and breach its bank covenants.
But he said the UK firm would be unaffected by the acquisition freeze, as it had no plans to buy this year.
Following the write-down announcement, the group’s share price was down 55 per cent this week, from 19.65 euros to 9 euros, and the group has already said it will not be paying a 2012 dividend.
Boosting brand profile
Mr Kavanagh, who co-founded the UK M&E, technical FM, engineering contracting and systems and processes firm, said 2013 is “about consolidating, getting the organisation right and setting a basis for going forward” in the UK.
However, he said that this strategy was not linked to problems with the Polish business and that consolidation will focus on raising the profile of Imtech as a brand while retaining its local presence.
“We don’t see a significant impact in 2013; I have no idea what impact it is going to have on 2014 or 2015”
Paul Kavanagh, Imtech
“There’s been this 100 million euros that’s been written off – it’s cash that’s already been spent,” he added. “They [parent group NV] are investigating the situation, and that is going to take some time.
“The group has suspended acquisitions. We don’t see that being a significant impact on the UK in 2013; as I sit here now I have no idea what impact it is going to have on 2014 or 2015.
“The main issue for us in any event is around consolidating the business, restructuring the business and delivering the organic growth and continuing to being top quartile profitable and cash generative, which is our record for the last 10 years.”
Mr Kavanagh said he could not comment on what options Imtech NV may pursue, pointing out that NV are responsible for the corporate position of the group.
Asked whether the group’s breach of bank covenants has had any impact on Imtech UK’s bidding strength, he said his team were “very comfortable at the moment that we retain [clients’] confidence, both in stuff we are bidding and delivering”.
He said the firm is generally bidding on smaller projects “where that sort of conversation doesn’t arise”, adding that “it has not affected any business we are looking at at the moment”.
The same factors apply to working with JV partners such as Laing O’Rourke, with whom Imtech UK is bidding the Thames Water AMP6 work, he added.
UK consolidation will focus on creating a more streamlined business while raising the profile of Imtech, which has expanded rapidly through acquisition and organic growth since it was founded in 2003.
Mr Kavanagh said the firm doesn’t “feel the need to have a completely centralised business”.
All eight UK businesses were branded as Mr Kavanagh took over at the start of this year to include the Imtech name. He said the change was a “big organisational shift” and that there would need to be some rationalisation to “reduce some of the entities”.
“There will be some minor restructuring, but this isn’t about looking at taking out lots of people.”
Imtech UK’s growth
Mr Kavanagh said that UK revenue, including the Irish division and UK international operation in the Middle East and Kazakhstan, is now “considerably larger” than the £500m reported for the 2011 financial year, but denied reports the company is working towards a £1bn revenue target.
“What we don’t want to do is lose the local focus, we don’t want to create a business that’s run from the top”
Paul Kavanagh, Imtech
“There’s no change going forward in the next three years,” he added. “It could be in the order of £1bn at the top quartile level of profitability. If it was less than that and at the top quartile of profitability that would be good; if it was £1bn and not at the top quartile, it would not be good.”
He stressed that Imtech’s primary driver remains profitability and cash generation, saying the firm has generally acquired strong businesses, either at the sort of profitability they want or with the aim of getting them there, along with getting regional coverage.
Consolidating the UK business
Mr Kavanagh said the group will continue its policy of letting people who grew and sold the various businesses carry on running them within a flat management structure.
But he added: “What we do want to do is streamline the business so people are more aware of the capability in contracting and technical maintenance. At the moment they tend to identify with the regional business and not Imtech.”
“What we don’t want to do is lose the local focus, we don’t want to create a business that’s run from the top.” Mr Kavanagh said the strategy would not affect the supply chain management, but would improve the operation of suppliers that operate across different parts of Imtech.
Mr Kavanagh has been central to Imtech UK’s growth to employ 3,300 people, and said there has been no radical shift in the plan, adding “we always knew we were going to get to this point”. He said he had worked very closely with Mr Steele for 25 years.
“So I do think genuinely that the key part of what’s made us successful is not going to change. The business is getting bigger, it needs some more structured approaches to managing international work, in different sectors and so on. Hopefully people will see it as continuity.”
Asked if his succession could lead to any changes in management, he said a review of the business will mean “whatever the requirements are we will meet”.
But he added: “I was part of building and developing the team around here, so I’m very happy with the team we have.”
The M&E market – underbidding and insolvencies
Imtech boss Paul Kavanagh expects M&E to continue to take the strain as the largest subcontract, given that it has the most investors and is undertaken at a late stage in the construction process.
“As problems build further up the chain they tend to concentrate down on the M&E subcontractor,” he said.
Some clients are taking longer to pay, but tight bidding is “starting to come home to roost”, he added.
“It’s probable that clients or main contractors are causing more pressure by the pressure on prices than the payment issue, because ultimately people have got nowhere to go, they are trying to bat from an impossibly low base,” he said.
He said there were repeat offenders and some main contractors were taking work at very low margins, which “causes some concern”.
But Mr Kavanagh said main contractors are also putting more subcontractors on bid lists – up from three to six or seven – and rebidding jobs.
“There are far more people chasing any one job and in that group there will always be underbidding,” he said.
“It’s almost a systemic thing. Underbidding is getting introduced into almost every project so it puts pressure on everyone.
“If you look at a job you’ll always have one or two people that are pricing the job tight.”