G R I N A K E R - LTA CONSTRUCTION
GRINAKER-LTA CONSTRUCTION
A New Dawn for 130-year-old
Construction Giant PRODUCTION: Manelesi Dumasi
In keeping with the wider construction industry in South Africa, Grinaker-LTA Construction has faced significant challenges over the past few years. But now, the company is looking forward to an exciting new dawn as it finalises a deal to take it under new ownership. Enterprise Africa talks to Operations Executive, Eugene Schieman about the strength of this industry titan. www.enterprise-africa.net / 3
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There’s a feeling of excitement and new hope coming out of Grinaker-LTA Construction. The Boksburg-based construction firm, recognised across the industry as one of the biggest and best, has been purchased by the Laula Consortium – a black-owned holdings company – ending a period of uncertainty experienced over the past two years after Aveng announced it would dispose of various non-core assets. “It’s definitely a new dawning and we want to align our current ideas with the new management,” says Operations Executive, Eugene Schieman. In January 2018, indebted Aveng announced it would sell off a number of non-core companies including GrinakerLTA Construction in a bid to raise cash to service debts. The R100 million deal was designed to see Grinaker-LTA Construction put into the hands of a new shareholder that could take the business forward responsibly. Aveng CEO Sean Flanagan commented: “We are very pleased
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to have found the right partner in Laula to unlock Aveng Grinaker-LTA Construction’s full potential and further enable its growth. The nature of the transaction will ensure a seamless transition for employees, customers and suppliers while making a sustainable contribution to transformation of the construction industry.” For Grinaker-LTA Construction’s 4000 people, things are looking bright and the future holds much opportunity. “We are very excited – it has been 20 months in the making,” says Schieman. “It was only announced at the start of August who the new shareholder would be, and that is still subject to the competition authorities approving the transaction. As much as there is excitement in the camp, the deal is subject approval from the competition commission because of the size and nature of the transaction. For now, we are in a position where we have been sold but we are in a hands-off state until the transaction receives final approval.” It’s a sense of relief and excitement
for those inside the business as a number of other deals have fallen through. Reports suggest that deals with Kutana Construction and other big-name firms failed to materialise. This new deal brings certainty for the company, along with a new structure and fresh strategy. “Being part of Laula will allow us to come to the table as a transformed business,” says Schieman. “Creating a tier one, black-owned entity is good for the construction industry and shows the industry is turning the corner as we will have black-owned business that can unpack and deliver major infrastructure.” BUILDING A NEW REP The association between GrinakerLTA Construction and its long-term owner, Aveng, has caused concern for stakeholders in the business. Between 2008 and 2018, Aveng’s share price imploded, shedding more than 99% of its value. The decline in the construction industry combined with a number of other issues caused a business, which
GRINAKER-LTA CONSTRUCTION
previously boasted annual revenues of more than R50 billion, to be value at less than R150 million. “Unfortunately, Aveng has put out poor results and we as Grinaker-LTA have had no opportunity to respond,” says Schieman. “When we were described as a ‘non-core asset’ it makes it difficult to talk to a client who then views us as part of the non-core. The media has put us in the same basket as struggling companies and those that have entered business rescue. People read about us being disposed of and struggling but we haven’t had the opportunity to get out there and have our say. “We are optimistic as we now have a voice and we can rewrite the narrative of a transformed business that wants to take advantage of opportunities – something that the country at large has been asking for. Most of the large companies do not represent the demographics of the country and we want to make sure the transformation agenda is not something we aspire to but it is something that is ongoing throughout the business. For me, it’s a very positive time and we are very excited, looking forward to the future and especially the next two months.” Fortunately, the company has a strong and historic background to build from. Its brand is extremely well-recognised and will forever be associated with successful major projects, all over South Africa. “It is our 130th anniversary and there are not many firms across South Africa that can boast of such a rich history - we have dominated the construction space for a century, but celebrations have been put on hold until we get this final approval - we should have some announcement and clarity in November,” says Schieman. In the middle of Sandton, acknowledged by most as Africa’s richest square mile, Grinaker-LTA Construction has conquered the landscape. “We have developed so much there,” admits Schieman. The
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headquarters of Sasol (R1.4bn) and Old Mutual (R1.4bn), The Marc shopping centre (R1.8bn), and the ongoing development of the Leonardo (R1.3bn) – the tallest building in Sandton - are some of Africa’s most impressive mega structures and have all been delivered single-handedly by Grinaker-LTA Construction. “Our ability to deliver on time, puts us in the space with the largest contractors,” confirms Schieman. RIGHTSIZING THE GIANT South Africa’s construction and building industries have been hit hard in recent years, with many companies struggling following the 2008 global financial crisis, or left without a pipeline after the boom following the 2010 FIFA World Cup. The legacy issues stemming from that tournament have also damaged the reputations of some of the country’s large players and, with the economy hitting several technical recessions since then, re-focusing strategy and reorganising to streamline operations has been essential.
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“The construction industry follows the economy and when there is a slump in the economy, this industry feels it first and foremost,” details Schieman. “One of the things that this business has enjoyed is volume of work – profits are linked to volume. With the dip in the order book, we have struggled. We have had to right-size the business and press reset to think differently, especially with the change that we are experiencing. Investors are not willing to spend and FDI has been hindered. There is a lot of change happening in the economy and the result is a delay from investors who are waiting for the next moves from the government – we feel that. Where we would expect some contracts to be awarded, they are holding back or gone to retender. That has impacted our order book and as a result, our fixed cost is suffering. You can’t have a bloated overhead because the business was geared to do billions. Because of the lack of order book, we have trimmed down from an overhead perspective to be in-keeping with the changing times
where we need to think nimbly.” This means de-corporatizing the business, cutting unnecessary levels of management, reducing job duplicates, and moving much quicker to pick up trends ahead of the curve. Grinaker was a listed entity before merging with LTA, which was also a listed entity, and Grinaker-LTA was then acquired by Aveng which is also a listed entity – “we have always been a massive company with corporatized structure,” admits Schieman. “We are looking forward to nimble, quick thinking where we are much more responsive and much more proactive in anticipating change, therefore being able to strategize based on where the economy is going or where our clients want to go.” Grinaker-LTA Construction was previously a R7 billion turnover business but the new owners are looking to sustain at around R3 billion, rather than going out and trying to redevelop the order book in what is now a tight and highly
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competitive market. One part of the Laula Consortium is Oteo Investment Holdings and CEO, Mlu Manci – who will take up an interim role as Executive Chairperson at Grinaker-LTA when the transaction is complete. “We have no intention of growing too fast,” Manci told Engineering News Online. “Our main aim is to use the foundations built at Grinaker-LTA over the past 117 years to create a sustainable construction business that will endure for another 100 years.” Schieman agrees, stating that a more efficient business will bring benefits for clients. “Our new owners are very entrepreneurially minded and we want to adopt that approach. We need to be nimble and agile, and we are now a much leaner outfit with a much leaner overhead in terms of how we manage. This smaller entity, that makes decisions much quicker and can respond to changing environments quicker, is something that we are looking forward to as we have not behaved in that way in a very long time.”
ALWAYS CONSTRUCTING While the transaction is finalised and while the business completes its rightsizing activity, work on the ground continues. A large project pipeline lays ahead for Grinaker-LTA and, with operations around the country, Schieman suggests that the company remains extremely busy. “There’s expansion at the Heineken brewery in Johannesburg where we have been heavily involved since that brewery since it started and we have a great relationship with the client; we are working for Telesure at the Auto & General building where we are handling refurbs on the building we originally built; we have been awarded a UIS project in Pretoria, a car park and eight storey building; we are busy with work on the N4 which will soon be complete; we’ve just finished a stretch of road on the N1 near Ventersburg; we’ve been awarded a R400 million student accommodation design and build in the Eastern Cape; we have an excellent relationship with Aspen
Pharmacare and we are doing a lot of work for them, we have been on their facility for past five or six years; in KZN, we are building a TVET college and we have work with Transnet; in Cape Town, we have some framework contracts that we are doing for the City of Cape Town and the Department
// WHERE WE WOULD EXPECT SOME CONTRACTS TO BE AWARDED, THEY ARE HOLDING BACK OR GONE TO RETENDER. THAT HAS IMPACTED OUR ORDER BOOK AND AS A RESULT, OUR FIXED COST IS SUFFERING// www.enterprise-africa.net / 7
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of Education; these are the sort of projects that we are busy with and they keep us focussed and sharp. We want to show that we can be disciplined enough, with the competence and skill, to manage business successfully.” The Leonardo building - a 55-floor, approximately 240m luxury skyscraper – is a jewel in the crown of Sandton, and Grinaker-LTA will soon complete the major project. “We have another few weeks there - we are trying to kick the ball through the posts. We have conducted practical
completion inspections for 85% of the building and we are busy prepping the last bits on the upper floors. The development sold out early on, and it’s been a long haul,” says Schieman. But in the future, it will not be only globally iconic structures that GrinakerLTA works on. Following the rightsizing of the company, Schieman confirms that smaller contracts will also now be pursued. “If there is work out there, we want to be able to tell our clients we can provide a solution regardless of whether it is a large or small contract,” he says.
// THE NATURE OF THE TRANSACTION WILL ENSURE A SEAMLESS TRANSITION FOR EMPLOYEES, CUSTOMERS AND SUPPLIERS WHILE MAKING A SUSTAINABLE CONTRIBUTION TO TRANSFORMATION OF THE CONSTRUCTION INDUSTRY //
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Many mid-tier players have taken on mega projects in recent years as the industry has looked for reputable businesses that can step up. But with these companies looking up, and Grinaker-LTA looking down, the market is getting crowded. “The reason we are starting to consider ourselves as a medium-to-large player is because we are also playing in smaller markets. For example, the Telesure job is R20 million and we want to be agile enough to be in this space because there is a lack of work in the top end. Mediumsized companies tend to play in the subbillion market and we want to participate in that market and compete in the space. “It’s extremely competitive,” he adds. “The smaller players have much smaller overheads and we have looked at our overhead structure to ensure we eliminate double teaming and eliminate layers of management that are not necessarily required and make us not as nimble as we need to be.”
GRINAKER-LTA CONSTRUCTION
// THE CONSTRUCTION INDUSTRY FOLLOWS THE ECONOMY AND WHEN THERE IS A SLUMP IN THE ECONOMY, THIS INDUSTRY FEELS IT FIRST AND FOREMOST // EXCITING NEW ERA Change is often resisted within big business. The upheaval that comes with new strategies, new cultures, and new business principles can scare those who are not flexible. But at Grinaker-LTA, change has been inevitable for some time. The deal to
take the company into a new future that will allow it to thrive and display its true expertise and capabilities – will bring further change yet, but this is refreshing. “As a business, we are trying to sustain what we have – something around R3 billion. We want to keep it around there and improve margins while gaining discipline and injecting excellence into the company. When the economy turns, we will be well-poised to capitalise on the opportunities that are there.” Where others have toppled over, unable to change quick enough, Grinaker-LTA is now positioned to thrive as a transformed business that boasts global quality and safety standards. “Some of the other tier one contractors have entered business rescue and are really struggling. We are not at all in that space – on the contrary. We are looking forward to an exciting new era,” conclude Schieman.
With many expecting a turnaround in the economy to begin in 2020, and many others describing the construction sector as a treasure trove that could be South Africa’s sunrise sector, the future looks bright for Grinaker-LTA and the feeling of excitement bubbling behind the scenes looks set to spread throughout the company. The word ‘Laula’ translates from Zulu as ‘control’, and with Grinaker-LTA now under fresh new control, the only way is upwards for this 130-year-old South African institution.
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