It is more profitable to work on ten small projects than one large one

For a medium-sized construction company, taking on a large job is very risky. If such a project stalls, the company can go bankrupt. Therefore, the CEO of Team, Josip Švenda, prefers projects of smaller individual value.

writes Mislav Nekić
[email protected]

Last Thursday, the first tranche of commercial papers from Team, based in Čakovec, worth 40 million kuna, was withdrawn from the regular market of the Zagreb Stock Exchange, meaning it has come due. Part of the refinancing money was secured from operational business at Team, while the remainder was financed through a loan from the parent Raiffeisen Bank. The question arises: How will this affect the current operations of the Međimurje construction giant, which is in a restructuring phase, while also navigating the global financial crisis that has not spared the Croatian market? Josip Švenda, the CEO of Team, says that the crisis is felt, but he considers it a welcome and great opportunity for his company because it will show who is strong during tough times and predicts the collapse of numerous companies engaged in ‘trading construction’, as he refers to builders who have entered the market overnight, starting to build wherever they could, regardless of quality, just to sell. In addition to bringing long-standing players (Team, Međimurje graditeljstvo, Tehnika Kamgrad, Koteks, Zagorje – Tehnobeton) into disrepute and taking away some of their highly qualified workers, from foremen to project managers.

Reliance on Ingra and IGH The lack of workforce at Team has been attempted to be compensated by acquiring smaller companies from the Međimurje area. Through acquisitions, they aimed to concentrate expertise and prepare for entering foreign markets. Although they have gone far in negotiations, they opted for a longer-term variant of gradually training their own employees, of whom there are currently 350 in the company. For this reason, Alen Kišić, who has proven himself in companies such as Podravka and Metro Cash & Carry, was brought in as the assistant to the CEO for Human Resources and Public Relations. They collaborate with the Faculty of Civil Engineering in Zagreb and the Construction School in Čakovec, offering scholarships to its students. He says that the company he leads sees an opportunity in restructuring, which would allow them to become market leaders with several quality companies.

– Unlike the current situation, where we are not building anything abroad because we do not have enough quality people, once the market stabilizes, we see an opportunity in entering foreign markets. At this moment, we can only be abroad with someone who will be the project leader,” says Švenda. When asked who that someone is, he replies that it is now Ingra and the Institute of Construction of Croatia. The main activity of the company is high-rise construction. Although they do not yet have a revised report, Team expects revenue of 235 million kuna, which is approximately the same as the revenue in 2005 (223 million kuna). Thanks to the work on the reconstruction project of the Istra Hotel on the Red Island for Maistra as the investor, the company achieved a record revenue of 297 million kuna in 2006. However, the scale of the project, which utilized more than 50 percent of the company’s capacity, led to a sharp decline in revenue in 2007, which amounted to 207.5 million kuna.

The operations of Team from Čakovec are segmented into four areas. According to the prospectus of the Commercial Paper Issuance Program, as of September 2007, with 138.9 million kuna in revenue, construction had a 93 percent share. In addition to construction, the company is engaged in hospitality. This activity brings them four percent of revenue. The remainder of the revenue comes from the trade or stores of construction materials and dry construction materials in Čakovec and Mursko Središće. Additionally, within Team in Mursko Središće, the production of PVC and ALU carpentry, reinforcement, locksmith, carpentry, and interior production has been initiated. A larger part serves their own needs, while the remainder is sold on the market. This part accounted for about two percent of total revenue in September 2007. Team does not consider revenues from other sectors to be that important because most activities serve to meet the needs of construction workers on site, such as accommodation, food, transportation, and so on.

Total business revenues of the company from 2004 to 2006 grew at an average rate of 28.5 percent. The CEO says that in the upcoming period they expect a slowdown in growth, and the reason for this is the restructuring of the company that began in early 2008. Along with restructuring, the reason for lower revenues is the prices of energy and raw materials.

 Small jobs are safer  To date, the ownership structure has changed. The majority owner with more than 95 percent of shares has become Švenda as the CEO. Alongside him is the minority owner of the company, Marijan Horvat, employed as the construction director. They purchased a 32.73 percent ownership stake from the Ljubljana-based Energoplan at the beginning of 2008. Namely, Team was established in 1991 as part of a cluster led by Energoplan. The previous subsidiary, Građevinar from Umag, was also merged into it.

– Our long-standing tradition and expertise give us an advantage over the competition. Our goal is to build the project we take on regardless of the problems that may arise during construction, all in the desire to satisfy the investor. Therefore, it is more profitable to work on about ten smaller projects worth 20 to 30 million kuna each than on one project worth 300 million kuna because a delay in such a project can lead to the company’s bankruptcy,” says Švenda. He admits that not everything is rosy in the business he is engaged in. They have started to notice the first weaknesses in the last year.
 – People do not know how to accept the obligations and responsibilities that exist in our market. First of all, I mean cost control and investing in existing employees. Also, there have been significant thefts of materials on construction sites by our workers, as well as subcontractors. That is why we hired a psychologist to assess the situation on the ground so that problems can start to be resolved,” says Švenda. The CEO states that it is most profitable to do business with the state, and he highlights VMD promet as the largest investor for whom they have completed 15 projects.