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Case study: Kalmar Construction building an advantage

Reacting quickly and cleverly when business began to drop off has helped Kalmar Construction stay ahead of the recession.

Reacting quickly and cleverly when business began to drop off has helped Kalmar Construction stay ahead of the recession.

A barometer for the health of the economy, the building industry profits during boom times but is the first to feel the squeeze when the market weakens, and it’s suffered significantly in the global financial crisis.But it’s not all doom and gloom – especially for those prepared to think outside the box, be proactive and maximise their expertise and experience.

 Hayes Knight client Kalmar Construction has taken a multi-pronged approach to maintaining its profit margins during the recession, and it’s a strategy other businesses could learn from.

Owned by co-directors Peter Kay and Bert Denée, Kalmar Construction does commercial, industrial, healthcare and civic construction. The company has an annual turnover of around $60 million and employs 45 full-time staff.

 Kay says Kalmar Construction first felt the first signs of a downturn in early 2008, specifically in the area of multi-unit residential.

 ‘With some of the projects we had lined up, the developers were struggling to secure mezzanine funding as the finance companies introduced stricter lending criteria,’ he says. ‘Throughout last year, there was a steady increase in the number of apartment buildings being shelved.’

 In response to this, Kay and Denée implemented the first of several strategies to help the company diversify, subtly shift its focus and offset lost opportunities from cancelled projects. An effective first step was to form strategic alliances with other contractors.

 ‘We aligned ourselves with bigger contractors or with those with different types of expertise so we could take on projects we normally wouldn’t,’ says Kay. ‘We have expertise in healthcare construction so we could lend that to others. On our own, we wouldn’t usually go for a $200 million job – this way we can.’

 Diversification is another important tool in Kalmar Construction’s arsenal. When Kay and Denée noticed the market easing, they made moves to acquire a concrete and formwork subcontractor with which they’d worked in the past.

 ‘We decided that if we could get Harbour Construction as part of our group, we could build these structures ourselves and cut out some of the margin. They have carpenters and expertise that we didn’t have, so that now allows us to build more efficiently and be more competitive.’

 Harbour Construction also has a civil division, and with Kalmar already employing civil engineers and supervising subcontractors doing civil work for the company, acquiring such a division has again cut out the margin on margin that previously existed.

To add yet another string to its bow, Kalmar recently started up its own interiors company. K2 Interiors does commercial office fit-outs, but it also means Kalmar Construction can do its own studs, plasterboard linings and ceilings in the buildings it constructs.

‘We negotiated a $25 million apartment job recently, and we’ll be doing bulk excavation and the entire fit-out for it – something we’d normally get subcontractors to do. The staff we employ to supervise projects will be supervising their own people. It’s a step closer to the coalface for us, but it gives our people more employment opportunities.’

 And retaining its good staff is the company’s number one goal.

 'If a client is happy at the end of the job, it means we’ve succeeded. To do that you have to perform, and that requires competent people. We have great staff and we want to look after them, especially during the recession so that when things pick up we still have that A team.’

The tightening construction market means more jobs are being tendered so price is now increasingly important. While Kalmar Construction must remain competitive, Kay is adamant the company has to be able to make a profit. Rather than coming in with the lowest price, they prefer to differentiate themselves in terms of their service, quality and integrity.

And when it comes to that bottom line, Kay says Hayes Knight has been ‘fantastic’ and helps out on a frequent basis. Matthew Bellingham sits as a non-executive member of the Kalmar Construction Board of Directors and Kay considers his advice and perspective from outside of the construction industry extremely helpful.

Originally published in Beyond the Numbers, issue 1