New Zealand hit a record this year for the number of cranes being used in significant construction projects. But booming infrastructure development has come with its own wrecking ball – the tricky financial management required to handle such demand.
Following the collapse of major players like Arrow International, Ebert Construction and Mainzeal, Daniel Smith Industries is being particularly careful who it works with.
The Rangiora-based company, which started trading in 1991, is managed by Daniel and his wife Annette, and these days owns about $40 million worth of construction equipment.
“The industry in general is working on very low margins at the moment. So when the industry works at low margins, it’s very hard for contractors to get good margins as well,” says Smith. “I think that’s a massive change in the last couple of years.”
The Transmission Gully project, for which Smith was due to provide nearly 30 cranes, proved particularly challenging and Smith ended up terminating the $6.6m contract before it even began. The result was a severe dose of “iron disease”, he says. “This is a common occurrence with contractors – having a collective gene that results in owning a lot of machinery that is not utilised efficiently.”
After “some counselling and therapy at my local hotel,” Smith says he decided to sell $22m worth of cranes. Many of these have been on term payment agreements, which means the company has effectively found itself operating as a financial lender.
Fortunately, it’s been able to get rid of almost all its debt. “We used to carry a lot of debt. But in the current economic climate, we’re being very careful and conservative,” he says.
However, the company is still active in the crane and contracting industry. In Australia, the market for cranes has been steady but remains highly competitive. And in New Zealand, it recently completed the construction of the Taramakau Bridge on the West Coast, and the Blenheim Bridge. Other significant projects include the Lyttelton port cruise berth and the Pokeno dairy factory.
Meanwhile, it’s been business as usual for the company’s property division, which has another $70 million of assets. It is continuing to reinvest in commercial buildings, mostly in the Canterbury and Marlborough regions.
The couple has 7500sq m of warehousing under construction, and have also started work on a hotel, retail and automotive museum in Rangiora. A recent addition to the portfolio is the English-themed Crate & Barrel hotel in Leeston, which comes with a host of trappings including a relatively new Indian Scout motorbike as a wall decoration.
Daniel comes from a family of brothers who have all gone on to considerable success in Australasia’s construction industry (see NBR’s Smith family profile). However, Smith is proud of the fact that he has carved his own path, and operates independently from his siblings.
2018: $105 million