How Australia's Mining Boom Turned This Engineer's Staff-Owned Company Into a $400 Million Business

Jim Giumelli

Jim Giumelli started his engineering business with a drainage contract and a work ethic honed as a boy on a dairy farm.

With a staff of two, including himself, he started his first contract the day after Boxing Day in 1981.

The job brought in $15,441. Profit was $1,500.

“We reckoned we were swimming in it,” Jim says.

Thirty-two years later his company, Ertech Holdings, will pull in about $400 million this year.

And that feels good.

This might be another Western Australian story told over dinner about one man who started a business and turned it into something big.

The difference is that Jim Giumelli’s company is owned by the staff.

“We have never lost one hour due to industrial stoppage,” he says. “We look after our people. Work should be fun and people should be appreciated.”

That philosophy has worked well on the bottom line.

“We’ve grown 23 per cent per annum for 32 years and our profits have matched it,” Jim says. “We’ve never had red ink.”

Jim grew up on a dairy farm at Dardanup, south of Perth near Bunbury, one of three brothers and two sisters.

“I like to tell people that the first thing I learnt in life was arithmetic in that three boys into 150 acres don’t go.”

As the middle son he had no chance of taking over the farm. According to the then unwritten rules of Australian rural traditional, that was the first son’s role.

“There’s one thing about dairy farms, it’s constant,” he says. “Whether you’ve got births, deaths, marriages … life goes on. It doesn’t matter, two times a day you’ve got to milk those cows.”

Dardanup, where he grew up, has strong links to the Catholic community. This was where the first Catholic Church was built outside Perth in 1857. Jim went to boarding school at St Ildephonsus College, a Catholic school in New Norcia, north of Perth.

After school he studied engineering at the University of Western Australia and during the summer breaks he worked for John Holland on building the Mt Newman iron ore wharf in Port Hedland.

Graduating from UWA

This was the era when the north west of Australia was opening up for mining. In the late 1960s, around 10 million tonnes of iron ore was shipped per year. Now it’s hundreds of millions of tonnes.

After he finished university in late 1968, Jim Giumelli worked in Darwin, Sydney and London. Ten years after university he started thinking about working for himself.

“I guess I always wanted to be my own boss like my dad was,” he says.

At that time, the minerals business was picking up and this meant the large contractors in Western Australia were tied up on big projects such as Alcoa Wagerup and Worsley Alumina.

“We thought maybe we could take some work away from them on things that were being neglected,” he says.

The first job was installing drainage at Welshpool in Perth.

Job 2 was for the state’s Public Works Department which wanted to top dress an oval and put in a car park for a school.

Job 3 was for Western Power (it was called SECWA then) laying large diameter drainage pipes as a sub-contractor.

And job 4 was constructing a road for land developers Taylor Woodrow.

These four projects all took place within the first three months of business.

Back then, mining projects were not on Jim’s radar.

“We started doing residential subdivisions and we started getting better at doing other things,” Jim says.

“We did some major landscaping projects such as the Joondalup Arena and Joondalup Central Park. Then we won the first of many Main Roads jobs.”

In about 1990, Jim was browsing an engineering magazine and came across an article about an American company, Kiewit Corporation, a Fortune-500 contracting company started in 1884.

What was different about Kiewit was that it was employee-owned. Jim made contact and later visited their head office in Omaha, Nebraska.

Jim took the best of the Kiewit model and applied it to Ertech.

“We’re totally private,” he says. “We have 80 shareholders (out of nearly 1,000 employees) and you have to be an employee of the company to own shares in the company. So when you leave, you’ve got to sell.

The share price is set by taking net tangible assets and dividing by the number of shares. “No goodwill, no bullshit,” Jim says.

When the number of shareholders was broadened in 2005, the share value was $3.46 and now it’s $13.70.

Those lucky enough to be selected to be shareholders are key to the business but they have pay for their shares. “You don’t value what you get for nothing,” Jim says.

Shareholders have done well. For example, one former staffer retired with $2.5 million after putting in $25,000 15 years before. That’s on top of dividends of $1.2 million.

It wasn’t until 1996 that Ertech won a tender for a mining-related project, in Port Hedland with BHP.

It was worth a whole $83,000. Jim thought twice when BHP asked him to come to Port Hedland for a post tender interview.

He thought: ‘Could we not do it in Perth? By the time I pay for the air fare, hire a car and blow a day, that’s all my profit gone.’

But the trip was worthwhile, with additional work in the area he was able to quote on. He also managed to sneak a road job from under the noses of the two regular road contractors in Port Hedland.

Those two jobs combined amounted to $750,000.

Just as well because the cost of mobilising to Port Hedland, both equipment and people, was very expensive.

When the last job was finished, Jim requested that he be able to leave the Ertech machinery adjacent to the BHP site office. The machinery acted like an advertising billboard and calls came in to tender for more work.

Jim: “We’d been struggling for years to be invited to tender to them and the end result was that we established a presence in Port Hedland that resulted in some $14 million of work over the next two years.

“That’s the story of our growth. It’s about getting in early, doing a good job, establishing a good relationship with our customers and demonstrating our ability to carry out a diversity of works.”

In 2004 when the mining boom really started to get going, Ertech went to Ravensthorpe in the south of Western Australia with a $10 million contract for site works at a nickel refinery.

Ertech constructed about $240 million at the Ravensthorpe project and other work in the surrounding areas during the next four years but in 2009, when the global financial crisis hit, the refinery was closed.

“We had to downsize from 450 employees down to about 250 in three months,” Jim says. “We didn’t want to lose our key people.”

The only answer was to tender leaner, smarter and somehow hold on to the best people and find new work, quickly.

As a result of this strategy, Ertech won two jobs in one week in June 2009: $60 million for the Port Hedland Port Authority for site works and concrete at Utah Point; and a $107 million contract for site development works on Chevron’s Gorgon LNG project on Barrow Island.

Jim: “We won the first major construction contract to be awarded on the Gorgon project. That $107 million multiplied about three times before we completed our works there in March this year. Since then we’ve moved on to Chevron’s newest LNG project, Wheatstone.”

On this project, Ertech entered into a joint venture with American company Kiewit, the same one which inspired Jim’s move to an employee-owned company.

It’s worth about $300 million over the next four years.

As well as early involvement on the Wheatstone project, Ertech is now involved on early works for the Roy Hill project, Gina Reinhart’s new iron ore mine in the Pilbara.

Jim: “Our competitive advantage is to get early involvement on projects, give the client clever and innovative solutions and let our works speak for itself.

“We’re prepared to do smaller jobs in the beginning – access roads and camp setups – and if the client requires additional scope we can provide multi-disciplined services.”

The company now consists of four different business units: Ertech (civil construction), FormAction Concrete Civils (concrete construction), Duratec Australia (asset remediation and protection) and Ertech Geomarine (marine and geotechnical services).

Jim calls this the Wesfarmers model because each business has a board which reports back to the main holdings company.

Jim: “If you can run a small project well you can run a big project well, providing you use small project principles; planning and getting everything right.”

He encourages his project managers to run their project as if it’s their own business: make a profit, look after and promote staff, and establish an ongoing relationship with the client.

“It’s getting bigger and it’s not as family orientated as it used to be but we try,” Jim says. “We have monthly sundowners for the group, a social club, and we celebrate our successes, sometimes with a (Penfolds) Grange.”

Jim sees the growth continuing.

“We don’t target growth of 23 per cent a year, what we do target is a total shareholder return (TSR) averaging 15 per cent per annum over three years.

“We’re unique in that we’re an employee-owned company and we’re continually looking for good people.

“Our goal is to be the best construction enterprise in Australia.”

After seeing the lives of some indigenous youth in the North West, Jim founded the Ertech Construction Academy in 2008 in collaboration with Clontarf School.

Jim: “In 2008 it was very hard to get skilled labour and at the same time a lot of indigenous lives were being ended by drink or by their own hand in remote areas such as Fitzroy in the Kimberley.

“I thought it would make a lot of sense if we could to train indigenous youths and give them a career in the construction industry. It was one way we could put something of value back into the community.”

The program has trained 13 to 16 students each year who graduate with a nationally recognised Certificate II in civil construction and mining while they are still at high school.

When people tell him he’s an entrepreneur who took the risk of starting his own company, Jim tells them about his grandfather who came to Australia on his own at the age of 21 in 1898 and never went home to Italy. That’s risk.

Jim’s family plays a part in the business. His son Richard, a mechanical fitter, is a leading hand while nephew, James Giumelli, is the managing director of Ertech. Daughter Claire, until recent maternity leave, worked in administration.

More staff will be invited to become shareholders and Jim’s holding, around 60 per cent, will be reduced to what he calls a minor amount.

Jim, now called the company’s executive chairman, spends about three days a week in the office and the rest of the time on his farm (with 250 cows to look after) at Dardanup, near both his brothers.

This year he won the services division of the EY Entrepreneur Of The Year Western Region awards.

“The business almost runs without me,” Jim says. “I am 66, am transitioning into retirement but not quite ready to go yet.”

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