Sisk runs out of road in Poland after two years

IRISH CONSTRUCTION group Sisk are pulling out of Poland at a cost of between €50 million and €60 million.

The decision was taken after it encountered a series of delays and extra costs linked to what it says are intractable and ongoing difficulties with the Polish road authority.

Over the last two years the company has put about €90 million into its Polish operations which account for around 10 per cent of Sisk’s overall revenue.

The Irish construction company, which posted after-tax profits of €8 million in 2010, entered the Polish market as part of a joint venture with Limerick-based company Roadbridge in the summer of 2010, winning tenders to build three separate road projects, totalling 92km.

The contracts were joint ventures with two Polish construction companies, Budbaum and listed company PBG. Both companies collapsed earlier this year.

Of the three road projects, one has been completed, while the other two are 70 per cent and 48 per cent finished. Sisk, which made the decision to pull out of the market on Thursday of last week, will now spend a month clearing up the sites, before leaving the country.

More than 3,000 workers were employed across the three sites, most of whom were Polish subcontractors. Roadbridge and Sisk employed about 400 people on the projects.

Sisk chief executive Liam Nagle said yesterday there would be no job losses as a result of the move, with staff redeployed elsewhere.

“This is the first time in Sisk’s 153-year history that the company has not delivered a project. We took the decision after attempting, unsuccessfully, to negotiate with the Polish authorities. It was a huge decision for us.”

Sisk claims the projects were beset by a number of problems from the outset such as radically different ground conditions and water levels than set out in the tender, a lack of availability and access to raw materials, and a hugely bureaucratic system, which led to a dramatic increase in costs.

Sisk is in the process of claiming €90 million in costs it says it is owed from the Polish roads authority for the completed road, while it is considering legal action in connection with the other two projects.

“Obviously we will need to weigh up the legal costs against the possible benefits. We are strongly looking at pursuing the European legal route,” Mr Nagle said. He said that legal action against Sisk from the Polish authorities is “quite probable”.

The Polish construction industry boomed in the run-up to the World Cup, but there has been a swathe of company collapses in the last year, leaving a number of half-finished roads in their wake.

Mr Nagle said the impact of the Polish division on Sisk’s performance is expected to be contained to the company’s 2011 financial year.

The €50 million to €60 million cost incurred by the ill-fated Polish venture will be borne by its own resources, he said, and the company expects to return to profit in 2012.

Sisk, which will file its 2011 results in the next few months, had revenue of just over €1 billion last year.

About half of its business is in Ireland, and the rest in the UK, where it has been increasing its presence in the last few years. Less than 5 per cent of its revenue comes from the Middle East, where it is involved in three projects. Mr Nagle said the company would maintain a “conservative” approach to business in the region.

Sisk, which is one of the largest privately owned companies in Ireland, employs about 1,850 people, 1,400 in its construction business and 450 in its healthcare distribution business.

Sisk’s long-standing managing director Tom Costello recently left the business, following a review by the company of its construction business last year.

Sisk began diversifying its business out of construction in 2005, when it began buying healthcare distribution businesses.