JUST a few months ago it seemed that there would be no place in the new millennium for the German contractor Philipp Holzmann. In late 1999 the company had its capital wiped out and was on the verge of being declared insolvent. With losses of DM 2,400 million on its books, the winding up of the company founded by Johann Philipp Holzmann in the middle of the 19th century looked inevitable.

Three months later, the company is back on its feet. Only a massive injection of new funds by a group of creditor banks and radical surgery to reduce the structure of the group has saved it from extinction. After a capital increase of DM 1,270 million in February and the issue in mid-March of DM 700 million in convertible participation rights to restore the equity, the company now has the financial underpinnings for its new strategy. It has been a sobering experience.

'There is no doubt whatsoever that over the past months Philipp Holzmann lost much: much money, and much trust,' Konrad Hinrichs, chairman of the board of management said in a statement.

The restructuring process has seen Holzmann exit completely from France and Spain, the two markets where heavy exposure to overheated real estate sectors helped to provoke the financial turmoil that was the group's undoing. In Germany itself, some 40 regional units have been trimmed to 17, which will lead eventually to a 49 per cent reduction in the workforce. Non- essential companies and affiliates are to be reduced to around 320 from more than 600. The intention is to create, in a matter of months, a far more streamlined group capable of providing integrated construction services in Germany and abroad on a profitable basis.

Business is already picking up and Hinrichs has indicated that a small operating profit will be achieved this year. In a development that the company is very keen to trumpet, foreign deals accounted for 55 per cent of the DM 14,000 million in contracts that were onthe books in late February. And it is the intention of the international division of Holzmann that the Middle East, which was a source of valuable business in the past, will play a bigger role in the future.

'We are definitely at a stage to concentrate our forces in the area,' says Herbert Lutkestratkotter, member of the board of management. Since joining Holzmann last September, after 21 years with engineering group Lahmeyer, Lutkestratkotter has been at the eye of the storm, as the board member with responsibility for personnel and for the international business of the group. Having moved to shed the activities that nearly killed the company, the new strategy is deceptively simple: 'In future we will only concentrate on our core business,' he says. This means general building, infrastructure, industrial construction and services.

During the past decade, Philipp Holzmann's profile became less visible in the Middle East as it concentrated its energies elsewhere. The apparent absence masks a substantial history in the area for a company that can trace its Middle East roots back to 1888 and the construction of the Izmit- Ankara railway. In the 1970s and '80s were added a string of prestige projects in Saudi Arabia, Algeria, Libya and elsewhere. In total it has executed projects in the region worth more than $10,000 million.

The 1990s saw only two substantial building projects completed in the Gulf - a hotel rehabilitation in Oman and a new corporate headquarters in Abu Dhabi. A substantial set of US aid-funded water and wastewater projects in Egypt was secured by its US affiliate J.A.Jones. 'There is no doubt that there was a certain gap in Holzmann's Middle East activities,' says Lutkestratkotter.

That is about to change. The company is already appearing on bid lists more regularly and targeting more projects. In recent months it has beefed up its sales and marketing team and become more sharply focused. 'We have given a clear signal to clients that we will be staying in the area. Definitely the Middle East will be a region where Holzmann will seek more projects. We are at the stage when we will go to the bidding for larger projects,' Lutkestratkotter adds.

The company sees opportunities in general building, such as the twin- tower complex it completed in Abu Dhabi in 1998 for Zadco and Gasco, but recognises this is best done with local partners. In addition to its representative offices in Abu Dhabi, Ankara and Riyadh, Holzmann owns 49 per cent of Dubai-based Overseas AST and has a range of other local alliances around the region. Lutkestratkotter says that plans are being developed to bring greater coherence and effectiveness to the regional effort, both by bringing individual units under one roof and enhancing co-operation between the infrastructure and general building arms of the business.

Infrastructure is a key area in which the company believes it can offer a competitive edge. Says Lutkestratkotter: 'It's a technology, know-how driven business. We have good expertise here in Germany and it's a valid export service.' Despite the upheaval in the group he says that the expertise has been retained. Indeed, it is the proudest claim of the company that it is known for its ability to master complex larger projects. It says it has the resources to provide both management capabilities and technical skills, and to combine them successfully.

A current example is the Birecik dam project in Turkey. The scheme is the first large privately financed power project to be built in Turkey, using the build, operate, transfer (BOT) model. Holzmann is the leader of the civil works joint venture that constitutes the construction consortium and a partner in the private company that is building and will subsequently operate the completed project. The construction project alone involves the building of a 2-kilometre earth dam, a concrete dam, spillways, intakes and a powerhouse for672 MW of installed generating capacity. 'This will be the first hydropower project in decades to be completed ahead of schedule and below budget,' says Lutkestratkotter.

Holzmann has experience of developing privately operated infrastructure in the US and Europe but the Birecik hydro project is its most noteworthy venture of this type in a developing country. As private finance initiatives become more common in the Middle East, Holzmann naturally hopes that its experience will give it a headstart over potential rivals. In-house pursuit of such projects has been the activity of Philipp Holzmann Anlagen, which identifies prospects and supplies start-up capital. The Holzmann stake in these projects is later sold on financial markets, releasing capital for new ones to be undertaken. 'There is a board decision to strengthen the capabilities of Philipp Holzmann Anlagen,' says Lutkestratkotter. 'This is definitely an expertise we can offer to Middle East clients.'

Back on the stage

He brushes aside suggestions that Holzmann, diminished by its recent difficulties, will be seeking a major international partner or buyer in the near future. 'There has been a lot of over interpretation in the press, a lot of speculation. There are many changes going on in the industry. What we want to say is that Holzmann is back on the stage and we have a solid balance sheet. Maybe there will be a time when we talk about co- operation on a larger scale but it is much too early to say.'

Closer associations with other companies to pursue Middle East projects is certainly on the agenda. A current example of such co-operation is the group that Holzmann is leading for a new dam and hydro-power scheme at Naga Hammadi in Egypt, where it is teamed with Necso of Spain and two local contractors, AIC and Mokhtar Ibrahim.

In returning its attention to the Middle East, the German giant is keen to emphasise that it never left. In Saudi Arabia, for example, it has not built a major new project for years but it has continued to offer management services and do operations and maintenance work. The legacy of past projects and positive relations with Middle East customers should also bring certain advantages. 'The Middle East honours a great name,' says Lutkestratkotter. 'Holzmann is a great name in the area. And it honours ties with its clients in the region.' Holzmann is not resting on its laurels, however, and knows that the proof of its new strategy lies in delivering new deals, not revelling in past glories.