Interserve is targeting jobs at the ‘need to have’ rather than the ‘nice to have’ end of the market to protect itself and boost growth, its chief executive has told Construction News.
Speaking after Interserve posted record revenue growth in its first-half results, Adrian Ringrose said the firm was “growing in UK construction and more than holding [its] own,” while looking forward to a “better next few years”.
He said: “We don’t go after the big trophy jobs; we go for medium-sized and quick-to-execute jobs. We are at the ‘need to have’ rather than ‘nice to have’ end of the market.
“We run our business pretty conservatively but have been adventurous at getting into the energy-from-waste (EfW) market… and we have pushed the boundaries into fit-out.”
Construction News revealed this week that Interserve was top of the pile when it came to employing SMEs on central government contracts, and Mr Ringrose said it would continue to protect its supply chain.
“We are not a charity but in order to get work done we need to have a supply chain there to work with us,” he said.
“We are no pushover but we work in a straightforward way and pay people on time as part of that deal. Not everyone in the industry takes the same approach to life but we like to treat people as we would like to be treated ourselves.”
On its increased focus on the EfW market, where it earlier this year won a £60m deal as part of a joint venture to build a plant for Viridor in Peterborough, he said that Interserve had been looking at the sector for a number of years rather than it being “a reactive process”, and that it had built its position in a sector where others do not have the capability.
He also pointed to its Magnox FM deal, awarded this year, as an example of a client seeking multiple services from different parts of the business, having previously been awarded construction work with the same client.
Landmarc Support Services (in which Interserve owns a 51 per cent share alongside Pacific Architects & Engineers) was awarded a £110m contract extension until July 2014, with the option to extend for up to a further six months, to continue to support the Defence Infrastructure Organisation to manage military training facilities across the MoD’s 160,000 hectares of built and rural UK training estate.
Mr Ringrose said the industry was still “fairly fragile” but that there was “a warmer feeling” in London’s commercial sector.
Regarding margins, he said he expected the 1.9 per cent announced in the half-year results in construction to remain at that level for a while. He added that over the last 20 years, 2 per cent would have been a rough average margin for the period.
He said margins “probably peaked at just over 3 per cent” before the recession and had been “down around 1 per cent” in the early 1990s.
Mr Ringrose expected more competition in the market in the coming years because “the barriers to entry are so low”.
But he said that while conditions were difficult, Interserve was protecting itself against the high level of competition by targeting jobs where clients wanted a “proven track record of competency”.
On the threat of rising subcontractor costs on fixed-price work, where “most of the risk comes”, he said Interserve was targeting frameworks (currently accounting for around 80 per cent of its work), where there is more flexibility on pricing.
On Kier and May Gurney’s merger, he said it came as no surprise as Kier had wanted to expand its support services offering but said that although their paths might cross more, the deal had “not added capacity to the market”.
Mr Ringrose declined to comment on any of Interserve’s planned merger and acquisition targets. Analyst Joe Brent at Liberum Capital said there was “scope for earnings enhancing acquisitions”. LIberum said Interserve was “diversified, strong and its order book growth and strong cash generation in 2012 separate it from the pack”.