Interserve will target lower-value work following poor performance from its construction business in 2016.
Chief executive Adrian Ringrose said the firm’s construction business was not “in the place we want it to be” and the firm would now be adopting a “margin quality over volume approach” when it came to tendering for future projects.
As part of the new approach, the company will be looking to focus more on construction jobs with a value of £10m and under. It said this would lead to reduced revenue in the division.
The announcement came as the company’s construction arm posted operating losses of £3.1m for the year ending 31 December 2016, following on from a £10.7m profit in the prior year.
This was aside from the £160m exceptional charge incurred from its much-reported problem contracts in the energy-from-waste sector.
Speaking to investors, Mr Ringrose said this morning: “Construction in the UK is not in the place we want it to be, partly from market forces, partly from the EfW problems.”
The chief executive – who has announced plans to leave the company this year – said there had been a series of management and procedural changes throughout the construction business in a shake-up of approach.
These changes include the hiring of former Colt Technologies director Jonathan Dawson as director of transformation for construction last month.
The company has also brought in former ISG finance lead Mark Goldsworthy as its construction finance director, while former director of operations for Balfour Beatty’s London division, Jeremy James, has become its director of strategic projects.
Mr Ringrose said the changes would also see the company take on a new approach, focusing on lower-risk and lower-value projects involving “pretty modest” contracts in its core market areas.
A company spokesman said this would mean focusing on securing places on major frameworks and work in the schools, hospitals and prisons markets, with an emphasis on projects below £10m.
He added that the company had also implemented tighter processes when it came to risk-profiling on construction contracts.
The spokesman admitted the changes would see the company’s construction arm shrink, with construction revenue expected to fall over the coming years.
He added that Interserve’s trend of not directly employing its workforce meant that it was easier to move up and down in terms of revenue targets, without this leading to job losses.
Mr Ringrose said current market conditions would support the company’s focus on lower-risk projects.
Currently UK construction makes up 11 per cent of Interserve’s overall turnover, with services representing 53 per cent of revenue and its equipment services making up 32 per cent.
Mr Ringrose said that operating losses in construction were partly down to a handful of legacy contracts signed two to three years ago.
He said the problems in the construction business were not systemic and that the company was working towards finding a resolution for disputes on a number of contracts.
He added that some parts of the firm’s construction business, including its infrastructure arm and a number of its regional businesses, were performing satisfactorily.
While the UK construction arm suffered, the company’s results were boosted by strong performances in its equipment arm, RMD Kwikform, and its international construction business.
RMD Kwikform saw its profit hit £48.6m, up 9 per cent on the previous year, while international construction profit hit £16.9m, up 30 per cent.