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Interserve chief urges Osborne to 'get people digging holes' and suggests Balfour Beatty's Workplace not a target

Interserve’s chief executive has urged government to get “people digging holes” at what he says is the most cost-effective time to buy construction services.

Adrian Ringrose also told CN that his company is looking to acquire primarily to enter new markets, which suggests his support services and construction firm would not be looking at Balfour Beatty’s FM division Workplace, if it is sold.

Speaking about government efforts to stimulate construction, Mr Ringrose said “all we need is people digging holes and putting bricks on each other”, rather than a National Infrastructure Plan that recycles schemes such as High Speed 2.

“Now is a very cost effective time to be buying construction services, you get a lot for your buck,” he said.

“Now is a very cost effective time to be buying construction services, you get a lot for your buck”

“Operationally we are bigger than we were a year ago because people are getting more for their money, we are actually delivering more, but financially we are flat.”

Interserve reported a rise in revenues from £1,847.5m to £1,958.4m for 2012, while profit before tax increased from £67.1m to £182.9m.

UK construction revenue was up slightly to £737.2m (2011: £731.1m) as operating profit fell 19 per cent to £14.6m (2011: £18m), returning a 2 per cent margin, down from 2.5 per cent.

Mr Ringrose said the company will be in the right place to grow when the market improves. He said a 1.5 to 2 per cent margin is in line with expectations and means his company is “doing what it says on the tin”.

“It’s particularly reassuring in this market, because there are a lot of people out there not doing what it says on the tin.”

He added: “We are trying to hold our shape, we are not retrenching into the market place, and we are doing that by servicing our existing sectors as much as we can.

“While we are standing still financially, we are working very hard to achieve that result.”

Mr Ringrose said his business is structured to weather the climate.

“In previous recessions you have seen people close offices and retrench and do everything from the centre, but construction is actually a very localised industry; it buys locally, works with the local supply chain and the fact we have maintained our local presence across the UK for a number of years now brings with it some loyalty from customers.

“Clearly if we are here in three years’ time and it’s still the same market, we might have to do something different.”

Mr Ringrose said they are pulling cash in rather than letting it out, with a 3-year rolling cash conversion of 117 per cent.

After reporting a debt of £44.2m in 2011, Interserve now has net cash of £25.8n. The company sold the majority of its PFI assets in 2012.

“Cash is the lifeblood of our business; our investors and people only believe profits if they can see the cash.”

“Cash is the lifeblood of our business; our investors and people only believe profits if they can see the cash.”

Asked whether clients’ revision of payment terms are having an effect, he said: “You get erratic behavior obviously and you know some of it is just not good behavior.

“But a lot of the reasons things slip is because the paperwork is not right and people have not helped the customer get the clearance right.”

Mr Ringrose said that means contractors making sure they are efficient and helping the client.

Interserve realised £174m from its PFI portfolio, injecting £67m into acquisitions and £55m towards its pension deficit. Mr Ringrose said a lot of the company’s growth is organic, which requires cash, as well as acquisitive.

The group has £245m in loan facilities after securing a refinancing, and £25m in cash.

Asked if Interserve might be interested in Balfour Beatty’s Workplace division, which the UK’s biggest contractor said is under review, Mr Ringrose said he could not comment on individual cases.

But he said the firm would be looking at acquisitions that take the company into new markets, which have included front line services in the UK and international growth.

“We are likely to want to make further acquisitions but our start point for M&A is only buy it if you can’t grow it.

“We are likely to want to make further acquisitions but our start point for M&A is only buy it if you can’t grow it.”

“I would not be looking in the first instance at bulking up more of the same-type acquisitions.”

He added: “It’s probably unlikely we would buy extra construction capacity because we can get that in the market place with contracts.”

Interserve now has two PFI assets, comprising the operational Addiewell Prison and under-construction West Yorkshire Police scheme.

It is also preferred bidder on Alder Hey Hospital and is in the final two with Carillion for the Royal Liverpool Hospital.

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