Firm to concentrate on framework deals and repeat business in ‘very competitive’ construction market

ISG’s boss has said the firm does not expect to improve its construction margin of 0.2% over the next year.

Speaking to Building as ISG posted results for the six months to 31 December 2012, chief executive David Lawther (pictured) said construction remained “a very, very competitive market” and the firm was now focusing on repeat customers and frameworks.

“It’s not a marketplace where we want to compete in open market tendering,” he said.

In its results, ISG Group reported revenue of £659m, up 6% on the same period in 2011, generating pre-tax profit of £2.2m, down 1% on 2011.

The construction business posted revenue of £280m, up 18% on 2011 - a rise the firm attributed to its London Olympics overlay work - but with an operating profit of just £700,000, up from a £518,000 loss for the same period in 2011, with an operating margin of 0.2%.

Lawther said the firm was now reorganising its East England construction business, following a restructure of its South-west division last year.

He said this would involve redundancies, but declined to give a figure, and said some staff would be transferred to other parts of the business. “We’re flexing the size of the business to the market demand,” he said.

But he said he did not expect the 0.2% margin to improve in this financial year. “We would clearly look to move it up from that figure, but the sector as a whole remains very competitive,” he said.

“We’re clearly trying to run the operation on the basis that it makes some money. But you can’t just turn off taps - projects have to be finished, you need to keep people committed, there is always a lag even if you are downsizing the business.”

Asked if the low margins were a consequence of bidding at or below cost, Lawther said: “We go into projects on the basis of how we can make money - we’re not interested in being there on the basis of simply generating turnover.

“There’s no such thing as underbidding - you don’t know what the market is when you bid. We go in to make money, but that does not necessarily mean we end up making money and clearly in this market the terms and the forms of contract you take on board are as relevant as the entry price.”

Lawther said that the firm’s exit from its £100m data centre contractor for Santander will not impact on its push into the data centre market, which the firm has identified as a key growth area.

As Building reported last week, ISG exited its £100m plus data centre job for Spanish bank Santander earlier this month, with project manager Mace taking over on the site in Leicestershire. Sources on the project told Building the job was running behind schedule and that ISG’s departure from the project at this point was unexpected under ISG’s original contract.

Lawther declined to comment directly on the Santander job, other than to refer to a joint-statement issued by ISG and Santander last week, which said ISG had “completed its element of the project and it has now been handed back to Santander for the IT-related installation”.

Asked if ISG had completed the scope of its original contract on the Santander project, Lawther said: “You have statements from us and Santander”.

But he added that data centres remained a growth market for ISG and the firm was “continuing to win data centre jobs as we speak”. “We are currently working on six to seven different data centres - it continues to be a growing market place for us,” he said.

ISG: Results for six months to 31 December 2012

ISG Group

  • Revenue: £659m (up 6% on the same period in 2011)
  • Pre-tax profit: £2.2m (down 1%)

UK construction

  • Revenue: £280m (up 18%)
  • Operating profit: £700,000 (2011: -£518,000)
  • Operating margin: 0.2%

UK fit-out

  • Revenue: £119m (up 29%)
  • Operating profit: £2m (down 13%)
  • Operating margin: 1.7%