Tarmac chief executive Sir Neville Simms believed he had pared back his business enough when he swapped his housing arm for Wimpey’s minerals business in 1996.

But with Tarmac’s share price remaining well below what Sir Neville believes is its true value, he is now preparing a further streamlining of his business: “The need for focus, not just in construction but in industry generally, has sharpened and sharpened and sharpened,” he says.

Tarmac is weeks from sending shareholders a prospectus outlining its plans to split its £1.89bn turnover construction arm from its £1.27bn turnover materials business.

The materials arm made an operating profit of £150m in 1998, whereas the construction division posted only £41.7m. There is a school of thought that this difference in profitability could make it difficult for the construction arm to float on its own, and that it may be sold to an overseas buyer before then.

There is also talk that Sir Neville has “lost his way”, that he is still too close to his civil engineering roots to see the big picture, and that he has made some strange key appointments since the Wimpey deal.

But Sir Neville, who colleagues say has been upbeat since the demerger was confirmed in February, scoffs at criticism. Although he is responding to analysts wishes, he believes they should look harder at companies’ worth before pushing them into splitting up.

If the City won’t rate keeping the business together, it’s not my job to say “I’m right, I’m right, I’m right” … I have to turn every stone to lift shareholder value

In 1989, Tarmac had seven divisions – including an industrial products division that owned oil refineries and had a turnover of £493.5m – and a £74m turnover property arm. It was also making £183m operating profit from housing and £160m from construction and materials.

Sir Neville says: “It seems the City simply doesn’t want the difficulty of trying to analyse businesses that have different characteristics within one corporate entity.

“That’s why they say stupid things like ‘construction’s worth nothing’. The City just refuses to knuckle down and work out the maths. Tarmac is being down-rated in the City, there’s no question of that. But what’s unfair is irrelevant. If the City won’t rate keeping the businesses together, it’s not my job to say ‘I’m right, I’m right, I’m right’. I’m not Buster Beck [Mowlem’s autocratic former chief] or a McAlpine who owns the business. I’m a professional manager and I have to turn over every stone to lift shareholder value.” The demerged Tarmac Construction will have a new name to reflect what Sir Neville expects to be a new mix of workload. Facilities management and maintenance, much of it in rail, now account for 35% of the construction arm’s turnover; Sir Neville wants to see this rise to at least 50%.

But at the same time, he does not expect contracting orders to shrink, even though a very watchful eye will be kept on risky projects. He says no major part of the firm, including construction management arm Schal, is being lined up for disposal.

The new name, he says, has to be “aspirational” and “inspirational”, something that reflects a mixture of traditional contracting and longer-term deals.

The Tarmac Group includes the UK’s largest construction materials supplier, the largest private housebuilder and the largest building and civil engineering contractor. Its seven autonomous divisions operate within a rigorously decentralised group manageme

Tarmac 1989 annual report

The next big issue preoccupying Sir Neville is the new firm’s size. At Christmas, after the acrimonious breakdown of Tarmac’s proposed merger with Aggregate Industries, he was branded an arrogant, selfish egomaniac, someone who would not be prepared to lose his position in the industry.

Sir Neville says these accusations came from “[City PR firm] Financial Dynamics spin doctors when Aggregate Industries was trying to shaft us”. And he insists that he is happy to run a smaller company.

But is this not humiliating for a Bank of England governor and the £667 000-a-year former adviser to the Tory government? “The point about running big or small companies is an irrelevance. In the UK, people worry about that sort of thing, but I don’t. It just isn’t an issue.” Size may not matter to Sir Neville, but he is planning to ensure that the demerged firm is at the heart of any efforts to consolidate contractors in the UK and Europe.

He is convinced that British contractors are in danger of missing out on the world’s biggest infrastructure projects because they lack the muscle of a £5bn-a-year contractor.

Before a meeting with Aggregate Industries chief Peter Tom set the pair on their ill-fated engagement, Sir Neville had suggested a merger to many of his UK rivals.

The prospects are encouraging, founded on the strength and breadth of the economy’s need for all types of construction in the coming decade

Chairman Sir Eric Pountain, 1989 Annual Report

Amec was the most widely rumoured suitor, but Sir Neville says his talks with the firm were no more serious than discussions with some others, and conversations with rival executives continue.

He admires Balfour Beatty, Laing, Kvaerner and Amec, but Sir Neville is shifting his attention towards mainland Europe.

Having once believed that merging with a UK businesses was the only way forward, he now says: “I think that to go into Europe is a good way. I think there’s a chance of that – I’m not saying it has got to be UK and UK. I think there’s a very good chance that the first moves will be made into Continental Europe.” The City sees Swedish giant Skanska as a “towering presence”, overshadowing UK activity, because it is on the verge of making £1.5bn-plus from the sale of its cement and materials activities, and will be looking for acquisitions.

Asked whether Tarmac has had any talks with the firm, Sir Neville says: “I wouldn’t name any names. We’ve worked with Skanska in the past. It is a good contractor.” Rival executives don’t envy Sir Neville the task of splitting up Tarmac. There is a web of intercompany business and the firm has to recover the £718m it was owed at the end of 1998, including £197.1m it wants settled this year.

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