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Rick Willmott, chief executive of contractor Willmott Dixon, had a lot to smile about this week, but warned that the company would have to make inroads in PFI for future growth.

Despite reporting strong annual results on Monday, Willmott said the company would have to make changes if it was to continue to prosper. Although Willmott Dixon has ignored PFI in the past, Willmott now sees it as the firm鈥檚 main challenge and has started to look at how it will enter the market.

He said: 鈥淭here is a continual drift to PFI, which we have to address because we have no experience, although we are now involved in two health service LIFT projects, which are similar.鈥�

Meanwhile, the annual results revealed that Willmott Dixon made a double-digit profit for the first time last year. Pre-tax profit hit 拢10.1m, a 58% increase on 2003, for the year to 31 December 2004. Turnover rose 24% to 拢410m.

There was further good news for Willmott following the demerger of Inspace, the company鈥檚 support services business, which is to be floated on the alternative investment market later this month, valued at 拢85m. Willmott refused to comment on how much the Willmott and Dixon families are set to make from the Inspace float.

Willmott took over as chief executive at the end of last year, swapping roles with Colin Enticknap who became chairman of Willmott Dixon and chief executive at Inspace.

He describes the fact that the company was founded by his family in 1852 as 鈥渉ugely important to me鈥� and suggests that it is the company鈥檚 roots, and not the money, that are the motivating factor.

Two hundred and fifty of the company鈥檚 1650 staff were eligible to attend its 10-year club dinner in London, which was due to take place on Thursday, which he says demonstrates the loyalty of staff.

But of course, it is the financial performance of the company that is pivotal to its future. With 拢200m turnover in 2004, it is construction that remains the biggest part of that business. Despite the shadow cast over the industry by recent losses incurred by contractors including Mowlem, Alfred McAlpine, Gleeson and Kajima, Willmott says he is not concerned.

We have a lot of eggs in a lot of baskets, and we don鈥檛 do the big 拢50-拢100m deals

Rick Willmott

He said: 鈥淲e have a lot of eggs in a lot of baskets and don鈥檛 do the big 拢50-拢100m contracts. Our average contract is below 拢10m, which gives us scope for one or two disaster projects a year.鈥�

The 2004 results were mainly driven by work in the education sector, boosted by government spending. A decrease in government spending could therefore hit Willmott鈥檚 balance sheet. Despite the fact that industry surveys, including those published by the Construction Products Association and research company Experian, have forecast a slowing in the growth of government spending, Willmott said that he did not intend to decrease the firm鈥檚 exposure to government work in the next four years.

鈥淲e hope that there will be a continued spend in the public sector, but if that stopped we鈥檇 have to dabble again in the commercial market,鈥� says Willmott.

鈥淎t the moment though, the government has made an open commitment to health, education and social housing, so we cannot see in the short-term a radical change to government spending.鈥�

However, he concedes that in order to adapt to the market, there will be a 鈥減rogressive shift back to the corporate sector,鈥� but not within the next four years.

The firm is made up of three divisions, since the demerger from Inspace. They are: construction (the biggest), social housing and development. Willmott said construction margins reached 2.5% last year, which he described as as 鈥済ood as you鈥檒l get in construction鈥�.

The plan for next year is to make a 2% profit on a turnover of 拢350m, taking into account the loss of Inspace鈥檚 拢105m turnover.