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A year ago this month, a new 拢1bn-turnover contracting giant was formed from the merger of social housing builders Apollo and Keepmoat.

The merger wasn鈥檛 made in the most ideal of circumstances. Beforehand, both businesses were, through no fault of their own, suffocating under a 拢700m combined pile of debt taken on before the recession to finance their respective management buyouts - a situation the deal did little to alleviate. So despite the management鈥檚 rhetoric of growth, it wasn鈥檛 much of a surprise that the first act of the merged body - which has taken the Keepmoat name - was to make more than 200 staff redundant. Then just six months later the manbrought in to lead the merged business, former Taylor Wimpey director Ian Sutcliffe, left without explanation, one of 10 directors to depart both businesses in 2012.

Despite this troubled year, the man to take over from Sutcliffe, former Apollo chief executive Dave Sheridan, seems to have a spring in his step. The reason? A refinancing in October 2012 that saw Lloyds Banking Group swap 拢348m of the debt pile for a majority stake in the business, more than halving its interest payments. With the major restructuring over and this new financial settlement, Sheridan says the company is finally able to start looking forward again. 鈥淭he business has been through tremendous change.

With the clarity around the regional structures now people can see where they fit - there are no longer people turning up with redundancy slips, there are people turning up talking about what work they鈥檙e going to win, where we鈥檙e going to go next, and investing in bid teams to go and chase work. The biggest success is seeing smiling faces around theoffice.鈥�

Nevertheless, a firm that gets 98% of its business from the public sector clearly still has serious challenges in the continuing climate of austerity. So what is Sheridan鈥檚 vision for the future of the business? And how will he approach the issue of underbidding that has dogged contractors in the social housing world for so long?

In the genes

Given the recent history of social housing contracting, you couldn鈥檛 blame Sheridan were he to look elsewhere for work - the sector has been subject to three of construction鈥檚 biggest corporate failures, in Connaught, Rok and Kinetics, and deep public funding cuts by the government, which ultimately pays for much of the work. But the former QS, brought up on a social housing estate in Middlesbrough, is having none of it: 鈥淚鈥檓 having fun, so long may it continue. Communities and people are what drives me, I get my energy from people. I鈥檝e been in social housing for longer than I can remember now. It鈥檚 in my DNA.鈥�

Sheridan, who was initially made managing director of the northern business after the Keepmoat-Apollo merger, could be thought of as doubly lucky to be in the top job: as well as benefitting from Sutcliffe鈥檚 shock departure, he had only become chief executive of 拢300m-turnover Apollo after the premature exit of that firm鈥檚 chief executive Rob McGregor in 2009. At just 50, it has been a dizzying rise to the top for the former Kier building maintenance northern managing director. One industry source from a competitor organisation says: 鈥淓veryone knows this is a big job for Dave, but he鈥檚 got a lot of respect from the workforce and is a decent bloke. Since his arrival, Keepmoat鈥檚 reputation has been on the rise.鈥�

There are no longer people turning up with redundancy slips, people are turning up talking about work they鈥檙e going to win

If last year鈥檚 refinancing was an ordeal, it at least gave Keepmoat a balance sheet that allowed it to be more candid about the value of its business: the accounts of its holding company, Lakeside 1, show the refinancing was possible only after a 拢340m write-off of the estimated value of the merged companies. With the departure of Sutcliffe, who one source suggests was more interested in change management and deal-making than the nitty-gritty of running a social housing contractor, went also the 鈥渨ildly optimistic鈥� - in Sheridan鈥檚 words - predictions of a doubling of turnover in five years. In came a 鈥渟ensible, gradual鈥� growth plan agreed at the refinancing. Sheridan says: 鈥淲e took a reality check. Our clients are grounded in reality, they鈥檙e having to face challenging decisions every day. For us to go and sing a song of blue skies and rainbows would be wrong.

鈥淎t the time [of the merger], Ian was quite correct to be ambitious for the business, but I don鈥檛 think the government cuts were fully understood, and I think the mechanics of puttingtwo businesses together - there were a few more complications than were foreseen.鈥�

If Sheridan knows why Sutcliffe left, he鈥檚 not saying. 鈥淚 think Ian achieved two primary goals, which were the refinancing and the merger of the business. He can be proud of what he achieved. Like all these things there probably is a story there but I鈥檝e never bothered myself with it. If I did you start becoming a gossip-monger, which is definitely not the business I鈥檓 in.鈥�

Where鈥檚 the growth?

So now he鈥檚 in charge, what is Sheridan鈥檚 vision? Keepmoat鈥檚 core business, he says, will remain in major refurbishment work to social housing - business that made up about 60% of its 拢1.04bn turnover in 2012. However, he admits that, with the ending of the Decent Homes programme, workloads will reduce. 鈥淚t鈥檚 about consolidation in that sector,鈥� he says.

Growth, Sheridan says, will principally come from three areas: first, responsive maintenance, where Keepmoat鈥檚 work has already risen from 拢7m to 拢35m annually and ispredicted to reach 拢50m next year; second, social housing new build, particularly in the south of the UK; third, in providing facilities for care for elderly people.

Sheridan says growth in both the new build and refurbishment market will require Keepmoat itself to stimulate opportunities by offering innovative financing arrangements to local authorities that have big ambitions and surplus development land, but limited cash. It is also looking to grow - 鈥渁t a sensible incremental rate鈥� - its private sale housing business, so far targeted mainly at first-time buyers in the north.

Sheridan is targeting work on eco-refits under the Green Deal and Energy Company Obligation (ECO) schemes, but sees this largely as a route to stabilising the contraction in its core planned maintenance market rather than a huge growth area in itself. Keepmoat is seen as one of the leading contractors in the Green Deal space, but Sheridan admits it is not yet clear how big a boost this will provide.

We took a reality check 鈥� For us to go and sing a song of blue skies and rainbows would be wrong

This scepticism may have something to with Keepmoat鈥檚 experience with another green market, photovoltaic installations. Last year鈥檚 accounts show it had to write off a 拢400,000 investment because of the government鈥檚 abrupt policy U-turn on feed-in tariffs (FIT). 鈥淭he FIT thing could have been handled better. It probably means we鈥檙e more cautious about what we get into, and it has made all of the sector and all of the investors more cautious.鈥�

The education market is also, clearly not one where Sheridan foresees growth. While he rejects the notion Keepmoat will exit it altogether, there is no desire to focus on this work, despite Apollo winning a place on the Department for Education鈥檚 contractors鈥� framework before the merger. 鈥淲e鈥檙e not going to spend millions on bidding work fighting over scraps. There鈥檚 others better placed to do that, and to be frank, for one of the schools we walked away from last year, to do it at the margin we were requested to do it [just] wasn鈥檛 worth it.鈥�

All in all, Keepmoat鈥檚 new realism means that it is now predicting turnover to fall in its 2013 accounts (to 31 March) to 拢950m - below the iconic 拢1bn figure that was so heavily trailed as part of the merger discussion - and remain at much the same level in 2014. Much more important, though, is the fact that the refinance means Keepmoat will be able to show its first pre-tax profit, taking account of interest payments, since the merger and, 鈥渇or a long time鈥� before that as separate companies. It gives the firm a larger 拢125m revolving credit facility, giving it cash to operate. 鈥淭here鈥檚 sensible interest repayments [now] - giving us significant cash headroom,鈥� says Sheridan. 鈥淲e鈥檙e in good shape. We鈥檙e now hiring people. People talk about people leaving the business - I鈥檇 rather focus on people moving in who are going to facilitate the new Keepmoat moving forward.鈥�

Taking it on the chin

Keepmoat鈥檚 return to profit will, however, come at a time in which underbidding, particularly in the social housing world, remains very high on the agenda. Last month Mears chose to walk away from contracts entered into by its recently purchased subsidiary Morrison because of uneconomic margins. And Keepmoat itself revealed in its 2012 accounts that it wrote down 拢17m against losses on design-and-build contracts in the West Midlands.

What happened, and how will Sheridan ensure nothing similar happens again? 鈥淚t was a combination of events: an untried delivery team and some aggressive pricing,鈥� he says. 鈥淸Since then] we鈥檝e done what Keepmoat does best and traded through the issue rather than run away [from the contracts]. I鈥檇 like to think that one of the good values of the business is we solve our issues in partnership with our clients.鈥�

Sheridan says he has reinforced the company鈥檚 commercial processes and invested in an IT platform which ensures any contracts above a certain risk rating get flagged to the main board for approval. 鈥淚 think in the past there was some delegated authority for people to do things that maybe they shouldn鈥檛 have done. We鈥檝e moved on. We鈥檙e confident with the new management team in place, and the new controls we鈥檝e got in place.鈥�

He is also optimistic that general consolidation in the market, including the purchase of Morrison by Mears, means that the problem will diminish. 鈥淭here are very few people bidding below cost any more,鈥� he says. 鈥淢ears is a good business, so we think the Mears and Morrison consolidation is good for us. One, it鈥檒l open up some space in the market. Two, it鈥檒l bring some sensibility [sic] to a player who was maybe looking for market share for other reasons rather than business development.鈥�

Which is another small reason for optimism. Like nearly all of the construction firms bought at the height of the market with the backing of the Bank of Scotland, including housebuilder Crest Nicholson, both Keepmoat and Apollo were left struggling with the after-effects. But, as with Crest Nicholson - which last month floated successfully on the stock exchange - for Keepmoat it feels like, finally, a corner may have been turned.