Neville Simms, Tarmac chief executive, said the group had moved increasingly towards building up a road and rail maintenance business to cope with the decline in new road building and the increasing emphasis on public transport.
"Maintenance work will be a key factor in profitability growth in future. It should account for pounds 500m of our turnover this year after around pounds 400m in 1997. It's a higher margin business and lower risk," he said
Mr Simms said he was optimistic for 1998 and beyond, despite what he called "a little bit of nervousness" about the Government's roads policy.
His comments came as Tarmac announced higher-than-expected annual results and said it was on course for more growth on the back of buoyant markets in Britain, the US and continental Europe.
"1997 was a year of considerable further progress. This year has started well and I am confident that, whatever uncertainties lie ahead for the British economy, our strategic direction and clear objectives will deliver an improved performance in 1998 and beyond," he said.
Tarmac, one of the leading road developers and now building a rail maintenance business, raised pre-tax profit by 59 per cent last year to pounds 120.2m on a 4 per cent rise in sales to pounds 2.77bn. The total dividend was raised to 5.65p from 5.5p previously.
The profit figure outstripped market expectations by around pounds 4m while the dividend was marginally higher than forecast.
"January and February have been relatively kind months. More importantly, we've started to put price increases into the market and we hope they will stick this year as they have done pretty well for the last four or five years," Mr Simms said.
He said the construction market continued to improve while medium-term growth prospects for the US were favourable and steady growth was likely to continue in continental Europe.
He attributed Tarmac's profit rise to improved operating performance, cost-cutting and the industry's rationalisation.
The company was likely to take on more workers this year in what he called a benign, sustainable market.
Tarmac said its heavy building materials division, which accounts for slightly more than 40 per cent of group turnover, saw operating profit rise almost 20 per cent to pounds 141.6m on a 6 per cent sales rise to pounds 1.19bn.