Carillion UK construction margin to stabilise at 3%

Aaron Morby 12 months ago
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Carillion loosened the reins to deliver growth across its main operating divisions last year helping to lift revenue 13% to £4.6bn.

A strong performance from the construction group’s PPP investments combined with general revenue growth helped to drive pre-tax profits ahead 9% to £155m.

The construction division, excluding Middle East activities, was the only part of the business to show a small slide in profits, down to £38m from £42m in the previous year, as operating margin slipped from from 3.8% to 3%.

Carillion said that the benefits to profit from rescaling UK construction activities several years ago had largely ended .

The firm is now forecasting that its UK construction margins will stabilise at 2.5%-3%.

“We believe our selective approach to choosing the contracts for which we bid, together with our ongoing cost reduction programmes and efficient operating model, will not only enable us to maintain the margin within this range, but at a level above the industry average,” said the firm this morning.

The total value of new orders and probable orders won in 2015  slipped back from £5.7bn in 2014 to £3.7bn after a hiatus in major public sector contract awards caused by the UK General Election in May 2015.

Carillion trading divisions
Op profit % change Turnover % change
Support services £146.6m +8 £2.53bn +9
PPP projects £49.3m +43 £192m +19
Middle East Construction £25.3m +1 £602m +20
Construction exc Mid East £37.8m -9 £1.26bn +16

UK construction revenue increased to some £1.1bn (2014: £0.9bn), which more than offset the planned reduction in construction revenue in Canada, where Carillion has turned away from traditional construction to focus on construction work secured through winning Public Private Partnership contracts

Announcing strong group results in 2015, Carillion chairman, Philip Green, said: “Our performance in 2015 reflects the benefits of our consistent and successful strategy, which enabled us to rescale and reposition our business during the economic downturn in order to take advantage of opportunities for growth as market conditions improve.

“Growth in revenue, underlying profit before taxation and earnings per share was primarily organic, following the successful mobilisation of a number of major new contracts, supplemented by two bolt-on acquisitions, the Rokstad Corporation and the Outland Group, which have significantly enhanced our support services business in Canada.

“With a strong, high-quality order book, a large and growing pipeline of contract opportunities and the financial strength to support our strategy for growth, the Group is well positioned to make further progress in 2016.”

Investment in business acquisitions and Public Private Partnership projects, together greater contract mobilisation saw average net borrowing rise by nearly £90m to £539m.

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