The company confirmed it was on course to improve margins in a trading statement to the Stock Exchange today ahead of preliminary results next March.

Carillion is on track with its strategy to reduce its UK construction business from a turnover of £1.8bn to £1.2bn within the next three years.

The company said: “Taking a selective approach to UK construction is helping to support margins in this segment by enabling us to avoid bidding for lower margin work, as market conditions become more competitive as a result of the UK Government’s decision to reduce capital investment in real terms by around one third over the next four years.”

Carillion is continuing to focus on support services where turnover has also dropped but the firm is concentrating on higher margin business.

The firm said: “We expect to improve our operating margin and achieve our target margin of five per cent.”

Carillion has its largest ever pipeline of contract opportunities as local authorities look to outsource more work as spending cuts bite.

The statement said: “We therefore expect to make progress in 2011 and continue to expect the benefits of increased public sector outsourcing to come through towards the end of 2011, leading to substantial growth in 2012 and beyond.”