Carillion construction profits surge as turnover drops

Aaron Morby 10 years ago

Carillion’s construction turnover has dropped 10% in line with management plans to be selective with bidding in the downturn.

The move to rescale the construction business and be selective about work opportunities helped to lift construction margins from 1.1% to 1.6%.

As a result operating profit at the division, which excludes Middle East operations but encompasses work in Canada, jumped 26% to £15.3m on turnover of £950m.

Group-wide underlying pre-tax profit rose 10% to £72m on turnover marginally down at £2.5bn, which equated to an uplift in margins from 3.1% to 3.3%.

However, including one-off acquisition costs of £28m for environmental services firm Eaga, the company saw reported pre-tax profits drop by 35% to £38m.

Carillion also announced chief executive John McDonough would retire at the end of the year to be replaced by Richard Howson who is currently chief operating officer.

Carillion said that for the year ahead, its order book plus probable orders was currently worth £19.4bn. Its pipeline of contract opportunities was up 25% to £32bn, said the company, which includes “major public sector outsourcing opportunities”.

Carillion chairman, Philip Rogerson, said: “I am pleased to report that Carillion performed strongly in the first half of 2011, despite market conditions remaining challenging, particularly in the UK.

“The group’s strong track record of profitable growth continues to reflect its well-balanced and resilient UK and international business mix and good revenue visibility.”

He added: “Furthermore, with strong market positions and a record pipeline of contract opportunities, the group continues to target strong international growth and substantial growth in UK support services over the medium term.”

    Trading division performance

  • Construction services: turnover £950m (-10%); profit £15.3m (+26%); margin 4.1% (3.9%)
  • Support services: turnover £1.1bn (-1%); profit £45.6m (+6%); margin 1.6% (1.1%)
  • Middle East: turnover £254m (+40%); profit £18.7m (+21%); margin 7.4% (8.5%)
  • Public private partnerships: £139m (-10%); profit £8.8m (-40%)

Construction Services, excluding Middle East
In the second half of 2011, revenue expected to reduce further as Carillion continues to re-scale
UK capability.

In 2011 Carillion expects to see a further improvement in the full-year operating margin, which was 1.9% in 2010, and to deliver growth in operating profit, despite the expected reduction in overall revenue.

Forward order book stands at £2.3bn (31 December 2010: £2.8bn)

Support services
Currently shortlisted for a number of major, complex outsourcing contracts for central and local Government, notably for Edinburgh City Council, Sheffield City Council, Oxfordshire County Council and the Ministry of Defence, which together are worth approximately £3bn.

Carillion is also preferred bidder position for highways maintenance work in Canada worth some £200m over 11 years and preferred bidder positions for facilities management contracts for UK local authorities worth £50m over four years.

Middle East construction services
Margins are expected ease back from 7.4% to around 6% by 2013, as all contracts in the region are now competitively tendered rather than negotiated.

Targeting major infrastructure investment programmes, notably in Abu Dhabi, Oman and Qatar.

Carillion expects private finance to play a significant role in delivering the UK Government’s £200bn five-year National Infrastructure Plan, despite Treasury concerns about PFI value for money.

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