Construction arm drives Carillion profit growth

Aaron Morby 12 years ago
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Carillion’s main construction division delivered all the profit growth at the group in the first half of the year, despite being scaled down.

The construction division’s decision to keep out of the scrum for cut-price work raised operating margins to an industry-beating 4.1%.

Its selective bidding strategy saw operating profits soar 69% to £26m, although turnover fell a third to just £632m.

Construction’s contribution helped to lift underlying group profits by 8% to £81m on turnover down 12% at 2.12bn in the first half of 2012.

Main contract wins this year included a £45m contract for the Highways Agency to upgrade the A23 between Handcross and Warninglid, a £45m contract to reconfigure Pier 5 at Gatwick Airport, a £42m contract for Argent in Manchester and Academy Schools contracts worth over £40m.

Construction orders and probable orders are slightly down on last year at £2bn, with 90% of 2012 targeted revenue secured.

The pipeline of contract opportunities remains surprisingly steady in the current economic climate at an estimated £8.3bn.

Carillion trading by division

Support services: profit £48.8m, up 7%; turnover £1,058m, up 6%
Public Private Partnership projects: profit £7.3m, down 17%; £143m, up 3%
Middle East construction services: £13.6m, down 27%; turnover £202m, down 21%
Construction services (excluding the Middle East): profit 25.9m, up 69%, £632m, down 34%

Carillion Chairman, Philip Rogerson, said: “Carillion delivered a robust first-half performance, despite market conditions remaining challenging.

“Given the strength of our business model, order book and pipeline of contract opportunities, we remain on track to deliver our medium-term targets, namely to deliver growth in support services and to double our annual revenues in the Middle East and in Canada in the five-year period to 2015, in each case to around £1 billion.”

Carillion said that the integration of Carillion Energy Services, which saw a wave of redundancies, was largely complete and on track to deliver integration cost savings of £25m per annum by the end of 2013.

Revenue in support services increased by 6%, helped by the full first-half contribution from Carillion Energy Services bought in April 2011.

Underlying operating profit rose 7%, with the first-half operating margin maintained at 4.1%.

Carillion said the value of support services’ order book and probable orders remained strong at £12.9bn, in line with last year.

Rogerson said Carillion was eagerly awaiting the final outcome of the Government’s review of the current PFI model.

He said this would be key to delivering the Government’s £250bn National Infrastructure Plan, as some two thirds of this plan is to be privately financed.

“We therefore welcomed the Government’s recent announcement of the ‘UK Guarantees Scheme’, aimed at accelerating infrastructure projects by providing guarantees to lenders of project finance, alongside a temporary lending programme under which Government itself will provide debt finance for projects.”

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