Carillion focuses on margins

In 2010 the company’s operating margin in support services was 5.2%, up from 4.9% in 2009, while in construction (excluding the Middle East) it was 1.9%, up from 1.4% in 2009.

Carillion said that the growth of public sector outsourcing had produced its largest ever pipeline of contract opportunities in support services, increasing from £5.5bn a year ago to £8.3bn now. In 2010

Focusing only on construction projects that offer a higher margin resulted in a planned reduction in UK construction turnover to £1,726m in 2010 (2009: £1,841m). The company strategy is to reduce this to £1.2bn over the next three years.

In contrast, it is planning to double its construction revenues in Canada over the same period, from 2010’s £500m to £1bn.

“The benefits of our selective approach together with an ongoing focus on efficiency and cost reduction are evident in our operating margin, which increased to 1.9% (2009: 1.4%), with operating profit rising by 33% to £41.2m,” the company said.    

“Tightening our already selective approach to UK construction is helping to support margins by enabling us to avoid bidding for lower margin work.  We believe this will become increasingly important, because market conditions are expected to 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.”   

New construction orders in 2010 included the £430m Southmead Hospital PPP project in Bristol, the £306m Forensic Services and Coroners' Complex PPP project in Ontario, Canada, and UK schools programmes worth approximately £300m. 

Carillion also managed to keep 68% of its Building Schools for the Future projects, compared with an industry average of 32% after the government axed the programme.

At 31 December 2010 forward order book for construction was £2.8bn (2009: £3.5 bn) and a pipeline of probable new orders worth approximately £400m (2009: £1bn). The pipeline of potential contract opportunities remains stable at around £7.7bn (2009: £7.4bn).

In support services, 2010 revenues reduced by 12% £2,109m, in line with expectations because of the disposal of non-core businesses in 2009. Underlying operating profit was £110.4m - 6% down on 2009, but with a 6% improvement in margin.

The group as a whole saw total revenues fall 9% in 2010 to £5.1bn (2009: £5.6bn), reflecting the effects of selling non-core businesses and investments in Public Private Partnership projects in 2009, as well as the planned re-scaling of UK construction.

Pre-tax profits were up 24% to £167.9m.

 Chairman Philip Rogerson commented: "I am pleased to report that Carillion performed well in 2010, building on its strong track record to deliver good earnings growth, despite tough market conditions, particularly in the UK.  Looking forward, we expect the global economic environment to continue to make trading conditions difficult, especially in our UK markets.  However, Carillion has a resilient and well-balanced business mix, good revenue visibility and a record pipeline of contract opportunities. Therefore, the Board believes that Carillion is well positioned to make further progress in 2011 and to achieve its objectives for medium-term growth, namely, to double its revenues in Canada and in the Middle East and to deliver substantial growth in UK support services.

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