Carillion dodging low margin work

7th Jul 2011 08:12

Support services outfit Carillion said the first half of 2011 has gone well, and it is on track to deliver earnings growth over the full-year, despite challenging market conditions.Underlying earnings continued to grow strongly in the first half, while the group's operating margin maintained its upward trajectory as it remained selective about the contracts it bid for.The group, which ended 2010 with net cash of £120.2m, is expected to show net debt of less than £125m at the end of June 2011 once all the numbers have been totted up, despite the £298.4m acquisition of energy efficiency firm eaga.The integration of eaga, renamed Carillion Energy Services, is progressing well, with synergy cost savings now slated to increase from a previously projected total of £9m a year to £15m per annum by 2013, at a one-off cost of £20m.The order book at the half year stage is expected to remain strong, while the pipeline of contract opportunities is at record levels. On a divisional level, the Support Services unit is expected to contribute over half of the group's total operating profit while the value of the Public Private Partnership (PPP) projects portfolio is forecast to increase from the £135m reported at the end of 2010, despite the company selling two projects for cash proceeds of £14.8m in the first half.In the Middle East, the construction services businesses continue to perform well and are expected to deliver strong first-half revenue growth, while outside of the Middle East the construction services operations are making good progress with the previously announced strategic re-scaling of the group's UK construction capability."We continue to expect this re-scaling to reduce UK revenue from £1.8bn in 2009 to around £1.2bn by the end of 2012," the company said. "This further tightening of our selective approach to UK construction is helping us to improve operating margins, as we avoid bidding for low margin work in a market that is becoming increasingly competitive as the UK Government progressively implements substantial cuts in capital spending on construction over the next four years," the statement added."Our medium term objectives for organic growth remain unchanged, namely to deliver substantial growth in support services from 2012 onwards and to double our annual revenues in the Middle East and in Canada over three to five years, in each case to around £1bn," the company said. The shares opened 0.2p higher in London after the trading statement, at 384.1p.--jh