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Carillion construction profits surge by 41pc

Carillion saw construction profits surge by 41 per cent in 2011 with operating margin hitting 3.1 per cent, it revealed this morning.

Construction operating profit – including UK and Canada but excluding the Middle East - rose from £41.2m to £57.9m in the year to 31 December 2011, despite a 17 per cent fall in revenue from £2.23 billion to £1.84bn, in line with the firm’s strategy to shrink its construction arm by a third.

Shares in the firm dropped 2.59 per cent this morning, to 335p.

Overall, the contractor posted a 15 per cent fall in total pre tax profits from £167.9m to £142.8m, on flat revenue of £5.1 billion. The group order book is £19.1bn.

Support services operating profits rose 9 per cent from £110.4m to £120.8m, with revenue up 11 per cent to £2.34bn.

Cash dropped from £120m to £50.7m of debt. That comes after the firm acquired energy services firm Eaga for £298m, rebranded Carillion Energy Services.

A redundancy consultation is continuing with CES expected to cut 1,500 jobs from the division after the government decided to halve state subsidies for solar panel schemes. Headcount is expected to reach about 3,200.

Construction margin in 2011 - the year that also saw the departure of chief executive John McDonough, with Richard Howson becoming CEO - rose from 1.9 per cent to 3.1 per cent, with a £2bn order book, down from £2.8bn. It expects to complete the UK construction re-scaling - from the 2009 level of £1.8bn to £1.2bn - this year.

Carillion said that is down to a “very selective approach” to bids and a focus on “integrated solutions for public private partnership projects and support services customers, and high-quality, value-added contracts for long-term customers”

It said:  “Our decision to re-scale UK construction anticipated the Government’s cuts in capital spending of some 30 per cent in real terms over the current four-year spending plan. It has also helped us to improve the operating margin in this segment, as we have avoided bidding for lower margin work at a time when the UK market is becoming increasingly competitive.

“Over the medium term, we remain well placed to benefit from new planned public sector investment in the UK, such as the £2bn PFI schools programme and the National Infrastructure Plan 2011, which comprises over 500 projects worth in excess of £250bn over a five-year period.

“In Canada, we continue to target growth in construction over the medium term to support our target of doubling total revenue to around £1 billion by 2015.”

Middle East construction up 3 per cent to £49.1m on revenue of £548.9m (up 11 per cent). Public private partnership profits fell 15 per cent to £19.9m on flat revenue of £309.8m.

Dividend was up 9 per cent to 16.9p.

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