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Carillion construction margins fall in 2016 results

Carillion’s construction operating margins have fallen, its annual results revealed this morning.

The construction and facilities management group reported total revenue – including its share of joint ventures – of £5.21bn for the year ending 31 December 2016, up 14 per cent on the previous 12 months.

Underlying pre-tax profit was up 1 per cent at £178m, but reported pre-tax profit fell 5 per cent to £146.7m.

Carillion said its UK construction services revenue was up 25 per cent to around £1.5bn. Together with Canada, where £67m of work was done in 2016, operating profit was up 9 per cent to £41.3m.

Underlying operating margin in the UK-dominated non-Middle East construction services division was 2.7 per cent, down from 3 per cent the previous year.

“This reflects our strategy of bidding only for contracts that meet our strict selectivity criteria, which focuses rigorously on identifying and managing risks in order to deliver our target margins and cashflows,” the annual report said. 

Underlying operating margin in Carillion’s Middle East construction division fell from 4.2 per cent to 2.4 per cent.

Carillion’s public-private partnerships (PPP) projects, which consist of construction work in the UK and Canada, posted a 43 per cent fall in operating profit to £28.3m, although revenue was up 62 per cent to £313m.

The fall in profit was attributed to the sale of equity investments in 2015 that were not replicated in 2016.

The support services side of the business, which includes facilities management, energy services and consultancy work, saw margins rise from 5.8 per cent to 6.7 per cent.

Carillion announced in December that it was closing its Caribbean construction operation while also withdrawing gradually from the construction market in Canada.

The company described the construction market in the Middle East as “challenging”.

The group’s support services operations contributed more than two-thirds of its total operating profit, which Carillion said “more than offset expected reductions in profit from PPP projects and Middle East construction services”.

Carillion chairman Philip Green said: “We will accelerate the rebalancing of our business into markets and sectors where we can win high-quality contracts and achieve our targets for margin and cashflows, while actively managing the positions we have in challenging markets.”

The company reported a rise in new orders and probable work to £4.8bn from £3.7bn in 2015.

Mr Green said: “Given the size and quality of our order book and pipeline of contract opportunities, our customer-focused culture and integrated business model, we have a good platform from which to develop the business in 2017.”

Net borrowing rose 29 per cent in 2016 to £218.9m, largely attributed to the fall in the value of sterling, while cashflow from operations rose by 13 per cent to £277.1m.

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