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Contractors report growing orders

Some of the country’s biggest contractors have released upbeat trading statements pointing out workloads in mainstream contracting are rising.

While volume house builders such as Taylor Wimpey and Barratt continue to suffer, companies with big contracting operations have all said order books are booming.

The country’s second biggest quoted contractor, Carillion, which last month moved to a support services listing following its takeover of Alfred McAlpine earlier this year, said its forward order book stood at around £20 billion.

Carillion said its forward order book in support services stood at £11.5 billion helped by a number of wins to look after property estates for blue-chip clients such as BT and Philips.

It added that its forward order book in the Middle East was more than £500 million. The firm is targeting work in Egypt, Abu Dhabi and Dubai, plus neighbouring Oman.

Carillion said its Middle East business was producing margins of six per cent.

Its UK business has upped its forward order book by nearly two-thirds to £2.7 billion thanks to a number of high-profile deals. These include being chosen to build the media centre at the east London venue of the 2012 Olympic Games and its deal to build the T5 satellite at Heathrow Airport for BAA.

Costain said its forward order book stood at more than £2 billion - a record. The firm said that its blue-chip clients were continuing to spend.

At its annual results in March, chief executive Andrew Wyllie said he was looking for more leading clients after adding retailers Marks & Spencer and Sainsbury’s last year.

He said he had made blue chips a priority because that was where the long-term spending plans were.

Olympic stadium piling contractor Keller said it was weathering the downturn in the US. One third of its business there is from the nose-diving residential market with its Texas-based Suncoast business, which carries out post tensioning work on homes and high-rise blocks, most affected.

But in a statement this week, the firm said: “We expect our broad client base and exposure to diverse geographic markets to protect the group against cycles in individual markets and help to mitigate the impact of the widely expected downturn in the US commercial sector.”

Alf McAlpine takeover savings grow

Carillion has said that its £554 million takeover of Alfred McAlpine will produce integration cost savings of £40 million a year from the end of next year.

It had expected to make savings of £30 million from the end of 2009 – it is currently making £15 million in integration savings – but the firm now says the savings will exceed original expectations.

It also said that the one-off cost of making these savings had increased from £30 million to £40 million. It added: “The main areas in which cost savings are being made include eliminating duplication in management and business support.”

It added that its fair value adjustments on the deal was in line with its original expectations and would have no impact on the group’s total net assets, profits or cashflow. It said the goodwill element of the deal had now risen to £615 million.

Analysis: Majors insulated from downturn

By Bill Fishlock

At this stage in the economic cycle, the larger quoted contractors usually start hinting that profit forecasts might need lowering.

But to judge from the trading statements from Carillion, Costain and ISG this week, larger contractors, which are free from any UK house building interests, seem to be doing well.

Costain and Carillion are benefiting from the booming Middle East market and neither seems to be having trouble picking up work at home. The larger firms’ focus on blue-chip clients and the strength of the PPP and UK infrastructure markets seem to be compensating for slowing commercial activity.

A mark of Carillion’s confidence is its expectation that it can progress towards three per cent margins. And in contrast to the last downturn, most quoted contactors are armed with healthy balance sheets.