Carillion’s construction division saw profits surge by 69 per cent in the first half of 2012 as its operating margin climbed to 4.1 per cent.
The construction and support services firm said it is seeing the effect of reducing its UK construction business by a third by the end of this year.
Construction services – which are predominantly in the UK but also include Canada and the US - saw operating profit rise from £15.3 million to £25.9m in the six months to 30 June 2012 compared to the same period last year, as revenue dropped 34 per cent from £950m to £631.6m.
Carillion said re-scaling is being achieved through tightening contract selectivity through bundled solutions for public private partnership projects and support services customers, and projects for other long-term clients.
The firm said: “Operating profit grew strongly due to an increase in operating margin to 4.1 per cent (2011: 1.6 per cent), as we continue to benefit from our highly selective approach to the contracts for which we bid, positive settlements on contracts being completed, lower bid costs and a rigorous focus on cost management.”
Carillion had shed 1,750 posts as a result between 2009 and the end of 2011.
It said it expects the full-year operating margin “to remain strong and to more than offset the effect of lower revenue, with a consequent improvement in full-year operating profit”.
The firm added: “Looking further forward, we intend to maintain our highly selective approach in order to continue supporting margins while targeting the opportunities we expect for revenue growth.”
Group revenue dropped from £2.45bn to £2.16bn, while pre tax profit edged up 1 per cent from £72.5m to £73.1m. The group operating margin increased from 3.3 per cent to 4.1 per cent. At 30 June, the group had profitable orders worth £18.3bn (31 December 2011: £19.1bn), with the reduction occurring since December.
Carillion chairman Philip Rogerson said: “Carillion delivered a robust first-half performance, in line with the board’s expectations, despite market conditions remaining challenging.
“Given the strength of our business model, order book and pipeline of contract opportunities, we remain on track to deliver full-year results in line with expectations and to achieve our medium-term targets, namely to deliver growth in support services and to double our annual revenues in the Middle East and in Canada in the five-year period to 2015, in each case to around £1bn.”
The firm saw working capital outflow of £66.9m, partly due to re-scaling of UK construction.
The contractor also said that integration of Carillion Energy Services - formerly Eaga - is largely complete and on track to deliver annual cost savings of £25m from the end of 2013. That division has seen 1,400 job losses.
The board has increased the interim dividend by two per cent to 5.4 pence per share (2011: 5.3 pence), which is covered 2.7 times by underlying earnings per share (2011: 2.7 times).
Construction: Contract wins in the first half included a £45 million contract for the Highways Agency to upgrade the A23 between Handcross and Warninglid and a £45m contract to reconfigure Pier 5 at Gatwick Airport. At 30 June 2012, orders and probable orders were worth £2bn (31 December 2011: £2.4bn).
Support services operating profit rose 7 per cent from £45.6m to £48.8m, as revenue (including joint venture) increased 6 per cent to £1.18bn.
Profits in public private partnerships dropped 17 per cent from £8.8m to £7.3m – due to the sale of equity investments and increased bidding - as revenue rose 3 per cent to £143.3m.
Middle East construction revenue dropped 21 per cent to £201.6m, with operating profit down 27 per cent to £13.6m due to the “timing of project awards”.