Carillion has posted a healthy set of interim results, with profit before tax up 17% at £58.8m for the six months ending 30 June 2010, compared to £50.1m a year ago.
However, revenue shrank 11% to £2.51bn (H1 2009: £2.83bn). The construction and support services group said this was due to the disposal of non-core businesses, the sale of equity investments in PPP projects, the timing of project starts and completions in the Middle East, and an increased focus on margins rather than revenue.
The total operating margin increased to 2.8% (H1 2009: 2.5%), though margins in its UK construction business were just 1.1%. The overall margin figure was inflated by the Middle East construction business (8.5%) and support services (3.9%).
Carillion's net cash position is strong at £68m, compared to a net debt of £146m a year ago.
The firm said it has 98% revenue visibility for 2010 and 75% for 2011. The group secured over £3bn of new orders during the first six months of the year and the order book increased to £18.9bn at 30 June (31 December 2009: £17.9bn).
Operations
Carillion's Construction Services business (excluding Middle East) saw a marginal increase in revenue to £1.05bn (H1 2009: £1.04bn), although this is below its target of £1.2bn by 2012.
Operating profit was up to £12.1m compared to £10.9m a year ago.
At 30 June 2010, its forward order book had increased to £3.7bn (31 December 2009: £3.5bn).
In the Middle East Construction Services division, turnover shrank to £180.5m from £321.6m, with operating profit down to £15.4m from £24.9m.
Carillion said its markets in Abu Dhabi and Oman have remained strong, with lower activity levels in Dubai remaining in line with expectations.
Its forward orders increased to £1bn at 30 June 2010 (31 December 2009: £700m).
In Support Services, revenue shrank to £1.12bn from £1.28bn. Operating profit was up marginally £43.2m to £42.9m.
Forward orders climbed to £11.3bn (31 December 2009: £11.1bn).
In PPP, turnover was down to £155.5m from £192.9, with operating profit reduced by £1m to £14.7m.
Outlook
Carillion chief executive John McDonough said: “We expect to make further progress in the second half in line with market expectations, due to our well-balanced and resilient UK and international business mix, an order book that gives us strong revenue visibility and good positions in market sectors where we have substantial pipelines of contract opportunities.
“Looking further forward, we continue to believe that the outlook for the medium term also remains positive.
“In the UK, our support services business is well positioned to benefit from the expected increase in Government outsourcing of non-core services, particularly as we move through 2011 into 2012 and 2013, in order to achieve the 25% reduction in public sector running costs announced in the UK Government's Emergency Budget in June 2010. We believe this offers the potential for substantial growth in our UK support services business.
“The plans we announced in May 2010 to reduce UK construction revenue by one third over the next three years, anticipated the one third cut in gross Government capital spending on construction over the same period that was confirmed in the Emergency Budget. We will achieve this reduction by applying strict contract selectivity criteria, to focus our UK construction capability on delivering integrated solutions for Public Private Partnership projects and other support services customers.
“In the Middle East, we believe we have the opportunity to double Carillion's revenue in this region to around £1bn over the next three to five years, given the strength of our markets, especially in Abu Dhabi, Oman and Qatar, and the potential we have for further geographical expansion in this region.”
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