Carillion revenues drop but profit rises by 2%

Carillion, which took over Newcastle's Warm Front business Eaga in 2011, has reported a rise in profits but a dip in revenue as its completes a shake-up of its operations

Carillion, which took over Newcastle’s Warm Front business Eaga in 2011, has reported a rise in profits but a dip in revenue as its completes a shake-up of its operations.

In a half-year report published yesterday, the company, which employs around 500 people in the North East, said underlying profit before tax had grown 2% compared to 2012, going from £72.4m to £73.5m.

Revenue was down 9%, dropping from £2.2bn to £2bn.

Carillion, however, said this was driven primarily by the planned rescaling of its UK construction activities, which it believes is now largely complete.

The resulting outflow of working capital, along with “other expected movements in first-half cash flow” had also impacted on net borrowing, which rose from £155.8m to £270.8m,

“We expect net borrowing at the year end to be lower than at the half year, as the group moves back to generating positive net cash flows following the completion of the rescaling of UK construction,” the report said.

The Carillion group is a leading support services company with a portfolio of Public Private Partnership projects and capabilities for a wide range of construction projects.

It employs 45,000 people and operates across the UK, the Middle East and Canada.

In November last year, Carillion Energy Services - which replaces Eaga - secured an eight year contract, worth to £600m, to transform the energy and carbon efficiency of up to 60,000 households in Birmingham.

In the first half of this year, then, it secured energy services contracts for Green Deal and the Energy Company Obligation worth around £150m.

However, the latest report says the fact that number of energy services contracts had ended due to changes in Government policy was one reason why revenue in Carillion’s support service sector dropped 6% to £1,114m.

Two contracts being taken in-house at the end of 2012 had also contributed, but new contract wins had enabled the company to make “significant progress” towards replacing the £400m of revenue lost.

Revenue in the public private partnership division likewise dropped, going from £143.3m to £125m, as a result of selling investments in the second half of 2012 and the first half of 2013.

This, however, help profit rise from £14m to £36.6m.

This division had also been given a number of project opportunities that will “significantly increase the value of its investment portfolio”.

In construction services excluding the Middle East, meanwhile, revenue dropped from £631.6m to £503.8m, while profit went from £25.9m to £19m.

The operating margin likewise dropped from 4.1% to 3.8%, but the company said: “This is in line with our expectations, because some of the factors that have helped to increase margins during the process of rescaling, namely lower bid costs, the action we took to reduce overheads and favourable out-turns on contracts being completed, are temporary.”

The first half of 2013 had also brought new construction orders and probable orders worth around £0.7bn.

Carillion chairman Philip Rogerson said the business’s first-half performance was in line with the board’s expectations.

“Our first-half work winning performance was strong, with £2.9m of new orders and probable orders, which increased the total value of orders and probable orders to £18.4bn, despite the removal of some £0.6bn from the order book due to the sale of equity investments in Public Private Partnership projects,” he said

“The strength of our order book plus probable orders continues to provide good revenue visibility, which is currently around 93% of anticipated revenue in 2013.

“At June 30, 2013, our pipeline of contract opportunities had increased to some £37.5bn.”

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