Contractor reaps benefit of focusing on higher margin support services work rather than construction

Carillion has increased profit by 17% to £59m after margins across the group improved, as it continues to deliberatly shrink its construction division.

In an interim trading announcement this morning, Carillion said that underlying profit margins across the group improved 2.8%, largely helped by work in the Middle East and its support services contracts. Construction margins were considerably lower, at 1.1% - it plans to improve that to 1.4% by the end of this year.

The firm’s revenue dropped from £2.8bn to £2.5bn, which it put down to a focus on margins rather than turnover, as well as the disposal of PPP equity and “non-core businesses”. It is still in the process of reducing its construction arm.

Overall the firm said that, with its attention turned towards support servives and away from construction, the outlook is 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.

“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.”