Profit rises 23% thanks to a booming support services market and £26m of savings resulting from Mowlem takeover

Carillion has reported a 23% jump in profit off the back of a healthy support services market and stronger than expected savings from its Mowlem acquisition.

Carillion, whose £554m purchase of Alfred McAlpine last month came two years after the £313m Mowlem takeover, is now the UK’s second largest contractor.

In results for the year ended 31 December 2007 it reported underlying pre-tax profit of £101.8m, up from £82.6m in 2006. Turnover rose 13% to £3.95bn, up from £3.51bn. Construction margins grew to 2.1% from 1.7%.

The company’s results were boosted by greater than expected savings from its integration of Mowlem. Despite a troubled initial period following the acquisition that led to a £90m writedown in 2006, the acquisition is now delivering savings of £26m per year, which is 73% above Carillion’s expectation. The company said the integration had also been completed earlier than expected.

Support services, an area in which the McAlpine deal will further strengthen Carillion’s presence, accounted for the lion’s share of its profit with £73.9m, a 26% increase from 2006.

Going forward, the company has a £16bn order book, the same as last year, and looks well protected from the uncertainty surrounding the construction market in the UK. Only £16m of its profit, or 15.7%, came from construction services outside of the Middle East. The Middle East market, where margins tend to be much higher, accounted for £25.4m of Carillion’s profit.

Philip Rogerson, chairman, said: “2007 was another strong year for Carillion. The acquisition of Alfred McAlpine has further strengthened Carillion’s position as a leading support services and integrated solutions business, and the Board expects the Group to make further strong progress in 2008 and deliver materially enhanced earnings in 2009.”

Andy Brown, an analyst at Panmure Gordon, reiterated the firm’s buy status on Carillion. He said: “These are good results from Carillion with improved Construction and Support Services margins generating numbers ahead of expectations. With a very healthy, non-construction dominated, order book and exciting potential in the Middle East we are happy to reiterate our buy.”