Contractor says cost of restructuring energy business will double

Contractor Carillion is likely to take a £20m hit after it put the whole of its 4,500-strong energy services division on redundancy notice last week.

In a trading update to the City today, Carillion said the restructuring cost related to its £298m acquisition of Eaga, now called Carillion Energy Services, will double from £20m to £40m because of last week’s decision to downsize its solar photo-voltaic business.

Carillion’s decision, revealed by Building last week, is a direct response to the government’s decision to cut the feed-in tariff rate from 43p to 21p at the start of November.

In its trading update Carillion said integration of the Eaga business was running “well ahead of our expectations” and it expected the acquisition to drive both revenue and profit in the 2011 results. However, it said it was now proposing to “downsize our solar photo voltaic operations… and to extend the restructuring of CES to deliver a substantial further improvement in overall operational efficiency.”

It said that cost savings will increase from £15m a year to £25m a year by the end of 2013, but that the one-off cost of the restructuring “is expected to increase to £40m, which includes a provision of up to £10m in respect of downsizing our solar photovoltaic operations.”

This compares with an original prediction of £20m in restructuring costs for the business.

Otherwise it said it was continuing to deliver “strong profit and earnings growth” despite “challenging” market conditions, and was on track to downsize its UK construction business as predicted, while expanding its work in the Middle East.

It said: “We remain well positioned to achieve our target to deliver substantial growth in UK support services from 2012 onwards and … to double our revenues in the Middle East and in Canada, in each case to around £1bn over three to five years.”