Contractor Carillion reveals pay out

TRACK owner Network Rail will pay contractor Carillion £17.6m compensation for cancelling maintenance contracts.

Carillion's responsibilities for rail maintenance in Bristol and Gloucester were transferred to Network Rail at the weekend. Contracts covering Preston, West Coast Mainline South and South Wales and Marches areas, will switch across on 24 July.

The lost deals will slice £7m from operating profits this year and £15m next year and beyond. But Carillion, formerly part of Tarmac, insisted its rail infrastructure business remained strong, with expected annual turnover of £250m – 10% of the company's total - and stressed that it had won new rail contracts worth £400m in the first four months of 2004. These included enhancement projects and the renewal of track, as opposed to maintenance.

Broker Arbuthnot said the settlement would end the uncertainty over the level of compensation and boost the company's cash position.

'This should be treated as good news,' said analyst Stephen Rawlinson. 'The proceeds should, in our view, be spent on good acquisitions or returned to shareholders.'

Last October, Network Rail shocked the City by announcing its plan to cancel maintenance contracts worth £1.2bn by September 2004. The UK rail operator said it was aiming to save £300m a year by taking maintenance in-house.

Amec, Amey, Balfour Beatty, Carillion, Jarvis, First Engineering and Serco all lost contracts.

Shares in Carillion, whose clients include the NHS, the Ministry of Defence and airports operator BAA, were down 2p at 164 3/4p by mid-morning.

News of the lost contracts in October triggered a 40% plunge to 129 1/2p but the shares have since mounted a strong recovery.