Reinvention pays off for Carillion

CARILLION, the former construction wing of Tarmac, doubled profits in the first half of the year as the benefits poured in from its full ownership of GT Railway Maintenance.

Carillion has been steadily reinventing itself as a business services and public-private partnership business since demerging in 1999 and most of its profits now come from these rather than its traditional activities.

Following the acquisition a year ago of the 51% of GT Railway Maintenance the group did not already own, turnover in business services was up 40% to £398.5m and divisional operating profits grew almost as much at £16.3m.

However margins dropped to 4.1% from 4.3% due to contract changes with BT.

Since the first half ended, Carillion has formed a joint venture with General Healthcare and Nestor Healthcare to bid for contracts to build some of the 150 diagnostic and treatment centres the Government has announced it will open. Carillion estimates that the centres will generate £3bn of construction activity and £2bn per year of medical and support services work.

Withdrawing from social housing and smaller civil engineering projects left turnover 8% lower at £892m but Carillion unveiled a 14% rise in its forward order book to £5.3bn.

After striking off £900,000 in bid costs under the new accounting rules, Carillion made £16.1m in profits before tax for the six months to 30 June compared with a restated £8.2m the year before. The dividend is 9% higher at 1.5p.

Chief executive John McDonough said: 'Over the next two years the commercial building sector of our construction services segment, with its regional focus, is expected to remain stable. Public infrastructure investment is forecast to grow and the number of PPP projects reaching financial close should increase.'

Although the company is now firmly focused on infrastructure and business services there are still parts of the business to be trimmed.

Since the half year ended Carillion has sold its stake in plant hire company Maxxiom. This released £12m in cash, which it promptly spent on Citex Management Services, securing a basket of facilities management contracts with blue-chip corporate customers. The disposal will also result in a £5m exceptional charge in the second half.

McDonough also raised his stake in the company by more than a third, buying 69,500 shares at 144p a shot. He now holds 0.13%. The shares ended down 15p at 143p.