Wolverhampton-based construction and support services group Carillion has reported a strong first half and a bulging order book for the rest of the year.
The firm said in a trading update its outlook remained positive and that its order book at the half year is expected to be in the region of £20 billion, up from £15.8 billion in 2007.
It said it expected a pipeline of probable new orders worth approximately £3.5 billion, up from £2 billion in 2007.
Carillion, whose activities include support services, Public Private Partnership (PPP) projects and construction, said its first half trading was in line with expectations.
It added it expected to make strong progress in 2008 and deliver materially enhanced earnings in 2009.
Carillion chief executive John McDonough said the strength of the group’s support services and PPP businesses should help shield it from the woes of the housebuilding sector.
The group is not involved in the housing and commercial office markets and UK construction projects only account for about ten per cent of its profits, with the rest coming from support services and its Middle East activities.
“Across the piece, we feel we’re in a much stronger position than we’ve ever been,” said Mr McDonough.
The firm said its support services activities continue to be a major driver of growth and it expects to achieve strong first-half revenue growth at margins slightly above the 2.9 per cent achieved in the first half of the previous year.
“The outlook in our target market sectors remains positive and the intake of new orders in support services continues to be strong, with a number of notable contract wins in the first half that reflect the group’s ability to provide customers with fully integrated solutions for large, complex property estates,” the group said.
Contract wins include a £500 million agreement with BT, a £350 million contract for Philips and a £40 million contract for AXA.
Carillion added its PPP projects continued to generate substantial value for the group.
Equity investments in four PPP projects - Lewisham Hospital, James Cooke Hospital, Barnsley Schools and Redcar and Cleveland Schools - have been sold for a total of £35.9 million.
Carillion also said it had made “very good” progress with integrating Alfred McAlpine following its £554.5 million acquisition of the London-based firm in February 2008.
The group had forecast annual savings of £30 million from the integration of McAlpine but is now expecting £40 million a year by the end of 2009.
It added the one-off cost of delivering these savings had increased from £30 million to £40 million.
Mr McDonough said the savings would include a 400,000 sq ft reduction in its property portfolio and ‘several hundred’ job losses.
In May the firm was forced to reassure shareholders over the costs associated with the takeover following press speculation that the group would have to write off as much as £400 million.
Carillion issued a statement saying the fair value exercise it was carrying out for the Alfred McAlpine acquisition would have no impact on the group’s total net assets, profits or cash flow. In yesterday’s trading update Carillion also said its balance sheet was robust with strong cash flow.
It expects net borrowing at the half year to be about £325 million, putting it on track to reduce net borrowing by the year end to below its original target of £300 million.
The company added its Middle East business continues to deliver strong growth at very good margins and said the outlook for long-term growth in the region remained “very positive”.