Carillion shares gained more than two per cent yesterday after it said it was getting a boost as public and private sector organisations stepped up the outsourcing of functions.
The Wolverhampton-based support services and construction group told the stock market that it expected improved half-year earnings, even though the construction market was still slow.
Carillion, which generates much of its revenue from government work and Public Private Partnership (PPP) projects, said its support services unit continued to benefit from long-term public sector contracts and that the economic downturn was creating a range of opportunities for the division.
Recent wins have included new contracts for the NHS worth more than £260 million, road and rail infrastructure maintenance contracts worth £250 million and work for private sector customers valued at £175 million.
“In Britain the private sector is biting the bullet in terms of outsourcing now, and there will be huge opportunities as the squeeze goes on government spending,” chief executive John McDonough told analysts yesterday.
Carillion produced a pre-tax profit of £53.6 million for the six months to the end of June 2008, and analysts expect a same-basis result of £179 million for the same period this year, according to Reuters Estimates. “We expect to build on our strong first-half performance and achieve our objective of delivering materially-enhanced earnings in 2009,” Carillion said in a trading statement before its half-year results on August 27.
The company, which manages much of Britain’s rail and motorway networks, said margins were improving and that it was benefiting from integration cost savings following last year’s acquisition of Alfred McAlpine.
Carillion expects to save £35 million in 2009 and £50 million in 2010.
The company said trading in the British non-housing construction market remained challenging but it was being selective about the projects it takes on.
Housebuilder Persimmon raised hopes on Tuesday that the worst for the house building sector may be over when it said volumes and orders were ahead of 2008.
Carillion said its Middle East construction services business would increase 2009 revenues to about £600 million from £464 million in 2008 at margins of about six per cent due to its strong order book in the region.
“It’s a myth that Dubai has completely stopped,” Mr McDonough said. “There are opportunities there, but I wouldn’t say it is booming. ‘Abu Dhabi is going well, and we’re moving into Qatar next year, and we see the infrastructure side of things being very promising for us.”
Carillion said that net borrowing at the half-year would fall to about £150 million from £226.7 million at the end of 2008, largely as a result of the sale of its IT services businesses and two PPP investments.
It said in June that it would bank £76 million in the current year from the sale of Carillion IT Services to Capita and from the outsourcing of its own internal systems to global management group Accenture. Shares in Carillion rose by three per cent to 255.25p in early trading yesterday, valuing the company at just over £1 billion.