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Carillion protects margins in rejig

Contracting giant Carillion has said it will complete a three year “rescaling” of its construction services business by the end of 2012.

This will reduce civils and buildings workload by 30% from £1.8bn in 2009 to £1.2bn.

The decision to scale back its UK contracting operations followed the 2010 Comprehensive Spending Review. A Carillion spokesman this week told NCE that the contractor would no longer work in the fiercely competitive regional civils market, focusing instead on winning work with 10 key clients.

These include civils clients such as the Highways Agency and National Grid and building clients such as the Ministry of Defence, the NHS and property developers Argent and Grosvenor Estates.

Most of the work will come through framework agreements with these clients.

Recent contract wins highlight this approach. They include a £105M Managed Motorways contract with the Highways Agency, a £120M deal on the Thameslink project with Network Rail and a £45M deal at Gatwick Airport. All three wins came through framework deals.

Steady programme

“We now have a steady programme of work that represents 80% to 90% of our workload,” said the spokesman.
Carillion hopes to protect its margins by pulling out of competing openly for work in what it sees as a fiercely competitive sector. “We have no intention of going back into regional building. We are not going to compete for work at silly margins,” said the spokesman.

The spokesman said it was a very different strategy to that of competitors like Balfour Beatty which has bought regional firms in recent years to bolster turnover. This work has become very competitive following the government’s decision to cut spending.

Carillion cited recent results as evidence that its rescaling plan was working. In the year ended 31 December 2011 operating margin in its construction services division was up to 3.1% from 1.9% in 2010, while operating profit increased by 41% to £57.9M.

The spokesman added that no construction services jobs had been lost as a result of the shake-up. Carillion also plans to grow its support services and international divisions. It wants to double revenues in the Middle East and in Canada, in each case to around £1bn, by 2015.

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