Leading integrated support services company Carillion has reported a £19.1 billion order book, including probable orders and a record £33 billion pipeline of contract opportunities with the publication of its annual results for the year ended 31^st December 2011.

The Group has also reported a substantial increase in its total underlying operating margin – up from 4.2% in 2010 to 4.7% in 2011. The increase in its underlying operating margin was attributed to an ongoing focus on margins through applying strict contract selectivity criteria and strong cost management.

However, total revenue of £5.1 billion remained unchanged, primarily because the contribution due to the acquisition of Carillion Energy Services (CES) was offset by a reduction in UK construction revenue, as the Group continued to progress with the planned re-scaling of its UK construction activities. Revenue visibility of 77% for 2012  has fallen slightly from 82% for 2011.

Carillion said the acquisition of CES, the largest independent energy efficiency services company in the UK, had given it the in-house capabilities to meet increasing demand for energy efficiency services from existing and prospective customers. The acquisition has also taken the Group into new energy services markets, in which there are significant opportunities for growth.

The firm said prospects for growth have been further boosted by the Government’s announcements regarding implementation of the provisions of the Energy Act 2011 and in particular, the Green Deal and the Energy Company Obligation (ECO).

The Green Deal, which is to receive an additional £200 million of Government funding, is expected to kick-start at least £14 billion of investment in energy efficiency measures over the next decade. The ECO, which the Government is committed to introduce in October 2012, is expected to create a market worth some £1.3 billion a year, initially up to 2015, but the present Government intends to extend this period to 2020.

17% reduction in construction business – but margins up from 1.9% to 3.1%

 The results for Carillion’s UK building, civil engineering and developments businesses, together with its construction activities in Canada, have shown a significant 17 per cent reduction in revenues. The firm attributed the drop to ongoing progress with its objective of rescaling UK construction to reduce its revenue by approximately one third, from the 2009 level of £1.8 billion to £1.2 billion, which we expect to achieve in 2012. In 2011, UK construction revenue reduced by 24 per cent to £1.3 billion (2010: £1.7 billion).

Carillion said the re-scaling was being achieved by tightening contract selectivity criteria to base UK activities progressively around the delivery of integrated solutions for PPP projects and support services customers, and high-quality, value-added contracts for long-term customers. As expected, construction revenue in Canada remained broadly unchanged.

The Group said the decision to re-scale had helped it to improve its operating margin by avoiding bidding for lower margin work at a time when the UK market was becoming increasingly competitive. As a result, together with the benefits of a number of contracts completing or moving towards completion with favourable outturns, this has enabled Carillion to improve its operating margin to 3.1 per cent (2010: 1.9 per cent) with operating profit increasing by 41 per cent to £57.9 million.

The Group’s forward order book at 31 December 2011 in the Construction segment stood at some £2.0 billion (2010: £2.8 billion) and probable orders of £0.4 billion (2010: £0.4 billion). At the year end, revenue visibility for 2012 was 72 per cent(1) (2010: 89 per cent for 2011). In addition, the Construction segment had a pipeline of contract opportunities at 31 December 2011 worth approximately £8.4 billion (2010: £7.7 billion).

Carillion said it expected UK market conditions to remain competitive in 2012 as Government cuts in capital spending continued to bite. The Group plans to continue to re-scale its UK business by maintaining a very selective approach to the contracts it bids for, which would also continue to support margins. Over the medium term, Carillion said it remained well placed to benefit from new planned public sector investment in the UK, including the 500 projects worth in excess of £250 billion over a five-year period  set out in the National Infrastructure Plan 2011.

Commenting on the results, Carillion Chairman Philip Rogerson said:

“Carillion’s integrated UK support services and international business mix has once again enabled the Group to perform strongly, despite challenging market conditions. Given the wider economic outlook, we expect trading conditions to remain challenging in 2012. However, with a strong and resilient business, good revenue visibility and a record pipeline of contract opportunities, we continue to target growth in support services together with the doubling of our revenues in the Middle East and in Canada, in each case to around £1 billion, by 2015. Consequently, Carillion remains well-positioned to deliver further growth in 2012 and beyond”.