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Carillion’s support services business driving up profits

In its full year trading update for 2016, Carillion, which operates in the UK, Canada and the Middle East has reported the business is “meeting expectations led by revenue growth and a strong margin in its support services business, which is expected to contribute around two-thirds of the Group’s total operating profit”.

Having seen a strong work winning performance in the first half of the year, with a reported £2.5 billion of new orders and probable orders, Carillion says it has seen a slowing down of new order intake, which it attributes in part to the changes within UK government departments following the Brexit result, as they reassessed priorities ahead of the chancellor’s Autumn Statement, and the slower pace of contract awards in the Middle East, caused by prolonged low oil prices. However, the Group’s total order book along with probable orders at the end of 2016 is still predicted to be strong at around £16 billion (31 December 2015: £17.4 billion), with revenue visibility for 2017 at approximately 70 per cent (31 December 2015: 84 per cent for 2016). This does not include framework agreements.

The Group’s pipeline of contract opportunities, which is made up of specific contracts currently being bid on or that its expects to bid on, is according to Carillion expected to stay at a level similar to the £41.4 billion reported at 31 December 2015.

Within its support services business, Carillion is expecting to see an increase in underlying operating profit, driven by growth and strong operating margin as the segment benefits from full-year contributions from major new contracts mobilised by the business in 2015, from the new contracts it secured in 2016, and from investment it has made in its systems.

This year, saw Carillion extend the duration and scope of arrangements it has with its partner, who has been outsourced to run certain back office activities, including the development of a new technology platform which will support Carillion’s facilities management business. Carillion also signed an agreement allowing its partner to use its existing platform in territories where it has no operations and from which it expects to generate a profit in the region of £20 million in 2016.

By the end of 2016, Carillion anticipates its support services order book to be around the £12 billion mark (2015: £12.7 billion) with the pipeline staying at a level similar to the £12.1 billion at the end of 2015. Carillon also reported that good opportunities in the UK and Canada will support the businesses ambitions for further growth in the next 12 months.

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