Public sector outsourcing drives profit growth at Carillion

The group, which maintains motorways, railways, military bases and telephone lines, said pre-tax profits increased to £72.5m. House broker Collins Stewart had forecast £71.1m.

Carillion, which also operates in Canada and the Middle East, said its current order book in addition to probable orders stands at £19.4bn.

“With strong market positions and a record pipeline of contract opportunities, the group continues to target strong international growth and substantial growth in UK support services over the medium term,” said chairman Philip Rogerson.

The group said contract opportunities continued to increase as public sector organisations looked to reduce operating costs through increased outsourcing.

It is short-listed for a number of major outsourcing contracts for central and local government, including contracts with Sheffield Council, Oxfordshire County Council and the Ministry of Defence, which are collectively worth around £3bn.

At the end of June, its pipeline of contracts being pursued had increased in value to £32bn, up 25 per cent on six months earlier.

“We really are starting to see the pipeline of bids that are out in the market significantly increasing. Local authorities are primarily where we’re seeing a lot of growth,” said chief executive John McDonough.

Carillion also said that Mr McDonough, who has been chief executive for 10 years, would retire at the end of the year to be replaced by current chief operating officer Richard Howson, who has been with the group for 16 years.

“He is highly respected and we see this as a short-term blow to sentiment. However, his successor has worked in the group for 16 years and has a good following,” said Peel Hunt analyst Andrew Nussey.

Carillion also said it had been awarded three local authority outsourcing contracts in the UK.