UK builder Carillion muted on prospects for Gulf construction

The company's decision to be more selective on bidding led to a decline in its order book.

The UK-based construction company Carillion has said that it expects the pace of new contract awards in the Middle East to remain slow this year amid a low oil price environment.

The company, which operates in the UAE and Oman through a pair of long-standing joint ventures with local partners, reported an 11 per cent increase in revenue to £668.3 million (Dh3.03 billion) in its Middle East construction business last year, but added that this included a £77.8m positive swing in currency movements.

The division’s underlying operating profit declined by 36 per cent to £16.1m, but the firm said this was owing to a one-off gain in 2015 from reorganising staff accommodation in Oman. Without this, it said operating profit margins would have increased to 2.4 per cent, up from 1.9 per cent last year.

Speaking on a conference call, chief executive Richard Howson said the pace of contract awards in the Gulf “remained very slow throughout the year due to the prolonged low oil price”.

He said that it had been able to pick up two major UAE contracts where it had been able to bring in funding from UK Export Finance, a government-backed export credit agency – the new £60m Bee’ah headquarters in Sharjah and a £160m deal for two office buildings at Dubai World Trade Centre, which is its third win at the same development.

Mr Howson said that Carillion is currently being “ very, very selective in the Middle East”, focusing mainly on projects where it can bring in export fin­ance as it offers more certainty over when it will be paid.

“In the last few years we have deliberately not chosen to bid for what I call traditional construction work in the Middle East,” he said.

This targeted approach and the slower market meant that the value of its current and probable orders dropped to £500m by the end of 2016, compared to £800m a year earlier. However, its pipeline of potential contract opportunities remains high at £15bn compared with £16bn in 2015 and makes up for 36 per cent of total work being targeted by the firm.

Interserve, another UK contractor active in the region, also reported mixed fortunes.

Its international construction division, which trades solely from the Middle East in joint ventures with Khansaheb Group in the UAE and as Gulf Contracting in Qatar, reported a 6 per cent increase in revenue to £296.9m and a 30 per cent growth in operating profit to £16.9m.

It won new UAE contracts from Majid Al Futtaim Group for the City Centre Ajman Mall and for a £40m tower in Dubai International Financial Centre.

In Qatar, it picked up a deal to build a five-star hotel for InterContinental Hotels, but added that this market “continues to show few immediate signs of the long-awaited resurgence”.

Moreover, its international support services arm, whose main area of business is serving the region’s oil and gas market, grew turnover by 19 per cent to £267.9m, but experienced “a significant reduction in activity and profit” during the second half of the year, which it blamed on the lower oil prices and client spending curbs.

Chairman Glyn Barker said this slowdown was likely to extend into this year. The company has already begun to reduce the size and cost base of the division’s operations, as well as div­ersifying into related markets like power and water in Oman and Qatar.

“We have been and will continue to take mitigating action on our cost base where possible,” said Mr Barker.

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