Support services boost construction

Tarmac Construction Services lifted its margin from 0.9 to 1.4 per cent, a turnover of £880 million (£830 million) producing an operating profit of £12 million (£8 million).

The margin achieved by TCS would have been tighter if it hadn't been for Tarmac's push into support services, a business expected to achieve a turnover of £500 million in the full year, with half of this total (£250 million) coming from long-term contracts that offer a 5 per cent margin.

Some sources suggest that it is only Tarmac's rail maintenance contracts that keep TCS out of the red. On publication of Tarmac's next annual results, stripping the £25 million contribution from the better half of TCS's support services business will indicate whether or not Tarmac was right to hang on to its construction business with such vigour.

"The commercial building market is still strong," said Simms. "The recovery at Crown House [Tarmac's m&e business] continued. Civil engineering continued to deliver good margins. Overall, our contracting order book remains healthy at some £1.4 billion."

Tarmac's current equity stake in PFI projects is under £10 million, though the group's medium-term target is build up the figure to £30 million, identical to the sum earmarked by Amec for PFI equity. Asked what rate of return Tarmac expects, finance director Chris Bunker said: "The minimum hurdle is a 15 per cent return."