Lost rail contract to cost Carillion £22m

The construction company Carillion warned yesterday that Network Rail's decision to take rail maintenance in house would knock about £22m off profits. It predicted that the move would reduce this year's operating profits by about £7m and would cut profits by £15m in 2005 and beyond.

It also warned investors to expect a goodwill write-off. The total goodwill associated with its rail businesses is about £50m and analysts were steeling themselves for a write-off of about £30m in 2003.

Despite the contract losses, Carillion said it still expected to deliver "healthy" earnings growth this year and beyond. Chief executive John McDonough said the company expected earnings to grow by more than 5 per cent in 2004.

Carillion and six other track maintenance companies suffered a setback last autumn after Network Rail announced it was taking the contracts in house amid safety concerns.

Carillion conceded yesterday that its estimate of the impact on profits was just that, and could still change subject to negotiations with Network Rail on the exact timing of contract terminations.

The company also reiterated yesterday that pre-tax profits for the year to 31 December would be at least £50m. Trading was in line with forecasts, with a strong performance from business services.

There will also be an exceptional profit of £11m from the sale of the company's stake in the Darent Valley concession, a PFI hospital project. A third of the profit will be returned to shareholders by way of a 1.7p dividend.

Carillion plans to carry on selling stakes in projects and to return a proportion of the profits to shareholders.

The company said its infrastructure contract for the Nottingham Express Transit project had made good progress and would be completed in line with the previously announced cost overrun.

Analysts at ABN Amro described the trading statement as "strong" and said the only bad news was that it contained nothing new.