One of the things that worries investors in contractors and support services such as Carillion is when margins appear to be gradually getting worse. This is because it can be a sign, as at Balfour Beatty when it got into trouble, that the company has been greedy for revenues and has taken on contracts in the past that are not on attractive terms.
As these feed through into work on the ground, that margin falls. If the company has been really foolish, it dips below zero and the contracts lose money.
Carillion’s latest trading statement admits that margins are falling at the three divisions where they are relevant — support services, Middle East construction and construction elsewhere, such as the UK. Is this a warning