Pre-close Trading Update

RNS Number : 3263T

Carillion PLC

12 December 2012

 



12 December 2012                             

PRE-CLOSE TRADING UPDATE

 "CARILLION TO DELIVER ROBUST FULL-YEAR PERFORMANCE AS EXPECTED"

Carillion is providing this pre-close update on trading in the 12 months to 31 December 2012, ahead of announcing its preliminary results on 27 February 2013.

Carillion expects to deliver a robust financial performance in 2012, with growth in operating profit despite market conditions remaining challenging.  As guided, revenue will be lower than in 2011, due principally to the planned re-scaling of UK construction, but the Group's total operating margin is expected to increase as the overall quality of our business continues to improve.

Underlying earnings per share are expected to be broadly in line with market expectations.  From 2012, profit from selling equity investments in Public Private Partnership (PPP) projects will be treated as part of underlying operating profit, (previously treated as non-operating); although this is not expected to have a material effect on underlying earnings per share, it is expected to move underlying earnings per share slightly ahead of the market consensus forecast for 2012.  

Reported profit before tax and earnings per share are expected to increase substantially.

The Group continues to have a strong balance sheet, with year-end net debt expected to be slightly above the half-year position of £115 million.  We have continued our strategy of diversifying the mix of our borrowing facilities with the addition of further private placement funding of some £175 million, which expires between 2017 and 2024, at an average interest rate of 4.75%.  This takes the Group's total committed borrowing facilities and private placements to over £1billion.

The value of orders and probable orders at the year end is expected to be broadly similar to the half-year position, after allowing for the effect of selling further PPP equity investments.  We continue to be opportunity rich in markets that support our targets for growth and we expect the value of our pipeline of potential contract opportunities to be slightly higher at the year end than the £35 billion previously reported.     

In support services, we expect to achieve our objective of delivering revenue growth in 2012 with a satisfactory operating margin.  The value of our order book and probable orders in support services remains strong and continues to provide good revenue visibility.  Since the half year, we have secured a number of significant new contracts and preferred bidder positions.  We have achieved financial close on an energy services contract for Birmingham City Council, worth up to £1.5 billion over eight years and we have signed a two-year extension to our Housing Prime contract for the Defence Infrastructure Organisation that we expect to be worth up to £160 million. In addition, we have secured new contracts and contract extensions for other UK public sector customers that we expect to be worth up to some £350 million over 10 years, including a 10-year strategic partnership with Lancashire County Council that is initially expected to be worth up to £150 million.  We have also secured contracts for UK private sector customers worth some £100 million over the next 10 years.  In Canada, we have secured contracts and preferred bidder positions for highways maintenance worth some £525 million over 12 years, of which approximately £475 million relates to contract renewals.  In the Middle East, we have won support services contracts worth over £40 million, including our first highways maintenance contract, a £36 million, five-year contract in Qatar.  Our pipeline of contract opportunities in support services also remains strong, with substantial opportunities in the UK, Canada and, increasingly, in the Middle East.  Consequently, we remain well positioned to target further growth in 2013 and beyond.  

We have announced separately today the acquisition of a 49 per cent interest in the Bouchier Group, a Canadian support services business, for some £24 million.     

Investments in Public Private Partnership (PPP) projects continue to perform well and deliver significant value for the Group.  Our pipeline of contract opportunities remains strong, notably in Canada, where Provincial PPP programmes have a total estimated value of over C$60 billion.  In Canada, we are now shortlisted for two major new PPP projects and we expect to increase the number of concurrent bids to seven over the next 12 months, for projects with a revenue value to Carillion of some £2.5 billion.  In the UK, we remain shortlisted for the Royal Liverpool Hospital, on which a preferred bidder decision is expected shortly.  We welcomed the recently announced outcome of the UK Government's review of its private finance model, as this paves the way for new PPP programmes under the National Infrastructure Plan, including sectors such as schools, prisons and courts, where Carillion has strong track records.  

Carillion has led the market in recycling equity investments in PPP projects and has consistently generated profits from equity sales.  Given the strength of our portfolio of financially closed projects and of our pipeline of project opportunities, we expect to continue recycling equity investments for the foreseeable future.  Accordingly, and consistent with the treatment adopted by most of our industry, from 2012 onwards profit from selling PPP equity investments will be treated as part of underlying operating profit, rather than as non-operating profit; this accounting change will not have a material effect on the Group's operating profit in 2012.

In the Middle East, we expect revenue in the second half of 2012 to be substantially higher than in the first half, in line with the guidance we gave at the half year, with full-year revenue lower than in 2011.  This second-half weighting reflects the timing of project awards, which can have a significant effect on revenue movements between reporting periods, given our Middle East strategy is to focus on a small number of large, high-quality projects.  The operating margin in this segment is expected to move back to around six per cent, in line with our previously announced expectations as a result of contracts being competitively tendered rather than negotiated.  Although customer decisions on contract awards have been slower than usual during 2012, there are signs that this is beginning to improve as we move towards 2013.  For example, since the half year, our Middle East businesses have secured orders and probable orders for construction worth over £200 million, including the £113 million contract to build a mixed use development for the Oman Public Authority for Social Infrastructure, which we announced in October 2012, and a £35 million contract for the Al Baleed Resort Company in Oman.  We have also maintained a strong pipeline of contract opportunities in the region and this continues to support our target of doubling our annual revenue in the Middle East to around £1 billion over the five-year period to 2015.

In construction services (excluding the Middle East), we expect the planned re-scaling of our UK business to align it with the smaller UK market, which we announced in May 2010, to be largely complete in 2012.  We have done this by being very selective in terms of the contracts for which we bid in order to focus on large, high-quality contracts for long-term customers.  Since our Interim Management Statement on 4 October 2012, we have secured a number of new contracts.  For example, we can confirm that Carillion will deliver, in joint venture, two major road schemes for the Highways Agency, namely the A1(M) upgrade between Leeming and Barton and the A5-M1 link road scheme, which together we expect to be worth some £200 million to Carillion.  Construction revenue in Canada is also expected to be lower than in 2011, as our focus continues to be on bidding new PPP projects, for which we have our largest ever pipeline.  We expect the full-year operating margin in this segment to remain strong, due to our selective approach, together with the benefits of lower overheads and bid costs in the UK, positive outturns on contracts being completed and our ongoing focus on cost management.  Operating profit is expected to increase as the strong margin will more than offset the effect of lower revenue.  Looking forward, we remain confident of growing construction revenue in Canada over the medium term to support our target of doubling the Group's total revenue in Canada to around £1 billion over the five-year period to 2015.  In the UK, we continue to be well placed to take advantage of the opportunities expected from the National Infrastructure Plan and the positive outcome of the Government's review of private finance.     

Outlook

In 2012, we expect to deliver a robust financial performance.  Looking forward, we expect our markets to remain challenging.  However, we have a resilient business with a strong order book and a large pipeline of contract opportunities and therefore continue to be well positioned for the future.  

Conference call for analysts and investors

The Carillion management team will host a conference call for analysts and investors on this statement at 09.00 today.  The telephone number to join this call is 0844 800 3850 - passcode: 587435.  A replay facility is also available following the call on UK: 0800 032 9687- passcode: 80301114 - Overseas: 0207 136 9233 - passcode: 80301114. 

Preliminary results

Carillion will announce its preliminary full-year results for 2012 on 27 February 2013. 

For further information contact

Richard Adam, Group Finance Director                            + 44 (0) 1902 422431

John Denning, Director Group Corporate Affairs                 + 44 (0) 1902 316426

Finsbury

James Murgatroyd or Gordon Simpson                             + 44 (0)  2072513801

Notes to Editors

Carillion is a leading integrated support services company with a substantial portfolio of Public Private Partnership projects and extensive construction capabilities.  The Group has annual revenue of around £5 billion, employs around 45,000 people and operates across the UK, in the Middle East and Canada. 

The Group has four business segments.

Support services - this includes facilities management, facilities services, energy services, utility services, road maintenance, rail services and consultancy services.

Public Private Partnership (PPP) projects - this includes our investing activities in PPP projects in our chosen sectors of Defence, Health, Education, Transport, Secure and other Government accommodation.

Middle East construction services - this includes our building and civil engineering activities in the Middle East.

Construction services (excluding the Middle East) - this includes our building, civil engineering and developments activities in the UK and our construction activities in Canada.

This and other Carillion news releases can be found at www.carillionplc.com

Photographs:

High resolution photographs are available free of charge to the media at www.newscast.co.uk telephone

+ 44 (0) 207 608 1000.

Cautionary statement

This announcement may contain indications of likely future developments and other forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates. These and other factors could adversely affect the Group's results, strategy and prospects. Forward-looking statements involve risks, uncertainties and assumptions. They relate to events and/or depend on circumstances in the future which could cause actual results and outcomes to differ materially from those currently anticipated. No obligation is assumed to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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