Trading Statement

RNS Number : 9251J

Carillion PLC

07 July 2011

 



7 JULY 2011              

                                                                  CARILLION PLC TRADING UPDATE

STRONG FIRST- HALF PERFORMANCE

Carillion, one of the UK's leading support services companies, is providing this update on trading in the first six months of 2011 ahead of announcing its interim results on 24 August 2011.

Group highlights

·      Group continues to perform well - underlying⁽¹⁾ earnings growing strongly

·      Group operating margin continues to increase - expect improved margins in support services and construction services (excluding the Middle East)

·      Strong cash flow and balance sheet - net debt expected to be below £125 million at 30 June 2011, following the £298.4 million acquisition of Carillion Energy Services (formerly Eaga plc) in April 2011 (December 2010: £120.2 million of net cash)

·      Order book at the half year expected to remain strong, plus record pipeline of contract opportunities

·      Integration of Carillion Energy Services progressing well - synergy cost savings now expected to increase from a total of £9m per annum to £15m per annum by 2013, at a one-off cost of £20m

·      On track to make further progress in the full-year, despite challenging market conditions

(1) Before intangible amortisation, restructuring costs and non-operating items. 
       

  Financial reporting segments

Support services

Support services continues to perform well and we expect operating profit to increase in the first half and to contribute over half of the Group's total operating profit.  This growth is due to the expected post-acquisition contribution from Carillion Energy Services, together with an increase in our support services operating margin.  The latter reflects our focus on margins rather than revenue, which is expected to be broadly similar to that in the corresponding period in 2010.             

The integration and rebranding of Eaga as Carillion Energy Services has gone well and we remain confident that the acquisition will immediately enhance Carillion's short and medium term prospects for growth.  The synergy cost savings from the acquisition are now expected to increase from the previously announced cumulative total of £9 million per annum by 2013 to £15 million per annum, with savings of £5 million in 2011, £10 million in 2012 and the full £15 million per annum by 2013, at a one-off cost of £20 million.

We continue to benefit from a strong order book of high-quality, long-term contracts that provide good revenue visibility and we expect to make further progress in the second half of the year.  We remain confident that full-year revenue in this segment will increase and that our operating margin will remain strong.  Our pipeline of contract opportunities also continues to increase and includes substantial opportunities arising from public sector organisations looking to reduce operating costs through outsourcing more non-core services.  Therefore, the positive outlook in support services remains unchanged and we continue to expect to benefit from an increase in public sector outsourcing as we move into 2012.

Public Private Partnership (PPP) projects

During the first half, we added one new project to our portfolio of financially closed projects - the Solar Photo-Voltaic project to install solar panels on the roofs of over 30,000 houses - on which Carillion Energy Services achieved financial close in March 2011 and in which we expect to invest some £15 million of equity.  We also sold equity investments in two projects - South Ayrshire Schools and Three Shires Hospitals - generating cash proceeds of £14.8 million, which represents a 7 per cent discount rate.  Consequently, at 30 June 2011, we had a portfolio of 25 financially closed projects in which we had invested some £81 million of equity.  The Directors' valuation of this portfolio, based on discounting the cash flows from our investments at nine per cent, is expected to increase from the £135 million reported for 31 December 2010, despite selling two investments in the first half.  

At 30 June we also had commitments to invest a further £106 million in financially closed projects still in the construction phase.  We were also the preferred bidder for our sixth PPP hospital in Canada - the Oakville Hospital for Halton Healthcare Services - in which we expect to invest some £28 million of equity and from which we expect to generate up to £390 million of support services and construction revenues for Carillion.  In addition, we were shortlisted for four projects in which Carillion could potentially invest up to a further £117 million.  Beyond this we have a good pipeline of further opportunities, particularly in Canada, where Infrastructure Ontario has recently announced a new 10-year PPP programme, which commences with $35 billion of investment over the next three years.  In the UK, we expect to benefit over the medium term from the role that private finance is expected to play in delivering the Government's £200 billion, five-year National Infrastructure Plan announced in October 2010.  We therefore expect to continue generating value for the Group by using our ability to provide fully integrated solutions to win and successfully deliver projects and by selling our equity investments in projects after they have moved successfully from construction into the operational phase, as the secondary market for these assets remains strong.      

Middle East construction services

In the Middle East, our businesses continue to perform well and we expect to deliver strong first-half revenue growth. The operating margin in this segment will be lower than in the first half of 2010, in line with the expectation we announced in 2010 that margins will ease back over a three-year period to around six per cent, as customers in the Middle East have moved from negotiating contracts to competitive tendering.  However, we expect first-half operating profit to increase, compared with the corresponding period in 2010, as the effect of a lower margin will be more than offset by revenue growth.

Our strong progress in the region continues to be driven by our brand reputation for quality and delivery.  With a good order book and a growing pipeline of contract opportunities, which reflect the strength of our markets in Abu Dhabi, Oman and Qatar, we continue to target growth in full-year revenue and operating profit and expect to make progress towards the objective we announced in August 2010 of doubling our revenue in the Middle East over three to five years.  

Construction services (excluding the Middle East)

In construction services (excluding the Middle East), we are making good progress with the previously announced strategic re-scaling of our UK construction capability, through progressively basing our activities around delivering integrated solutions for long-term customers, notably for PPP projects and for support services customers.  We continue to expect this re-scaling to reduce UK revenue from £1.8 billion in 2009 to around £1.2 billion by the end of 2012.  This further tightening of our selective approach to UK construction is helping us to improve operating margins, as we avoid bidding for low margin work in a market that is becoming increasingly competitive as the UK Government progressively implements substantial cuts in capital spending on construction over the next four years.

In Canada, our markets remain strong, notably the PPP market, which we believe will continue to be the key driver of our growth towards the target we announced in August 2010, of doubling our revenue in Canada to around £1 billion  over three to five years. 

Overall, first-half revenue in this segment is expected to reduce, as planned.  Nonetheless, we expect first-half operating profit to increase, compared with the corresponding period in 2010, as a result of a continuing improvement in operating margin.  In the full-year, we expect to see an improvement in our operating margin and to deliver growth in operating profit.  

Outlook

Despite the fact that market conditions remain challenging, we expect the Group to build on its strong first-half performance to deliver earnings growth in the full year.  Our ability to perform well continues to reflect the strength and resilience of our well balanced UK support services and international business mix, good revenue visibility and record pipeline of contract opportunities.    

Our medium term objectives for organic growth remain unchanged, namely to deliver substantial growth in support services from 2012 onwards and to double our annual revenues in the Middle East and in Canada over three to five years, in each case to around £1 billion.  

Presentation and conference call 

Carillion will be hosting a presentation for analysts and investors today on this trading update and on the Group's support service activities, focusing in particular on Carillion Energy Services, previously Eaga plc, which Carillion acquired on 21 April 2011.  The presentation will not include any material new information and will be available on the Carillion plc website at www.carillionplc.com/investors/investors_presentations.asp 

A telephone dial in facility will be available for the trading update section of the presentation, including the ability to ask questions, on ([phone]) from 09.00.  A playback facility will also be available following the call on Toll Free UK: 0800 358 3474 - Access Code: 4410375#  and Toll Free US: 1 800 406 7325 - Access Code: 4410375#

For further information contact

Richard Adam, Group Finance Director                                                                          tel: [phone]

John Denning, Group Corporate Affairs Director                                                              tel: [phone]

Finsbury

James Murgatroyd or Gordon Simpson                                                                          tel: [phone]

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  Notes to Editors

Carillion is a leading support services company with a substantial portfolio of Public Private Partnership projects and extensive construction capabilities.  The Group had annual revenue in 2010 of £5.1 billion, employs around 50,000 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.

On 21 April, Carillion acquired Eaga plc, which has been rebranded Carillion Energy Services (CES).  CES is a leading independent energy services provider and one of the largest installers of renewable technologies in the UK.  CES employs around 4,500 people and operates across three main markets: carbon services where CES is a market leader in the provision of carbon savings to energy generators and utilities to assist them in meeting their regulatory obligations; Heating and Renewables Services where CES is one of the largest installers of domestic heating and renewable technologies; and Managed Services where CES provides outsourced solutions to a range of customers.

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

 

END

 

 

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