Trading Statement

RNS Number : 5555X

Carillion PLC

08 December 2010

 



8 DECEMBER 2010                                           

PRE-CLOSE UPDATE ON TRADING IN 2010

CONTINUING GOOD GROWTH IN UNDERLYING PROFIT AND EARNINGS      

Carillion plc, one of the UK's leading support services companies, is providing this pre-close update on trading in the 12 months to 31 December 2010, ahead of announcing its preliminary results on 2 March 2011.

Group performance

The Group continues to perform well, despite tough market conditions in the UK, and expects to deliver continuing good growth in underlying profit before tax⁽¹⁾ and underlying earnings per share⁽²⁾.  Growth in profit is therefore expected to more than offset the effects of selling non-core businesses and equity investments in Public Private Partnership (PPP) projects in 2009, which together contributed some £17 million of underlying profit before tax.

Our ability to deliver earnings growth in current market conditions reflects the success of our strategy in creating a resilient and well-balanced UK support services and international business.  Consequently, we are well-positioned to make further progress in 2011 and, over the medium term, to target strong international growth alongside substantial growth in UK support services. Furthermore, the strategic decision we announced in May 2010, to reduce revenue in our UK construction business by one third over the next three years, has put us in a strong position to manage the impact of the reduction in capital investment by the UK Government over the next four years that was announced in the Spending Review on 20 October.    

Total revenue in 2010 is expected to be lower than in 2009 in line with previous guidance, reflecting the sale of non-core business and PPP equity investments, the reduction in UK construction and an ongoing focus on contract selectivity and financial discipline. 

We expect an improvement in the Group's overall operating margin in 2010, which was 3.8 per cent in 2009. 

Underlying cash flow from operations remains strong and is once again expected to exceed underlying profit from operations.  Therefore, we expect to maintain a positive net cash position at 31 December 2010.

We continue to have good revenue visibility and in the second half of the year additions to the Group's order book have so far exceeded £1 billion.  The Group also has a substantial and growing pipeline of contract opportunities, which supports our objectives for medium term growth.   

The results of the UK Government's Spending Review, announced on 20 October 2010, were in line with our expectations and are already reflected in our guidance to the Market.  Our discussions with the UK Government in respect of existing contracts with Central Government customers, under its Supplier Engagement Programme, are progressing well and we do not expect the outcome of these discussions to have a material effect on Market guidance.     

⁽¹⁾  After Joint Venture taxation and before intangible amortisation, non-recurring operating items and non-operating items.  

⁽²⁾  Before intangible amortisation, non-recurring operating items and non-operating items.

Support services

Support services, which makes the largest contribution to the Group's underlying operating profit, continues to perform satisfactorily.  Revenue will be lower than in 2009, for the reasons previously announced, namely the sale of non-core businesses and our focus on contract selectivity and financial discipline.  As a result, we expect to improve our operating margin and achieve our target margin of five per cent.  Our substantial, high quality order book and probable new orders continue to provide good revenue visibility.  In addition, we have our largest ever pipeline of contract opportunities, primarily as a result of UK Local Authorities starting to look at opportunities to outsource more services to improve efficiency and reduce costs.  We therefore expect to make progress in 2011 and continue to expect the benefits of increased public sector outsourcing to come through towards the end of 2011, leading to substantial growth in 2012 and beyond.    

Public Private Partnership (PPP) projects

Our portfolio of 26 investments in PPP projects, from which we target and achieve a 15 per cent internal rate of return, continues to generate substantial value for the Group.  Some £74 million has been invested in the portfolio to date and a further £110 million will be invested as projects currently under construction are completed and move into the operational phase.  The outlook for adding further investments to our portfolio continues to be encouraging.  Currently, we are shortlisted for five projects in the UK and Canada, in which we could invest up to a further £160 million of equity.  Looking further ahead, in Canada, Infrastructure Ontario is expected to announce a major expansion of its PPP investment programme in the first half of 2011.  In the UK, the Government continues to use private finance to deliver existing building and infrastructure programmes and has also announced that private finance will play a key role in delivering the five-year, £200 billion National Infrastructure Plan, published on 25 October 2010.             

Middle East construction services

As expected, second-half revenue growth in Middle East has been very strong, reflecting the timing of new project starts.  Our operating margin has also remained strong, in line with the guidance we gave at the half year, with full-year earnings firmly in line with our expectations.  We continue to have a good order book and pipeline of probable new orders, plus a large and growing pipeline of contract opportunities, reflecting the strength of the markets in Abu Dhabi, Oman and Qatar.  We also continue to explore the expansion of our operations into Saudi Arabia, which potentially offers further major opportunities for growth.  Therefore, the outlook continues to be positive and supports our objective of doubling our share of revenue from our Middle East businesses to around £1 billion over the next three to five years.  Margins are still expected to reduce steadily over the same period to around six per cent, but given the prospects for doubling Carillion's revenue from this region, we continue to target substantial earnings growth over this period.

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Construction services (excluding the Middle East)

We are making good progress with the strategic re-scaling of our UK construction business, announced in May 2010, through basing our UK construction capability largely around the delivery of integrated solutions for PPP projects and support services customers.  Therefore, we expect to reduce UK construction revenue in 2010 from its 2009 level of some £1.8 billion, as we move towards our objective of reducing it to around £1.2 billion over the next three years.  In Canada, we expect revenue to increase, as we make progress towards our target of doubling revenue in Canada to around £1 billion, over the next three to five years.  Taking a selective approach to UK construction is helping to support margins in this segment by enabling us to avoid bidding for lower margin work, as market conditions become more competitive as a result of the UK Government's decision to reduce capital investment in real terms by around one third over the next four years. 

Outlook

Although trading conditions are expected to remain difficult, especially in our UK markets, the Group is well positioned to make further progress in 2011 and to deliver its objectives for medium-term growth, namely doubling the revenues of our international businesses, while delivering substantial growth in UK support services as a result of the expected increase in outsourcing by public sector customers seeking to reduce costs.     

Conference call for analysts and investors

Carillion Chief Executive, John McDonough and Group Finance Director, Richard Adam, will host a conference call on this statement for analysts and investors at 9:00am today,  8 December 2010.  The telephone number to join this call is + 44 (0) 208 515 2302.  A replay facility is also available following the call on Toll Free UK: 0800 358 3474 - Access Code: 4386621#  and Toll Free US: 1 800 406 7325 - Access Code: 4386621# 

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                                                         + 44 (0) 20 7251 3801

Gordon Simpson                                                             

Notes to Editors

Carillion is one of the UK's leading 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 some 50,000 people and operates across the UK, in the Middle East, Canada and the Caribbean.

In the UK, Carillion's principal market sectors are Defence, Education, Health, Facilities Management & Services, Rail, Roads, Building, Civil Engineering and Utilities Services.     

In the Middle East, Carillion's principal market sectors are Construction and Facilities Management. In Canada and the Caribbean, the Group's main sectors are Health, Roads Maintenance and Construction.

Carillion's portfolio of equity investments in Public Private Partnership projects includes projects in the UK and Canada, particularly in the Defence, Education, Health and Transport sectors.

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.

 

END

 

 

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