Trading Statement

RNS Number : 1640L

Carillion PLC

02 July 2014

 



2 JULY 2014              

HALF-YEAR TRADING UPDATE  

PERFORMANCE IN LINE WITH EXPECTATIONS 

Carillion plc is providing this update on trading in the first six months of 2014 ahead of announcing its interim results on 20 August 2014.

First-half highlights

·      First-half performance in line with expectations and full-year targets unchanged

·      First-half revenue expected to be slightly lower, as previously announced, but on track to resume revenue growth in the full year

·      First-half underlying earnings in line with expectations, with a slightly improved operating margin

·      New order intake remains strong, with first-half orders and probable orders of £2.7 billion

·      Cash flow expected to be strong with profit fully cash-backed and average net debt reducing

  Group performance

The Group has continued to perform in line with the expectations set out in our Interim Management Statement on 7 May 2014.  This continues to reflect the benefits of the early actions taken in response to the economic downturn, notably the planned rescaling of the Group's UK construction business, together with the Group's continuing strong work winning performance.  

Total first-half revenue is expected to be slightly lower than in the corresponding period in 2013, as previously announced.  However, the Group remains on track to resume revenue growth in the full year as we continue to target growth in support services, Middle East construction services and in construction services (excluding the Middle East) having completed the rescaling of our UK construction activities by the end of 2013.     

Operating margins are expected to increase in the first half as we continue to be very selective in terms of the contracts for which we bid and remain focused on our ongoing cost management programmes.  The contribution to Group profit from our investments in Public Private Partnership projects remains in line with our expectations and, as previously announced, this will be lower than in 2013, because we will sell fewer investments in 2014.  Therefore, overall we anticipate that the Group's first-half earnings will be in line with our expectations. 

First-half cash flow was strong, with profit fully cash-backed and a significant reduction in average net borrowing.  Furthermore, net borrowing at 30 June 2014 is now expected to be broadly similar to the £215.2 million we reported at 31 December 2013, notwithstanding the effect of paying the final dividend in respect of 2013 of approximately £52 million on 13 June 2014.  We continue to expect average net borrowing in the full year and net borrowing at the year end to be lower than in 2013, as the Group returns to positive net cash generation.      

Work-winning has remained strong, with new first-half orders and probable orders worth approximately £2.7 billion, which is expected to increase the total value of our order book plus probable orders to over £18.5 billion at the half year (31 December 2013: £18.0 billion).  Furthermore, we expect the Group's pipeline of contract opportunities to increase slightly at the half year to around £38 billion (31 December 2013: £37.5 billion).   

  Business segments

Support services

Revenue is expected to be broadly similar to that in the first half of 2013, with an improved operating margin.  We have therefore continued to make good progress with replacing the £70 million or so of revenue lost in the first quarter of 2013, due to a number of energy services contracts coming to an end as a result of changes in Government policy and legislation.  In the full-year, we continue to target revenue growth at a stable operating margin. 

In the first half of 2014, we won orders and probable orders in support services worth some £1.7 billion, which included a number of major contracts.  Carillion joint ventures bid for five Next Generation Estate Contracts for the Defence Infrastructure Organisation and so far they have been awarded two of these contracts, namely the National Prime Housing contract and the Scotland and Northern Ireland Regional Prime contract. These two contracts are together worth an estimated £520 million to Carillion over the initial five-year contract period, which can be extended to ten years and a total potential value to Carillion of over £1 billion, including additional services.  In May 2014, the Defence Infrastructure Organisation informed Carillion's joint ventures of the Ministry of Defence's decision to award them the Next Generation Estate Contracts for the Central, South West and South East regions.  This decision was subsequently challenged by one of the other bidders and managing the response to this challenge is a matter for the Defence Infrastructure Organisation.  The potential value of these three contracts has not yet been included in Carillion's order book or in probable orders.     

Other notable contract successes included signing contracts for Royal Bank of Scotland and Arqiva, which were classified as probable orders at 31 December 2013, and securing contracts for Nottingham University Hospitals NHS Trust and Canadian Natural Resources Limited that together are worth approximately £570 million.  In addition, Network Rail appointed Carillion as a preferred partner for a number of framework contracts, which form part of Network Rail's Control Period 5 programme, that together have the potential to generate over £1 billion of revenue for Carillion.  

  Public Private Partnership (PPP) projects

Our portfolio of PPP projects continues to perform well and we have continued our policy of selling equity investments in mature projects with the sale of two investments in the first half, generating cash proceeds of approximately £28 million, which represented an average discount rate of seven per cent.  At 30 June 2014, we had a portfolio of 18 financially closed projects in which we had invested approximately £52 million of equity and in which we are committed to invest a further £93 million of equity. 

During the first half, a Carillion joint venture was selected as the preferred bidder for the Aberdeen Western Peripheral Route in which we expect to invest up to £20 million of equity.  In addition, we are currently shortlisted for five projects in the health and education sectors in which we could invest a total of £45 million of equity.  Beyond this, we continue to have a substantial pipeline of project opportunities in Canada, especially in the health sector, as well as further opportunities in the health and education sectors in the UK. 

Middle East construction services

First-half revenue in Middle East construction services is expected to be broadly similar to that in the first half of 2013, with an improved operating margin.  In the full year, we continue to target revenue growth at an improved operating margin, reflecting our success in winning new orders, as we continue to see increasing opportunities in several of our key markets.  

In the first half, we won orders and probable orders in Middle East construction services worth in the region of £0.3 billion. Al Futtaim Carillion (AFC, a 50:50 joint venture) had a number of major successes in Dubai, including Phase IV of the Madinat Jumeirah Resort project, a further luxury hotel, Phase 1 of the Dubai World Trade Centre that together are worth approximately £370 million to the joint venture. AFC also signed contracts for the Avenue CityWalk development in Dubai and the Hard Rock Hotel in Abu Dhabi, which together are worth over £200 million to the joint venture that was included in probable orders at the end of 2013.   In addition, Carillion Saudi Arabia was awarded a £70 million contract in June 2014 to build the Aldara Hospital and Medical Centre in Riyadh, our second hospital project in the Kingdom of Saudi Arabia.  

Construction services (excluding the Middle East)

Revenue in construction services (excluding the Middle East) is expected to be lower than in the first half of 2013, as previously announced.  However, as we had completed the rescaling of our UK construction activities by the end of 2013, we continue to target revenue growth in the full year.  We expect our first-half operating margin to be higher than in the first half of 2013, due to a number of favourable contract settlements.  In the full-year, we continue to expect the margin in this segment to reduce in line with our previous guidance.  We also continue to believe that our normalised, medium-term margin in this segment will be significantly higher than the margin we had prior to rescaling our UK construction activities and also ahead of the industry average.  

In the first half, we won new orders and probable orders in construction services (excluding the Middle East) worth some £0.5 billion.  Notable first-half successes include the appointment of a Carillion joint venture as the preferred bidder for the Aberdeen Western Peripheral Route Public Private Partnership project, which is expected to generate construction revenue of some £175 million, and being selected as the preferred bidder to deliver Liverpool Football Club's Main Stand Expansion project, which has an estimated construction value in the region of £75 million.     

Outlook

Overall, the Group continues to perform in line with our expectations and remains on track to resume revenue growth in 2014, despite market conditions remaining challenging.  First-half cash flow has been strong and we expect profit to be fully cash-backed in the first-half and in the full year, as net borrowing reduces and the Group returns to positive net cash generation in the full year.  New order intake has remained strong and we continue to win good quality work, in line with our selective approach, which remains central to our strategy.  Therefore, with a strong order book and a substantial pipeline of contract opportunities, our expectations for the full year and our medium-term targets for growth, remain unchanged.  

Conference call 

Carillion Group Chief Executive, Richard Howson and Group Finance Director, Richard Adam, will host a conference call on this trading update for analysts and investors at 09.00 on 2 July 2014.  The telephone number to join this call is 0844 800 3850 - passcode: 155 712.  A replay facility is also available following the call on UK: 0800 032 9687- passcode: 93049483 - Overseas: 0207 136 9233 - passcode: 93049483. 

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]

  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 had annual revenue in 2013 of some £4.1 billion, employs around 40,000 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 investing activities in PPP projects for   Government buildings and infrastructure, mainly in the Defence, Health, Education, Transport and Secure accommodation sectors.

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

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

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

 

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