Final Results - Year Ended 31 December 1999
Carillion PLC
14 March 2000
Carillion plc 1999 preliminary results
Carillion is changing shape
Construction to services group Carillion plc today announces its preliminary
results for the year ended 31 December 1999. Carillion was launched as an
independent company in July 1999, following its demerger from Tarmac plc.
Highlights
Operating profit after exceptional items up 11.3% to £41.3 million.
Operating margin up from 2.0 % to 2.3 %.
Pre-tax profit £35.1 million.
Final dividend of 2.7 pence makes total for the year 4.0 pence.
Private Finance, Infrastructure Management and Services sectors now account
for 64% of the order book.
A growing stream of longer term, good quality earnings.
Chairman Sir Neville Simms says, Our order book has nearly trebled over the
last five years to £2.2 billion, but more importantly orders in our growth
sectors of Private Finance, Infrastructure Management and Services have
increased tenfold to £1.4 billion.
I am therefore confident that, against a strengthening economic background, we
have created in the UK and our overseas regions an excellent platform from
which to benefit from the growing trend in outsourcing by both the
public and private sectors.
For further information
Carillion plc
John Denning (Media)
Head of Corporate Affairs and Communications 01902 316426
Chris Girling (Analysts)
Finance Director 01902 422431
Shandwick
Rollo Head
Tom Leatherbarrow
Philip Robinson 0171 329 0096
Note: All the above can be contacted at The Redgrave Suite, Barbican on 0207
638 4141 between 0930 and 1300 and on the above numbers thereafter.
Chairman's Statement
I am delighted to report that 1999 was both a successful year and an important
milestone in the development of our business.
The demerger from Tarmac plc in July 1999 saw Carillion successfully launched
as an independent company, more focused and better able to pursue its strategy
for growing shareholder value - a strategy that is changing both what we do
and how we do it.
Despite the considerable effort demanded by the demerger, all our businesses
remained clearly focused on their customers. Their success is evident in the
Group's improved results, which reflect an increasingly prudent approach to
profit recognition.
Operating profit after exceptional items grew by 11.3% to £41.3 million, on
turnover some 3.4% lower at £1.8 billion. Operating margins increased from
2.0% to 2.3%.
I believe that these results demonstrate progress with all our key value
drivers, but in particular:
an improvement in our operating performance
rapid repositioning towards Private Finance, Infrastructure Management and
Services
a growing stream of longer term, good quality earnings.
Net interest payable was £6.2 million and profit before tax £35.1 million.
Net cash at 31 December was £131.5 million. This was only 2.3% lower than at
31 December 1998, despite the adverse effects of our planned reduction in
higher risk civil and turnkey process engineering projects. Earnings per
share were 11.5 pence, compared with 1998 proforma earnings per share of 9.6
pence.
In the light of our full year performance and encouraging prospects for the
coming year, your Board is recommending the payment of a final dividend of 2.7
pence, making a total for the year of 4.0 pence. The final dividend will be
paid on 7 July 2000 to shareholders on the Register at close of business on 24
March 2000. A scrip dividend alternative will also be offered.
We were pleased to welcome Chris Girling to the Board in November, as Group
Finance Director, and look forward to Andrew Parrish joining us as a
non-executive director on 31 March 2000.
Looking forward, we shall continue to pursue the strategy that has seen the
proportion of our turnover that comes from the growth segments of Private
Finance, Infrastructure Management and Services more than double to 36%, over
the last five years. Significantly, our order book in these segments has
increased tenfold to £1.4 billion over the same period and now represents some
64% of our total order book, which has nearly trebled to £2.2 billion. In
addition, we will benefit from more than £1 billion of turnover over the next
25 years from our equity investments to date in PFI concessions.
The UK economy is continuing to strengthen and we have created a strong
platform from which to benefit from the increasing trend in both the
public and private sectors, here and abroad, to outsource their non-core
services. I am therefore confident that the outstanding skills and commitment
of our management and employees will enable us to expand our growth segments
rapidly in the years ahead, further improving both the quantity and quality of
our earnings.
Operating Review
Carillion's strategy for creating shareholder value is focused on:
Continuing to improve our operating performance, through reducing costs,
greater project selectivity and process improvement.
Re-positioning the existing business for growth in the higher quality earnings
sectors of infrastructure management, facilities management and PFI.
Selective disposals.
To increase transparency and help our shareholders to understand the value of
Carillion's activities, and to facilitate benchmarking, we adopted a new
financial reporting structure at the time of our interim results announcement
in October 1999. This comprises five reporting segments, each of which is
reviewed below.
Services
Turnover in Services, increased by 12% to £323 million, with operating profit
up 54% to £8.6m and margins up from 1.9 % to 2.7%, as a result of an improved
operating performance.Our order book reduced from £338 million at the end of
1998 to £277 million as a result of a more selective approach in M&E
contracting and the fact that the major facilities management orders won
during the year were in our PFI segment.
Carillion Services, which provides customers with a strategic partner to take
complete responsibility for a wide range of integrated facilities management
services, had a very successful year. It continued to focus on delivering
high quality non-core services in four key areas - support services, property
management, facilities development and building control.
Carillion's position as a leading supplier of non-clinical support services to
the NHS was reinforced by the award of three new contracts under the PFI
schemes for South Glasgow University Hospital NHS Trust, North Staffordshire
Combined Healthcare NHS Trust and Swindon and Marlborough NHS Trust - adding
to the five district general hospitals where it already provides integrated
facilities management services.
The first outsourcing contract in the Constabulary sector for property
management services was awarded to Carillion Services by the Metropolitan
Police. The award of three further contracts by the Ministry of Defence for
property management services for its housing estate has consolidated
Carillion's position as one of the MOD's leading suppliers in this market.
Carillion Services also strengthened its position in the building control and
property legislation market by developing framework agreements with Bass
Leisure Retail, Whitbread, Somerfield and Accor Group, for the provision of
consultancy services.
Crown House Engineering maintained its position as one of the UK's leading M&E
contractors specialising in its selected markets of high-tech clean factories
and industrial sites, leisure, offices, health, prisons and transport. It
targeted a number of growth opportunities, especially in the health sector,
where it has increased its portfolio of hospital contracts, the largest of
which is a £40 million contract for the Norfolk and Norwich Hospital.
Infrastructure Management
Turnover in infrastructure management, which includes our road and rail
maintenance activities, declined by 9% to £234 million as a result of the
delayed release by Railtrack of track renewal work. Consequently, operating
profit declined by 11% to £13.1 million, but despite increasingly competitive
market conditions, margins were only slightly lower at 5.6% as a result of
early action to reduce costs and our continuing drive to improve efficiency.
Our order book increased by 25% to £245 million, compared with the end of
1998. Consequently, we expect the reduction in turnover in 1999 to be
redressed in the years ahead as more opportunities arise from increasing
expenditure on the maintenance and renewal of the UK's road and rail networks
and the increasing trend to invite the private sector to bid for road
maintenance work currently carried out by the public sector.
In 1999, Railtrack awarded Carillion and its joint venture partners new
contracts of varying duration over the next five years worth nearly £450
million. These contracts will provide some £250 million of turnover for
Carillion Rail, further strengthening its position in this important growth
market. They included new area maintenance contracts, giving GTRM, our joint
venture maintenance company, a 30% share of the rail maintenance market.
Another was the first phase of overhead electrification of the West Coast
Route Modernisation that will lead to two further substantial contracts in
2000 for the second and third phases of this project. As a member of London
Underground's Corporate Track Alliance Programme, we also continue to provide
a track renewal service on the Underground.
Prospects for 2000 and beyond are also encouraging as Carillion is well
positioned to take advantage of accelerated spending by Railtrack on its £27
billion programme for heavy maintenance and upgrading of the rail network.
Carillion maintained its position as a market leader in road maintenance,
which involves routine and rapid response maintenance, as well as
reconstruction, of the motorway, trunk and local authority road networks in
Great Britain. With term maintenance contracts for about 22% of the
Government's motorway and trunk road network in England as well as five term
maintenance contracts for Local Authority road networks, this business
continued to perform strongly.
Private Finance
Carillion is the UK leader in Private Finance construction with a
large and growing portfolio of contracts that offer premium construction
margins and predictable long term cash flows from equity investments,
facilities management and maintenance. Although turnover and operating profit
remained broadly unchanged at £95 million and £5.0 million, respectively,
these figures do not yet reflect the growing momentum in our private finance
activities. As more projects reach financial close and move forward into the
construction phase, turnover and, more importantly, profit, are expected to
increase sharply.
During 1999, financial close was achieved on a further four PFI projects. As
a result, we now have twelve financially closed projects, increasing our order
book by 165% to £765 million. With a further two projects at preferred bidder
stage, we have fourteen projects, primarily in the health, secure
establishments and transport sectors. As a result of creating this strong
portfolio of PFI projects, in the last few years Carillion has secured or
become the preferred bidder for construction contracts worth £860 million and
contracts for facilities management and for maintenance, over the life of the
PFI concessions, worth in the region of £650 million. Even more importantly,
we also have equity investments in the PFI concession companies that are
expected to generate for Carillion turnover in excess of £1 billion over the
life of the concessions.
We will use this powerful base to widen our focus during the coming year to
include PFI opportunities in the defence, education and social housing
sectors, to take full advantage of planned Government spending of £6.5billion
over the next two years. We also intend to pursue selected PFI opportunities
in our international regions.
Capital Projects
Turnover in Capital Projects, which includes all our non-PFI civil engineering
and process engineering work in the UK and our overseas regions, was reduced
by 8% to £490 million. This reflects our continuing withdrawal from higher
risk turnkey process engineering projects. However, greater selectivity and
some early benefits from our cost reduction programme helped to improve
operating profit by 24% to £4.2 million and lift margins to around 0.9%.
Our order book for Capital Projects was reduced to £290 million from £539
million at the end of 1998. Reducing the scale of our activities will, over
time, enable us to reduce the level of working capital required by this
segment of our business.
Civil Engineering continued to focus on improving its operating performance
through greater selectivity, reducing costs and improving process and risk
management. The performance of our Regional Overseas Businesses, in France,
the Middle East, Canada, the Caribbean and Ireland continued to improve
significantly through their sharper focus on local markets where they have
strong track records with good longer-term growth prospects.
Building
Turnover in Building, which includes all our non-PFI building activities, was
reduced by around 8% to £711 million due to the combined effects of being more
selective in the work we tendered for and weaker market conditions in the
first half of the year. However, as the year progressed, confidence grew and
market conditions improved, resulting in an order book only 6% lower at £542
million, by the year end. Greater project selectivity resulted in an improved
operating performance with operating profit, including a broadly unchanged
contribution from property development, increasing by 8 % to £16.7 million and
margins up from 2.0% to 2.3%. In this segment we continue to operate with a
significant level of negative working capital.
Carillion Building maintained its position as the UK market leader, focused on
developing long-term relationships with its customers and on selective growth
opportunities in the retail, office and leisure sectors where it has the
specific skills and resources to add value to its customers and secure a
competitive advantage. Being selective in the work tendered for has not only
improved operating performance, but steadily increased the average value of
projects won over the last year to £6.5 million - up from £5.5 million in 1998
and from under £2 million four years ago. Around 35% of orders received in
1999 came from long-term key customers. Market conditions in Carillion
Building's preferred sectors look set to remain favourable throughout 2000 and
should enable it to capitalise on its leading market positions.
Carillion Housing is the UK leader in building, refurbishing and repairing
social housing and accommodation for Local Authorities, Housing Associations
and Government departments. Despite difficult market conditions in 1999, it
achieved some notable successes, including its first construction contract for
a major PFI scheme at Lakenheath for the US Air Force. Carillion Housing is
well placed to take advantage of increasing spending by Local Authorities from
the release of housing capital receipts, the trend towards larger projects,
increased outsourcing and the use of private finance.
Schal, a UK leader in construction and project management, added to its
successful track record in high-profile projects with the successful
completion of the refurbishment of the Royal Opera House and the
conversion of Bankside Power Station into the new Tate Modern. It also
continued to win work with long-term key clients.
Consolidated Profit and Loss Account
for the year ended 31 December 1999
31 31
December December
1999 1998
£m £m
Total turnover 1,802.3 1,866.1
Deduct turnover of joint ventures (193.8) (183.6)
_______ _______
Group turnover 1,608.5 1,682.5
Cost of sales (1,455.5) (1,532.5)
_______ _______
Gross profit 153.0 150.0
Other expenses (123.0) (133.6)
Group operating profit before 31.5 20.9
exceptional operating items
Founders' Equity Plan (1.5) -
Other exceptional operating items - (4.5)
_____ _____
Group operating profit 30.0 16.4
Share of joint ventures:
Operating profit before 11.3 22.1
exceptional items
Exceptional operating items - (1.4)
_______ ________
Total operating profit 41.3 37.1
Net interest payable:
Group (3.7) (17.1)
Joint ventures (2.5) (0.5)
_____ _____
(6.2) (17.6)
_______ ________
Profit on ordinary activities 35.1 19.5
before taxation
Tax on profit on ordinary (11.6) (13.6)
activities
_______ ________
Profit on ordinary activities 23.5 5.9
after taxation
Equity minority interests 0.1 (0.1)
_______ ________
Profit for the financial year 23.6 5.8
Equity dividends (8.2) -
_______ ________
Retained profit for the Group and 15.4 5.8
its share of joint ventures
======= ========
Earnings per ordinary share
- Basic 11.5p 2.8p
======= ========
- Before all exceptional items 12.0p 4.8p
======= ========
Diluted earnings per ordinary
share
- Basic 11.5p
=======
- Before all exceptional items 12.0p
=======
Dividends per ordinary share 4.0p
=======
The results set out above relate to continuing businesses.
Consolidated Balance Sheet
At At
31 31
December December
1999 1998
£m £m
Fixed assets
Intangible assets 1.7 1.7
Tangible assets 54.0 60.5
Investments in joint ventures:
Share of gross assets 297.4 279.5
Share of gross liabilities (266.7) (239.4)
_____ _____
30.7 40.1
_______ ________
86.4 102.3
_______ ________
Current assets
Stocks 60.2 56.8
Debtors 510.5 527.2
Investments 5.4 1.6
Cash at bank and in hand 147.3 140.6
_______ ________
723.4 726.2
Creditors: amounts falling due
within one year
Bank loans and overdrafts (5.0) (5.8)
Other creditors (658.7) (702.4)
_______ ________
(663.7) (708.2)
Net current assets
Due within one year 35.3 (11.8)
Debtors due after more than one 24.4 29.8
year _____ _____
_______ ________
59.7 18.0
_______ ________
Total assets less current 146.1 120.3
liabilities
Creditors: amounts falling due
after more than one year
Bank loans (10.8) (0.2)
Other creditors (7.2) (9.2)
_______ ________
(18.0) (9.4)
Provisions for liabilities and (3.9) (3.9)
charges
_______ ________
Net assets 124.2 107.0
======= ========
Financed by:
Capital and reserves
Called up share capital 102.5 102.3
Share premium account 0.3 -
Revaluation reserve 0.1 0.1
Merger reserve 8.2 7.3
Profit and loss account 13.1 (2.8)
_______ ________
Equity shareholders' funds 124.2 106.9
Equity minority interests - 0.1
_______ ________
Total capital employed 124.2 107.0
======= ========
Consolidated Cash Flow Statement
Year ended Year ended
31 December 31 December
1999 1998
£m £m
Net cash outflow from operating (10.7) (50.8)
activities
_______ ________
Loan (advance)/repayment from (6.1) 9.2
joint ventures
Returns on investments and
servicing of finance
Interest paid (5.1) (22.6)
Finance lease charges (0.1) (0.1)
Interest received 0.9 5.6
Dividends received from joint 21.2 0.9
ventures _____ _____
Net cash inflow/(outflow) from
returns on investments and 16.9 (16.2)
servicing of finance
Corporate taxation paid (1.7) (5.5)
Capital expenditure and financial
investment
Payments to acquire fixed assets (9.7) (12.3)
Payments to acquire current asset (3.8) (1.6)
investments
Sale of tangible fixed assets 3.4 4.9
Net cash outflow from capital _____ _____
expenditure and financial (10.1) (9.0)
investments
Acquisitions and disposals
Sale of businesses - 13.7
Purchase of businesses - 3.0
Equity investment in joint (0.2) (2.7)
ventures _____ _____
Net cash (outflow)/inflow from (0.2) 14.0
acquisitions and disposals
Equity dividends paid (2.2) -
_______ ________
Net cash outflow before management
of liquid resources and (14.1) (58.3)
financing
Management of liquid resources
Decrease/(Increase) in short term 2.4 (0.1)
deposits ____ ____
Net cash inflow/(outflow) from 2.4 (0.1)
management of liquid resources
Financing
Drawdown/(Repayment) of debt 10.6 (0.1)
Cash dowry on demerger 12.4 -
Repayment of finance leases (1.0) -
_____ _____
22.0 (0.1)
_______ ________
Increase/(Decrease) in cash in the 10.3 (58.5)
year
======= ========
Reconciliations of operating profit to net cash outflow from operating
activities
1999 1998
£m £m
Carillion Group operating profit before 42.8 43.0
exceptional items
Share of operating profits of joint (11.3) (22.1)
ventures
Depreciation 13.1 13.5
Profit on disposal of fixed assets (0.4) -
Amortisation of goodwill - 0.1
Decrease in provisions - (35.4)
Increase in stocks (5.2) (14.6)
Increase in debtors (3.0) (6.3)
Decrease in creditors due within one (44.5) (34.0)
year
(Decrease)/increase in creditors due (0.7) 2.1
after more than one year
(Decrease)/increase in bills of (1.5) 7.4
exchange
_____ _____
Net cash outflow from operating (10.7) (46.3)
activities before exceptional items
Exceptional operating cash spend - (4.5)
_____ _____
Net cash outflow from operating (10.7) (50.8)
activities
===== =====
Analysis of changes in net funds
Cash at Short Short term Long term Net
bank term bank borrowings funds
deposits overdrafts
£m £m £m £m £m
Net funds at 31 114.5 26.1 (5.8) (0.2) 134.6
December 1998 ===== ==== === === =====
Net funds
Increase in cash 9.2 - 1.1 - 10.3
Cash inflow from
management of liquid - (2.4) - - (2.4)
resources
Net drawdown of loans - - - (10.6) (10.6)
Effect of foreign (0.1) - (0.3) - (0.4)
exchange rate changes _____ ____ ___ ___ _____
Movement in net funds 9.1 (2.4) 0.8 (10.6) (3.1)
in the year
Net funds at 1 114.5 26.1 (5.8) (0.2) 134.6
January 1999 _____ ____ ___ ___ _____
Net funds at 31 123.6 23.7 (5.0) (10.8) 131.5
December 1999 ===== ==== === ==== =====
NOTES TO THE FINANCIAL STATEMENTS
1. Analysis of total turnover and operating profit and net assets
Total turnover Total Net assets/
operating (liabilities)
profit
Class of business 1999 1998 1999 1998 1999 1998
£m £m £m £m £m £m
Building 711.1 774.6 16.7 15.5 (77.5) (79.4)
Capital Projects 490.4 533.6 4.2 3.4 63.5 43.3
Services 322.7 287.6 8.6 5.6 (10.3) (26.8)
Infrastructure 233.6 256.7 13.1 14.7 7.3 14.4
Management
Private Finance 95.1 97.1 5.0 4.8 17.8 6.9
Internal trading (50.6) (83.5) - - - -
Corporate centre - - (4.0) - (8.1) 14.0
Tarmac management - - (2.3) (6.9) - -
charge
Net cash - - - - 131.5 134.6
_______ _______ ____ _____ _____ _____
1,802.3 1,866.1 41.3 37.1 124.2 107.0
======= ======= ==== ===== ===== =====
Geographical
origin:
UK 1,494.2 1,543.3 37.4 26.7 (8.2) (28.8)
Europe 148.9 158.6 (0.1) 0.3 (15.5) (5.6)
Other 159.2 164.2 4.0 10.1 16.4 6.8
Net cash - - - - 131.5 134.6
_______ _______ ____ _____ _____ _____
1,802.3 1,866.1 41.3 37.1 124.2 107.0
======= ======= ==== ===== ===== =====
The analysis of turnover by geographical market served is not materially
different from that by geographical origin.
Exceptional operating items may be analysed by business segments as follows:
1999 1998
Class of business £m £m
Building (0.3) (2.5)
Capital Projects (0.2) (3.4)
Services (0.1) -
Infrastructure Management (0.2) -
Private Finance (0.1) -
Corporate centre (0.6) -
_____ _____
(1.5) (5.9)
===== =====
Analysed between:
Subsidiary undertakings (1.5) (4.5)
Joint ventures - (1.4)
_____ _____
(1.5) (5.9)
===== =====
The group's share of the trading results of joint ventures after exceptional
items was as follows:
Turnover Operating Net assets
profit
1999 1998 1999 1998 1999 1998
Class of £m £m £m £m £m £m
business
Building 13.2 20.8 2.9 5.8 0.8 3.3
Capital 65.9 66.6 (5.1) 2.4 15.5 19.3
Projects
Services - - - - - -
Infrastructure 104.3 89.8 9.2 9.8 7.8 8.6
Management
Private 16.8 12.8 4.3 2.7 6.6 8.9
Finance
Internal (6.4) (6.4) - - - -
trading
_____ _____ ____ ____ ____ ____
193.8 183.6 11.3 20.7 30.7 40.1
===== ===== ==== ==== ==== ====
Geographical
origin:
UK 154.6 145.1 14.7 18.4 32.4 40.5
Europe 7.8 9.8 (0.5) 0.3 (2.8) (2.5)
Other 31.4 28.7 (2.9) 2.0 1.1 2.1
_____ _____ ____ ____ ____ ____
193.8 183.6 11.3 20.7 30.7 40.1
===== ===== ==== ==== ==== ====
2. Basis of Preparation
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 1998 and 1999. The
statutory accounts for the financial year ended 31 December 1999 (which will
contain comparative figures for the financial year ended 31 December 1998)
will be delivered to the Registrar of Companies following the Company's next
Annual General Meeting. The comparative figures for the year ended 31 December
1998 have been prepared in accordance with the principles of merger accounting
as set out in Financial Reporting Standard 6 'Acquisitions and Mergers', as if
the Carillion Group had been in existence throughout the year ended 31
December 1998 and up to the date of the demerger from Tarmac plc on 29 July
1999.
On demerger the share capital of £102.3 million was issued by the Company and
was recorded at the nominal value of the shares issued to shareholders in
Tarmac plc. In accordance with Sections 131 and 133 of the Companies Act 1985,
no premium was recorded on the shares issued. On consolidation the difference
between the nominal value of the Company's shares issued and the amount of
share capital and share premium of £7.3 million at the date of demerger has
been credited to merger reserve.
The Auditors have reported on the statutory accounts for the financial year
ended 31 December 1999 (which contain comparative figures for the financial
year ended 31 December 1998); their report was unqualified and did not contain
a statement under Section 237(2) or (3) of the Companies Act 1985.
3. Foreign exchange translation
Profits and losses of overseas companies, joint ventures and joint
arrangements have been translated into sterling at the rates of exchange
ruling at the year end.
4. Posting of statutory accounts to shareholders
The Company's report and accounts will be posted to shareholders by 7 April
2000. From that date copies will be available from the Registered Office,
Carillion plc, Birch Street, Wolverhampton, WV1 4HY.
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