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Carillion PLC (CLLN)

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Wednesday 03 July, 2013

Carillion PLC

Trading Statement

RNS Number : 4601I
Carillion PLC
03 July 2013
 



3 JULY 2013              

HALF-YEAR TRADING UPDATE   

PERFORMANCE IN LINE WITH EXPECTATIONS  

 

Carillion plc is providing this update on trading in the first six months of 2013 ahead of announcing its interim results on 22 August 2013.

 

Highlights

 

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

·      As expected, the planned re-scaling of UK construction has led to lower first-half revenue  

·      First-half underlying operating profit(1) expected to increase  

·      New order intake strong with first-half orders and probable orders of £2.9bn

·      Net debt at the half year is expected to be around £270m          

 

  Group performance

 

The Group's performance in the first six months of the year has remained in line with the expectations set out in the Group's Interim Management Statement on 1 May.  New order intake is strong, with first-half orders and probable orders worth over £2.9 billion, which we expect will maintain the total value of orders and probable orders at some £18 billion.  This is despite removing £0.6 billion from the order book as a result of selling equity investments in Public Private Partnership (PPP) projects.  The Group's pipeline of contract opportunities at the half year is expected to increase to over £37 billion (31 December 2012: £35.2 billion), which, together with our strong order book, continues to support our objectives for 2013 and also our medium term targets for growth.   

 

As expected, total revenue in the first half of 2013 will be lower than in the corresponding period in 2012, primarily because the rescaling of UK construction resulted in the Group having a lower revenue run rate.  However, we expect total revenue in the second half of 2013 to be higher than in the first half and we continue to target growth in total revenue for the full year.  

 

First-half operating margins in support services, Middle East construction services and construction services (excluding the Middle East) have remained in line with our expectations.  We expect the operating margin and operating profit in PPP projects to be first-half weighted, because we completed the sale of four PPP equity investments before 30 June.  As a result, we expect the Group's total underlying operating margin and underlying operating profit(1) to be ahead of those in the corresponding period in 2012.     

 

Net borrowing at the half year is expected to be around £270 million and reflects the working capital outflow associated with rescaling UK construction, together with other normal first-half cash flow movements.  We expect net borrowing at the year end to be lower than at the half year, as the Group moves back to generating positive net cashflow following the completion of the rescaling of UK construction.    

 

  Business segments

 

Support services

Revenue and margins in support services are expected to be broadly similar to those in the first half of 2012.  We also continue to expect revenue to be second-half weighted and our target to deliver a modest single-digit percentage increase in full-year revenue, at a stable operating margin, remains unchanged.

 

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

  

In the first half of 2013, we won orders and probable orders in support services worth some £1.3 billion, which, together with our strong pipeline of contract opportunities, supports our objectives for growth in 2013 and beyond.  Notable first-half successes included an extension to the scope of a contract in the telecommunications sector worth £275 million over four years, contracts in the oil services sector worth up to £270 million over a period of up to eight years, and a £80 million, 13-year highways maintenance contract in Ontario, Canada.  During the first half, we also secured energy services contracts for Green Deal and the Energy Company Obligation worth around £150 million, although the Green Deal market has been affected by a delayed start.  Our selection as the preferred bidder for the Royal Liverpool Hospital Public Private Partnership project includes £80 million of support services work and we have been appointed by National Grid as a framework contractor to deliver its £1.5 billion, five-year substation programme.  This follows our appointment as a framework contractor to deliver National Grid's £3.2 billion, four-year overhead line programme.  In the Middle East, we continue to see growth in support services with new first-half orders and probable orders worth some £30 million, in addition to our success in the oil services sector.     

 

  Public Private Partnership (PPP) projects

Our portfolio of PPP projects continues to perform well.  Our policy is to sell equity investments in mature projects and in the first half of 2013 we disposed of 4 investments, generating cash proceeds of approximately £113 million, which represented an average discount rate of seven per cent.  In 2012, the profit attributable to these four investments was some £4.8 million.  At 30 June 2013, we had a portfolio of 21 financially closed projects in which we had invested approximately £77 million of equity and in which we are committed to invest a further £84 million. 

 

During the first half of 2013, we were selected as the preferred bidder for the £335 million Royal Liverpool Hospital project in which we expect to invest £24 million of equity.  In addition, we are shortlisted for six projects in which we could invest a combined total of up to £75 million of equity.  Furthermore, we continue to have our largest ever pipeline of project opportunities in Canada where we expect to become shortlisted for further hospital projects during 2013.   In the UK, we believe that more projects will come to market over the medium term, notably in the health, education and transport sectors.  In addition, we continue to explore opportunities to use our private finance expertise in new international markets.

 

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 2012.  However, given the strength of our order book and pipeline of contract opportunities, and with signs that the pace of contract awards in the Middle East is increasing, we are confident that revenue will grow strongly in the second half and we continue to target double digit percentage revenue growth in the full-year.  This year, we continue to expect the operating margin in this segment to move below our medium term target of six per cent, but given our expectations for full-year revenue growth, our target to improve profitability in the full year remains unchanged.

 

In the first half of 2013, we won orders and probable orders in Middle East construction services worth some £0.5 billion.  Notable successes for Al Futtaim Carillion included a £120 million contract for a luxury hotel in Abu Dhabi and in Oman, Carillion Alawi won a £130 million contract for the Oman Convention and Exhibition Centre.  Carillion Alawi has also been selected as the preferred bidder for a £90 million contract in the leisure sector in Oman, for which we expect to sign the contract in the second half of the year.  During the first half of 2013, we also agreed a letter of intent to deliver our first project in Saudi Arabia, worth some £120 million.  Given the strength of our order book and pipeline of contract opportunities, our target of growing our share of revenue in our Middle East businesses to around £1 billion at a margin of six per cent by 2015, remains unchanged.         

 

Construction services (excluding the Middle East)

First-half revenue in construction services (excluding the Middle East) is expected to be lower than in the corresponding period in 2012, as a result of rescaling our UK construction activities.  However, we believe this rescaling is now largely complete and we expect revenue in this segment to be higher in the second half of 2013.  In line with our previous guidance, we expect the operating margin in this segment to reduce.  However, we continue to believe that our normalised, medium term margin in this segment will be higher than that prior to the rescaling of our UK construction business and ahead of the industry average.   

 

In the first half of 2013, we won new orders and probable orders in construction services (excluding the Middle East) worth some £0.9 billion.  Notable first-half successes included a £400 million contract for Battersea Power Station Development Company, a £73 million contract for Argent to deliver a further phase of its Kings Cross redevelopment and contracts for Ask worth some £50 million.  In addition, our selection as the preferred bidder for the Royal Liverpool Hospital PPP project includes £335 million of construction work.  The medium-term outlook for this business segment remains unchanged as we continue to expect opportunities for growth in the UK and in Canada, with the latter driven primarily by Public Private Partnership projects, which we expect to make a strong contribution to achieving our target of increasing total revenue in Canada to around £1 billion by 2015.         

 

 

Outlook

 

Despite market conditions remaining challenging, new order intake has remained strong and we have continued to win good quality work, in line with our selective approach, to maintain a strong order book and good revenue visibility.  In addition, our pipeline of contract opportunities has increased.  Therefore, 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 3 July 2013.  The telephone number to join this call is 0800 783 0906 - passcode: 254065.  A replay facility is also available following the call on UK: 0800 032 9687- passcode: 81339320 - Overseas: 0207 136 9233 - passcode: 81339320. 

 

For further information contact

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

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

Finsbury

James Murgatroyd or Gordon Simpson                                                                          tel: +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 had annual revenue in 2012 of some £4.4 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


This information is provided by RNS
The company news service from the London Stock Exchange
 
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