Interim Management Statement

RNS Number : 9558D

Carillion PLC

11 December 2009

 



11 DECEMBER 2009                

PRE-CLOSE UPDATE ON TRADING IN 2009

UNDERLYING EARNINGS TO GROW BY AT LEAST 10% 

POSITIVE NET CASH AT YEAR END    

Leading UK support services company, Carillion plc, is providing this pre-close update on trading in the 12 months to 31 December 2009, ahead of announcing its preliminary results on 3 March 2010.

Highlights

• Strong operating performance despite challenging market conditions, with underlying earnings per share(1) expected to grow by at least 10%, reflecting the resilience of the Group's business mix.

• Robust balance sheet with strong cash flow expected to deliver cash-backed profit and positive net cash at the year-end. 

• Support services continue to deliver earnings growth, with operating margins expected to exceed the 4.6% achieved in 2008.

• Public Private Partnership (PPP) projects continue to create significant value - two further investments sold for £86.9 million in the second half of 2009. 

• Middle East construction services expected to deliver substantial revenue and profit growth, driven primarily by growth in Abu Dhabi together with a good performance in Oman. 

• In construction services excluding the Middle East, revenue and operating profit expected to increase at broadly stable margins, with slightly reduced revenue in the UK offset by growth in Canada. 

• High quality order book expected to be worth around £17 billion at the year end, following second-half sales of PPP equity and a non-core consultancy business, plus probable new orders worth over £2 billion. 

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Business performance

Underlying earnings per share(1) are expected to grow by at least 10 per cent in 2009, despite challenging market conditions. This growth reflects the resilience of Carillion's business mix and the incremental benefit of the Alfred McAlpine integration costs savings, which are coming through as planned.       

Underlying cash flow from operations remains strong, including increased dividends from our Middle East business, and is once again expected to exceed underlying profit from operations.  This, together with second-half proceeds of £86.9 million from the sale of two further investments in Public Private Partnership projects and £26.4 million from the disposal of the Group's non-core environmental consultancy business, means that the Group now expects to achieve a positive net cash position at 31 December 2009, compared with net borrowing at 30 June 2009 of £146 million and £264 million at June 2008, following the acquisition of Alfred McAlpine in February 2008.  

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

New order intake remains healthy and we continue to have a high quality order book. The expected reduction in order book value at the year end to around £17 billion (30 June 2009: £19.7 billion), follows the sale of two further PPP equity investments and the disposal of the Group's non-core environmental consultancy business in the second half, which had a combined order book value of over £2.6 billion.         

Financial reporting segments

Support services

Support services continues to make the largest contribution to the Group's underlying operating profit (1) and remains an important driver of earnings growth.  As we reported at the half year, the current economic climate continues to create significant opportunities for new contracts as both public and private sector organisations seek to reduce operating costs and increase efficiency through outsourcing non-core services. At the same time, the pressure to reduce the cost of these services, particularly in private sector organisations, has created more competitive market conditions, making it increasingly important that we continue to apply strict  contract selectivity criteria and maintain our financial discipline.   

Margins are expected to improve from the 4.6 per cent we achieved in 2008, reflecting contract selectivity and the incremental benefit of the Alfred McAlpine integration cost savings. Consequently, we expect operating profit in this segment to increase, notwithstanding a slight reduction in revenue due to contract selectivity and the disposal of non-core businesses during the year.  

New order intake has remained healthy, with the most notable second half win being a £1billion, seven-year contract for BT Openreach, awarded to a Carillion-led Joint Venture, to provide nationwide asset management and maintenance services for the Openreach network.  We also continue to have our largest ever pipeline of opportunities for new contracts worth over £6 billion, reflecting the  ongoing  pressure on organisations to reduce costs.   

Public Private Partnership (PPP) projects

Our investments in PPP projects continue to generate substantial value.  In line with our policy of selling equity in projects once they are successfully established in the operational phase and of reinvesting the proceeds in new projects, we have sold two further equity investments for £86.9 million in the second half, namely 50 per cent of our equity interest in GCHQ and 65 per cent of our equity interest in Allenby Connaught.  The sale proceeds reflected a net present value for the cash flows from these investments based on a discount rate of some 8 per cent.  

We have also continued to make good progress in the second half of the year with adding new projects to our portfolio. We achieved financial close on the Durham Building Schools for the Future project, in which we expect to invest £4.6 million of equity, bringing our total portfolio of financially close projects to 22.  Carillion is also the preferred bidder for the £1.6 billion Southmead Hospital project in Bristol, for the Centre for Mental Health and Addiction in Toronto and for the Rochdale Building Schools for the Future programme, in which we expect our combined equity investments to be around £58 million.  

In addition, we have continued to strengthen the pipeline of projects for which we are shortlisted, which currently  comprises six  projects  with a total equity requirement of approximately £70 million.  Consequently, the outlook for PPP projects continues to be positive both in the UK and in Canada.     

Middle East construction services

Middle East construction services continues to perform strongly. Revenue is expected to grow from £464 million in 2008 to around £600 million in 2009, at an operating margin in excess of our original target of some 6 per cent.  We also expect a strong cash performance with increased dividends from our Middle East business. Our progress continues to be driven primarily by growth in Abu Dhabi together with a good performance in Oman. This growth has more than offset the expected reduction in activity levels in Dubai, which  now  accounts for less than 20 per cent of our Middle East revenue.    

In the second half, our Joint Venture business, Al Futtaim Carillion, reinforced its reputation as the UAE's leading contractor by successfully completing the landmark £380 million Yas Hotel, which formed the centre piece of the new Formula 1 Grand Prix circuit development in Abu Dhabi.  Based on our reputation for quality and reliability, we have continued to maintain a strategic focus on securing high-quality projects for reliable long-term customers across all of our markets in the Middle East.  In the second half, our Middle East businesses have secured significant new work, including a £275 million contract to build the Majlis, a prestigious new Parliament building in Oman and a £150 million contract to build a new headquarters for the Abu Dhabi Investment Council.   

The medium to long-term outlook for our Middle East business remains positive in view of the region's substantial programmes for  investment in infrastructure.  This is reflected in our pipeline of opportunities, particularly in Abu Dhabi 

1) Before intangible amortisation, impairment, curtailment gain, restructuring costs and non-operating items.

where we are currently bidding projects worth around £4 billion, and also in Oman where we continue to have a good pipeline of opportunities. We have also established a new business in Qatar and remain on track to extend our operations into Qatar, in early 2010.  

Construction services (excluding the Middle East)

In construction services (excluding the Middle East), we continue to apply strict project selectivity criteria, focused on high quality  projects for long-term customers. This is to ensure that the size of our construction capability is appropriate to support the delivery of PPP projects, the needs of our support services business and our expectations for future demand in our construction  markets more generally. 

Total revenue in this segment is expected to increase slightly in 2009. Within this total, the expected reduction in UK revenue will be offset by growth in Canada, primarily due to the acquisition of the Vanbots Group in October 2008 to strengthen our construction capability for delivering the growing number of PPP projects in Canada.  As a result of our focus on project selectivity we expect margins to remain broadly stable in 2009, despite challenging market conditions.  

The intake of new orders continues to be positive.  Notable second-half successes include new contracts or preferred bidder positions for Building Schools for the Future projects worth nearly £700 million, a £280 million contract for the revitalisation of Union Station in Toronto, a £116 million contract for HM Prison Low Moss in Scotland and confirmation of our appointment as the preferred bidder for the new Southmead Hospital, Bristol, a PPP project with a construction value of some £450 million.   

Consequently, we continue to have a substantial high quality order book and pipeline of both probable new orders and contract opportunities, which are in line with our selectivity criteria and provide good future revenue visibility to support our expectations for 2010. 

Management changes 

The Carillion Board has decided to combine the executive responsibilities for the Group's UK Building and Middle East businesses. This streamlines Board responsibilities and reflects the strategic development and needs of these businesses, which share common skill sets. As a result, the following changes have been made to the Board.  

Richard Howson has been appointed as an executive director of Carillion plc, responsible for the Group's UK Building and Middle East businesses. Richard is currently Managing Director of Carillion's Middle East business and has previously held senior positions in Carillion's UK Building and Infrastructure businesses.  David Hurcomb, the executive director responsible for UK Building and Private Finance, has decided to step down from the Board today and will be leaving the company.  

The Board is delighted to welcome Richard Howson as an executive director. His knowledge and experience will enable him to make a significant contribution to the Group's future development.  David Hurcomb steps down with the Board's best wishes and grateful thanks for the contribution he has made to Carillion and to the development of our UK Building business in particular. He has played a key role in creating a strong and selective construction capability, which also supports the delivery of integrated solutions for Public Private Partnership projects and the development of our support services business. 

Outlook

Given the economic environment, we expect market conditions to remain challenging in 2010. However, Carillion has demonstrated that it has a resilient business mix, including strong international businesses, a substantial order book, a good pipeline of contract opportunities, good cash flow and a strong balance sheet. Consequently, the Group continues to be well positioned and believes it will make further progress in 2010.   

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, Friday 11 December. The telephone number to join the conference call is + 44 (0)208 5152302.

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                      

11 December 2009

Notes to Editors

Carillion is 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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