Trading Statement

RNS Number : 2956V

Carillion PLC

08 July 2009

 



8 JULY 2009         

CARILLION PLC

PRE-CLOSE TRADING UPDATE 

CONTINUING STRONG EARNINGS GROWTH AND NET BORROWING SUBSTANTIALLY REDUCED

Carillion, the UK's leading support services company, is providing this update on trading in the first six months of 2009 ahead of announcing its interim results on 27 August 2009.

Highlights

• Carillion expects to deliver strong first-half growth in underlying earnings(1) - on track to achieve our objective of delivering materially enhanced earnings in the full year. 

• Balance sheet remains robust - net borrowing at the half year expected to reduce substantially to around 

        £150 million (December 2008: £226.7 million). 

• Alfred McAlpine integration cost savings coming through as planned - increasing from £15 million in 2008 to 

     £35 million in 2009 and £50 million per annum in 2010. 

• Support services continues to perform satisfactorily - margins improving in line with expectations after benefiting from Alfred McAlpine integration cost savings.  

• Equity investments in Public Private Partnership projects continue to generate substantial value - sale of two investments in June 2009 generated proceeds of £13.8 million.

• Middle East construction services performing strongly - on track to achieve our objective of increasing revenue from £464m in 2008 to around £600m by the end of 2009, at some 6% margins.

• Construction services (excluding the Middle East) performing satisfactorily - continues to benefit from a high quality order book and pipeline.  

• High quality order book of some £19.7 billion at 30 June 2009 (December 2008: £20.4 billion) - plus a pipeline of probable new orders worth approximately £2.9 billion (December 2008: £3.1 billion).  

• 99% revenue visibility in 2009(2) 

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

  (2) Percentage of targeted revenue provided by current order book plus probable orders. 

Balance sheet and cash flow

Underlying cash flow from operations has remained strong, including dividends from our Middle East business, and is again expected to comfortably exceed underlying profit from operations. This, together with the £89.8 million of cash proceeds from the sale and outsourcing of our IT services businesses and from selling two investments in Public Private Partnership projects, is expected to result in a substantial reduction in net borrowing at the half year to around £150 million (31 December 2008: £226.7 million).

Financial reporting segments

Support services

Support services continues to make the largest contribution to the Group's operating profit and remains an important driver of earnings growth.  

In the current economic climate, both public and private sector organisations are increasingly seeking opportunities to reduce operating costs and improve efficiency through outsourcing facilities management and other non-core services. This continues to create opportunities to bid for new contracts and to extend existing contracts. At the same time, market conditions are becoming increasingly competitive and therefore we remain focused on rigorously applying our strict contract selectivity and risk management criteria. Overall, we expect first-half operating profit to increase, compared with the corresponding period in 2008.  

We have maintained our strong order book of long-term contracts for Government and high quality private sector customers. Notable first-half successes included new contracts for the NHS worth over £260 million, road and rail infrastructure maintenance contracts worth £250 million and contracts for private sector customers worth around £175 million. In addition, we have a significant pipeline of contract opportunities for which we are currently bidding. 

Overall, our order book and pipeline of probable new orders give us good visibility and we expect to build on our first half performance, with full-year margins improving within our target range of four to five per cent.    

Public Private Partnership (PPP) projects

Our portfolio of investments in PPP projects continues to generate substantial value for the Group.  

In June 2009, we sold investments in two projects - Exeter Schools and Renfrewshire Schools - generating total proceeds of £13.8 million, which reflected a net present value for the cash flows from these investments based on a discount rate of some 8 per cent. Over the last six years Carillion has sold investments in a total of 25 projects, generating proceeds of approximately £194 million and a pre-tax profit of some £107 million.   

In the first half of 2009, Carillion joint ventures achieved financial close on three projects - Tameside Building Schools for the Future (BSF) programme, the Lister Hospital in Hertfordshire and the Royal Victoria Hospital in Ontario, Canada - in which Carillion expects to invest a total of £11.2 million of equity. At the half year, we expect to have 21 financially closed projects in which we will have invested, or have commitments to invest, approximately £148 million. In addition, during the first half, Carillion joint ventures were appointed as the preferred bidder for the Durham BSF programme and as the intended preferred bidder for the new Southmead Hospital in Bristol and in these two projects we expect to invest a further £45.8 million of equity.  

The outlook for adding further new projects to our portfolio of investments continues to be positive, as we are currently shortlisted for 7 projects in the UK and Canada, in which Carillion could potentially invest up to £50 million.  

Middle East construction services

In the Middle East, we have continued to make strong progress, with growth in Abu Dhabi, Oman and Egypt more than offsetting the expected reduction in revenue from Dubai. Growth in Abu Dhabi has been particularly strong and our progress there has been further underpinned by Al Futtaim Carillion securing a £550 million contract for ALDAR in February 2009, to build the Al Muneera development. Consequently, we expect first-half operating profit to increase, compared with the corresponding period in 2008, reflecting in particular the growth we are achieving in Abu Dhabi.  

In addition, our Middle East joint venture businesses secured other substantial first-half new orders worth approximately £100 million, including further infrastructure works for Emirates Aluminium in Abu Dhabi, the Qasr Al Muwaiji museum project in Al Ain for the Abu Dhabi Authority for Culture and Heritage, the Muscat Court Complex and the next phase of the Botanical Gardens in Oman.   

Although opportunities for new projects in Dubai have reduced substantially and market conditions across the region generally have become more competitive, our strategy of geographical diversification, notably into Abu Dhabi, has kept us on track to achieve our objective of increasing our Middle East revenue from £464 million in 2008 to around £600 million by the end of 2009, at an operating margin of some six per cent.  We also remain on track to extend our operations into Qatar in early 2010.

Construction services (excluding the Middle East)

Overall performance in construction services (excluding the Middle East) continues to be satisfactory.  In the UK, trading conditions in our chosen sectors of the non-housing construction market remain challenging. However, we continue to benefit from the high quality order book we have created through being very selective in respect of the projects we take on. In Canada and the Caribbean our markets remain positive and we expect our businesses in the region to make good first-half progress.  Overall, we expect operating profit in this segment to be broadly similar to that achieved in the corresponding period in 2008.   

In the first half of 2009, we continued to win substantial new orders, particularly in education, health and transport infrastructure. Notable new contracts included a £130 million contract for Project Bankside, a luxury residential development for Grosvenor on London's South Bank, the £300 million Tameside Building Schools for the Future programme, the £144 million Royal Victoria Hospital in Barrie, Ontario and the £209 million upgrade of the A1 between Dishforth and Leeming in Yorkshire.   

Going forward, we will continue to apply strict project selectivity criteria to maintain our high quality order book and pipeline of opportunities, in order to support our objective of improving operating margins in this segment. 

Outlook 

We have a well-balanced and resilient business with a strong order book and good positions in our chosen market sectors. This, together with the cost savings being delivered from integrating the Alfred McAlpine business, means we expect to build on our strong first-half performance and achieve our objective of delivering materially enhanced earnings in 2009. 

Conference call   

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, Wednesday 8 July. The telephone number to join the conference call is + 44 (0) 207 190 1595.

  For further information contact

Richard Adam, Group Finance Director                               tel: [phone]

John Denning, Group Corporate Affairs Director                    tel: [phone]

8 July 2009

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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 over £5 billion, employs around 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

 

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