Trading Statement

RNS Number : 3015Z

Carillion PLC

10 December 2014

 



10 December 2014                

2014 PRE-CLOSE TRADING UPDATE  

EARNINGS IN LINE WITH EXPECTATIONS   

·      Strong work winning performance - £4.6bn of new work won in the year to date

·      Expect the Group's order book plus probable orders at the year end to be over £18.5bn

·      Pipeline of contract opportunities of over £39bn

·      Contract selectivity continues to underpin margin performance

·      Net debt before acquisitions reducing as expected

·      85 per cent revenue visibility for 2015          

  Group performance

Total revenue is expected to be similar to that in 2013, with growth in Middle East construction services and UK construction services offset by a reduction in revenue from Public Private Partnership projects due to our policy of recycling equity investments in mature projects.  We expect marginal revenue growth in support services after absorbing foreign exchange headwinds.  Although our markets remain challenging, we continue to see signs of improvement, which indicate that the medium-term outlook remains positive.     

By remaining very selective in terms of the projects for which we bid, we expect to maintain the Group's operating margin at a broadly similar level to that in 2013, despite the fact that most of the work we are delivering in 2014 was won during the economic downturn.  Our selective approach continues to be supported by rigorous risk management processes, ongoing cost reduction and productivity programmes, shared central services and a centralised operating platform, which creates significant efficiencies and provides visibility for management of the Group's performance. 

We continue to expect profit in 2014 to be cash-backed with underlying net debt (excluding the effect of business acquisitions) reducing in line with expectations.  The impact of business acquisitions on net debt in 2014 amounts to some £37 million, which comprises £8.6 million for the final instalment of the consideration for the acquisition of a 49 per cent interest in the Bouchier Group, which we acquired in December 2012, and £28 million in respect of the initial consideration for the acquisition of a 60 per cent interest in the Rokstad Power Corporation, as announced on 1 December 2014. 

  The Group's new order intake has remained strong and in the year to date we have won contracts worth £4.6 billion and we expect the Group to have an order book plus probable orders at the year end worth over  £18.5 billion (31 December 2013: £18.0 billion).  Consequently, the Group has strong revenue visibility for 2015 of 85 per cent, based on expected revenue and on secure orders plus probable orders, which excludes variable work, substantial potential revenue from framework contracts and potential re-bids.  Furthermore, at the year end we expect the value of the Group's pipeline of contract opportunities to increase to over £39 billion (31 December 2013: £37.5 billion).  

Business segments

Support services 

We expect revenue in support services to be marginally ahead of that in 2013, which represents underlying growth of around four per cent, having more than replaced the £70 million or so of revenue that was 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. The contribution to revenue from Canada has also been affected by an adverse movement in the exchange rate.  We expect the operating margin in this segment to increase, reflecting the benefit of our selective approach to the contracts for which we bid and cost savings achieved from restructuring in 2013.  Work winning in support services has been particularly strong in 2014, with major successes in a number of sectors, notably defence, justice, transport and financial services.  We will continue to focus on the mobilisation of these contracts in the balance of this year and in 2015, when we expect these contract wins to contribute to further revenue growth.   

  Public Private Partnership projects

  Our portfolio of investments in financially closed Public Private Partnership projects continues to perform in line with expectations.  During the year, Carillion Joint Ventures were appointed as the preferred bidders for two new projects - the Aberdeen Western Peripheral Route and the Midlands Priority Schools Programme - in which Carillion expects to invest up to a total of £30 million of equity.  The market for buying equity in these projects remains strong and we expect equity sales to generate cash proceeds of approximately £37 million at an average discount rate of approximately seven per cent. 

Middle East construction services

In Middle East construction services, we continue to expect strong revenue growth, which reflects our good work winning performance in the region over the past 18 months.  We also expect the operating margin to improve in this segment in line with previous guidance.  Although trading conditions remain challenging, the overall outlook in the Middle East continues to improve and this is reflected in our growing pipeline of contract opportunities.  We are also beginning to see a better balance between supply and demand, which offers the prospect of further margin improvement over the medium term.  

Construction services (excluding the Middle East)

In construction services (excluding the Middle East), we expect revenue to be similar  to that achieved in 2013, with growth in UK construction services offset by a reduction in revenue in Canada, which is partly due to the movement in the exchange rate.  We expect the operating margin in this segment to continue to   trend back towards a normalised level, in line with our long-standing guidance, as the temporary benefits to margins from the rescaling of our UK construction business decline.  Looking forward, we expect a steady recovery in contract opportunities, consistent with our selective approach of focusing on larger projects and long-term customers.  By remaining selective in terms of the contracts for which we bid, we continue to expect our normalised margin in this segment to be above the industry average.   

Outlook

Although our markets remain challenging, we continue to have a strong, high quality order book and a substantial pipeline of contract opportunities, consistent with the selective approach we take to choosing the contracts for which we bid.  We expect the steady improvement in our markets that began in 2014 to continue in 2015, subject to a sustained macro-economic recovery.  Overall, the Group therefore continues to be well positioned to make further progress over the medium term.

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 08.00 today.  The telephone number to join this call is [phone] - passcode: 864618.  A replay facility is also available following the call on [phone] - passcode: 49044207.

Carillion will announce its 2014 preliminary results on 4 March 2015.

  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.

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]

 

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