Carillion Plc Regulatory News (CLLN)

11 December 2013

2013 PRE-CLOSE TRADING UPDATE

FULL-YEAR PERFORMANCE AS EXPECTED

Highlights

· Trading remains broadly in line with expectations

· Net debt reducing as expected, with an improved working capital performance in the second half

· New order intake strong with the total value of orders plus probable orders remaining at approximately £18bn

· Pipeline of contract opportunities also continues to be strong at some £37bn

· Committed bank facilities extended to 2018

· Significant cap on the Group's future pension scheme liabilities through a £1bn longevity swap

Group performance

Trading in 2013 remains broadly in line with the expectations we reported in the Group's Third Quarter Interim Management Statement (IMS) on 3 October. As expected, total revenue in 2013 will be lower than in 2012, primarily due to the planned rescaling of our UK construction activities, with the total operating margin remaining close to that in 2012.

Net debt has begun to reduce in line with our expectations and we expect an improved working capital performance in the second half, reflecting the fact that the revenue run rate from our UK construction activities is now at, or close to, a stable level, having rescaled these activities to align them with the smaller UK market. At the year-end, we expect net debt to fall to around £250 million, compared with £270 million at 30 June 2013, despite incurring additional costs due to the restructuring of our energy services activities, which we announced in our Third Quarter IMS, and the acquisition of John Laing Integrated Services (JLIS) for £17.5 million in the fourth quarter of the year. The acquisition on 18 October 2013 of JLIS, which provides support services across the local government, education, police, health, rail and library sectors, has reinforced our capabilities in existing market sectors and created opportunities in new sectors to support our prospects for growth.

New order intake has remained strong and we expect the value of the Group's orders and probable orders at the year end to remain at around £18 billion, after removing some £1.7 billion from the order book due to the effects of selling investments in Public Private Partnership (PPP) projects and of the previously announced changes to our expectations from Green Deal and Energy Company Obligation contracts, and adding some £0.8 billion of orders acquired with JLIS. At the year end, the value of the Group's pipeline of contract opportunities is expected to be similar to the half year position at around £37 billion.

We have had a number of significant contract successes since the half year. A Carillion joint venture has been appointed as the preferred bidder to deliver the £800 million Airport City project in Manchester that is potentially worth up to £580 million to Carillion. A Carillion joint venture has signed a £500 million support services contract with BT for Broadband Delivery UK that we expect to be worth £300 million to Carillion (this was classified as a probable order at the half year). In the UK, we have also won infrastructure services contracts for highways worth over £200 million (of which some £80 million were classified as probable orders at the half year), an energy efficiency services contract for West Sussex County Council worth up to £100 million and rail infrastructure services contracts worth some £60 million. In Canada, we have won a highways maintenance contract worth £100 million. In the Middle East, Carillion Alawi has signed a £92 million contract to build the Kempinski Wave Hotel in Oman (classified as a probable order at the half year) and in the UAE, Al Futtaim Carillion has been selected as the preferred bidder for a luxury hotel with an estimated value in excess of £100 million. In Dubai, we expect the improving outlook to continue following its recent success in being awarded Expo 2020. In Turkey, we have now signed a Memorandum of Understanding as a precursor to becoming the preferred bidder for a PPP hospital contract in which we expect to invest up to £30 million of equity. In addition, Carillion has been selected by the UK's Education Funding Agency as one of 10 companies that comprise the Agency's Contractors Framework, eight of whom have been selected for both the North and South Sectors of the Agency's programme, which will deliver schools with a capital cost of £4 billion over the period to 2017.

The Group has renewed its main revolving credit facility. The new facility, which was over subscribed, has been extended from March 2016 to March 2018. As part of the renewal process, the National Bank of Abu Dhabi became one of our syndicate banks and we believe this reflects the Group's strength and prospects for growth in the Middle East.

We have also taken a further step towards significantly reducing the risks and potential liabilities in respect of the Group's main defined benefit pension schemes. Having already closed the Group's main defined benefit schemes to new entrants and ceased the accrual of future benefits for existing members of these schemes, a longevity swap has been entered into to hedge the financial risks to the Group of increased longevity. The swap covers around 9,000 pensioners with a combined liability of some £1 billion, which represents around 40 per cent of the total liabilities in respect of the Group's defined benefit schemes.

Business segments

Trading in support services has remained in line with expectations. New contract wins have enabled us to make further progress towards replacing the £400 million of annual revenue lost, as previously reported, due to contracts coming to an end in the last quarter of 2012 and the first quarter of 2013. However, revenue continues to be affected by the slow starts to the Green Deal and Energy Company Obligation markets, which we flagged at the half year, prior to which we had expected these new markets to enable us to deliver growth in 2013. As a result, we expect revenue in 2013 to be slightly lower than that in 2012, with a similar operating margin.

Our portfolio of investments in financially closed Public Private Partnership projects continues to perform well, generating operating profit in line with expectations. Consistent with our policy of selling equity investments in mature projects, we sold a number of investments in the first half of the year, as previously reported. The market for buying equity investments in PPP projects remains strong. However, if any further sales reach completion in the balance of this year they will be modest in size compared with those completed in the first half.

In Middle East construction services, we continue to expect revenue growth in 2013, as the pace of contract awards has picked up during the year. We also continue to expect the full-year operating margin in this segment to be broadly similar to that in the first half.

In construction services (excluding the Middle East), we continue to expect full-year revenue to be lower than in 2012, due to the rescaling of our UK construction activities. We also continue to expect the operating margin in this segment to be lower than in 2012, in line with previous guidance. However, overall, we expect to deliver a healthy operating performance in 2013, as a result of our strategy of being extremely selective in terms of the contracts we take on.

Board changes

Philip Green, our Senior Non-Executive Director will succeed Philip Rogerson as chairman of Carillion, when Philip Rogerson retires from the Board at the Company's AGM on 7 May 2014, having been a Non-Executive Director since 2004 and Chairman since 2005. As announced on 11 November 2013, Alison Horner was appointed as a Non-Executive Director of the Company on 1 December 2013. Vanda Murray, who has been a Non-Executive Director since 2005, will also retire from the Board at the AGM in May 2014.

Outlook

Looking forward, we expect market conditions to remain challenging. However, through 2013 we have continued to win new work in line with our selective approach and maintained a strong, high-quality order book and good revenue visibility. We believe that this, together with a healthy pipeline of contract opportunities, means that the Group continues to be well-positioned for the future.

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 today. The telephone number to join this call is 01296 480 100 or Overseas +44 1296 480 100  - passcode: 388 286. A replay facility is also available following the call on UK: 0207 136 9233 - passcode: 79196943  - Overseas: +44 1296 480 100  - passcode: 79196943. 

Carillion will announce its 2013 preliminary results on 5 March 2014.

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

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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