Carillion Plc Regulatory News (CLLN)

6 JULY 2016

HALF-YEAR TRADING UPDATE

PERFORMANCE IN LINE WITH EXPECTATIONS

Carillion plc is providing this update on trading in the first six months of 2016 ahead of announcing its interim results on 24 August 2016.

Highlights

· Revenue and margin growth in support services

· Work winning, order book and pipeline of contract opportunities all strong

· Revenue visibility(1) of 97% for 2016

· Average net borrowing in line with the 2015 full-year average

· Overall, the Group remains on track to make further progress in 2016

Group performance

We continue to expect our first-half performance to be led by revenue and margin growth in support services, with this segment of our business moving towards two thirds of the Group's total underlying operating profit. The Group's total first-half revenue is expected to increase and offset the effect on first-half profit of a slight reduction in underlying operating margin, because, as previously indicated, the quantum of equity sales in Public Private Partnership projects was lower than in the first half of 2015 and the one-off contribution to profit from the reorganisation of our Middle East labour facilities in the first half of 2015 was not repeated in 2016.

We expect average net borrowing to be in line with the full-year average in 2015 of some £539 million. As previously indicated, net borrowing at 30 June 2016 will increase and is expected to be in the region of £295 million, which reflects a number of temporary factors, including the effect of paying the final dividend for 2015 in June 2016, coupled with the effect of the recent adverse movement in the US$ exchange rate on the Group's US private placement borrowing. However, we expect net borrowing to reduce by the year end and our full-year expectations for cash flow and net borrowing remain unchanged.

Work winning has remained strong, with new first-half orders and probable orders worth approximately £2.5 billion, which includes the contracts announced separately today, namely a £240 million, 4.5 year support services contract for Petroleum Development Oman and two support services contracts for the Northern Ireland Housing Executive that have an initial value of £60 million, but are potentially worth up to £366 million over 10 years. At the half year, the value of the Group's order book plus probable orders was approximately £17.4 billion (31 December 2015: £17.4 billion) and revenue visibility for 2016 had

(1) Based on expected revenue and secure and probable orders, which exclude variable work, frameworks and re-bids.

increased to around 97 per cent, up from 84 per cent at 31 December 2015. In addition, the Group continues to have a substantial pipeline of specific contract opportunities, which at the half-year was worth approximately £41.5 billion (31 December 2015: £41.4 billion).

Business segments

Support services

First-half revenue and the operating margin in support services are both expected to move ahead, as we continue to benefit from the mobilisation of a number of major new contracts in 2015 and from new work secured in 2016. With our support services order book and pipeline remaining strong, we are on track to achieve both revenue and margin growth for the full year, in line with previous guidance and with our strategy of growing this segment of our business, which we expect to contribute nearly two thirds of the Group's total operating profit. Overall, we continue to believe that the outlook for our support services activities remains positive, driven by the demand for infrastructure services and the continued outsourcing of facilities management in the UK, supported by a good pipeline of opportunities in Canada and the Middle East.

Public Private Partnership (PPP) projects

Following our strong work winning performance in 2015, during which we achieved financial close on four new PPP projects and were selected as the preferred bidder for a fifth, we expect strong revenue growth in this business segment. Overall, our portfolio of PPP projects continues to perform well and in the first half of 2016 we sold equity investments in three projects, generating proceeds of approximately £49 million, which represented an average discount rate of just under seven per cent. As already indicated, we expect the profit generated from these sales to be lower than that in the first half of 2015, with a corresponding effect on the Group's underlying operating margin. At 30 June 2016, we had 15 financially closed projects in which we had invested approximately £11.8 million of equity and in which we are committed to invest a further £61.7 million of equity. We also continue to have a good pipeline of project opportunities, including being preferred bidder for the Irish Schools Bundle 5 project and a shortlisted position for a project in Canada, in which we could invest up to a total of £6 million of equity. Overall, our full-year expectations for this segment remain unchanged.

Middle East construction services

Middle East construction services continues to perform in line with our full-year expectations for revenue and margin. First-half revenue is expected to be slightly lower than in the first half of 2015, with the underlying operating margin also lower, because, as previously indicated, the contribution to profit of some £14 million in the first half of 2015 arising from a reorganisation of our staff accommodation facilities in Oman, was a one-off benefit and will therefore not be repeated in 2016. To mitigate the impact of this and of the prolonged low oil price on the pace of customer investment programmes in the full year, we continue to pursue our disciplined strategy of strict contract selectivity with a strong focus on winning contracts with the support of UK Export Finance (UKEF). Over the medium term, we are also pursuing PPP opportunities, notably in Oman, where we have signed a Memorandum of Understanding with the Oman Investment Fund to develop a PPP programme in the health sector.

Construction services (excluding the Middle East)

First-half revenue in construction services (excluding the Middle East) is expected to increase, despite a further reduction in construction revenue in Canada where we continue to implement our previously announced strategy of focusing on construction work won through securing PPP projects. We expect the first-half operating margin in this segment to be towards the upper end of our target range of 2.5 per cent to 3.0 per cent. This continues to reflect the benefits of margin discipline through the selective approach we take to the contracts for which we bid. Overall, our full-year expectations for this segment of our business remain in line with previous guidance.

Outlook

We continue to expect our full-year performance to be led by revenue and margin growth in support services, with Public Private Partnership projects, Middle East construction services and construction services excluding the Middle East also performing in line with expectations. Therefore, with revenue visibility for the full year of 97 per cent and a strong pipeline of further contract opportunities, the Group remains on track to make further progress in 2016.

The referendum vote in favour of the UK leaving the European Union has obviously created uncertainty for the UK economy as a whole and therefore for businesses generally, including Carillion, and it is clearly too early to predict the extent to which businesses will be impacted by this result. However, Carillion has no significant operations in Mainland Europe and prior to the referendum we undertook extensive work to assess the possible impact on our business of a vote to leave and we have put in place robust plans to manage this outcome.

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 on 6 July 2016. The telephone number to join this call is UK: 0800 678 1161 or Overseas: +44 1296 311600 - passcode: 437 963. A replay facility is also available following the call on UK: 0800 032 9687 or Overseas: +44 207 136 9233 - passcode: 63667381, this will be available for 14 days. 

For further information contact

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

John Denning, Group Corporate Affairs Director tel: +44 (0) 1902 906333

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 2015 of some £4.6 billion, employs around 46,000 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, remote site accommodation services and consultancy services in the UK, Canada and the Middle East.

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 in the UK and Canada.

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