Carillion Plc Regulatory News (CLLN)

4 OCTOBER 2011

CARILLION PLC

2011 THIRD QUARTER INTERIM MANAGEMENT STATEMENT

"CONTINUE TO EXPECT STRONG FULL-YEAR EARNINGS GROWTH"

Carillion, a leading UK integrated support services company, continues to perform well despite market conditions remaining challenging and expects earnings in 2011 to grow strongly, in line with market expectations.

Earnings growth in 2011 is being driven primarily by the acquisition of Carillion Energy Services and by an improvement in our total operating margin, which reflects our ongoing focus on applying strict contract selectivity, financial discipline and cost management.

Cash flow from operations remains strong and we expect to maintain our track record of consistently delivering cash-backed profit. Consequently, we expect year-end net debt to be below £125 million, significantly better than the target we set following the £298.4 million acquisition of Carillion Energy Services in April 2011 of reducing year-end net debt to below £150 million.

We continue to win new contracts, preferred bidder positions and framework agreements in line with our selectivity criteria, with a number of notable successes since we announced our half-year results six weeks ago on 24 August that are expected to be worth up to some £670 million. These comprise local government facilities management, energy services, construction services and rail infrastructure services in the UK, road maintenance services in Canada and construction services in the Middle East.

In support services, which continues to account for around 50 per cent of total underlying operating profit, we expect strong profit growth in 2011, primarily as a result of the acquisition and integration of Carillion Energy Services and our focus on margins. The value of our support services order book plus probable orders continues to provide good revenue visibility and our pipeline of specific contract opportunities remains very strong. Outsourcing by public sector organisations continues to account for a major proportion of our current bidding activity and pipeline, consistent with our expectations that substantial growth as a result of increased public sector outsourcing would only come through during 2012 and beyond.

Investments in Public Private Partnership (PPP) projects continue to generate significant value. Since the half year, we have sold our equity investment in the A249 Public Private Partnership road project, generating proceeds of £10.6 million. This brings the total proceeds from the three PPP equity investments we have sold in 2011 to £25.4 million, which represents an average discount rate of seven per cent. Having achieved financial close in July 2011 on the £1.7 billion Oakville Hospital in Ontario, Canada, at 30 September 2011 we had a portfolio of 25 financially closed projects in which we had invested some £83 million of equity and in which we had commitments to invest a further £128 million of equity. In addition, we continue to be shortlisted for three projects in which we could potentially invest up to £77 million of equity. As the Ontario Government has announced a new 10-year PPP programme with CA$35 billion of investment over the first three years, and the UK Government has announced a new £2 billion PPP schools programme, we expect continuing opportunities to add more projects to our portfolio in 2012 and over the medium term.

In the Middle East, we continue to make good progress. In 2011, we expect full-year revenue to grow strongly and we continue to target an increase in operating profit, despite the operating margin easing back in line with our previously announced expectations, namely that our margin will gradually reduce to around six per cent over the medium term, due to contracts being competitively tendered rather than negotiated. Our focus on large, high-quality projects for a small number of financially robust customers means that the timing of project starts and completions can have a significant effect on period-on-period growth rates. With a record pipeline of contract opportunities, we continue to target strong growth over the medium term.

In construction services (excluding the Middle East), we continue to benefit from the strategy we announced in 2010 of re-scaling our UK construction business to reduce its annual revenue by £600 million to around £1.2 billion by 2013, by largely basing our construction activities around the delivery of integrated solutions for PPP projects and support services customers. This strategy anticipated cuts in UK Government spending on construction and is also helping us to support margins as we avoid bidding for low margin work in the increasingly competitive UK market. In Canada, our markets remain strong, particularly the PPP market, which we continue to expect to be a key driver of growth over the medium term. Overall, in 2011 we expect full-year operating profit in this segment to increase, with the effect of lower revenue being more than offset by an improvement in operating margin.

Board

Andrew Dougal joined the Board on 4 October 2011 as a Non-Executive Director and will become Chairman of the Audit Committee and a member of both the Remuneration and Nominations Committees. Andrew brings considerable experience to the Board having held a number of senior executive positions, including Chief Executive of Hanson plc, until his retirement in 2002. Since then, he has served as a Non-Executive Director and as Chairman of the Audit Committee for a number UK public companies. David Maloney is stepping down from the Board having served as a Non-Executive Director and as Chairman of the Audit Committee since joining the Board in 2005. David leaves the Board with our grateful thanks for the substantial contribution that he has made to Carillion's development and success.

Outlook

In 2011, we expect to deliver strong earnings growth in line with market expectations, despite market conditions remaining challenging. We also remain well positioned to achieve the medium-term objectives for growth we announced in 2010, namely to deliver substantial growth in support services from 2012 onwards and to double the revenue of our businesses in the Middle East and in Canada, in each case to around £1 billion, over three to five years. We also remain on track to complete the re-scaling of UK construction by 2013.

Conference call for analysts and investors

The Carillion management team will host a conference call for analysts and investors on this statement at 09.00 today. The telephone number to join this call is + 44 (0) 207 190 1596. A replay facility is also available following the call on Toll Free UK: 0800 358 3474 - Access Code: 4474228# and Toll Free US: 1 800 406 7325 - Access Code: 4474228#.

Pre-close trading update

Carillion will issue a pre-close update on trading in 2011 on 7 December 2011, in advance of its preliminary full-year results announcement on 29 February 2012. 

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 or Gordon Simpson + 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 2010 of £5.1 billion, employs around 50,000 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 our investing activities in PPP projects in our chosen sectors of Defence, Health, Education, Transport, Secure and other Government accommodation.

Middle East construction services - this includes our building and civil engineering activities in the Middle East.

Construction services (excluding the Middle East) - this includes our building, civil engineering and developments activities in the UK and our construction activities in Canada.

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.