Carillion Plc Regulatory News (CLLN)

14 JULY 2015

HALF-YEAR TRADING UPDATE

PERFORMANCE IN LINE WITH EXPECTATIONS

Carillion plc is providing this update on trading in the first six months of 2015 ahead of announcing its interim results on 26 August 2015.

Highlights

· Performance in line with expectations with full-year targets unchanged

· Significant increase in first-half revenue with continuing good progress on contract mobilisations

· On track to deliver healthy revenue growth in the full year with profit and earnings in line with expectations

· Strong operating cash flow with cash-backed profit

· Order book and pipeline of contract opportunities remain strong, despite the expected impact of the UK General Election on public sector contract awards in the first six months of the year

Group performance

The Group has continued to perform in line with expectations, which reflects the actions we took throughout the economic downturn to position the Group in markets where we can now achieve revenue growth, consistent with our targets for margins and cash flow.

The steady improvements in market conditions that we saw in 2014, have continued in 2015. We also continue to make good progress with mobilising a number of major contracts won in 2014, notably in support services.

Total first-half revenue has increased significantly and the Group remains on track to deliver healthy full-year revenue growth, while still maintaining margin discipline by being very selective in choosing the contracts for which we bid, supported by our ongoing focus on cost management. Our investments in Public Private Partnership (PPP) projects also continue to perform in line with expectations.

First-half operating cash flow is expected to remain strong with cash-backed profit. As previously indicated, non-operating cash flow items in the first half are expected to increase, notably in respect of acquisitions, PPP investments and pensions. This, together with the effect of paying the 2014 final dividend in June 2015, is expected to result in a modest increase in net borrowing at the half year to around £200 million (31 December 2014: £177.3 million).

As expected, the pace of new order intake slowed in the first half of 2015, due to the effect of the UK General Election on public sector contract awards. However, our exceptionally strong work winning performance in 2014 meant that the Group entered 2015 with secured and probable orders worth £18.6 billion, record revenue visibility of 85 per cent and therefore well-positioned to manage the effect of the UK General Election. At the half year, we expect revenue visibility for 2015 to have increased to around 96(1) per cent and the value of the Group's secured and probable orders to have remained strong at approximately £17 billion, with decisions pending on a number of significant UK public sector contract awards. In addition, the Group continues to have a substantial pipeline of specific contract opportunities, which at the half year is expected to have increased to over £40 billion (31 December 2014: £39.2 billion). 

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

Business segments

Support services

First-half revenue in support services is expected to increase, with the operating margin close to that in the first half of 2014, despite the impact of substantial contract mobilisation costs following our strong work winning performance in 2014. This year we are mobilising a record number of major support services contracts, including five Next Generation Estates Contracts for the UK Ministry of Defence that involve providing facilities management services for over 70,000 properties across the UK, and a contract to deliver support services to 54 prisons, around half the total, operated by the UK Ministry of Justice. All these mobilisations are progressing well and in line with expectations. Therefore, with a strong order book and good revenue visibility, we remain on track to achieve our target of delivering revenue growth in the full year at an operating margin broadly similar to the strong margin we achieved in 2014. Notwithstanding the effect of the UK General Election on the pace of contract awards in the year to date, we believe the overall outlook for support services remains positive, driven by the continued outsourcing of services by the UK public sector and a growing pipeline of opportunities in Canada and the Middle East.

Public Private Partnership (PPP) projects

Our portfolio of PPP projects continues to perform well. In the first half of 2015, we sold equity investments in two projects, in line with our policy of selling equity in mature projects in order to reinvest the proceeds in new projects. These sales generated proceeds of approximately £44 million, which represented an average discount rate of around seven per cent. At 30 June 2015, we had 15 financially closed projects in which we had invested approximately £50 million of equity and in which we are committed to invest a further £46 million of equity. We also continue to have a good pipeline of project opportunities: we are the preferred bidder for the Midlands Priority Schools Programme, in which we expect to invest £5 million of equity, and we are shortlisted for seven projects in which we could invest up to £95 million of equity: this includes the Midlands Metropolitan Hospital in Birmingham in which we could invest up to £20 million of equity and for which we expect the preferred bidder to be announced in the third quarter of this year.

Middle East construction services

First-half revenue in Middle East construction services is expected to increase substantially compared with the first half of 2014, reflecting the phasing of new opportunities coming to market in our chosen sectors. As previously indicated, for the full-year we expect the operating margin in this segment to reduce temporarily in 2015, because so far this year we have not benefitted from new contract wins supported by UK Export Finance (UKEF), due to the timing of contracts coming to market that are suitable for UKEF support. However, in the full year we currently expect strong revenue growth to more than offset the effect of a lower margin on operating profit. Over the medium term, we continue to expect further growth, driven by growing investment in construction in a number of our markets, including further opportunities to work with UKEF. Dubai is planning major investment, much of which is expected to support its role as host to Expo 2020, including building a second airport to cater for over 100 million passengers a year, broadly doubling its current hotel accommodation and the construction of new commercial, retail and leisure facilities. In Oman, we continue to have a strong pipeline and we expect this to grow further. In Qatar, we continue to focus on the Msheireb Downtown Doha project, which is one of the largest projects we have ever undertaken in the Middle East, involving the regeneration of 31 hectares in the centre of Doha to provide retail, commercial, residential, leisure, cultural and community facilities.

Construction services (excluding the Middle East)

First-half revenue in construction services (excluding the Middle East) is expected to increase significantly compared with the corresponding period in 2014. We continue to expect the half-year and full-year operating margins to be lower than in 2014, consistent with the margin trending back towards a more normal level, as the temporary benefits to margins from rescaling our UK construction business, decline. However, we also continue to expect the full-year margin to be higher than the 2.5 per cent to 3.0 per cent level, at which we expect the margin to stabilise over the next 12 to 18 months. Given our strong order book and pipeline and the outlook for increasing investment in infrastructure, notably in the UK transport, defence, health and education sectors, we continue to target full-year revenue growth in UK construction and we expect this growth to offset a further reduction in revenue in Canada. The reduction in revenue in Canada is in line with our previously announced strategy of tightening our selective approach in order to focus on construction work secured through winning Public Private Partnership projects. Over the medium term, we continue to expect to target revenue growth in this segment as a whole.

Summary and outlook

Overall, the Group remains on track to deliver revenue growth in the full year, with margins and cash flow consistent with previous guidance. Having entered 2015 with record revenue visibility, the Group continues to be in a strong position to deal with the inevitable effects of the UK General Election on the pace of contract awards, which has slowed, as expected, in the first half of the year. Therefore, with a strong order book, a growing pipeline of contract opportunities and the prospect of market conditions continuing to improve, our expectations for 2015 and for the medium-term remain unchanged.

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 on 14 July 2015. The telephone number to join this call is 0844 800 3850 - passcode: 487 468. A replay facility is also available following the call on UK: 0800 032 9687- passcode: 31161976  - Overseas: 0207 136 9233 - passcode: 31161976. 

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 2014 of some £4.1 billion, employs around 42,000 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