Carillion Plc Regulatory News (CLLN)

7 DECEMBER 2011

PRE-CLOSE UPDATE ON TRADING IN 2011

STRONG GROWTH IN UNDERLYING PROFIT AND EARNINGS

Carillion plc, one of the UK's leading support services companies, is providing this pre-close update on trading in the 12 months to 31 December 2011, ahead of announcing its preliminary results on 29 February 2012.

Highlights

·; Underlying profit before tax(1) and underlying earnings per share(2) are expected to increase strongly, in line with market expectations

·; Cash flow remains strong with year-end net debt now expected to be below £100m and significantly better than our previous target of below £125m 

·; Group operating margin expected to increase significantly, including strong support services margin

·; First contract won in Qatar, worth over £316m to Carillion

·; Integration of Carillion Energy Services (CES) is ahead of expectations and we continue to target strong returns from this acquisition

·; CES cost savings expected to increase from £15m to £25m, with the one-off cost of delivery expected to increase from £20m to £40m driven by the Government's proposed changes to Feed in Tariffs

·; Strong order book continues to provide good revenue visibility

·; Pipeline of contract opportunities remains well over £30bn

·; Group continues to be well positioned to make further progress in 2012 and over the medium term

Group performance

The Group's ability to perform well and deliver strong profit and earnings growth, despite the current challenging market conditions, continues to reflect the success of our strategy in creating a resilient and well-balanced UK support services and international business mix. 

Total revenue in 2011 is expected to be broadly similar to that in 2010, because increased revenues in support services and our international business will be offset by lower revenue in UK construction, in line with our previously announced objective of re-scaling our UK construction activities. This changing revenue mix and our continuing focus on margins through contract selectivity and financial discipline, continues to improve the overall quality of our business and we expect this to result in a significant increase in our total operating margin.

Underlying cash flow from operations remains strong and we expect to continue our track record of consistently delivering cash-backed profit. Net debt at the year end is now expected to be below £100 million, ahead of the target we announced in our half-year results of £125 million and substantially below the £150 million target we set when we acquired Carillion Energy Services for £298.4 million in April 2011.

In support services, which continues to account for around half of the Group's underlying operating profit, we expect growth in revenue and profit in 2011 as a result of the acquisition and integration of Carillion Energy Services (CES). Progress with the original integration of this business is well ahead of our expectations. We now propose to downsize our solar photo voltaic operations, following the Government's proposed changes to Feed-in-Tariffs, and to extend the restructuring of CES to deliver a substantial further improvement in overall operational efficiency. Total cost savings are now expected to increase from £15 million per annum to £25 million per annum by the end of 2013 and the one-off cost of delivering these savings is expected to increase to £40 million, which includes a provision of up to £10 million in respect of downsizing our solar photovoltaic operations. However, we welcome the recent UK Government's 2011 Energy Statement, affirming its commitment to The Green Deal, including the Energy Company Obligation, and the announcement of an additional £200 million of Government funding to boost the early take-up of The Green Deal, which is expected to kick-start at least £14 billion of investment over the next ten years. We continue to expect the acquisition of CES to deliver strong returns as demand for energy efficiency services, particularly among our existing support services customers, remains high. We expect our 2011 operating margin in this segment to remain strong. Our high-quality order book and probable orders continue to provide good revenue visibility and our pipeline of contract opportunities also remains strong and includes a significant number of opportunities arising from Central and Local Government outsourcing.

Investments in Public Private Partnership (PPP) projects continue to perform well. Having sold our equity investments in three projects and added one new project to our portfolio during 2011, we expect to end the year with a portfolio of 25 investments in financially closed projects. To date, we have invested some £90 million of equity in this portfolio and we have commitments to invest a further £127 million of equity in projects within our portfolio that are currently still under construction. We are also shortlisted for two further projects with a total equity requirement of up to £75 million. In Canada, Infrastructure Ontario has published details of the first 20 projects that will form part of the C$35 billion of investment planned over the first three years of its new 10-year investment programme. The majority of these projects are in the healthcare sector where Carillion is a market leader. In the UK, the recently announced Government review of the current PFI model confirms that private finance will continue to play a significant role in funding public sector projects. We therefore continue to expect the £2 billion schools PPP programme, announced in July 2011, and the five-year, £200 billion National Infrastructure Plan to generate new opportunities over the medium term.

In Middle East construction services, we continue to make good progress and expect to deliver strong full-year revenue growth. We also expect the operating margin to remain strong, even though margins will ease back over the medium term from the 9.6 per cent achieved in 2010, in line with our previously announced expectations, as contracts are now competitively tendered rather than negotiated. Consequently, we expect full-year operating profit in this segment to increase. We have maintained a healthy order book and continue to have a very strong pipeline of contract opportunities to support the objective we announced in 2010 of doubling our share of revenue in the Middle East to around £1 billion over three to five years. Following the extension of our operations into Qatar, we have recently announced that we have won our first contract in Qatar to deliver a major phase of the Msheireb Heart of Doha project for Msheireb Properties, a subsidiary of Qatar Foundation for Education, Science and Community Development. This contract is worth some £316 million to Carillion and brings the total value of recent contract wins in the Middle East for Carillion to over £400 million. This includes the £112 million contract awarded to the Al Futtaim Carillion Joint Venture for the Al Jalila Children's' Hospital in Dubai, where we are beginning to see some increase in market activity. In line with our strategy of geographical expansion in the Middle East, we continue to explore the potential for extending of our operations into Saudi Arabia, which also offers significant opportunities for growth.

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In Construction services (excluding the Middle East), we are making good progress with the strategic re-scaling of UK construction and we are on track to achieve our objective of reducing UK construction revenue by around one third to approximately £1.2 billion by 2013, by progressively basing our activities around integrated solutions for PPP projects and support services customers. We continue to target substantial growth in construction in Canada over the medium to support the objective we set in 2010 of doubling overall revenue in Canada to around £1 billion over three to five years. As a result of tightening our contract selectivity criteria, we also expect the operating margin in this segment to improve significantly this year, with operating profit also moving ahead strongly, despite a substantial reduction in overall revenue due to the re-scaling of UK construction.

Outlook

In 2011, we remain firmly on track to deliver strong growth in underlying profit and earnings, in line with market expectations. We also continue to expect to make further progress in 2012 and we remain well positioned to achieve our target to deliver substantial growth in UK support services from 2012 onwards and the medium-term growth that we announced in 2010, namely to double our revenues in the Middle East and in Canada, in each case to around £1 billion over three to five years.

Conference call for analysts and investors

Carillion Chief Executive, John McDonough, Group Finance Director, Richard Adam, and Chief Operating Officer, Richard Howson, will host a conference call on this statement for analysts and investors at 9:00am today, 7 December 2011. The telephone number to join this call is + 44 (0) 0208 515 2301. A replay facility is also available following the call on Toll Free UK: 0800 358 3474 - Access Code: 4491675# and Toll Free US: 1 800 406 7325 - Access Code: 4491675# 

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 + 44 (0) 20 7251 3801

Gordon Simpson

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.