In its latest trading update, Carillion plc, one of the UK’s leading support services companies, said it is expecting underlying profit before tax and underlying earnings per share to increase strongly in line with market expectations.
The comments come in a pre-close update on trading in the 12 months to 31 December 2011 published this morning ahead of the firm’s preliminary results on 29 February 2012.
Cash flow has remained strong with year-end net debt now expected to be below £100m and significantly better than Carillion’s previous target of below £125m. Group operating margin is also expected to increase significantly, including strong support services margin.
In support services, which continues to account for around half of the Group’s underlying operating profit, the firm is expect growth in revenue and profit in 2011 as a result of the acquisition and integration of Carillion Energy Services (CES). Carillion said that progress with the original integration of the business was well ahead of expectations and it was continuing to target strong returns from the recent acquisition
However, the company is now proposing to downsize its 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 the savings is expected to increase to £40 million, which includes a provision of up to £10 million in respect of the downsizing.
£30bn pipeline of upcoming contract opportunities
The firm said a strong order book continued to provide good revenue visibility – its pipeline of contract opportunities remains well over £30bn. Carillion said it expects the Government’s newly-announced five-year, £200 billion National Infrastructure Plan to also generate new opportunities over the medium term.
Total revenue in 2011 is expected to be broadly similar to that in 2010, with increased revenues in support services and international business offset by lower revenue in UK construction, in line with Carillion's previously announced objective of re-scaling its UK construction activities.
In Construction services (excluding the Middle East), the firm said it was making good progress with the strategic re-scaling of UK construction and was on track to achieve its objective of reducing UK construction revenue by around one third to approximately £1.2 billion by 2013. Carillion now plans to progressively base its activities around integrated solutions for PPP projects and support services customers.
In terms of outlook for 2011, Carilon said it remained firmly on track to deliver strong growth in underlying profit and earnings. It is also well positioned to achieve its target to deliver substantial growth in UK support services from 2012 onwards and the medium-term growth announced in 2010, namely to double revenues in the Middle East and in Canada, in each case to around £1 billion over three to five years.
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