Last weeks trading statement from this support/construction business proved what a strong position the company is in.

looks to be plenty of growth going forward.......

RNS Number : 8437J
Carillion PLC
10 December 2008



10 DECEMBER 2008




PRE-CLOSE UPDATE ON TRADING IN 2008

UNDERLYING EARNINGS PER SHARE TO GROW BY 15% SUPPORTED BY ROBUST BALANCE SHEET







Leading UK support services company, Carillon plc, is providing this pre-close update on trading in 2008, ahead of announcing its preliminary results on 4 March 2009.




Highlights




Continuing strong performance supported by a reduction in the Group's underlying effective tax rate to around 20% - underlying earnings per share(1) for the 12 months to 31 December 2008 expected to grow by approximately 15%, some 5% ahead of previous expectations.

Alfred McAlpine successfully integrated with integration and re-organisation cost savings increased by 10 million to a run rate of 50 million per annum by the end of 2009.

Balance sheet remains robust - cash flow remains strong with net borrowing expected to be below 275 million at the year end.

Expect strong revenue growth in support services at margins in excess of the 4.1% achieved in 2007.

Public Private Partnership projects creating significant value - 6 investments sold for 59.7 million in 2008.

Middle East business expected to deliver strong growth with an increasing contribution from projects in Abu Dhabi - margins expected to be at least 6%.

Satisfactory performance in construction services (excluding the Middle East) - operating margin expected to be in excess of the 1% achieved in 2007.

Underlying effective tax rate expected to reduce from 25% to around 20% in 2008 and to remain at this level for the foreseeable future.

.

Business performance




Our results are expected to reflect the strong progress the Group has made in 2008, enhanced by the acquisition of Alfred McAlpine in February 2008. This acquisition created the UK's largest support services business and further increased the Group's resilience, in line with our strategy for growth.




Support services




Support services continues to be a major driver of earnings growth and continues to account for over half the Group's underlying operating profit (1) . Revenue is expected to increase substantially in 2008, primarily reflecting the acquisition of Alfred McAlpine. The operating margin is also expected to increase, within our target range of four to five per cent, largely due to the effect of integration cost savings.










(1) Continuing operations before intangible amortisation, impairment, restructuring costs and non-operating items.










New order intake has remained strong and we continue to have our largest ever pipeline of opportunities for new contracts.




Public Private Partnership (PPP) projects




Our investments in PPP projects continue to generate substantial value. During the year a further six investments in mature projects were sold, generating total cash proceeds of 59.7 million. As indicated in our 2008 Interim Report, this reflected a net present value for the cash flows from these investments based on an average underlying discount rate of under 5.5 per cent. Carillion has now sold a total of 23 mature investments in PPP projects over the last five years, generating cash proceeds of 179 million and a pre-tax profit of 104 million.




We expect to continue to make good progress in this segment. During 2008, we achieved financial close or preferred bidder positions on four further projects in which we expect to invest 11.2 million of equity. In addition, we have a healthy pipeline of potential new projects, including eight projects for which we are currently shortlisted.




Middle East construction services




In Middle East construction services, we expect to report further strong growth in 2008, driven by increased activity levels in Dubai and Oman, together with contributions from Abu Dhabi and Cairo, where we began operations at the beginning of the year. Going forward, we expect growth to be increasingly driven by Abu Dhabi, where we negotiated substantial new work in 2008 worth over 1 billion and also increased our pipeline of potential opportunities.




We therefore continue to expect long-term sustainable growth in this region and remain confident that we will achieve our objective of broadly doubling revenue in this segment from the 2007 level of 337 million to a run rate of over 600 million by the end of 2009, at an operating margin of some six per cent.




Construction services (excluding the Middle East)




In this segment, we remain focused on project selectivity, in line with our objective of increasing margins rather than revenue, in order to improve the combined operating margin for all our construction activities, including the Middle East, towards three per cent over the next three years. This strategy is supported by our substantial, high-quality order book and probable new orders, which provide sufficient visibility for us to be confident of achieving our expectations for 2009.




Following the acquisition in October 2008 of the Vanbots Group, a well established construction management services group in Canada, the integration of this business is progressing to plan. This acquisition has significantly enhanced our ability to provide fully integrated solutions, especially for PPP projects, further strengthening our market leadership in Canada, particularly in the health sector.




Balance sheet




The Group continues to deliver strong cash flow and net borrowing at the year end is expected to be below 275 million and below our target of 300 million.




Taxation




Carillion has been successful in agreeing with the tax authorities certain prior year tax issues and a mechanism for the use in 2008 and beyond of certain tax losses acquired with Alfred McAlpine. Consequently, the Group's effective tax rate is expected to reduce from 25 per cent in 2007 to around 20 per cent in 2008. The Group's ability to maintain its effective tax rate at this level for the foreseeable future will be further underpinned by the UK Government's proposal to exempt UK companies from taxation on foreign earnings from April 2009, announced in its 2008 Pre-Budget Report on 24 November 2008.



Acquisition and integration of Alfred McAlpine




The benefits of acquiring and successfully integrating Alfred McAlpine continue to exceed our expectations. Integration and reorganisation cost savings are now expected to reach an annual run rate of 50 million by the end of 2009, an increase of 10 million on the previously announced run rate of 40 million. Additional cost savings have been identified across most areas of our enlarged business as integration has progressed, notably through the adoption of Carillion's shared central services and the outsourcing and off-shoring of back-office processes. All savings have either been delivered, or firmly secured for delivery, with absolute savings expected to be 15 million in 2008, 35 million in 2009 and 50 million in 2010, an increase of 5 million in 2009 and 10 million in 2010. The one-off cost of delivering these savings will increase from the previously announced figure of 40 million to 55 million.










Outlook




The wider economic background will undoubtedly become increasingly difficult and make delivery of our business objectives more challenging. However, Carillion is a well-balanced and resilient business, with strong positions in its chosen market sectors in the UK, the Middle East and Canada. Therefore, with a robust balance sheet, a strong order book and continuing opportunities in our main market sectors, Carillion continues to expect to build on its strong performance in 2008 and deliver materially enhanced earnings in 2009.




Carillion Chief Executive, John McDonough and Group Finance Director, Richard Adam, will host a conference call on this statement for analysts and investors at 9:00am today, Wednesday 10 December. The telephone number to join the conference call is + 44 (0) 207 190 1232.




For further information contact:




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

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StockMarketWire.com
Carillion's joint venture with Amey has signed contracts with the Defence Infrastructure Organisation for a further three Next Generation Estate Contracts potentially worth up to £2.8bn including additional services and extensions. These three contracts form the final part of the Defence Infrastructure Organisation's (DIO) Next Generation Estate Contracts (NGEC) programme to maintain and upgrade defence infrastructure.

This announcement completes the NGEC facilities management contract awards programme and follows the announcement on 12 May that Carillion and Amey joint ventures had won the National Housing Prime contract and the Scotland and Northern Ireland Regional Prime contract.

The five NGECs won by the Carillion and Amey joint ventures have a total potential value of £4.5 bn.

A Carillion joint venture with Amey has been awarded the Regional Prime Central contract that is estimated by MoD to be worth in the order of £435 million over the initial contract period of five years, which can be extended by a further five years, subject to approval. This enlarged contract replaces the existing Regional Prime Contract Central, which is currently held by a Carillion joint venture with Amey and covers central and northern England and the whole of Wales, and the existing Regional Prime Contract East, as services in all these areas are being combined into one contract. Under this contract, the joint venture will provide a wide range of hard facilities and asset management services at more than 150 establishments containing more than 14,000 assets at sites including RAF Cranwell, Catterick Garrison, RAF Valley and MoD Stafford, together with the option to undertake capital works projects valued up to £3.93 million. Hard facilities management services will include planned and reactive building fabric and mechanical and electrical engineering maintenance and utility efficiency services. The Carillion joint venture has also been awarded the South East and South West Regional Prime contracts that are estimated by MoD to be worth in the order of £258 million and £265 million, respectively, over the initial contract period of five years. The South East contract will provide hard facilities and asset management services at 60 key sites, including Sandhurst, Horse Guards, HQ Land Andover and RAF Northolt. The South West contract will provide hard facilities and asset management services at 40 key sites, including RNAS Yeovilton, DE&S Abbey Wood, RAF Lyneham and Britannia Naval College. At DE&S Abbey Wood and the UK Hydrographic Office, the joint venture will provide a Total Facilities Management service, including catering, cleaning and other soft facilities management services in addition to hard services, which will be delivered by an in-house Carillion Amey team. All three contracts, together with the contract in Scotland and Northern Ireland, which was announced on 12 May, will deploy a service delivery model for hard facilities management services that will support the UK Government's objective of encouraging the use of Small and Medium-sized Enterprises. Both Carillion and Amey will also use these new contracts to create further opportunities to demonstrate their commitment to the Armed Forces Corporate Covenant, which helps ex-service personnel find employment and supports the provision of Reservists.

Possible Merger
In view of recent media speculation the Boards of Carillion and Balfour Beatty can confirm that, following an approach from Carillion to Balfour Beatty, they are engaged in preliminary discussions in relation to a possible merger of Carillion and Balfour Beatty.

The Boards of Carillion and Balfour Beatty believe that the merger of the two groups has the potential to create a market leading services, investments, and construction business of considerable depth and scale. Work is now underway to develop a strategy and outline business plan for a combined entity, underpinned by the evaluation of achievable synergies, future financing arrangements and a number of other essential supporting workstreams. In evaluating the merits of the merger, the two boards will, inter alia, wish to be satisfied that such a merger would lead to very significant value creation for the benefit of both sets of shareholders.

The two parties have agreed that Balfour Beatty's publicly announced sale process for Parsons Brinckerhoff, which is already underway, will proceed unaffected by this announcement, subject to achieving acceptable value and terms.

The Boards of Carillion and Balfour Beatty note that they would only proceed with a merger if, inter alia, (i) both Carillion and Balfour Beatty were to conclude due diligence to their satisfaction; and (ii) the Boards of Carillion and Balfour Beatty were to recommend it to their shareholders. In accordance with Rule 2.5(c)(i) of the Code, Carillion and Balfour Beatty confirm that the pre-conditions referenced in (i) and (ii) above must be satisfied prior to the agreement of any transaction.

No final decision has been reached regarding the structure of any merger. Accordingly until further notice, for the purposes of the Code, both Balfour Beatty and Carillion will be treated as offeree companies.

glad i have these in my sipp though sold them from my trading portfolio a few weeks back, which is a bit of a shame

Shares in construction companies Carillion and Balfour Beatty soar on amid tie-up talk


Published: 08:36, 25 July 2014 | Updated: 20:33, 25 July 2014


Shares in two of Britain’s biggest construction firms soared yesterday amid talks of a merger to create a national champion worth more than £3billion.


Carillion, which recently won the contract to redevelop Liverpool FC’s Anfield Stadium, and Balfour Beatty, the builder of the aquatics centre at the London 2012 Olympics, said ‘preliminary discussions’ about a deal are underway.


The news sent shares in both companies soaring with Carillion up 7.2 per cent, or 24.3p, to 362.8p and Balfour up over 9 per cent, or 21p, to 253.1p.




The rally pushed the combined value of the groups to £1.3billion – enough to propel a merged group into the FTSE 100 index – with Carillion worth £1.55billion and Balfour £1.75billion.

Although Balfour is the larger of the two firms, and has a turnover of £10billion to Carillion’s £4billion, Carillion made the approach and is more likely to be the senior partner.


Balfour, which was founded in 1909 and has 40,000 staff, has been rocked by project delays and a string of profits warnings.




Shares lost a third of their value between March and early July and chief executive Andrew McNaughton was ousted in May after just 14 months in the job.


The company is now run by executive chairman Steve Marshall, the former Railtrack boss, and is in the process of offloading US design consultancy Parsons Brinckerhoff in an attempt to shore up its finances.


Carillion, which also has around 40,000 staff, has seen its shares rise by a quarter since December.


Chief executive Richard Howson is expected to run the combined company if the deal goes ahead.


The two sides said the combination has the potential to create a support services and construction business of ‘considerable depth and scale’.


They also said a deal would not affect the sale of Parsons.
Analysts at Liberum said a tie-up between Carillion and Balfour ‘could be the deal of this decade’.

Why the drop? Has the merger talks fallen through?

Here's a clue - Termination of Merger Discussions

Termination of merger discussions by Balfour Beatty plc ('Balfour Beatty') with Carillion plc ('Carillion')

Balfour Beatty announces that it is terminating discussions with Carillion regarding a possible merger with immediate effect. The termination of discussions follows Carillion's wholly unexpected decision to only progress the possible merger in the event that Parsons Brinckerhoff remained part of the potential combined entity. This change is contrary to the basis upon which the Balfour Beatty Board agreed to engage in preliminary discussions. It is also contrary to the joint announcement released on 24 July 2014 which confirmed that the sale of Parsons Brinckerhoff would be unaffected by the merger discussions and also a presentation to Balfour Beatty's Board by Carillion on 28 July 2014. This change in the proposed terms is not acceptable to the Board of Balfour Beatty.

Balfour Beatty will proceed in accordance with its own business plan, including the competitive sale process of Parsons Brinckerhoff currently well underway. It will also continue to actively progress its search for a Group CEO.

Balfour Beatty confirms there is no material new information on trading since 3 July 2014 and will publish its interim results on 13 August 2014.

This announcement, that Balfour Beatty has no intention to make an offer for Carillion, is made in accordance with Rule 2.8 of the Code. As a result of this announcement Balfour Beatty will be bound by the restrictions contained in Rule 2.8 of the Code. For the purposes of Rule 2.8 of the Code, Balfour Beatty reserves the right to make or participate in an offer for Carillion (and/or take any other action which would otherwise be restricted under Rule 2.8 of the Code) within the next six months following the date of this announcement in the circumstances set out in Note 2 of Rule 2.8 of the Code.

This announcement is not being made with the consent of Carillion.

Thanks for that sk. Back to square 1 then. Missed taking profit here.

Some intrigue in their last sentence above?

read the first part of the announcement too, and therein lies the clue ..... it's far from impossible that they're both still talking quietly

I sold my shares at 371.5p last week on the spike. Today I bought them back at 337 - a bit too soon as it happens.
Having read the CLLN announcement of the termination of talks, I would not be surprised to see CLLN announce a hostile bid for BBY. Perhaps something else will crawl out of the woodwork in the next week or so.

RBC outlining the options:
"We believe that Carillion has three options:
1. Back down regarding the PB sale. allowing Balfour Beatty to proceed with the disposal
2. Persuade the Balfour Beatty’s board to come round to their way of thinking – i.e. that PB is the “jewel in the crown” and highest margin asset.
3.Launch a hostile take over. Given they were only in preliminary discussion we do not believe that Carillion would have to wait before they can make a formal approach to Balfour Beatty shareholders.
Carillion would have to launch a formal take over bid for Balfour Beatty i.e they would need 90% shareholder approval (compared to 75% under a scheme of arrangement)
We believe any offer might be put forward predominately in the form of an all share deal, meaning that the terms of the deal would have to be favourable to Balfour Beatty shareholders, as it stands Carillion may not have the balance sheet flexibility to have a large cash component to their offer. Given this morning’s statement, it would appear that Balfour Beatty’s board would be unlikely to recommend the deal. Hence we believe Carillion would likely need to put together an indicative proposal and garner interest from Balfour Beatty’s shareholders.
We maintain that there is a lot of value that could be created with potentially £100m of synergies to come out of the combined entity."

Mirabaud note:
"The obvious conclusion and it seems highly likely that Carillion will mount a hostile bid for Balfour. Firstly, they have established that the market believes that a combination of the two would be a good thing, as evidenced by the increase in both companies’ share prices when talks were revealed last week. Secondly, if Carillion really do believe that PB is a keeper, they must think it is a very good business indeed. Their announcement states that they believe the combined business needs the more stable contribution that PB provides.
Any SOTP argument is going to suggest that Balfour is undervalued, (EMT passim) and frankly, Carillion’s interest confirms this. The evidence from Balfour Beatty in recent months has hardly weakened the argument for letting new management have a go.
The question is, how could Carillion finance a hostile move?
Their net debt of circa £200m is not that significant, but if they had to borrow to fund an acquisition, and if they paid 300p for BBY they might end up leveraged to over 5x net debt/EBITDA. Retaining PB means that asset disposals are a limited opportunity. So equity would have to be involved. Here the maths gets complicated, because Carillion trades on a single digit PE. At 300p, Balfour would be trading on almost 15x 2015 consensus earnings, so dilution beckons. But, on an EV/Sales basis, Balfour would stand at not much more than half the level of Carillion, even after the bid premium.
So near term dilution, in return for longer term earnings and capital upside if Carillion can unlock some of the balance sheet value within BBY and improve the performance of the operating companies. Carillion are weighing their options, rather than licking their wounds. They are clearly contemplating whether to make an offer or not. Balfour is in play and the rest of the industry will be taking a look too. Balfour’s insistence on selling PB is basically exposing the value of the balance sheet for all to see.
Carillion could walk away; they may not get support for a bid at a premium with a significant equity content involved. Even so, we doubt that Balfour can remain in its current form for too much longer. Either it starts to realise its own SOTP or others come along to accelerate the process. With the stock languishing at 0.2x EV/Sales, we can see significant long term upside, albeit with the risk that in the near term, trading in UK Construction Services seems unlikely to be helpful."

all of which must surely make BBY the better punt (closed at 244), though no real harm in holding both

Statement by the Board of Carillion
11 August 2014

The Board of Carillion notes this morning's announcement by Balfour Beatty.

The Board of Carillion will give further consideration to its position and will make a further announcement in due course. In the meantime, there can be no certainty that any offer will be made by Carillion or as to the terms on which any such offer might be made.

As required by Rule 2.6(a) of the Code, Carillion is required, by not later than 5.00 p.m. on 21 August 2014 to either announce a firm intention to undertake a transaction in accordance with Rule 2.7 of the Code or announce that it does not intend to undertake a transaction, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline may be extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code. Carillion understands that, in accordance with Rule 2.6(c), the Takeover Panel will take into account the views of Balfour Beatty in considering whether to grant such an extension.

This announcement is not being made with the consent of Balfour Beatty.

interesting that neither BBY nor CLLN have moved much this morning.
i think it more than likely that a new attempt will be made between the two, so a modest flutter with guaranteed stops may be worthy of serious consideration

Hmmm.

quite :-)

First Half Financial report

· First-half financial performance in line with expectations
- As expected, first-half revenue slightly lower, but well positioned to target revenue growth in the full year
- Underlying operating margin(1) increased to 5.5% (2013: 5.1%)
- Underlying profit before taxation(1) up three per cent to £75.9 million, despite a higher net financial expense
- Underlying earnings per share(1) maintained at 14.7 pence
- Strong cash flow with underlying operating cash conversion(1) of 127% (2013: 5%)
- Net borrowing at 30 June 2014 of £203.6 million (31 December 2013: £215.2 million; 30 June 2013: £270.8 million)
- Strong balance sheet, with over £1.1 billion of committed borrowing facilities and private placement funding

· Work winning remains strong
- £3.2 billion of new orders and probable orders in the first half
- Total orders plus probable orders increased to £19.5 billion at 30 June 2014 (31 December 2013: £18.0 billion)
- Pipeline of contract opportunities increased to £38.0 billion (31 December 2013: £37.5 billion)
- 93% revenue visibility(2) for 2014 (2013: 93%)

· Interim dividend increased by 2% to 5.6p (2013: 5.5p)

· Full-year targets for revenue growth unchanged, despite markets remaining challenging

(1)
The underlying results stated above are based on the definitions included in the key financial figures on page 3.
(2)
Based on expected revenue and secure and probable orders, which exclude variable work and re-bids.

Statement by the Board of Carillion


THIS ANNOUNCEMENT IS NOT AN ANNOUNCEMENT OF A FIRM INTENTION TO UNDERTAKE ANY TRANSACTION UNDER RULE 2.7 OF THE CITY CODE ON TAKEOVERS AND MERGERS (THE "CODE") AND THERE CAN BE NO CERTAINTY THAT ANY TRANSACTION WILL PROCEED, OR AS TO THE TERMS OF ANY SUCH TRANSACTION.

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

FOR IMMEDIATE RELEASE 14 August 2014


Statement by the Board of Carillion

Carillion has, since Monday morning 11 August 2014, held meetings with a number of Balfour Beatty's major shareholders. At the request of the Panel on Takeovers and Mergers and those shareholders, Carillion is now making public all material new information given during those meetings.

Synergies

The Board of Carillion is confident that, as a direct result of the merger, the cost-base of the combined group could be reduced by at least £175 million per annum by the end of 20161 and that earnings would consequently be significantly enhanced from that year2. These cost savings would represent a capitalised value of over £1.5 billion before any re-rating3.

As required by Rule 28.1(a) of the Code, Ernst & Young LLP ("EY"), as reporting accountants to Carillion, have provided a report stating that, in their opinion, the synergy statement has been properly compiled on the basis stated. In addition, Lazard, Greenhill and HSBC, as financial advisers to Carillion, have provided a report stating that, in their opinion and subject to the terms of such report, the synergy statement, for which the directors of Carillion are solely responsible, has been prepared with due care and consideration.

Substantial synergies have been identified across the following areas:

· Businesses and Functions: back office, head office, business and support function savings as well as from applying Carillion's business operating model to Balfour Beatty's UK business;

· Supply Chain: utilising Carillion's category management and demand planning solution, and through purchasing and procurement efficiencies;

· Information and Communications Technology ("ICT"): utilising Carillion's outsourced back office solution, and through standardisation of systems and processes;

· Property: consolidation of the two groups' property portfolios in overlapping areas, including head office; and

· Other: agency labour, fleet, insurance and general overhead savings, including through the application of Carillion's lean operating structure.


The Board of Carillion expects that it would deliver these synergies progressively, anticipating that 40% of them would be achieved by the end of 2015 and the full 100% by the end of 2016 (assuming, for these purposes, that completion of the merger occurred by 31 December 2014).

It is expected that the realisation of the identified synergies would result in one-off exceptional cash costs of approximately £225 million, largely incurred in financial years 2015 and 2016.

Please refer to Appendix I for further detail on synergies.

1 Statement made on the basis of publicly available Balfour Beatty information
2 This statement is not a profit forecast
3 Calculated using weighted LTM multiple applied to cost-base reduction achieved by the end of 2016. See Appendix II

Dividend

Carillion has proposed that Balfour Beatty's shareholders receive an additional cash dividend (or equivalent) of 8.5 pence per Balfour Beatty share (£59 million in total) at the time Balfour Beatty's final 2014 dividend would have otherwise been paid in 2015. This would be in addition to the final 2014 dividend they would be entitled to receive as shareholders in the enlarged group.

Carillion also proposed that the enlarged group would maintain Carillion's progressive dividend policy.

Financing

Based on initial discussions with banks and assuming the retention of Parsons Brinckerhoff, the Board of Carillion is highly confident that £3 billion of available funding would be accessible to the combined group, providing substantial headroom above its actual borrowing requirements after transaction costs and the costs of the proposed restructuring.


more....

Great market reaction today - was it to the results or the possibility of a deal with BBY? Perhaps both.