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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It isn't overdone if CLLN can no longer service the debt as it isn't making profits to do so.

My guess is that a rights issue will no longer be enough and we are now looking at the debt holders having to accept a partial equity swap.

CLLN's biggest problem over the next few weeks I suspect may be the reverse factoring which means the supplier doesn't have to worry about getting paid in exchange for a discount on the invoice value as the intermediary bank pays it. If the banks become reluctant to continue with reverse factoring, CLLN may find it's subcontractors not willing to work for it and then it's a pile of cards waiting to collapse.

The provision is £850m, more than all the profits it's made in the last 5 years or put another way, they've booked 2 months income in advance of doing the work on every single contract in the business, or overstated the income by 2 months if you prefer or any combination of the two.

That's not a couple of contracts gone bad - that's complete mis-statement of the accounts in my view. A complete mess

Embattled construction and support group Carillion plummeted lower for a second day on Tuesday, as analysts picked apart the company's horrendous trading update at the start of the week.

After losing more than a third of their value on Monday, shares in the FTSE 250 company fell another 15% on Tuesday morning to reach levels not seen since late October 2000, before taking a further leg lower below 90p to make it a 55% fall in two days.

Interim chief executive Keith Cochrane will now start a strategic and balance sheet review which will be presented with interim results in September, with no options ruled out.

Analysts at UBS, which maintained its 'sell' rating on the shares, said the main question now was how can the company recapitalise itself, being "in a tough position" with leverage of around £1.45bn being more than six times estimated adjusted operating profits of £227m for the full year, even before taking account of £420m of average reverse-factoring.

With Carillion reassuring about its debt covenants UBS saw "no immediate liquidity issues" but said the strategic and balance sheet review could include the raising of fresh equity, a debt-to-equity swap, asset disposals or a combination of all three, though disposals may hit earnings.

"The potential outcome for current shareholders remains highly uncertain at this stage," the Swiss bank said, giving a sum-of-the-parts estimate of the shares of 78p.
Morgan Stanley said "further write-downs are possible" as the contract review continues under a new CEO.

And while agreeing that there is limited covenant risk, "sustainable leverage levels are unclear and are likely to remain so until the capital structure review in September".
"The objective to delever is paramount, in our view, but there is a question over whether this can be achieved organically, as working capital outflows are likely as the construction business unwinds and we see limited trophy assets that can realise value," analysts wrote.

Broker Numis cut its PBT forecasts by 25% for the current year and now assumes a flat PBT profile for next year, with zero dividend in both years.

Numis sees further contract issues emerging from the review, given that the KPMG review was some 58 contracts in 'enhanced review', which account for some 73% of total receivables.

Taking a technical view, analyst Mike van Dulken at Accendo Market said investors -- both those nursing losses and those circling for a bargain -- were asking where the shares would find the next levels of support, having on Tuesday breached levels from the fourth quarter of 2002. Van Dulken saw no technical support until the 83p from autumn 2000 and then 81.5p all-time lows from March that year. "This doesn’t sound far away, but the lowest of the two represents another 17-18% fall from here," he said, noting that it was "still early days" in terms of the announced capital structure review. "This could easily comprise a highly dilutive rights issue to reduce debt and shore up the balance sheet. Hedge funds have already done well by shorting the stock in anticipation of corporate troubles. However, they may decide to stay the course seeing these financial woes (financial stress, profits warning, dividend suspension, CEO departure) having legs, and expecting the above-mentioned remedial work to take the shares even lower."

58 contracts = 73% of receivables ????

Carillion tumbles to fresh record low as pressure piles on

Carillion shares plunged for the second day running as the City calculated that it would need to raise more than its market value in new shares to fix its "mess" of a balance sheet. The troubled construction and facilities management company has lost most of its value in two days of trading after a succession of botched projects forced it to take £845m of writedowns on Monday.

Something very wrong here , a few months ago i highlighted a 500,000. buy at about 220p OT trade that's over a million squid , they must have had some advice to buy at that spend , wonder if they got out .

60p now... This truly look nasty.

would be brave to short at this juncture other than with a guaranteed stop loss, if such a thing would even be on offer

Cynic, you said 'what looks cheap today may be even cheaper tomorrow'.

Declared short interest is still 24%. I wonder at what point they will take their money & run?

Watching this with interest. No position and feeling sorry for those long.

I think it's done for. The share price is now too low for a rights issue so it's down to a debt for equity sway but the trouble with that is I suspect it will still require an injection of cash due to loss of confidence and who's going to do that with the current level of uncertainty.

The banks don't need to keep it afloat now their balance sheets are mostly repaired and I think they will let it go bust.

In auction again now and getting close to 50p. I can't imagine what stops will trigger there.

Reversal today against all odds.

I like it! (Post 270)
What do they say about pictures and words.

The same could be said in here .............

Best Thread of the week - Tradefr - Today 12:02
says
Best thread so far, from BTFATH1

"Finally Today 11:26 So many little s**** on here predicting doom and gloom and panicking holders into selling their family fortunes for their own gain. F****** shameful this is hugely undervalued it is a punt for me but some have their lost their shirt. Stick to the facts

Continuous profits, 44 billion of contracts 49,000 employees over a hundred companies across the world that could bid. Funding secured till the end of 2018"

Good luck you fooking shorters I despise you!!!!!

I've lost a fair amount but I'm back in @63

RBC comment today:
"New forecasts: In reality, these are largely irrelevant given the high degree of uncertainty on the future strategic direction of the group and ongoing risks. However, these do provide a base to drive our rights issue analysis. At the headline level, we cut FY17E PBT by 20% to £144.7m and EPS by a similar level to 27.5p. For FY18E, we have cut PBT by 16% to £147.2m and EPS by 17% to 27.9p. We have not assumed any resumption in the payment of a dividend over our forecast horizon. Adjusted spot net debt increases by c£290m to £487.8m in FY18E.
In our view, a rights issue is the most obvious course of action. We believe that £600m could be required and assuming a 40% discount to the current share price, would imply an EPS base of 9.2p (67% dilution to new forecasts). This would take average net debt to EBITDA down to 1.2x, a more sensible level of near-term leverage. We would also not rule out the disposal of its Construction operations - given these are the main source of risk and working capital volatility in the group. A focused Support Services business could be more palatable from a turnaround perspective and future valuation.
It is difficult to take a firm stance on valuation, given the high degree of probability in a change to its capital structure. However, on current forecasts, our sum-of-the-parts based valuation indicates a fair value of 100p. If we were to consider c10p as a sensible earnings base post a rights issue, then a 10-12x multiple on this would not be out of kilter with what we have seen at other special situations in the sector."

JP Morgan today:
"We see further risk to the downside, even at the current share price. On reflection, we previously did not adequately appreciate the sharp increase in receivables during 2016 and the high level of receivables vs peers. Our analysis suggests a further provision is possible and that current debt facilities may not be sufficient. We lower our 2017-19 profit forecasts by c.20% and cut our SOTP PT sharply to 64p, from 292p, rolling forward to Dec-18.
While the recent KPMG review of Carillion’s accounting of contracts appears to have been thorough, we note that management used its judgment to determine final provisions. Our analysis (page 2-3) suggests a further (possibly material) provision may be necessary. In addition, we are not convinced Carillion’s current debt facilities will be sufficient to accommodate H2 peak gross debt. We struggle to see an elegant way out for Carillion, with our numbers indicating a possible equity raise of £532m (we consider a rights issue) needed to bring FY18e average ND/EBITDA to 1x. We are also not convinced that Carillion would represent a feasible target for a potential acquirer, given the scale of risk and liabilities.
We overlooked the size of receivables and their rapid growth in H2 2016. We also overlooked the probable drivers behind the rapid growth of the reverse factoring scheme. More generally, we likely should have put more emphasis on the numbers themselves, rather than the circumstances surrounding them.
While we believe further risk is likely to the downside, we are opting for a Neutral in light of material uncertainty on many issues, including future provisions, the decision and ability to raise equity, and the possibility of being acquired."

LedZep4 today:
This is a basket case.
If you have any - SELL
If you don't have any - AVOID

:o)

Bought some @ 57.50p

Appointment of Joint Financial Adviser and Joint Corporate Broker

Carillion plc ("Carillion") announces that HSBC Bank plc ("HSBC") has been appointed Joint Financial Adviser and Joint Corporate Broker, with immediate effect.

StockMarketWire.com
CEK - joint venture partnership consisting of Carillion, Eiffage and Kier - has been successful in its bid for two HS2 contracts worth £1.4bn.

The JV has been awarded lot C2 - North Portal Chiltern Tunnels to Brackley £724m - and lot C3 - Brackley to Long Itchington Wood Green Tunnel South Portal £616m

It said these lots would be awarded in two stages.

It said stage one would be a 16-month period to develop a design, a programme and a target cost for the construction of the works and stage two was the construction of the main works and this was expected to take between four and five years to complete.

Carillion interim chief executive Keith Cochrane said: "We are delighted that our Joint Venture, CEK, has been selected to deliver two of the three Central contracts for HS2 Phase 1, the London to Birmingham section of the route, reflecting the strength of our Joint Venture.

"We look forward to working in close collaboration with HS2 to deliver this iconic project.

"Carillion is a leading supplier of infrastructure services with top two positions in both the UK rail and highways sectors, where we work in partnership with key customers, including Network Rail, Highways England and HS2.

"We expect the UK Government's objective of generating economic growth through investing in infrastructure to continue creating opportunities for us to grow our business in these core markets.