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.

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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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UBS Sell 269.60p 230.00p 210.00p Reiteration

Long article in the IC today. They are confident of further growth, increased divi and growing order book. They recommend BUY.
I will post the column when I can.

I guess UBS has more followers than IC judging by the price reaction. What a caning.

IC article from last week:
"Shares in Carillion have fallen by more than 20% since the start of this year, mainly because of the weak UK construction sector. But this is puzzling because UK construction accounts for less than 10% of Carillion's impressive order book, which reached £18bn at the end of december. Moreover, there are signs that the UK picture is starting to improve.
A rescaling of the UK business meant that the group was more selective about which contracts it took on. So while turnover from UK operations last year fell by 31% operating profit actually rose by 25%. Since then, Carillion has been selected to deliver the first £400m redevelopment phase of the Battersea power station site and, more recently, the group has been chosen as one of the preferred bidders to provide construction services for Manchester airport, worth a potential £500m.
A further £130m of work has also been secured in the group's Middle East construction division, in Oman. Probable new orders in the Middle East so far this year have reached more than £340m. That's more than the total for the whole of the previous year."

Berenberg Bank comment:
"Even after a £115m working capital outflow this year, driven by UK construction rescaling, we expect Carillion to maintain a strong balance sheet, with gearing of around 19% and a net debt to cash profits multiple of 0.7 times, We also expect to see significant expansion in the Middle East operation and if Carillion can achieve it's 1/3 win to bid ration target, there could be even further 15% upside to our current 2014 estimates. Expect 2013 pre-tax profit of £211m & EPS of 41.25p, with a dividend of 18.5p, rising to EPS of 44.88p in 2014. Based on 2014's estimate, the shares trade at a discount to construction peers of around 40%. Our price target is 370p. BUY."

Panmure Gordon comment:
"The transformation from a pure construction company into a multinational construction and support services group certainly isn't reflected in Carillion's valuation. Metrics such as PE ratio and enterprise value both stand at discounts to those of it's most immediate peer, Interserve. As well as a growing Middle East division, the group is also well placed in Canada, where there is a healthy private finance initiative sector. We believe our forecasts are on the conservative side at £199m of pre-tax profit for 2013, giving EPS of 40p. The prospective dividend yield is 7% and our price target is 400p. BUY."

Carillion Joint Venture selected as preferred bidder for 10-year strategic partnership with Stockport Metropolitan Borough Council, initially expected to be worth over £100 million.

Stockport Metropolitan Borough Council (SMBC) has selected Carillion and its partner CBRE as the preferred bidder to form a Joint Venture company with the Council that will be responsible for the strategic management of all the Council's property services. The contract is initially expected to be worth over £100 million, with the potential for this to grow significantly through increasing the scale and scope of service delivery.

The Joint Venture, to be known as the Stockport Strategic Property Partnership (SSPP), will be established in September 2013, with the objective of transforming the Council's operational and non-operational property portfolios. The Joint Venture will deliver substantial savings for the Council, while maintaining high-quality services. The Partnership will initially be for 10 years, with the option to extend this for a further five years.

The Joint Venture will also have the opportunity to provide similar services to other Councils within the Association of Greater Manchester Authorities (AGMA), because they will have the option to procure services from the Joint Venture without the need for further procurement processes or costs.

Carillion will provide strategic advisory services for estates management, facilities management, energy management and capital projects, with CBRE delivering strategic asset management and development advice. Carillion will also have an exclusive option to deliver operational professional services, which are currently being delivered by the incumbent provider NPS Stockport Ltd., including estates management and multi-disciplinary design.

Services delivered directly to schools and academies in Stockport and other authorities within AGMA will also be part of the new Joint Venture service offering and form part of the SSPP's growth plans.

Commenting, Carillion Chief Executive, Richard Howson, said: ''We are delighted to have been selected for this strategic partnership with Stockport Metropolitan Borough Council. I believe this further success in the Local Authority outsourcing market once again reflects our ability to provide integrated service solutions that enable Local Authorities to reduce costs without sacrificing service quality."

Deputy Council Leader Councillor Mark Weldon said: "To achieve greater efficiencies and collaboration between public sector agencies to deliver local community services, we are transforming the Council's estate and property portfolios.
I am confident that the new operating model will deliver an effective and efficient strategic property service to meet the Council's future priorities."

Morgan Stanley Equal weight 283.40 283.40 345.00 345.00 Reiterates

Breaking out looks interesting.......... Bought them this morning.

Good for 330 at least on this run, goldfinger. A lot more eventually.

Fingers crossed LG yep.

Was looking at Broker recos last night and it seems theirs quite a bit left in it.

Mind they were a little mixed.

Do you ever get over to Sharecrazy these days?. Seems to have gone down the drain, shame as it was a brilliant site in the early 2000s. Im sure I remember you posting their.

Went ex-divi on the 4th Sept. Hardly paused for breath and up 33p since.

goldfinger - I gave up on Share Crazy years ago. Pity really as it was a good forum and there were some good posters. I used to post there as 'Pond Life'.

Hi LG and GF
I used to post on Share Crazy too. Yes it was good for information and a lot interesting people and debates. It fell apart when taken over. Just used to post as Lucas.

Re Contract Halton Peel AMC

Carillion named preferred bidder for 12-year Canada highways maintenance contract expected to be worth over £100 million

Carillion Canada has been selected by the Ministry of Transportation Ontario as the preferred bidder for the Area Maintenance Contract (AMC) Peel/Halton in Ontario that is expected to be worth over £100 million over 12 years.

Under this contract, Carillion Canada will provide routine inspection and maintenance services, including snow clearance, together with minor capital works, for over 1,000 kilometers of 2-lane equivalent highway. A Carillion joint venture was the incumbent maintenance contractor for the Halton area, which has been combined with the Peel area under this new and extended AMC.

This latest AMC further strengthens Carillion Canada's position as a leading supplier of highways maintenance services in Ontario. Carillion Canada has a similar market leading position in Alberta and we continue to look for opportunities to extend our operations to other Provinces in Canada.

Commenting, Carillion Chief Executive, Richard Howson, said: ''This latest success reinforces Carillion's position as the leading private sector provider of highways maintenance services in Ontario. Over the last eighteen months, we have won long-term highways maintenance contracts in Ontario and Alberta worth over £720 million, which is making a significant contribution to organic growth in our support services activities in Canada."

Standard Life Investments Ltd < 5%

Looks like we breaking out again on the chart.

Investec Hold 316.20 313.00 275.00 305.00 Reiterates

That's a bit mean. I prefer the Morgan Stanley 345p target.

At least they are moving in the right direction.