its latest trading update, Carillion, one of the UK''s leading support services companies, said the group is continuing to perform well with underlying earnings growing strongly.
The group has published the update on trading in the first six months of 2011 ahead of announcing its interim results on 24 August 2011.
The update said Carillion has a strong cash flow and balance sheet - net debt is expected to be below £125 million at 30 June 2011, following the £298.4 million acquisition of Carillion Energy Services (formerly Eaga plc) in April 2011 (December 2010: £120.2 million of net cash). The order book at the half year is also expected to remain strong, plus a record pipeline of contract opportunities.
Carillion said the integration and rebranding of Eaga Carillion Energy Services is progressing well – with synergy cost savings now expected to increase from a total of £9m per annum to £15m per annum by 2013, at a one-off cost of £20m The group is confident that the acquisition will immediately enhance Carillion''s short and medium term prospects for growth.
The company said it is on track to make further progress in the full-year, despite challenging market conditions
Support services
Carillion’s support services division continues to perform well - operating profit is expected to increase in the first half and to contribute over half of the Group''s total operating profit. The growth is due to the expected post-acquisition contribution from Carillion Energy Services, together with an increase in =support services operating margin. The company said this reflected its focus on margins rather than revenue, which is expected to be broadly similar to that in the corresponding period in 2010.
The synergy cost savings from the acquisition are now expected to increase from the previously announced cumulative total of £9 million per annum by 2013 to £15 million per annum, with savings of £5 million in 2011, £10 million in 2012 and the full £15 million per annum by 2013, at a one-off cost of £20 million.
Carillion said it continues to benefit from a strong order book of high-quality, long-term contracts that provide good revenue visibility and expects to make further progress in the second half of the year. The group is confident that full-year revenue in this segment will increase and that its operating margin will remain strong. The pipeline of contract opportunities is also continuing to increase and includes substantial opportunities arising from public sector organisations looking to reduce operating costs through outsourcing more non-core services.
In the UK, Carillion also expects to benefit over the medium term from the role that private finance is expected to play in delivering the Government's £200 billion, five-year National Infrastructure Plan announced in October 2010.
Construction services
In construction services (excluding the Middle East), Carillion said it is making good progress with the previously announced strategic re-scaling of our UK construction capability, through progressively basing our activities around delivering integrated solutions for long-term customers, notably for PPP projects and for support services customers. Carillion continues to expect this re-scaling to reduce UK revenue from £1.8 billion in 2009 to around £1.2 billion by the end of 2012.
Cariilion said the further tightening of its selective approach to UK construction is helping to improve operating margins, as it avoids bidding for low margin work in a market that is becoming increasingly competitive as the UK Government progressively implements substantial cuts in capital spending on construction over the next four years.
Outlook
Despite the fact that market conditions remain challenging, Carillion is expecting to build on its strong first-half performance to deliver earnings growth in the full year.
The company said its medium term objectives for organic growth remain unchanged, namely to deliver substantial growth in support services from 2012 onwards and to double its annual revenues in the Middle East and in Canada over three to five years, in each case to around £1 billion.