Operating profit after exceptional items up 11.3% to 41.3 million. Final dividend of 2.7 pence makes total for the year 4.0 pence.

Transcription

1 14 March 2000 Carillion plc 1999 preliminary results Carillion is changing shape Construction to services group Carillion plc today announces its preliminary results for the year ended 31 December Carillion was launched as an independent company in July 1999, following its demerger from Tarmac plc. Highlights Operating profit after exceptional items up 11.3% to 41.3 million. Operating margin up from 2.0 % to 2.3 %. Pre-tax profit 35.1 million. Final dividend of 2.7 pence makes total for the year 4.0 pence. Private Finance, Infrastructure Management and Services sectors now account for 64% of the order book. A growing stream of longer term, good quality earnings. Chairman Sir Neville Simms says, Our order book has nearly trebled over the last five years to 2.2 billion, but more importantly orders in our growth sectors of Private Finance, Infrastructure Management and Services have increased tenfold to 1.4 billion. I am therefore confident that, against a strengthening economic background, we have created in the UK and our overseas regions an excellent platform from which to benefit from the growing trend in outsourcing by both the public and private sectors.

2 For further information Carillion plc John Denning (Media) Head of Corporate Affairs and Communications Chris Girling (Analysts) Finance Director Shandwick Rollo Head Tom Leatherbarrow Philip Robinson Note: All the above can be contacted at The Redgrave Suite, Barbican on between 0930 and 1300 and on the above numbers thereafter.

3 Chairman s Statement I am delighted to report that 1999 was both a successful year and an important milestone in the development of our business. The demerger from Tarmac plc in July 1999 saw Carillion successfully launched as an independent company, more focused and better able to pursue its strategy for growing shareholder value - a strategy that is changing both what we do and how we do it. Despite the considerable effort demanded by the demerger, all our businesses remained clearly focused on their customers. Their success is evident in the Group s improved results, which reflect an increasingly prudent approach to profit recognition. Operating profit after exceptional items grew by 11.3% to 41.3 million, on turnover some 3.4% lower at 1.8 billion. Operating margins increased from 2.0% to 2.3%. I believe that these results demonstrate progress with all our key value drivers, but in particular: an improvement in our operating performance rapid repositioning towards Private Finance, Infrastructure Management and Services a growing stream of longer term, good quality earnings. Net interest payable was 6.2 million and profit before tax 35.1 million. Net cash at 31 December was million. This was only 2.3% lower than at 31 December 1998, despite the adverse effects of our planned reduction in higher risk civil and turnkey process engineering projects. Earnings per share were 11.5 pence, compared with 1998 proforma earnings per share of 9.6 pence. In the light of our full year performance and encouraging prospects for the coming year, your Board is recommending the payment of a final dividend of 2.7 pence, making a total for the year of 4.0 pence. The final dividend will be paid on 7 July 2000 to shareholders on the Register at close of business on 24 March A scrip dividend alternative will also be offered. We were pleased to welcome Chris Girling to the Board in November, as Group Finance Director, and look forward to Andrew Parrish joining us as a non-executive director on 31 March Looking forward, we shall continue to pursue the strategy that has seen the proportion of our turnover that comes from the growth segments of Private Finance, Infrastructure Management and Services more than double to 36 %, over the last five years. Significantly, our order book in these segments has increased tenfold to 1.4 billion over the same period and now represents some 64% of our total order

4 book, which has nearly trebled to 2.2 billion. In addition, we will benefit from more than 1 billion of turnover over the next 25 years from our equity investments to date in PFI concessions. The UK economy is continuing to strengthen and we have created a strong platform from which to benefit from the increasing trend in both the public and private sectors, here and abroad, to outsource their non-core services. I am therefore confident that the outstanding skills and commitment of our management and employees will enable us to expand our growth segments rapidly in the years ahead, further improving both the quantity and quality of our earnings. Operating Review Carillion s strategy for creating shareholder value is focused on: Continuing to improve our operating performance, through reducing costs, greater project selectivity and process improvement. Re-positioning the existing business for growth in the higher quality earnings sectors of infrastructure management, facilities management and PFI. Selective disposals. To increase transparency and help our shareholders to understand the value of Carillion s activities, and to facilitate benchmarking, we adopted a new financial reporting structure at the time of our interim results announcement in October This comprises five reporting segments, each of which is reviewed below. Services Turnover in Services, increased by 12% to 323 million, with operating profit up 54% to 8.6m and margins up from 1.9 % to 2.7%, as a result of an improved operating performance. Our order book reduced from 338 million at the end of 1998 to 277 million as a result of a more selective approach in M&E contracting and the fact that the major facilities management orders won during the year were in our PFI segment. Carillion Services, which provides customers with a strategic partner to take complete responsibility for a wide range of integrated facilities management services, had a very successful year. It continued to focus on delivering high quality non-core services in four key areas - support services, property management, facilities development and building control.

5 Carillion s position as a leading supplier of non-clinical support services to the NHS was reinforced by the award of three new contracts under the PFI schemes for South Glasgow University Hospital NHS Trust, North Staffordshire Combined Healthcare NHS Trust and Swindon and Marlborough NHS Trust - adding to the five district general hospitals where it already provides integrated facilities management services. The first outsourcing contract in the Constabulary sector for property management services was awarded to Carillion Services by the Metropolitan Police. The award of three further contracts by the Ministry of Defence for property management services for its housing estate has consolidated Carillion s position as one of the MOD s leading suppliers in this market. Carillion Services also strengthened its position in the building control and property legislation market by developing framework agreements with Bass Leisure Retail, Whitbread, Somerfield and Accor Group, for the provision of consultancy services. Crown House Engineering maintained its position as one of the UK s leading M&E contractors specialising in its selected markets of high-tech clean factories and industrial sites, leisure, offices, health, prisons and transport. It targeted a number of growth opportunities, especially in the health sector, where it has increased its portfolio of hospital contracts, the largest of which is a 40 million contract for the Norfolk and Norwich Hospital. Infrastructure Management Turnover in infrastructure management, which includes our road and rail maintenance activities, declined by 9% to 234 million as a result of the delayed release by Railtrack of track renewal work. Consequently, operating profit declined by 11% to 13.1 million, but despite increasingly competitive market conditions, margins were only slightly lower at 5.6% as a result of early action to reduce costs and our continuing drive to improve efficiency. Our order book increased by 25% to 245 million, compared with the end of Consequently, we expect the reduction in turnover in 1999 to be redressed in the years ahead as more opportunities arise from increasing expenditure on the maintenance and renewal of the UK s road and rail networks and the increasing trend to invite the private sector to bid for road maintenance work currently carried out by the public sector. In 1999, Railtrack awarded Carillion and its joint venture partners new contracts of varying duration over the next five years worth nearly 450 million. These contracts will provide some 250 million of turnover for Carillion Rail, further strengthening its position in this important growth market. They included new area maintenance contracts, giving GTRM, our joint venture maintenance company, a 30% share of the rail maintenance market. Another was the first phase of overhead electrification of the West Coast Route Modernisation that will lead to two further substantial contracts in 2000 for the

6 second and third phases of this project. As a member of London Underground s Corporate Track Alliance Programme, we also continue to provide a track renewal service on the Underground. Prospects for 2000 and beyond are also encouraging as Carillion is well positioned to take advantage of accelerated spending by Railtrack on its 27 billion programme for heavy maintenance and upgrading of the rail network. Carillion maintained its position as a market leader in road maintenance, which involves routine and rapid response maintenance, as well as reconstruction, of the motorway, trunk and local authority road networks in Great Britain. With term maintenance contracts for about 22% of the Government s motorway and trunk road network in England as well as five term maintenance contracts for Local Authority road networks, this business continued to perform strongly. Private Finance Carillion is the UK leader in Private Finance construction with a large and growing portfolio of contracts that offer premium construction margins and predictable long term cash flows from equity investments, facilities management and maintenance. Although turnover and operating profit remained broadly unchanged at 95 million and 5.0 million, respectively, these figures do not yet reflect the growing momentum in our private finance activities. As more projects reach financial close and move forward into the construction phase, turnover and, more importantly, profit, are expected to increase sharply. During 1999, financial close was achieved on a further four PFI projects. As a result, we now have twelve financially closed projects, increasing our order book by 165% to 765 million. With a further two projects at preferred bidder stage, we have fourteen projects, primarily in the health, secure establishments and transport sectors. As a result of creating this strong portfolio of PFI projects, in the last few years Carillion has secured or become the preferred bidder for construction contracts worth 860 million and contracts for facilities management and for maintenance, over the life of the PFI concessions, worth in the region of 650 million. Even more importantly, we also have equity investments in the PFI concession companies that are expected to generate for Carillion turnover in excess of 1 billion over the life of the concessions. We will use this powerful base to widen our focus during the coming year to include PFI opportunities in the defence, education and social housing sectors, to take full advantage of planned Government spending of 6.5billion over the next two years. We also intend to pursue selected PFI opportunities in our international regions.

7 Capital Projects Turnover in Capital Projects, which includes all our non-pfi civil engineering and process engineering work in the UK and our overseas regions, was reduced by 8% to 490 million. This reflects our continuing withdrawal from higher risk turnkey process engineering projects. However, greater selectivity and some early benefits from our cost reduction programme helped to improve operating profit by 24% to 4.2 million and lift margins to around 0.9%. Our order book for Capital Projects was reduced to 290 million from 539 million at the end of Reducing the scale of our activities will enable, over time, us to reduce the level of working capital required by this segment of our business. Civil Engineering continued to focus on improving its operating performance through greater selectivity, reducing costs and improving process and risk management. The performance of our Regional Overseas Businesses, in France, the Middle East, Canada, the Caribbean and Ireland continued to improve significantly through their sharper focus on local markets where they have strong track records with good longer-term growth prospects. Building Turnover in Building, which includes all our non-pfi building activities, was reduced by around 8% to 711 million due to the combined effects of being more selective in the work we tendered for and weaker market conditions in the first half of the year. However, as the year progressed, confidence grew and market conditions improved, resulting in an order book only 6% lower at 542 million, by the year end. Greater project selectivity resulted in an improved operating performance with operating profit, including a broadly unchanged contribution from property development, increasing by 8 % to 16.7 million and margins up from 2.0% to 2.3%. In this segment we continue to operate with a significant level of negative working capital. Carillion Building maintained its position as the UK market leader, focused on developing long-term relationships with its customers and on selective growth opportunities in the retail, office and leisure sectors where it has the specific skills and resources to add value to its customers and secure a competitive advantage. Being selective in the work tendered for has not only improved operating performance, but steadily increased the average value of projects won over the last year to 6.5 million - up from 5.5 million in 1998 and from under 2 million four years ago. Around 35% of orders received in 1999 came from long-term key customers. Market conditions in Carillion Building s preferred sectors look set to remain favourable throughout 2000 and should enable it to capitalise on its leading market positions

8 Carillion Housing is the UK leader in building, refurbishing and repairing social housing and accommodation for Local Authorities, Housing Associations and Government departments. Despite difficult market conditions in 1999, it achieved some notable successes, including its first construction contract for a major PFI scheme at Lakenheath for the US Air Force. Carillion Housing is well placed to take advantage of increasing spending by Local Authorities from the release of housing capital receipts, the trend towards larger projects, increased outsourcing and the use of private finance. Schal, a UK leader in construction and project management, added to its successful track record in highprofile projects with the successful completion of the refurbishment of the Royal Opera House and the conversion of Bankside Power Station into the new Tate Modern. It also continued to win work with long-term key clients.

9 Consolidated Profit and Loss Account for the year ended 31 December December 1999 m 31 December 1998 m Total turnover 1, ,866.1 Deduct turnover of joint ventures (193.8) (183.6) Group turnover 1, ,682.5 Cost of sales (1,455.5) (1,532.5) Gross profit Other expenses (123.0) (133.6) Group operating profit before exceptional operating items Founders Equity Plan (1.5) - Other exceptional operating items - (4.5) Group operating profit Share of joint ventures: Operating profit before exceptional items Exceptional operating items - (1.4) Total operating profit Net interest payable: Group (3.7) (17.1) Joint ventures (2.5) (0.5) (6.2) (17.6) Profit on ordinary activities before taxation Tax on profit on ordinary activities (11.6) (13.6) Profit on ordinary activities after taxation Equity minority interests 0.1 (0.1) Profit for the financial year Equity dividends (8.2) - Retained profit for the Group and its share of joint ventures Earnings per ordinary share - Basic 11.5p 2.8p - Before all exceptional items 12.0p 4.8p Diluted earnings per ordinary share - Basic 11.5p - Before all exceptional items 12.0p Dividends per ordinary share 4.0p The results set out above relate to continuing businesses.

10 Consolidated Balance Sheet At 31 December 1999 m At 31 December 1998 m Fixed assets Intangible assets Tangible assets Investments in joint ventures: Share of gross assets Share of gross liabilities (266.7) (239.4) Current assets Stocks Debtors Investments Cash at bank and in hand Creditors: amounts falling due within one year Bank loans and overdrafts (5.0) (5.8) Other creditors (658.7) (702.4) (663.7) (708.2) Net current assets Due within one year 35.3 (11.8) Debtors due after more than one year Total assets less current liabilities Creditors: amounts falling due after more than one year Bank loans (10.8) (0.2) Other creditors (7.2) (9.2) (18.0) (9.4) Provisions for liabilities and charges (3.9) (3.9) Net assets Financed by: Capital and reserves Called up share capital Share premium account Revaluation reserve Merger reserve Profit and loss account 13.1 (2.8) Equity shareholders funds Equity minority interests Total capital employed

11 Consolidated Cash Flow Statement Year ended Year ended 31 December December 1998 m m Net cash outflow from operating activities (10.7) (50.8) Loan (advance)/repayment from joint ventures (6.1) 9.2 Returns on investments and servicing of finance Interest paid (5.1) (22.6) Finance lease charges (0.1) (0.1) Interest received Dividends received from joint ventures Net cash inflow/(outflow) from returns on investments and servicing of finance 16.9 (16.2) Corporate taxation paid (1.7) (5.5) Capital expenditure and financial investment Payments to acquire fixed assets (9.7) (12.3) Payments to acquire current asset investments (3.8) (1.6) Sale of tangible fixed assets Net cash outflow from capital expenditure and financial Investments (10.1) (9.0) Acquisitions and disposals Sale of businesses Purchase of businesses Equity investment in joint ventures (0.2) (2.7) Net cash (outflow)/inflow from acquisitions and disposals (0.2) 14.0 Equity dividends paid (2.2) - Net cash outflow before management of liquid resources and financing (14.1) (58.3) Management of liquid resources Decrease/(Increase) in short term deposits 2.4 (0.1) Net cash inflow/(outflow) from management of liquid resources 2.4 (0.1) Financing Drawdown/(Repayment) of debt 10.6 (0.1) Cash dowry on demerger Repayment of finance leases (1.0) (0.1) Increase/(Decrease) in cash in the year 10.3 (58.5)

12 Reconciliations of operating profit to net cash outflow from operating activities 1999 m 1998 m Carillion Group operating profit before exceptional items Share of operating profits of joint ventures (11.3) (22.1) Depreciation Profit on disposal of fixed assets (0.4) - Amortisation of goodwill Decrease in provisions - (35.4) Increase in stocks (5.2) (14.6) Increase in debtors (3.0) (6.3) Decrease in creditors due within one year (44.5) (34.0) (Decrease)/increase in creditors due after more than one year (0.7) 2.1 (Decrease)/increase in bills of exchange (1.5) 7.4 Net cash outflow from operating activities before exceptional items (10.7) (46.3) Exceptional operating cash spend - (4.5) Net cash outflow from operating activities (10.7) (50.8) Analysis of changes in net funds Cash at bank Short term deposits Short term bank overdrafts Long term borrowings Net funds m m m m m Net funds at 31 December (5.8) (0.2) Net funds Increase in cash Cash inflow from management of liquid resources - (2.4) - - (2.4) Net drawdown of loans (10.6) (10.6) Effect of foreign exchange rate changes (0.1) - (0.3) - (0.4) Movement in net funds in the year 9.1 (2.4) 0.8 (10.6) (3.1) Net funds at 1 January (5.8) (0.2) Net funds at 31 December (5.0) (10.8) 131.5

13 NOTES TO THE FINANCIAL STATEMENTS 1. Analysis of total turnover and operating profit and net assets Total turnover Total operating profit Net assets/(liabilities) Class of business m m m m m m Building (77.5) (79.4) Capital Projects Services (10.3) (26.8) Infrastructure Management Private Finance Internal trading (50.6) (83.5) Corporate centre - - (4.0) - (8.1) 14.0 Tarmac management charge - - (2.3) (6.9) - - Net cash , , Geographical origin: UK 1, , (8.2) (28.8) Europe (0.1) 0.3 (15.5) (5.6) Other Net cash , , The analysis of turnover by geographical market served is not materially different from that by geographical origin. Exceptional operating items may be analysed by business segments as follows: Class of business m m Building (0.3) (2.5) Capital Projects (0.2) (3.4) Services (0.1) - Infrastructure Management (0.2) - Private Finance (0.1) - Corporate centre (0.6) - (1.5) (5.9) Analysed between: Subsidiary undertakings (1.5) (4.5) Joint ventures - (1.4) (1.5) (5.9)

14 The group s share of the trading results of joint ventures after exceptional items was as follows: Turnover Operating profit Net assets Class of business m m m m m m Building Capital Projects (5.1) Services Infrastructure Management Private Finance Internal trading (6.4) (6.4) Geographical origin: UK Europe (0.5) 0.3 (2.8) (2.5) Other (2.9)

15 2. Basis of Preparation The financial information set out above does not constitute the Company s statutory accounts for the years ended 31 December 1998 and The statutory accounts for the financial year ended 31 December 1999 (which will contain comparative figures for the financial year ended 31 December 1998) will be delivered to the Registrar of Companies following the Company s next Annual General Meeting. The comparative figures for the year ended 31 December 1998 have been prepared in accordance with the principles of merger accounting as set out in Financial Reporting Standard 6 Acquisitions and Mergers, as if the Carillion Group had been in existence throughout the year ended 31 December 1998 and up to the date of the demerger from Tarmac plc on 29 July On demerger the share capital of million was issued by the Company and was recorded at the nominal value of the shares issued to shareholders in Tarmac plc. In accordance with Sections 131 and 133 of the Companies Act 1985, no premium was recorded on the shares issued. On consolidation the difference between the nominal value of the Company s shares issued and the amount of share capital and share premium of 7.3 million at the date of demerger has been credited to merger reserve. The Auditors have reported on the statutory accounts for the financial year ended 31 December 1999 (which contain comparative figures for the financial year ended 31 December 1998); their report was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act Foreign exchange translation Profits and losses of overseas companies, joint ventures and joint arrangements have been translated into sterling at the rates of exchange ruling at the year end. 4. Posting of statutory accounts to shareholders The Company s report and accounts will be posted to shareholders by 7 April From that date copies will be available from the Registered Office, Carillion plc, Birch Street, Wolverhampton, WV1 4HY.